01—Abstract
Summary
Summary of the 8-K filed April 30, 2026. Cited figures are marked; the original filing is the authoritative source.
Western Digital (WDC) reported fiscal third quarter 2026 results for the period ended April 3, 2026, showing a sharp acceleration in the business.
Revenue reached $3.34 billiona, up 45% year-over-year and 11% sequentially, with GAAP gross margin of 50.2% and non-GAAP gross margin of 50.5%, both well above the prior-year levels of roughly 40%. Non-GAAP operating margin expanded to 38.6% from 26.0% a year earlier. Management attributes the demand to AI workloads, with HDDs serving as the cost-efficient persistent storage layer for training, inference, and agentic and physical AI data.
GAAP results were inflated by non-operating items. GAAP diluted EPS of $8.20b includes a $2.73 billion gain on the company's retained interest in Sandisk, partly offset by $545 million of costs tied to a debt-for-equity exchange. Non-GAAP diluted EPS was $2.72, up 97% year-over-year.
Investors should weigh the non-GAAP figures for operating trends, while recognizing that the retained Sandisk stake remains a source of mark-to-market volatility. Balance sheet actions were significant: long-term debt was reduced to zero from $2.49 billionc at fiscal year-end June 2025, shareholders' equity rose to $9.68 billion, and the company repurchased $1.92 billion of stock during the nine months. For the fiscal fourth quarter of 2026, management guided revenue of $3.65 billion at the midpoint (up 36% to 44% year-over-year), non-GAAP gross margin of 51% to 52%, and non-GAAP EPS of $3.25 (plus or minus $0.15).
The board also raised the quarterly dividend 20% to $0.15d per share, payable June 17, 2026. Free cash flow for the quarter was $978 million, up from $436 million a year earlier. Investors should note that the guidance and the dividend increase both assume continued strong AI-driven HDD demand.
02—Key points
Key Highlights
- Revenue of $3.34B in Q3 FY26, up 45% year-over-year and 11% sequentially, with growth across all end markets
- Non-GAAP gross margin of 50.5% and non-GAAP operating margin of 38.6%, up roughly 1,040 bps and 1,260 bps year-over-year respectively
- GAAP diluted EPS of $8.20 was boosted by a $2.73B gain on the retained Sandisk stake; non-GAAP diluted EPS was $2.72, up 97% year-over-year
- Free cash flow of $978M in the quarter (vs. $436M a year ago) and $2.23B year-to-date; operating cash flow of $1.12B
- Long-term debt fully eliminated from $2.49B at June 2025 year-end, with current portion of $1.58B; $1.92B of stock repurchased year-to-date
- Q4 FY26 guidance: revenue of $3.65B (±$100M, up 36–44% YoY), non-GAAP gross margin of 51–52%, and non-GAAP EPS of $3.25 (±$0.15)
- Quarterly dividend increased 20% to $0.15 per share, payable June 17, 2026 to holders of record as of June 5, 2026
03—Questions
Frequently Asked Questions
Why is GAAP EPS ($8.20) so much higher than non-GAAP EPS ($2.72)?
The gap is driven mainly by a $2.73 billion mark-to-market gain on WDC's retained interest in Sandisk, which flows through interest and other income. This is partially offset by $545 million in costs tied to a debt-for-equity exchange, which included a discount on Sandisk shares. Management excludes both items from non-GAAP results because it views them as not reflective of core operating performance. Because the Sandisk stake is marked to market, future GAAP results may continue to swing materially with Sandisk's share price.
What is driving the strong revenue and margin growth?
Management attributes the growth to AI-driven demand for HDD storage. The company says AI workloads across training, inference, agentic AI, and physical AI generate persistent data that is stored cost-efficiently on hard drives. WDC also cites strong customer engagements with hyperscalers and cloud providers. Gross margin improved to above 50%, reflecting pricing and product mix benefits, though the release does not quantify the individual drivers.
How strong is the balance sheet after this quarter?
The balance sheet improved considerably. Long-term debt went from $2.49 billion at June 2025 to zero, although $1.58 billion remains classified as current. Total shareholders' equity rose to $9.68 billion from $5.31 billion, and total assets increased to $15.05 billion. Cash and equivalents were $2.05 billion, and the company also holds a retained Sandisk interest of $1.19 billion on its balance sheet. Investors should note the current debt maturity and the sizable Sandisk stake when evaluating liquidity.
Is the dividend increase sustainable, and what does Q4 guidance imply?
The 20% dividend increase to $0.15 per quarter is supported by free cash flow of $2.23 billion year-to-date, which covers the roughly $130 million of dividends paid so far this fiscal year with ample room. Q4 guidance calls for revenue of $3.65 billion at the midpoint, a non-GAAP gross margin of 51–52%, and non-GAAP EPS of $3.25. Sustainability depends on maintaining the AI-driven demand trend and on the cyclical nature of HDD pricing, which the company does not address in detail in this release.
04—Continue