Western Digital’s disk-driven quarter spins revenues higher

A 41 percent year-on-year disk-based revenue rise for Western Digital’s second fiscal 2025 quarter kept it ahead of Seagate in the disk drive market and sets the scene for its forthcoming split into separate disk drive and NAND/SSD businesses.

Revenues in the quarter ended December 29, 2024 were $4.29 billion, WD’s sixth consecutive growth quarter, with GAAP profits of $594 million, a turnaround from the year-ago $287 million loss. 

CEO David Goeckeler said in the earnings call: “While our HDD business is experiencing robust growth, particularly in high-capacity enterprise drives, our Flash segment faces temporary headwinds due to pricing pressure.”

Financial summary

  • Gross margin: 35.9 percent vs year-ago 15.5 percent
  • Operating cash flow: $403 million vs last quarter’s $34 million
  • Free cash flow: $335 million vs last quarter’s -$14 million
  • Cash & cash equivalents: $2.29 billion vs $1.7 billion in prior quarter
  • EPS: $1.63 vs prior quarter’s $1.78

WD continued its climb out of an fy2023-2024 revenue trough with a fourth successive Y/Y growth quarter:

Because of the forthcoming split between the HDD and NAND/SSD divisions of the company, we won’t easily know if the combination of the two parts climbs back up to the $5 billion/quarter revenue level and beyond in the future.

Disk revenues are increasing faster than SSD revenues, and have reached a 12-quarter high point:

On the disk front WD said it achieved record exabyte shipment of nearline drives and record revenues in the data center market. Goeckeler commented: We are operating in an environment where demand for our product exceeds supply.” The SSD market was hindered by Increased pricing pressure due to short-term oversupply, coupled with customers working down inventory. Goeckeler said the Flash market is “currently in a mid-cycle pause.”

WD’s disk revenues were larger than Seagate’s as a chart shows: 

Although Seagate has a capacity lead with HAMR drives, their slow development to acceptable yield and reliability levels and lengthy qualification by hyperscaler customers has held Seagate revenues down. Seagate’s HAMR push has cost it disk drive market leadership, but not by much of a margin.

The disk drive market segment unit ship data shows cloud taking an increasingly dominant share, and both client and consumer trending down:

WD sells its disks and SSDs into three main markets: cloud (hyperscalers and enterprise), client (PCs and notebooks), and consumer (retail). Their fortunes differed, with cloud rising and the other two somewhat depressed:

Cloud revenues rose because hyperscalers and enterprises bought more nearline high capacity disk drives. Flash revenues for the cloud grew Y/Y but declined sequentially. HDD revenues in the client market were flat  while flash revenues rose Y/Y because of price rises and not because more SSDs or SSD capacity was purchased.

The consumer market showed a Q/Q rise as more disks and SSDs were bought in the Christmas season but the Y/Y picture is different; revenue was down 8 percent due to lower shipments in Flash and HDD and pricing in Flash.

Next quarter’s revenue outlook is $3.85 billion +/- $100 million; a low 11.4 percent increase Y/Y at the mid-point. It is academic as the company will split into Western Digital and SanDisk by the end of March. Why is this outlook depressed compared to the second quarter’s 41 percent growth rate?

CFO Wissam Jabre, in his last quarterly results appearance before moving to NetApp as its CFO, said: “For Flash, we expect revenue to decline sequentially in the mid-teens percentage … For HDD, we expect revenue to decrease sequentially by mid- to high single-digit percentage on lower volume.” 

Irving Tan.

EVP Global Ops Irving Tan, who will be CEO of the HDD-only Western Digital business going forward, said: “I think we’ve seen over five quarters, a very strong positive growth in revenue and the outlook for the business remains healthy. There will be quarter-on-quarter variations as we support customers with the timing of the deployments and also balancing the supply demand tightness that we have. So, that’s really what’s driving the slight decline in Q3.”

Goeckeler, who will be running the SanDisk business going forward, commented: “It’s just order flow.”

Tan added this later in the the earnings call: “We see the outlook for nearline continuing to be healthy. … we expect the qualification for our new 32 terabyte SMR and 24 terabyte CMR to be completed sometime in Q1 of the calendar year [2025].”

On the NAND side of this forecast Goeckeler said: “It’s not unprecedented to see this many quarters of up in a row without some down. So, the thing here now is just to stabilize the market, and we’ll do that through the supply side, and then we’ll get back to what we think is a strong market as we move through ’25 and into ’26.”

Does Pure’s hyperscaler HDD replacement win for its all-flash technology presage hyperscalers buying fewer hard drives? Goeckler said: “This is use case driven. There’s always going to be use cases that use Flash. There’s always going to be use cases that use hard drives. That mix has been relatively stable. Maybe it changes a little bit simply because Flash is growing faster.”

“And you tend to see newer use cases come for Flash. I think AI model training is a good one. That’s a very Flash-driven type use case. However, once you start generating all that data, it’s going to go back on to hard drives.” He reckons: “Hard drives are going to grow … But Flash is going to grow a little faster.” And: “As they say, two things can be true. They’re both true. And we feel very strong about both of them.”

If SSDs do actually cannibalize HDDs in the hyperscaler market, then it will be Goeckeler who is smiling.