Western Digital’s disk drive revenues leapt 85 percent higher year-on-year in its latest quarter as hyperscalers stored more data on its drives, which contrasts with Seagate’s 49 percent rise.
WD’s revenues from its combined HDD and flash business units (BUs) in its first FY2025 quarter, ended Sep 27, were $4.1 billion, 49 percent up year-on-year, with a GAAP profit of $493 million, vividly contrasting with the year-ago $685 million loss. Like Seagate, WD is climbing out of a cyclical slump in the disk drive market and, unlike Seagate, also climbing out of a similar NAND/SSD market slump. WD’s disk BU pulled in $2.2 billion in the quarter, up the aforesaid 85 percent and pipping Seagate’s $2.17 billion. The flash and SSD BU pulled in $1.9 billion, a rise of 21.1 percent annually, driven by enterprise SSD sales.
CEO David Goekeler said in the earnings call: “Western Digital has achieved record HDD gross margin in the highest revenue levels in 11 quarters, driven by the growing adoption of our UltraSMR drives to meet the demand for scalable and cost-effective storage solutions.” It also achieved record datacenter HDD sales, driven by nearline, mass-capacity drive demand.
Overall, Goeckeler said: “Growth opportunities are bolstered by the AI data cycle substantially increasing the long-term need for storage across both our Flash and HDD markets. In Flash, the proactive measures we took during the downturn along with our disciplined capital investment strategy have significantly enhanced Western Digital’s business agility and structural margin potential.”
WD said it made significant progress with several hyperscaler and storage OEM qualifications, including developments with its PCIe 5 datacenter eSSD and 30 and 60 TB flash drives.
Financial Summary
- Gross margin: 37.9 percent vs year-ago 3.6 percent
- Operating cash flow: $34 million
- Free cash flow: -$14 million
- Cash & cash equivalents: $1.7 billion vs $1.9 billion in prior quarter
- EPS: $1.78 vs prior quarter’s $0.88
A revenue and profit history chart shows a smooth and steady climb out of the cyclical trough it has been exiting for the past five quarters with an equally smooth transition from making losses to growing profits.
WD’s disk drive business is growing faster than its SSD business:
It’s also bigger than Seagate’s HDD business, but not by much:
WD’s disk revenues overtook Seagate’s two quarters ago, after a long period of Seagate ruling the spinning rust roost. But the gap between the two is narrowing. Seagate has gone all-in on HAMR technology for 30+TB drives, with 10-platter units, and has faced long hyperscaler customer qualification periods. It sees a route to 4+TB/platter drives with a possible 40+TB drive launch in the third or fourth calendar 2025 quarter, and that would face shorter qualifcation times.
However, WD is sticking with its ePMR or enhanced conventional perpendicular magnetic recording technology and, by upping the platter count to 11, has gained an instant 10 percent jump in capacity irrespective of areal density gains. Asked about HAMR and capacities, Goeckeler said: “We clearly see the ability to drive our current platform to 40 terabytes to make that bridge from 30 to 40. We’re driving through that now. And that’s where we expect HAMR to be introduced to carry the portfolio from there. So, we’ve still got a generation or so here to go.”
We don’t know how Seagate views a 10- to 11-platter transition technology. But we do understand that it wants to build product on a core 10-platter HAMR architecture base, meaning that it could build in fewer platters and heads for low capacity products, and rely on areal density increases alone to take its 10-platter core product through to 40+TB, 50+TB and beyond. A 10-platter to 11-platter jump would mean fresh qualifications, entailing more delays to shipping.
Another implication of WD’s 11-platter move is that it will transition to HAMR with 11 platters and so have a potential capacity advantage over Seagate.
Goeckeler also revealed a surprising aspect of HDD manufacturing: “It takes a year to build a hard drive once we start a wafer. No matter what our wafer capacity is for heads, once we start a wafer, it’s going to be a year before that shows up in a hard drive.” This long lead time, from HDD product start to drive delivery, underscores why it’s asking its largest customers to provide two to six quarter demand forecasts so it can plan to make the right number of drives; not too many as to cause prices to fall, and not too few leaving its factories under-utilized.
WD sells into three disk markets: cloud (hyperscaler and enterprise datacenters); client (PC builders); and consumer (retail sales). The three market segments fared differently in the latest quarter, as shown by unit ship counts for each segment:
Cloud disk units are soaring while client and consumer are still falling or flat. WD suggested a PC refresh cycle, aided by the potential AI PC becoming popular, could send client sales up.
Its overall HDD+SSD cloud, client and consumer revenues pretty much matched the HDD segment unit chart above:
Hyperscaler and enterprise datacenter sales are driving its business for now.
WD discussed its coming separation into independent spun-off HDD and NAND fabbing/SSD businesses. It explained it was in a softspin phase with separate internal sales and finance systems for the HDD and SSD operations. Customers are now ordering either WD (disk) or SanDisk (SSD) products and it’s going to run this way for a quarter, ironing out any problems, before finalizing regulatory issues, setting up separate financial arrangements for the two separate businesses, and then pulling the separation trigger possibly in the first calendar 2025 quarter.
Wedbush analyst Matt Bryson told subscribers that the split is “likely in our view to create value, particularly given the continued outperformance of WDC’s disk drive business with that segment in our view alone likely to command a valuation close to (or even commensurate) with WDC’s current market cap.”
The revenue outlook for the next quarter is $4.3 billion +/- $100 million, which would be a 41.8 percent increase on a year ago, and a slightly slower growth rate. Let the good times roll.
