Executive Summary
Western Digital reported QQ1 2026 results with solid profitability and strong cash generation, underscored by an EBITDA of $792 million and net income of $1.182 billion on revenue of $2.818 billion. The quarter benefited from a sizable non-operating income line (total other income/expenses net of $545 million), which boosted pretax earnings and net income, producing an unusually high net margin of roughly 41.9%. Gross margin stood at 43.5%, supported by a favorable product mix and pricing dynamics within hard drives, SSDs, and data-center solutions. Operating margins remained healthy at 28.1%, reflecting disciplined cost management, but the sustainability of the net income level hinges on the durability of the one-off benefit and ongoing operating performance.
On the balance sheet and cash flow fronts, WD generated $672 million in cash from operating activities and roughly $599 million in free cash flow, with capital expenditures of about $73 million. The company ended the period with $2.05 billion in cash and equivalents and total debt outstanding of $4.68 billion, resulting in a net debt position of approximately $2.64 billion. While liquidity indicators are reasonable, leverage remains a key consideration given the sizable goodwill/intangible asset base and elevated short-term debt, implying ongoing focus on deleveraging and working capital optimization. Looking ahead, the earnings narrative will likely center on sustaining revenue in a cyclical storage market, managing the balance sheet, and converting operating profitability into recurring cash flow to fund strategic initiatives and potential capital allocation opportunities.
Key Performance Indicators
QoQ: 15.00% | YoY:-19.06%
QoQ: 359.92% | YoY:98.99%
Key Insights
Revenue: $2.818B (Q1 2026) with YoY change of -34.24% and QoQ change of +8.18%.
Gross Profit: $1.227B; Gross Margin: 43.54% (YoY margin impact not provided in prompt but quarter margin is 43.54%).
Operating Income: $0.792B; Operating Margin: 28.10%.
Net Income: $1.182B; Net Margin: 41.94%.
EPS: $3.34 (GAAP); Diluted EPS: $3.07.
EBITDA: $0.792B; EBITDA Margin: 28.11%.
Total Other Income/Expenses Net: $0.545B (positive contribution in the quarter).
Income Before Tax: $1.337B; Pretax Margin: 47.44%...
Financial Highlights
Revenue: $2.818B (Q1 2026) with YoY change of -34.24% and QoQ change of +8.18%.
Gross Profit: $1.227B; Gross Margin: 43.54% (YoY margin impact not provided in prompt but quarter margin is 43.54%).
Operating Income: $0.792B; Operating Margin: 28.10%.
Net Income: $1.182B; Net Margin: 41.94%.
EPS: $3.34 (GAAP); Diluted EPS: $3.07.
EBITDA: $0.792B; EBITDA Margin: 28.11%.
Total Other Income/Expenses Net: $0.545B (positive contribution in the quarter).
Income Before Tax: $1.337B; Pretax Margin: 47.44%.
Income Tax Expense: $0.155B.
NetCashProvidedByOperatingActivities: $0.672B; CapEx: $0.073B; Free Cash Flow: $0.599B.
Cash and Cash Equivalents: $2.048B; Total Debt: $4.683B; Net Debt: $2.635B.
Total Current Assets: $6.275B; Total Assets: $14.359B; Total Liabilities: $8.242B; Total Stockholders’ Equity: $5.889B.
Current Ratio: ~1.21; Quick Ratio (approx.): ~0.66; Net Debt/EBITDA: ~3.33x.
Income Statement
| Metric |
Value |
YoY Change |
QoQ Change |
| Revenue |
2.82B |
-34.24% |
8.18% |
| Gross Profit |
1.23B |
-19.06% |
15.00% |
| Operating Income |
792.00M |
-7.04% |
16.47% |
| Net Income |
1.18B |
98.99% |
359.92% |
| EPS |
3.34 |
98.81% |
N/A |
Management Commentary
Note: No earnings-call transcript data was provided in the prompt. As a result, the synthesis below references the quantitative results and typical strategic themes rather than verbatim management quotes.
Theme: Profitability and Non-Recurring Items — Management would likely highlight the strong quarterly profitability and the notable impact of total other income/expenses net. Expect emphasis on how much of the net income was driven by non-operating items versus core operating performance.
Theme: Balance Sheet and Capital Allocation — With meaningful net debt and a sizable goodwill base, discussions typically center on deleveraging, flexibility to fund R&D, and potential returns to shareholders through buybacks or dividends depending on cash flow and debt trajectory.
Theme: Market Dynamics and Product Mix — The commentary usually reflects ongoing demand in enterprise storage, data-center components, and client storage, alongside competition and evolving HDD/SSD mix. Investors should watch for any guidance on data-center spend, cloud storage demand, and supply chain conditions.
Forward Guidance
No formal forward guidance was included in the provided data. Given the underlying metrics, several qualitative scenarios emerge:
- Base case: Data-center and cloud storage demand remains steady, supporting mid-to-high single-digit revenue stability with continued healthy gross and operating margins. Key risk remains cyclicality in the HDD/SSD market and potential compression in enterprise storage pricing.
- Upside scenario: Acceleration in data-center capex and AI-driven storage workloads could lift storage unit demand and pricing, boosting revenue and cash flow while maintaining profitability. Balance-sheet strength would enable accelerated investments and potential shareholder returns.
- downside scenario: A downturn in data-center investments or sharper price competition could pressure revenue, mix, and margins, challenging the sustainability of the elevated net income figure without the one-off item.
Investors should monitor: (1) any guidance on 2026 revenue/EBITDA targets or capital allocation plans, (2) trend in enterprise vs. client storage mix, (3) working capital dynamics, and (4) ongoing debt repayment and potential refinancing activity.