Why do GAAP and non-GAAP EPS differ so much this quarter?

GAAP diluted EPS of $2.11 includes a $201M benefit from a litigation matter reversal following a settlement, which is excluded from non-GAAP results. GAAP results also include a $606M unrealized loss on the retained Sandisk interest, which is added back in non-GAAP. Non-GAAP EPS of $1.36 is a better gauge of recurring operating performance, though investors should note that the GAAP tax benefit of $698M also flatters GAAP results.

What is driving the year-over-year revenue growth?

Cloud revenue grew 38% YoY to $2.0B, driven by a 32% increase in nearline bit shipments and strong product demand from hyperscale and enterprise customers. Client and Consumer revenue were flat-to-down, reflecting lower unit shipments and pricing pressure in consumer products. The business mix is now heavily weighted toward data center demand.

What does the new dividend mean for shareholders?

WDC's board authorized a quarterly cash dividend program beginning with the June 2025 quarter, with the first payment of $0.10 per share. At roughly 360 million diluted shares, this implies about $36 million per quarter. The company has stated that dividends may be suspended or discontinued at any time, so the program should not be viewed as guaranteed.

What are the main risks flagged in the outlook?

Key risks include new or additional tariffs and trade restrictions, volatility in demand, inflation, interest rate increases, supply chain disruptions, competitive pricing pressure, and the company's level of debt. The company also noted that actual 10-Q results may differ from these preliminary figures after the completion of closing procedures and review by its auditors.

How is the balance sheet positioned after the Sandisk separation?

Cash rose to $3.48B from $1.55B at the start of the fiscal year, supported by $1.37B transferred to Sandisk at separation being offset by new borrowings. Total debt stands at about $7.3B, of which $2.4B is current, so refinancing and deleveraging will be important watch items. The retained 19.9% stake in Sandisk, valued at $1.41B on the balance sheet, is a non-core asset that could provide future liquidity.

WDC 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed April 30, 2025. Cited figures are marked; the original filing is the authoritative source.

Western Digital (WDC) reported fiscal third quarter 2025 results (quarter ended March 28, 2025) with revenue of $2.29 billion^a, up 31% year-over-year but down 5% sequentially.

The quarter was driven by Cloud, which represented 87% of revenue at $2.0 billion^b (up 38% YoY), while Client and Consumer revenue were smaller and declined. GAAP gross margin expanded to 39.8% (non-GAAP 40.1%), and GAAP EPS was $2.11 versus non-GAAP EPS of $1.36. GAAP results were inflated by a $201 million litigation-related reversal following a patent settlement and were partly offset by a $606 million unrealized mark-to-market loss on the company's retained 19.9% stake in Sandisk, which separated from WDC on February 21, 2025.

The company guided fiscal fourth quarter 2025 revenue to $2.45 billion^c (±$150 million) and non-GAAP EPS to $1.45 (±$0.20), implying modest sequential growth relative to the Q3 non-GAAP EPS of $1.36. Non-GAAP gross margin is guided to 40.0%-41.0%. The Board also authorized a new quarterly cash dividend program, with a first dividend of $0.10 per share payable June 18, 2025 to holders of record as of June 4, 2025.

Cash rose to $3.48 billion^d at quarter end, and operating cash flow was $508 million, though the balance sheet carries $7.3 billion of total debt, including $2.4 billion classified as current. For investors, the key themes are the transformation to a pure-play HDD company following the Sandisk separation, the strength of the nearline cloud business, and the initiation of shareholder returns.

The quarter's GAAP earnings were heavily affected by non-operating and one-time items, so non-GAAP metrics and the free cash flow of $436 million provide a clearer view of underlying operating performance. Risks highlighted include tariff and trade uncertainty, demand volatility, leverage, and the possibility that the dividend could be suspended or discontinued.

02—Key points

Key Highlights

Q3 FY2025 revenue of $2.29B, up 31% YoY and down 5% QoQ; Cloud comprised 87% of revenue at $2.0B, up 38% YoY.
GAAP gross margin of 39.8% (up 10.2 ppt YoY) and non-GAAP gross margin of 40.1%, reflecting improved pricing in Cloud (up 5% QoQ per unit).
GAAP EPS of $2.11 vs. non-GAAP EPS of $1.36; GAAP results were boosted by a $201M litigation reversal and partly offset by a $606M unrealized loss on the retained Sandisk stake.
Q4 FY2025 guidance: revenue of $2.45B ±$150M and non-GAAP EPS of $1.45 ±$0.20, with non-GAAP gross margin of 40.0%-41.0%.
Board authorized a quarterly cash dividend program, with the first $0.10/share dividend payable June 18, 2025 (record date June 4, 2025).
Free cash flow of $436M in the quarter and $3.48B in cash and equivalents at quarter end, though total debt remains elevated at roughly $7.3B.
Separation of the Flash business into Sandisk completed February 21, 2025; WDC now retains a 19.9% stake in Sandisk, and Sandisk results are reported as discontinued operations.

03—Questions

Frequently Asked Questions

Why do GAAP and non-GAAP EPS differ so much this quarter?
GAAP diluted EPS of $2.11 includes a $201M benefit from a litigation matter reversal following a settlement, which is excluded from non-GAAP results. GAAP results also include a $606M unrealized loss on the retained Sandisk interest, which is added back in non-GAAP. Non-GAAP EPS of $1.36 is a better gauge of recurring operating performance, though investors should note that the GAAP tax benefit of $698M also flatters GAAP results.
What is driving the year-over-year revenue growth?
Cloud revenue grew 38% YoY to $2.0B, driven by a 32% increase in nearline bit shipments and strong product demand from hyperscale and enterprise customers. Client and Consumer revenue were flat-to-down, reflecting lower unit shipments and pricing pressure in consumer products. The business mix is now heavily weighted toward data center demand.
What does the new dividend mean for shareholders?
WDC's board authorized a quarterly cash dividend program beginning with the June 2025 quarter, with the first payment of $0.10 per share. At roughly 360 million diluted shares, this implies about $36 million per quarter. The company has stated that dividends may be suspended or discontinued at any time, so the program should not be viewed as guaranteed.
What are the main risks flagged in the outlook?
Key risks include new or additional tariffs and trade restrictions, volatility in demand, inflation, interest rate increases, supply chain disruptions, competitive pricing pressure, and the company's level of debt. The company also noted that actual 10-Q results may differ from these preliminary figures after the completion of closing procedures and review by its auditors.
How is the balance sheet positioned after the Sandisk separation?
Cash rose to $3.48B from $1.55B at the start of the fiscal year, supported by $1.37B transferred to Sandisk at separation being offset by new borrowings. Total debt stands at about $7.3B, of which $2.4B is current, so refinancing and deleveraging will be important watch items. The retained 19.9% stake in Sandisk, valued at $1.41B on the balance sheet, is a non-core asset that could provide future liquidity.

04—Continue

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