Key Highlights
- Q3 revenue reached $3.34 billion, representing a 45% year-over-year increase and exceeding the $3.23 billion consensus estimate.
- Earnings per share of $2.72 marked a 97% year-over-year surge, comfortably beating the $2.36 forecast.
- The company achieved a gross margin of 50.5%, reflecting a 1,040 basis point year-over-year expansion.
- Cloud segment generated $3.0 billion in revenue, accounting for 89% of total sales and growing 48% year over year.
- TD Cowen boosted its price target from $325 to $500 while maintaining a Buy recommendation.
Shares of Western Digital (WDC) advanced 5.27% to close at $434.52 following the company’s stellar fiscal third quarter 2026 earnings report, which showcased revenue and profit figures that significantly exceeded Wall Street projections.
Western Digital Corporation, WDC
The data storage giant delivered quarterly revenue of $3.34 billion, marking a 45% year-over-year climb and surpassing the analyst consensus of $3.23 billion. Earnings per share reached $2.72, representing a 97% year-over-year increase and substantially outperforming the expected $2.36.
The company’s gross margin expanded to 50.5% during the quarter, demonstrating a remarkable 1,040 basis point year-over-year improvement and a sequential gain of 440 basis points. Operating income totaled $1.3 billion, up 106% year over year, translating to an operating margin of 38.6%.
The cloud business emerged as the primary growth catalyst. Cloud revenue totaled $3.0 billion, representing 89% of overall revenue and expanding 48% year over year. Company executives attributed this performance to increased demand for higher-capacity nearline storage solutions.
Total unit shipments reached 222 exabytes, climbing 34% year over year. This figure included 4.1 million EPMR drives spanning 118 exabytes, with storage capacities reaching up to 32 terabytes.
Average selling prices increased 7% sequentially and 9% year over year during the March quarter. Pricing on a per-terabyte basis advanced 9% year over year, bolstered by long-term customer contracts.
The company generated $978 million in free cash flow, achieving a 29% free cash flow margin. During the period, Western Digital bought back 2.9 million shares valued at $752 million and distributed $43 million in dividend payments.
Western Digital announced a 20% increase to its quarterly dividend, raising it to $0.15 per share. The dividend is scheduled for payment on June 17, 2026 to shareholders of record as of June 5.
SanDisk Share Sale Eliminates Net Debt
The divestiture of 5.8 million SanDisk shares enabled a $3.1 billion debt reduction. Western Digital closed the quarter with a net cash position of $450 million, while retaining 1.7 million SanDisk shares.
Since initiating its capital return program in fiscal 2025, the company has distributed $2.2 billion to shareholders through buybacks and dividends.
On the technology front, 44-terabyte HAMR and 40-terabyte EPMR drives are currently undergoing customer qualification processes. HAMR technology is being evaluated by four customers, while 40-terabyte EPMR drives are with three. The company’s product development roadmap extends capacity capabilities beyond 100 terabytes.
UltraSMR technology has gained traction with the three largest customers, with two of them fulfilling nearly all their exabyte requirements through this technology. Western Digital anticipates UltraSMR will comprise approximately 60% of exabyte shipments by fiscal 2027.
Fourth Quarter Outlook and Wall Street Response
For the fourth quarter, Western Digital projected revenue of $3.65 billion, plus or minus $100 million, suggesting approximately 40% year-over-year growth at the midpoint. The company expects gross margin between 51% and 52%, with non-GAAP earnings per share of $3.25, plus or minus $0.15.
The Q4 forecast exceeded Street expectations by 18%, although the stock experienced some pressure in after-hours trading. TD Cowen attributed the modest decline to slightly decelerating gross margin expansion — projected at 60–65% for the June quarter versus 90% achieved in March — particularly when compared to Seagate’s implied 80% rate.
TD Cowen elevated its price target to $500 from $325 while reaffirming its Buy rating on the stock. The investment firm forecasts calendar year 2027 earnings per share of $21, based on anticipated 8% year-over-year average selling price growth.
Insider trading activity during the recent period revealed $28.7 million in stock sales by company insiders, with no insider purchases recorded.
