Western Digital (WDC) UBS’s 2025 Global Technology and AI Conference summary

Market trends and demand outlook

• Exabyte growth is accelerating, with recent rates in the mid-20% range and expectations for this trajectory to continue over the next 12–24 months.

• Cloud and AI adoption, especially enterprise LLMs, are driving strong demand and longer-term contracts, with firm purchase orders from major customers through 2026 and one through 2027.

• 90% of business is now concentrated in the data center segment, focusing on strategic partnerships and TCO value.

• Customers are increasingly transitioning to higher capacity drives and Ultra SMR technology, with 50% of nearline bits shipped last quarter on Ultra SMR.

• Contracts are exabyte-based and technology-agnostic, with a mix of fixed and incremental pricing.

Technology roadmap and innovation

• HAMR qualification is being accelerated, with three customers set for qualification in 2026 and ramping in 2027; initial capacities will be 36TB CMR and 44TB Ultra SMR.

• Next-generation ePMR qualification is pulled forward to Q1 2026, with innovation updates planned for an event in February.

• The company is focused on seamless transitions between drive technologies and scaling exabyte delivery, with current ePMR shipments exceeding 3 million units per quarter.

• Joint development labs replicate customer environments, accelerating drive qualification and reliability, including for HAMR drives.

• Customer feedback from these labs has contributed to confidence in accelerating HAMR qualification.

Pricing, financial performance, and capital allocation

• Pricing environment has shifted from historical ASP erosion to stability or slight increases, supported by long-term agreements.

• Gross margin has expanded from the 20s to the mid-40s, with incremental margins reaching 65–75% recently; further expansion is expected.

• Margin improvement is driven by stable pricing, product mix shift to higher capacities and Ultra SMR, and manufacturing efficiencies.

• Free cash flow margin has exceeded 20%, with strong returns to shareholders via dividends and buybacks; dividend was increased by 25% and a $2B buyback program is underway.

• Net debt is down to $2.7–$2.8B, with plans to further reduce debt by monetizing a $1.5B SanDisk stake.