Western Digital beats fiscal Q1 targets, raises FY27 outlook

Western Digital Corporation reported first-quarter fiscal 2027 revenue of $4.4 billion, gross margin of 58.1%, and earnings per share of $4.64, all exceeding expectations. The company generated $1.4 billion in free cash flow during the period.

Management attributed the results to extended multi-year customer visibility and a supply strategy focused on increasing areal density rather than expanding production capacity. For the second quarter of fiscal 2027, Western Digital projects revenue of $5.1 billion plus or minus $100 million, gross margin between 60% and 61%, and EPS of $5.80 plus or minus 20 cents.

The company anticipates higher qualification-related operating expenses as it invests in heads, media, and automation to support ePMR technology and the planned HAMR ramp in calendar 2027. Western Digital is ramping 40TB ePMR drives ahead of schedule, with HAMR volume shipments expected in the first half of 2027.

Demand for high-capacity hard disk drives remains strong across cloud, enterprise, neocloud, and AI markets, with customer visibility extending to 2030. Average price per terabyte rose 28% year over year, while exabyte shipments increased 22%. Management expects shipment growth to accelerate as new platforms ramp, supported by demand for drives ranging from 32TB to more than 55TB.

Capital expenditures are generally targeted at 4-6% of revenue. The company holds a net cash position of $0.5 billion and recently increased its dividend by 17%. The Zacks Consensus Estimate for fiscal 2027 earnings has risen 2.15% to $20.46 over the past 60 days, while the fiscal 2028 estimate has increased 3.11% to $35.82.

Western Digital shares have gained 173.7% over the past year, slightly underperforming the Zacks Computer-Storage Devices industry's rise of 176%. The stock currently trades at 14.08 times forward earnings, compared with an industry average of 7.91 times. Peer companies Seagate Technology Holdings plc, Sandisk Corporation, and NetApp Inc. show forward multiples of 14.68 times, 5.55 times, and 24.78 times, respectively.

Despite the strong quarterly performance, shares reportedly fell following the release as investors had expected stronger results or guidance. Risks include rising input costs for DRAM and NAND, potential delays in HAMR qualifications, and heavy reliance on cloud customers whose infrastructure spending could slow. The stock currently carries a Zacks Rank #3 (Hold).