01—Abstract
Summary
Summary of the 8-K filed January 29, 2026. Cited figures are marked; the original filing is the authoritative source.
Western Digital reported fiscal second quarter 2026 results (quarter ended January 2, 2026) with revenue of $3.02 billiona, up 25% year over year and 7% sequentially, driven by strong data center demand for high-capacity HDDs tied to AI workloads.
GAAP gross margin expanded to 45.7% (non-GAAP 46.1%), and GAAP operating income rose 62% year over year to $908 millionb. Non-GAAP diluted EPS was $2.13, up 78% year over year, while GAAP diluted EPS of $4.73 was inflated by a $1.1 billion non-cash mark-to-market gain on the company's retained interest in Sandisk. The GAAP-to-non-GAAP gap is therefore dominated by that gain, so investors should focus on the non-GAAP operating metrics for underlying performance.
Cash generation remained robust, with operating cash flow of $745 millionc and free cash flow of $653 million in the quarter. Management returned more than 100% of free cash flow to shareholders through buybacks ($615 million in the quarter) and dividends. The balance sheet shows total debt of roughly $4.66 billion, with $2.2 billion classified as current, and the retained Sandisk stake now carried at $2.07 billion, up from $354 million at fiscal year-end.
Looking ahead, management guided fiscal third quarter 2026 revenue to about $3.2 billiond (up roughly 40% year over year at the midpoint), non-GAAP gross margin of 47% to 48%, and non-GAAP EPS of $2.30 (+/- $0.15). The company also declared a quarterly dividend of $0.125 per share, payable March 18, 2026. Key risks include tariffs and trade restrictions, supplier concentration, demand volatility, and the valuation sensitivity of the Sandisk stake.
02—Key points
Key Highlights
- Revenue of $3.02B, up 25% YoY and 7% QoQ, reflecting strong AI-driven data center demand for high-capacity HDDs
- GAAP gross margin of 45.7% (+800 bps YoY); non-GAAP gross margin of 46.1% (+770 bps YoY)
- Non-GAAP operating income of $1.02B, a 33.8% margin, up 72% YoY
- GAAP diluted EPS of $4.73 includes a $1.10B non-cash gain on the retained Sandisk interest; non-GAAP diluted EPS was $2.13, up 78% YoY
- Free cash flow of $653M in the quarter; more than 100% of FCF returned via $615M in buybacks and dividends
- Q3 FY26 guidance: revenue of ~$3.2B (±$100M), non-GAAP gross margin 47%-48%, non-GAAP EPS $2.30 (±$0.15)
- Quarterly dividend of $0.125 per share declared, payable March 18, 2026 to holders of record as of March 5, 2026
03—Questions
Frequently Asked Questions
Why is GAAP EPS so much higher than non-GAAP EPS this quarter?
GAAP net income includes a $1.10 billion non-cash gain from marking up Western Digital's retained ownership stake in Sandisk, which is excluded from non-GAAP results. Because the gain is not tied to core operations, management and many analysts treat non-GAAP EPS of $2.13 as the better gauge of underlying earnings power.
How strong is the demand outlook for Western Digital's HDD business?
Management attributes growth to continued data center demand and adoption of high-capacity drives. The guidance for Q3 FY26 revenue of about $3.2 billion, roughly 40% above the prior-year period at the midpoint, signals that management expects this momentum to continue in the near term, though guidance is not a guarantee of future results.
What is the company's capital return policy and how sustainable is it?
In the quarter, Western Digital returned over 100% of free cash flow through $615 million of share repurchases and dividend payments. Sustainability depends on continued free cash flow generation, and the company also carries about $4.66 billion of total debt, with $2.2 billion coming due in the current period, which could constrain flexibility if cash flow weakens.
What risks could affect the outlook?
Key risks cited include new or additional tariffs and trade restrictions, dependence on a limited number of qualified suppliers, demand volatility, competitive pricing pressure, supply chain disruptions, and the company's debt levels. The Sandisk stake also introduces earnings volatility through mark-to-market adjustments, which can swing GAAP results significantly from quarter to quarter.
04—Continue