WESTERN DIGITAL CORP
For the period ended Oct 3, 2025. Filed Oct 31, 2025.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Oct 3, 2025 · Filed Oct 31, 2025
WDC$263.78-1.4%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2025-03-28; filed 2025-05-02.
0000106040-25-000026
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2025-10-03; filed 2025-10-31.
0001628280-25-047613
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 110 previous paragraphs and 95 current paragraphs.
48 unchanged; 28 reworded; 18 added; 33 removed; 1 previous and 1 current paragraphs rearranged.
Tables are not compared: 10 previous and 8 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (18)
Current report
We are a leading developer, manufacturer, and provider of data storage devices and solutions based on hard disk drive (“HDD”) technology. We leverage our capability in the HDD industry primarily for the cloud and hyperscale data center markets. HDDs are critical components in the worldwide data infrastructure market, powering the digital economy. HDDs provide reliable, cost-effective, high-capacity storage needs for a wide range of applications, ranging from cloud data centers, enterprise storage systems, edge computing, video surveillance to client and consumer.
Current report
On February 21, 2025 (the “Separation Date”), we completed the separation of our HDD and Flash business units (the “Separation”) to create two independent public companies, with Western Digital continuing our existing HDD business and Sandisk Corporation (“Sandisk”), formerly a wholly-owned subsidiary of the Company, holding the Flash business. We believe the Separation has better positioned us as a pure-play HDD company that can execute innovative technology and product development, capitalize on unique growth opportunities, extend our leadership position, operate more efficiently, and pursue capital allocation strategies to maximize long-term shareholder value. As part of the Separation, we initially retained 28.8 million shares of Sandisk common stock, of which 21.3 million shares were used in the three months ended June 27, 2025 in a tax-free exchange to reduce approximately $800 million principal amount of our term loan A-3. We expect to monetize our remaining stake in Sandisk within one year from the Separation Date.
Current report
Macroeconomic Conditions and Outlook
Current report
The increasing long-term demand for data storage in the cloud is benefiting our HDD business. The adoption of artificial intelligence (“AI”) and data-driven workloads is driving growth in data storage as well. This creates an accelerated demand for high-capacity drives, resulting in greater manufacturing complexity and longer production lead times. In response, customers are partnering with us earlier to support their future growth requirements and are extending the duration of their commercial arrangements.
Current report
First Quarter Overview
Current report
(1)Net revenue is attributed to geographic regions based on the ship-to location of the customer.
Current report
Net revenue increased by 27% for the three months ended October 3, 2025 from the comparable period in the prior year, primarily driven by a 3% increase in units sold and a 19% increase in average selling price per unit, primarily as a result of a shift in product mix to higher capacity drives. In addition, approximately 4 percentage points of growth was due to an increase in data storage systems revenues.
Current report
Client revenue increased by 5% for the three months ended October 3, 2025 from the comparable period in the prior year, primarily driven by an 11% increase in average selling price per unit, partially offset by a 6% decrease in units sold. The increase in average selling price per unit and decrease in units were both due to a shift in product mix to higher capacity drives.
Current report
Consumer revenue for the three months ended October 3, 2025 was relatively flat compared to the comparable period in the prior year with both volume and pricing being relatively consistent.
Current report
Net revenue by geography for the three months ended October 3, 2025 compared to the prior year period reflects higher revenue in the Asia and Europe, Middle East and Africa regions as customers expand data center capacity in these regions.
Current report
For information regarding Business realignment charges, see Part I, Item 1, Note 10, Business Realignment Charges, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
Current report
Interest and Other Income (Expense)
Current report
Previously, the Tax Cuts and Jobs Act of 2017 (“TCJA”) eliminated the ability to deduct R&D expenditures in the year incurred, requiring capitalization and amortization under Internal Revenue Code Section 174. On July 4, 2025, the One Big Beautiful Bill Act of 2025 (“OBBBA”) was signed into law, which includes broad tax reform provisions that extend and modify key elements of the TCJA. Notably, the new legislation now allows an option for the immediate expensing of domestic R&D expenditures, beginning with 2026. The legislation also includes favorable modifications to international tax provisions, including changes to the Global Intangible Low-Taxed Income regime and enhancements to the Foreign-Derived Deduction Eligible Income (FDDEI) deduction that will become effective for us in 2027.
Current report
Net cash used in financing activities for the three months ended October 3, 2025 primarily consisted of $553 million for share repurchases, $39 million for dividends on our common stock and Preferred Shares, $55 million for taxes paid on vested stock awards under employee stock plans and $31 million for scheduled repayments on our term loan. Net cash used in financing activities for the three months ended September 27, 2024 primarily consisted of $64 million for taxes paid on vested stock awards under employee stock plans and $38 million for scheduled repayments on our term loan. During the three months ended September 27, 2024, we also drew and repaid $150 million under our 2027 Revolving Credit Facility.
Current report
Liability for Unrecognized Tax Benefits
Current report
We may modify, suspend, or cancel our cash dividend program in any manner and at any time. The amount of future dividends under our cash dividend program, and the declaration and payment thereof, will be based upon all relevant factors, including our financial position, results of operations, cash flows, capital requirements and restrictions under our Loan Agreement and other financing agreements, and shall be in compliance with applicable law.
Current report
Global Minimum Tax
Current report
As of October 3, 2025, we have accrued GMT taxes of $21 million that are not expected to be paid until the second quarter of 2028.
Removed paragraphs (33)
Previous report
We are a leading developer, manufacturer, and provider of data storage devices and solutions based on hard disk drive (“HDD”) technology. With a differentiated innovation engine driving advancements in storage and semiconductor technologies, our broad and ever-expanding portfolio delivers powerful HDD solutions for everyone from students, gamers, and home offices to the largest enterprises and public clouds to capture, preserve, access, and transform an ever-increasing diversity of data.
Previous report
On February 21, 2025, we completed the separation of our HDD and Flash business units (the “Separation”) to create two independent, public companies, with Sandisk Corporation (“Sandisk”), formerly a wholly-owned subsidiary of the Company, holding the Flash business, and Western Digital focusing on our existing HDD business. We believe the Separation better positions each business unit to execute innovative technology and product development, capitalize on unique growth opportunities, extend respective leadership positions, and operate more efficiently with distinct capital structures. The Separation was effected through a pro rata distribution of 80.1% of the outstanding shares of Sandisk common stock to holders of the Company’s common stock as of February 12, 2025, the record date for the distribution. The Company did not issue fractional shares of Sandisk common stock in connection with the distribution. Sandisk is now an independent public company, and Sandisk common stock commenced trading “regular way” under the symbol “SNDK” on the Nasdaq Stock Market LLC (“Nasdaq”) on February 24, 2025, which was the next trading day following the distribution date. The Company continues to trade on Nasdaq under the symbol “WDC” following the Separation. Following the Separation, the Company beneficially owns 19.9% of the outstanding shares of Sandisk common stock and no longer consolidates Sandisk within the Company’s financial results. The Company expects to monetize its stake in Sandisk within one year from the Separation date.
Previous report
Macroeconomic Conditions
Previous report
Operational Update
Previous report
Macroeconomic factors such as inflation, changes in interest rates, and recession concerns softened demand for our products during 2024. As a result, we and our industry experienced a supply-demand imbalance, which resulted in reduced shipments, negatively impacted pricing, and resulted in incremental charges for employee termination, asset impairment, and charges for unabsorbed manufacturing overhead costs due to the underutilization of facilities as we temporarily scaled back production and took other actions to align our operations to the market at the time. However, we have seen an improvement in the supply and demand dynamic in HDD, leading to improved revenues in fiscal 2025 from the comparable period in the prior year. We anticipate that digital transformation, including the artificial intelligence data-cycle, will drive improved market conditions in the long term.
Previous report
We will continue to actively monitor developments impacting our business and may take additional responsive actions that we determine to be in the best interest of our business and stakeholders.
Previous report
Tax Resolution
Previous report
As previously disclosed, we had reached a final agreement with the IRS and received notices of deficiency with respect to years 2008 through 2012 and in February 2024, also reached a final agreement for resolving the notices of proposed adjustments with respect to years 2013 through 2015. During the nine months ended March 28, 2025, we made payments aggregating to $162 million for tax and interest with respect to years 2008 through 2015 and have no remaining liability as of March 28, 2025 related to all years from 2008 through 2015. Additional information regarding these settlements and related tax matters is provided in Part I, Item 1, Note 12, Income Taxes, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
Previous report
Third Quarter and Nine Month Overview
Previous report
Cloud revenue increased by 38% for the three months ended March 28, 2025 from the comparable period in the prior year, reflecting a 14% increase in units sold and an 18% increase in average selling price per unit. The increase in units sold was driven by higher shipments of our high-capacity enterprise products stemming from data center expansions. The increase in average selling price per unit was primarily due to variations in product mix during the period. Cloud revenue increased by 80% for the nine months ended March 28, 2025 from the comparable period in the prior year, reflecting a 44% increase in units sold and a 24% increase in average selling price per unit. The increase in units sold and increase in average selling price per unit are attributed to the same factors described for the three-month period.
Previous report
Client revenue declined by 2% for the three months ended March 28, 2025 from the comparable period in the prior year, reflecting a 23% decrease in units sold, partially offset by a 27% increase in average selling price per unit. Client revenue decreased by 5% for the nine months ended March 28, 2025 from the comparable period in the prior year, reflecting an 18% decrease in units sold, partially offset by a 15% increase in average selling price per unit.
Previous report
Consumer revenue declined by 4% for the three months ended March 28, 2025 from the comparable period in the prior year, which was driven by a drop in pricing, while volume remained relatively flat. Consumer revenue declined by 9% for the nine months ended March 28, 2025 from the comparable period in the prior year, reflecting a 13% decline in units due to softer demand in the market, partially offset by improved pricing due to product mix.
Previous report
Net revenue by geography for the three months ended March 28, 2025 was relatively consistent with the prior year. The changes in net revenue by geography for the nine months ended March 28, 2025 from the comparable period in the prior year reflected higher revenue in the Americas region in the current year from higher sales to Cloud customers, as noted above.
Previous report
Consistent with standard industry practice, we have sales incentive and marketing programs that provide customers with price protection and other incentives or reimbursements that are recorded as a reduction to gross revenue. These programs represented 11% and 10% of gross revenue for the three and nine months ended March 28, 2025 and 10% and 12% for the three and nine months ended March 29, 2024, respectively. The amounts attributed to our sales incentive and marketing programs generally vary according to several factors, including industry conditions, list pricing strategies, seasonal demand, competitor actions, channel mix, and overall availability of products. The decrease in program amounts in the current period reflects the improved demand and pricing environment. Changes in future customer demand and market conditions may require us to adjust our incentive programs as a percentage of gross revenue.
Previous report
Gross profit increased by $1.55 billion for the nine months ended March 28, 2025 from the comparable period in the prior year, primarily due to higher product shipments, improved pricing, and favorable product mix. In addition, the prior year period included charges for unabsorbed manufacturing overhead costs as a result of the reduced utilization of our manufacturing capacity of $148 million, which were not incurred in the current period. Gross margin increased by approximately 13 percentage points year over year, mainly due to improved pricing and favorable product mix with approximately 3 percentage points of the increase due to the unabsorbed manufacturing overhead costs incurred in the prior year period but not incurred in the current period.
Previous report
For information regarding Employee termination, asset impairment and other, see Part I, Item 1, Note 14, Employee Termination, Asset Impairment and Other, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
Previous report
Interest and Other Expense
Previous report
Beginning in 2023, the Tax Cuts and Jobs Act (the “2017 Act”) has required us to capitalize and amortize R&D expenses rather than expensing them in the year incurred. The tax effects related to the capitalization of R&D expenses are included in our effective tax rate for the three and nine months ended March 28, 2025 and March 29, 2024. The tax effects related to the capitalization of R&D expenses had a material impact on our effective tax rate for the three and nine months ended March 28, 2025 but did not have a material impact on the effective tax rate for the three and nine months ended March 29, 2024.
Previous report
For additional information regarding Income tax benefit, see Part I, Item 1, Note 12, Income Taxes, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
Previous report
We had previously reached a final agreement with the IRS and received notices of deficiency with respect to years 2008 through 2012 and in February 2024, also reached a final agreement for resolving the notices of proposed adjustments with respect to years 2013 through 2015. During the nine months ended March 28, 2025, we made payments of $130 million for interest with respect to years 2008 through 2012 and $32 million for tax and interest with respect to years 2013 through 2015, resulting in no remaining liability as of March 28, 2025 related to all years from 2008 through 2015.
Previous report
In connection with settlements for the years 2008 through 2015, we expect to realize reductions to our mandatory deemed repatriation tax obligations and tax savings from interest deductions in future years aggregating to $166 million. Of this amount, $65 million of interest savings from the interest paid with respect to years 2008 through 2015 is classified as a deferred tax asset due to interest expense limitation rules. See Part I, Item 1, Note 12, Income Taxes, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further details.
Previous report
Changes in our operating assets and liabilities are largely affected by our working capital requirements, which are dependent on our volume of business and the effective management of our cash conversion cycle as well as the timing of payments for taxes. Our cash conversion cycle measures how quickly we can convert our products into cash through sales. The cash conversion cycles, calculated on a continuing operations basis, were as follows (in days):
Previous report
Changes in days sales outstanding (“DSO”) are generally due to the timing of shipments to and collections from customers. Changes in days in inventory (“DIO”) are generally related to the timing of inventory builds and shipments to customers. Changes in days payables outstanding (“DPO”) are generally related to production volume and the timing of purchases during the period. From time to time, we make payment term modifications with vendors through negotiations with them or by granting to, or receiving from, our vendors payment term accommodations. We make modifications primarily to manage our vendor relationships and to manage our cash flows, including our cash balances.
Previous report
For the three months ended March 28, 2025, DSO increased by seven days from the comparable period in the prior year, of which four days reflected an increase from lower trade accounts receivable factoring and the remainder reflected the timing of shipments and customer collections. DIO decreased by 24 days from the comparable period in the prior year, primarily reflecting higher consumption of inventory driven by increased sales in the current period. DPO increased by 10 days from the comparable period in the prior year primarily due to more favorable payment terms and routine variations in the timing of purchases and payments during the period.
Previous report
During the nine months ended March 28, 2025, net cash provided by financing activities primarily consisted of $2.15 billion of proceeds from drawing on the Sandisk credit facilities in connection with the Separation as well as the 2027 Revolving Credit Facility and $69 million of proceeds from the issuance of stock under employee stock plans, partially offset by $1.37 billion of cash transferred to Sandisk in connection with the Separation, $257 million for repayment of amounts borrowed under the 2027 Revolving Credit Facility and scheduled repayments on the Term Loan A-2 and Term Loan A-3, $92 million for taxes paid on vested stock awards under employee stock plans, and $74 million paid for debt issuance costs. During the nine months ended March 29, 2024, net cash provided by financing activities primarily consisted of $2.50 billion in proceeds from the issuance of the 2028 Convertible Notes and the drawdown of our delayed draw term loan, partially offset by $1.27 billion to settle the remainder of the 2024 Convertible Notes at maturity and repayments of our delayed draw term loan and Term Loan A-2, $505 million used to repurchase a portion of the 2024 Convertible Notes, and $155 million for the purchase of capped calls to hedge the potential dilution impact of the conversion feature of the 2028 Convertible Notes.
Previous report
Unrecognized Tax Benefits
Previous report
As noted above, we had previously reached a final agreement with the IRS regarding notices of deficiency with respect to years 2008 through 2012 and in February 2024 also reached a final agreement for resolving the notices of proposed adjustments with respect to years 2013 through 2015. During the nine months ended March 28, 2025, we made payments of $130 million for interest with respect to years 2008 through 2012 and $32 million for tax and interest with respect to years 2013 through 2015, resulting in no remaining liability as of March 28, 2025 related to all years from 2008 through 2015.
Previous report
In connection with settlements for the years 2008 through 2015, we expect to realize reductions to our mandatory deemed repatriation tax obligations and tax savings from interest deductions in future years aggregating to approximately $166 million. Of this amount, $65 million of interest savings from the interest paid with respect to years 2008 through 2015 is classified as a deferred tax asset due to interest expense limitation rules.
Previous report
In connection with the Separation, we entered into an amendment with our existing lenders under the Loan Agreement governing our Term Loan Facility and the 2027 Revolving Credit Facility that, among other changes, (a) permitted the Separation, (b) provided for the automatic release, in connection with the Separation, of guarantees and liens on collateral provided by Sandisk and Sandisk Technologies, Inc. under the Loan Agreement, (c) provided for the issuance of a new $2.51 billion Term Loan A-3 maturing in January 2027 (the “Term Loan A-3”) to replace our previously existing Term Loan A-2 (the “Term Loan A-2” and, together with the Term Loan A-3, the “Term Loan Facility”), (d) facilitates a potential future debt for equity exchange with respect to the Term Loan A-3 in connection with the Sandisk retained interest, and (e) in connection with the Separation, reduced the aggregate commitments under the 2027 Revolving Credit Facility from $2.25 billion to $1.25 billion.
Previous report
Mandatory Deemed Repatriation Tax
Previous report
As of March 28, 2025, our estimated mandatory deemed repatriation tax obligation was $331 million and is expected to be paid within the next twelve months.
Previous report
Mandatory Research and Development Expense Capitalization
Previous report
Since the beginning of 2023, the 2017 Act has required us to capitalize and amortize R&D expenses rather than expensing them in the year incurred, which is expected to result in higher cash tax payments in future profitable periods, if not repealed or otherwise modified.
Reworded paragraphs (28)
Previous wording
Our broad portfolio of technology and products addresses our multiple end markets: “Cloud,” “Client,” and “Consumer”. Cloud is comprised primarily of products for public or private cloud environments and enterprise customers. Through the Client end market, we provide our original equipment manufacturer (“OEM”) and channel customers a broad array of high-performance HDD solutions across desktop and notebooks. The Consumer end market provides a broad range of retail and other end-user products, which capitalize on the strength of our product brand recognition and vast presence around the world.
Current wording
Our broad portfolio of technology and products addresses our customers’ storage needs through multiple end markets: “Cloud,” “Client” and “Consumer”. Cloud is comprised primarily of products for public or private cloud environments and enterprise customers. Through the Client end market, we provide our original equipment manufacturer (“OEM”) and channel customers a broad array of high-performance HDD solutions across desktop and notebooks. The Consumer end market provides a broad range of retail and other end-user products, which capitalize on the strength of our product brand recognition and vast points of presence around the world.
Previous wording
Our fiscal year ends on the Friday nearest to June 30 and typically consists of 52 weeks. Approximately every five to six years, we report a 53-week fiscal year to align the fiscal year with the foregoing policy. Fiscal year 2025, which will end on June 27, 2025, and fiscal year 2024, which ended on June 28, 2024, are each comprised of 52 weeks, with all quarters presented consisting of 13 weeks.
Current wording
Our fiscal year ends on the Friday nearest to June 30 and typically consists of 52 weeks. Approximately every five to six years, we report a 53-week fiscal year to align the fiscal year with the foregoing policy. Fiscal year 2026, which will end on July 3, 2026, will be comprised of 53 weeks, with the first quarter consisting of 14 weeks and the remaining quarters consisting of 13 weeks each. Fiscal year 2025, which ended on June 27, 2025, was comprised of 52 weeks, with all quarters presented consisting of 13 weeks.
Previous wording
The United States has recently announced changes to its trade policy, including increasing tariffs on imports, in some cases significantly. Several of these recent tariff actions have been followed by announcements of limited exemptions and temporary pauses. These actions are unprecedented, have caused substantial uncertainty and have also resulted in retaliatory measures on U.S. goods. Our business and results of operations were not materially impacted during the third quarter of 2025 or to date during the fourth quarter of 2025 as a result of the recent tariff actions. We are actively monitoring developments and plan to leverage tariff exemptions where possible and will take other actions as appropriate to offset any resulting increase in the cost of importing our products or the costs for materials or components in our products, including optimizing our supply chain, sourcing from alternative suppliers or increasing our prices. There can be no assurance that we will be able to successfully offset or mitigate any resulting increase in our costs. In addition, the impact of the tariff actions on our customers, retaliatory measures by other countries in response to U.S. trade policy and any resulting decline in consumer confidence, significant inflation and diminished expectations for the economy could reduce demand for our products and adversely affect our business, financial condition and results of operations. For additional information, please see Part II, Item 1A, Risk Factors, included in this Quarterly Report on Form 10-Q.
Current wording
The United States has been making changes to its trade policy, including increasing tariffs on imports, in some cases significantly. Several of these tariff actions have been followed by announcements of limited exemptions, temporary pauses or other changes. These actions have caused substantial uncertainty and have also resulted in retaliatory measures. Our business and results of operations have not been materially impacted through the first quarter of 2026 as a result of the recent tariff actions, but we are actively monitoring developments and exploring opportunities to mitigate potential future tariff and retaliatory actions. For additional information, please see Part I, Item 1A, Risk Factors, included in our 2025 Annual Report on Form 10-K.
Previous wording
Comparison of Three and Nine Months Ended March 28, 2025 to Three and Nine Months Ended March 29, 2024
Current wording
Comparison of Three Months Ended October 3, 2025 to Three Months Ended September 27, 2024
Previous wording
Net revenue increased by 31% for the three months ended March 28, 2025 from the comparable period in the prior year, as a result of a 4% increase in units sold, primarily from higher shipments of our high capacity enterprise products stemming from data center expansions, with a 23% increase in pricing. Net revenue increased by 60% for the nine months ended March 28, 2025 from the comparable period in the prior year, as a result of an 18% increase in units sold, with a 35% increase in average selling price per unit, primarily due to a shift in the product mix to larger capacity drives.
Current wording
Cloud revenue increased by 31% for the three months ended October 3, 2025 from the comparable period in the prior year, primarily driven by a 5% increase in units sold and a 19% increase in average selling price per unit. The increase in units sold was driven by higher shipments of our high-capacity enterprise products. The increase in average selling price per unit was primarily due to a shift in product mix to higher capacity drives. In addition, approximately 6 percentage points of growth was due to an increase in data storage systems revenues.
Previous wording
Our top 10 customers accounted for 73% and 68% of our net revenue for the three and nine months ended March 28, 2025, respectively, compared to 59% and 53% of our net revenue for the three and nine months ended March 29, 2024, respectively. For the three months ended March 28, 2025, three customers accounted for 18%, 16% and 13% of our net revenue, and for the nine months ended March 28, 2025, two customers accounted for 18% and 11% of our net revenue. For the three months ended March 29, 2024, one customer accounted for 12% of our net revenue, and for the nine months ended March 29, 2024, no customer accounted for 10% or more of our net revenue.
Current wording
Our top 10 customers accounted for 77% of our net revenue for the three months ended October 3, 2025, compared to 65% of our net revenue for the three months ended September 27, 2024. For the three months ended October 3, 2025, three customers accounted for 18%, 16% and 14%, respectively, of our net revenue, and for the three months ended September 27, 2024, one customer accounted for 18% of our net revenue.
Previous wording
Gross profit increased by $393 million for the three months ended March 28, 2025 from the comparable period in the prior year, primarily due to higher product shipments and improved pricing. In addition, the prior year period included charges for unabsorbed manufacturing overhead costs as a result of the reduced utilization of our manufacturing capacity of $16 million, which were not incurred in the current period. Gross margin increased by 10 percentage points year over year, mainly due to improved pricing, with approximately 1 percentage point of the increase due to the unabsorbed manufacturing overhead costs incurred in the prior year period but not incurred in the current period.
Current wording
Gross profit increased by $421 million for the three months ended October 3, 2025 from the comparable period in the prior year, primarily due to higher product shipments and improved pricing. Gross margin increased by 7 percentage points year over year, primarily due to higher volumes, product cost reductions and improved pricing.
Previous wording
Research and development (“R&D”) expense for the three months ended March 28, 2025 remained relatively consistent with the comparable period in the prior year. R&D expense increased by $49 million for the nine months ended March 28, 2025 from the comparable period in the prior year. The increase was primarily driven by a $41 million increase in compensation and benefits due to higher variable compensation and increased headcount and increases in spending for R&D projects as we continue to invest in innovation.
Current wording
Research and development (“R&D”) expense increased by $32 million for the three months ended October 3, 2025 from the comparable period in the prior year. The increase was driven by higher variable compensation and continued investment for innovation, technology and product development.
Previous wording
Selling, general and administrative (“SG&A”) expense decreased by $68 million for the three months ended March 28, 2025 from the comparable period in the prior year. The decrease primarily reflects a $55 million decrease in compensation and benefits, which was driven by certain general corporate overhead roles in the prior year that have since transferred to Sandisk and were not backfilled after the Separation. The decrease also reflects a $13 million decrease in services due to decreased sales and marketing expenses and legal fees. SG&A expense decreased by $98 million for the nine months ended March 28, 2025 from the comparable period in the prior year. The decrease was primarily driven by a $76 million decrease in compensation and benefits due to the same factors noted above for the three-month period along with a $16 million decrease in services due to decreased sales and marketing expenses.
Current wording
Selling, general and administrative (“SG&A”) expense decreased by $66 million for the three months ended October 3, 2025 from the comparable period in the prior year. The decrease primarily reflects $37 million lower compensation and benefits, which was driven by certain general corporate overhead roles in the prior year that have since transferred to Sandisk and were not backfilled after the Separation. The decrease also reflects $30 million lower service fees resulting from reduced marketing activities and legal costs.
Previous wording
Total interest and other expense, net increased by $580 million and $637 million for the three and nine months ended March 28, 2025, respectively, from the comparable periods in the prior year. The increases primarily reflect an unrealized loss of $606 million on our retained interest in Sandisk based on the mark-to-market value as of March 28, 2025 and lower foreign exchange transaction gains.
Current wording
Total interest and other income (expense), changed by $636 million for the three months ended October 3, 2025 from the comparable period in the prior year. The change primarily reflects an unrealized gain of $611 million on our retained interest in Sandisk based on the mark-to-market value as of October 3, 2025, and lower interest expense of $40 million, which reflects the reduction in our debt.
Previous wording
On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022, which contained significant changes to laws related to tax, climate, energy, and health care. The tax measures include, among other things, a corporate alternative minimum tax (“CAMT”) of 15% on corporations with three-year average annual adjusted financial statement income (“AFSI”) exceeding $1.0 billion. The CAMT became effective for us beginning with fiscal year 2024. We do not expect to be subject to the CAMT of 15% for fiscal year 2025 as our annual average AFSI did not exceed $1.0 billion for the preceding three-year period.
Current wording
On August 16, 2022, the Inflation Reduction Act of 2022, was signed into law, which contained, among other things, a corporate alternative minimum tax (“CAMT”) of 15% on corporations with three-year average annual adjusted financial statement income (“AFSI”) exceeding $1.0 billion. Although CAMT became effective for us beginning with 2024, we were not subject to the CAMT of 15% for 2024 and 2025. We do not expect to be subject to CAMT in 2026 as our annual average AFSI did not exceed $1.0 billion for the preceding three-year period.
Previous wording
On December 20, 2021, the Organization for Economic Co-operation and Development G20 (“OECD/G20”) Inclusive Framework on Base Erosion and Profit Shifting released Model Global Anti-Base Erosion rules under Pillar Two. Several non-U.S. jurisdictions have either enacted legislation or announced their intention to enact future legislation to adopt certain or all components of Pillar Two, some of which are effective for us in fiscal year 2025. For fiscal year 2025, we currently expect to be able to meet certain transitional safe harbors and do not expect any material GMT taxes. As more jurisdictions adopt this legislation in fiscal year 2026, there may be material increases in our future tax obligations in certain jurisdictions.
Current wording
On December 20, 2021, the Organization for Economic Co-operation and Development G20 (“OECD/G20”) Inclusive Framework on Base Erosion and Profit Shifting released Model Global Anti-Base Erosion rules under Pillar Two. Several non-U.S. jurisdictions have either enacted legislation or announced their intention to enact future legislation to adopt certain or all components of Pillar Two, also known as Global Minimum Tax (“GMT”). For 2026, we are subject to GMT in Thailand and the Philippines.
Previous wording
The following table presents our Income tax benefit and the effective tax rate:
Current wording
The following table presents our Income tax expense and the effective tax rate:
Previous wording
The primary drivers of the difference between the effective tax rate for the three and nine months ended March 28, 2025 and the U.S. Federal statutory rate of 21% are the relative mix of earnings and losses by jurisdiction, credits, and tax holidays in the Philippines and Thailand that will expire at various dates during years 2026 through 2033. These resulted in decreases to our effective tax rate below the U.S. Federal statutory rate for the three and nine months ended March 28, 2025. In anticipation of us operating as a standalone HDD business in a GMT environment, we executed an inter-entity asset transfer in conjunction with the separation of our Flash business. This resulted in the recognition of one-time deferred tax benefits to continuing operations of $711 million for the three and nine months ended March 28, 2025.
Current wording
The primary drivers of the difference between the effective tax rate for the three months ended October 3, 2025 and the U.S. Federal statutory rate of 21% are the relative mix of earnings and losses by jurisdiction, the deduction for FDDEI, tax credits and the gain on the retained Sandisk interest being tax-free due to the Separation of the Flash business. These resulted in decreases to our effective tax rate below the U.S. Federal statutory rate for the three months ended October 3, 2025. Our income tax provision for the three months ended October 3, 2025 includes GMT taxes for Thailand and the Philippines, countries for which we maintain tax holidays.
Previous wording
The primary drivers of the difference between the effective tax rate for the three and nine months ended March 29, 2024 and the U.S. Federal statutory rate of 21% were the relative mix of earnings and losses by jurisdiction, the deduction for foreign-derived intangible income, credits, and tax holidays in Malaysia, the Philippines, and Thailand. In addition, the effective tax rate for the nine months ended March 29, 2024 includes the discrete effect of a net decrease of $30 million to the liability for unrecognized tax benefits, which includes interest and offsetting tax benefits, as a result of adjustments to align with IRS calculations.
Current wording
The primary drivers of the difference between the effective tax rate for the three months ended September 27, 2024 and the U.S. Federal statutory rate of 21% were the relative mix of earnings and losses by jurisdiction, tax credits, and tax holidays in Thailand and the Philippines. In addition, the effective tax rate for the three months ended September 27, 2024 includes the discrete effect of a net decrease of $30 million to the liability for unrecognized tax benefits, which includes interest and offsetting tax benefits, as a result of adjustments to align with IRS calculations.
Previous wording
The following table summarizes our statements of cash flows, which are presented on a consolidated basis. Cash flows related to discontinued operations have not been segregated. See Part I, Item 1, Note 3, Discontinued Operations, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional cash flow information related to our discontinued operations.
Current wording
The following table summarizes our statements of cash flows. Cash flows for the prior year period are presented on a consolidated basis and activity related to discontinued operations has not been segregated. See Part I, Item 1, Note 4, Discontinued Operations, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional cash flow information related to our discontinued operations.
Previous wording
As a result of the Separation, we no longer have any capital expenditure requirements for the Flash business or its joint ventures with Kioxia Corporation. We currently expect our capital expenditures for the remainder of fiscal 2025 to be approximately $100 million.
Current wording
We currently expect our capital expenditures for 2026 to be approximately 4% to 6% of our net revenue.
Previous wording
A total of $1.05 billion of our Cash and cash equivalents was held by our foreign subsidiaries as of March 28, 2025 and June 28, 2024, respectively. There are no material tax consequences that were not previously accrued for on the repatriation of this cash.
Current wording
A total of $1.23 billion and $0.98 billion of our cash and cash equivalents was held by our foreign subsidiaries as of October 3, 2025 and June 27, 2025, respectively. There are no material tax consequences that were not previously accrued for on the repatriation of this cash.
Previous wording
Net cash provided by or used in operating activities primarily consists of net income or loss, adjusted for non-cash charges, plus or minus changes in operating assets and liabilities. Net cash used for changes in operating assets and liabilities was $1.15 billion for the nine months ended March 28, 2025, compared to $405 million for the nine months ended March 29, 2024, which largely reflects an increase in the volume of our business, as discussed above.
Current wording
Net cash provided by operating activities primarily consists of net income, adjusted for non-cash charges, plus or minus changes in operating assets and liabilities. Net cash used for changes in operating assets and liabilities was $99 million for the three months ended October 3, 2025, compared to $753 million for the three months ended September 27, 2024. The year over year decrease largely reflects a $423 million improvement in timing and collection of accounts receivable, a $132 million improvement from accrued expenses resulting from a significant reduction in our derivative hedging activities since the Separation of the Flash business, and a $501 million improvement in other assets and liabilities driven by the timing of recognition and realization of income taxes receivable. These were partially offset by a $426 million increase in cash used driven by the timing of recognition and payment of income taxes.
Previous wording
Net cash provided by investing activities for the nine months ended March 28, 2025 primarily consisted of $401 million in net proceeds from our sale of a majority interest in one of our subsidiaries and $148 million in net proceeds from activity related to Flash Ventures, partially offset by $336 million in capital expenditures, net of proceeds from disposals of assets. Net cash provided by investing activities for the nine months ended March 29, 2024 primarily consisted of $207 million in net proceeds from activity related to Flash Ventures, partially offset by $176 million in capital expenditures, net of proceeds from disposals of assets, which included the proceeds from the sale-leaseback of our Milpitas, California facility.
Current wording
Net cash used in investing activities for the three months ended October 3, 2025 primarily consisted of $73 million in capital expenditures, net of proceeds from disposals of assets. Net cash used in investing activities for the three months ended September 27, 2024 primarily consisted of $95 million in capital expenditures, net of proceeds from disposals of assets, partially offset by $47 million in net proceeds from activity related to Flash Ventures.
Previous wording
The following is a summary of our known material cash requirements, including those for capital expenditures, as of March 28, 2025. In addition, see the discussions further below related to unrecognized tax benefits, litigation matters, cash dividend program, dividend rights with respect to the Series A Preferred Stock, foreign exchange contracts and indemnifications.
Current wording
The following is a summary of our known material cash requirements as of October 3, 2025. In addition, see the discussions further below related to liability for unrecognized tax benefits, litigation matters, cash dividend program, dividend rights with respect to the Preferred Shares, global minimum tax, foreign exchange contracts and indemnifications.
Previous wording
As of March 28, 2025, the liability for unrecognized tax benefits (excluding accrued interest and penalties) was $561 million. Accrued interest and penalties related to unrecognized tax benefits are recognized in liabilities for uncertain tax positions and are recorded in the provision for income taxes. Accrued interest and penalties included in our liability related to unrecognized tax benefits as of March 28, 2025 was $70 million. Of these amounts, approximately $476 million could result in potential cash payments. As of March 28, 2025, with respect to the IRS matter discussed below, it was not possible to estimate the amount of change, if any, in the unrecognized tax benefits that is reasonably possible within the next twelve months.
Current wording
As of October 3, 2025, the liability for unrecognized tax benefits (excluding accrued interest and penalties) was $598 million. Accrued interest and penalties related to unrecognized tax benefits are recognized in liabilities for uncertain tax positions and are recorded in the provision for income taxes. Accrued interest and penalties included in our liability related to unrecognized tax benefits as of October 3, 2025 was $93 million. Of these amounts, approximately $130 million could result in potential cash payments to be made within the next twelve months.
Previous wording
For additional information on the litigation matters, see Part I, Item 1, Note 16, Legal Proceedings, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
Current wording
For additional information on our litigation matters, see Part I, Item 1, Note 14, Legal Proceedings, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
Previous wording
On April 29, 2025, our Board of Directors authorized the adoption of a quarterly cash dividend program. Under the cash dividend program, holders of our common stock will receive dividends when and as declared by our Board of Directors. In conjunction with the adoption of the cash dividend program, our Board of Directors declared a cash dividend of $0.10 per share of our common stock, which will be paid on June 18, 2025 to our shareholders of record as of the close of business on June 4, 2025. We may suspend or discontinue our cash dividend program at any time.
Current wording
On April 29, 2025, our Board of Directors authorized the adoption of a cash dividend program. Under the cash dividend program, holders of our common stock will receive dividends when and as declared by our Board of Directors. During the three months ended October 3, 2025, we paid cash dividends of $0.10 per share of our outstanding common stock, totaling $34 million, plus $1 million paid to holders of our Preferred Shares in accordance with their participation rights.
Previous wording
As of March 28, 2025, 235,000 shares of our Series A Preferred Stock remained outstanding. These shares are entitled to cumulative preferred dividends and will also participate in any dividends declared for common shareholders on an as-converted equivalent basis. See Part II, Item 8, Note 12, Shareholders’ Equity and Convertible Preferred Stock, of the Notes to the Consolidated Financial Statements in our 2024 Annual Report on Form 10-K and Part I, Item 1, Note 11, Shareholders’ Equity and Convertible Preferred Stock, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for more information regarding the dividend provisions.
Current wording
As of October 3, 2025, 235,000 shares of our Preferred Shares remained outstanding. These shares are entitled to cumulative preferred dividends and will also participate in any dividends declared for common shareholders on an as-converted equivalent basis. See Part II, Item 8, Note 12, Shareholders’ Equity and Convertible Preferred Stock, of the Notes to Consolidated Financial Statements in our 2025 Annual Report on Form 10-K and Part I, Item 1, Note 12, Shareholders’ Equity and Convertible Preferred Stock, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for more information regarding the dividend provisions.
Previous wording
As described in Part I, Item 1, Note 8, Debt, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, the Company issued $1.60 billion aggregate principal amount of convertible senior notes in November 2023, which bear interest at an annual rate of 3.00% and mature on November 15, 2028 (the “2028 Convertible Notes”). The 2028 Convertible Notes are convertible at the option of any holder beginning August 15, 2028 at a conversion price of approximately $37.89 per share of common stock (which conversion price has been adjusted from approximately $52.20 in accordance with the indenture as a result of the Separation). Prior to August 15, 2028, if the trading price of our common stock remains above 130% of the conversion price for at least 20 trading days (whether or not consecutive) during the 30 consecutive trading-day period prior to the end of a calendar quarter, holders of the 2028 Convertible Notes would have the right to convert the 2028 Convertible Notes during the next succeeding calendar quarter. The 2028 Convertible Notes are also convertible prior to August 15, 2028 upon the occurrence of certain corporate events. Upon any conversion of the 2028 Convertible Notes, we will pay cash for the aggregate principal amount of the notes to be converted and pay or deliver, as the case may be, cash, shares of our common stock or a combination thereof, at our election, in respect of the remainder, if any, of our conversion obligation in excess of the aggregate principal amount of the notes being converted.
Current wording
As described in Part I, Item 1, Note 7, Debt, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, the Company issued $1.60 billion aggregate principal amount of convertible senior notes in November 2023, which bear interest at an annual rate of 3.00% and mature on November 15, 2028 (the “2028 Convertible Notes”). The 2028 Convertible Notes are convertible at the option of any holder beginning August 15, 2028 at a conversion price of approximately $37.77 per share of common stock (as adjusted in accordance with the indenture as a result of the Separation and the payment of dividends on the Company’s common stock). Prior to August 15, 2028, if the trading price of our common stock remains above 130% of the conversion price for at least 20 trading days (whether or not consecutive) during the 30 consecutive trading-day period prior to the end of a calendar quarter, holders of the 2028 Convertible Notes would have the right to convert the 2028 Convertible Notes during the next succeeding calendar quarter. The 2028 Convertible Notes are also convertible prior to August 15, 2028 upon the occurrence of certain corporate events. Upon any conversion of the 2028 Convertible Notes, we will pay cash for the aggregate principal amount of the notes to be converted and pay or deliver, as the case may be, cash, shares of our common stock or a combination thereof, at our election, in respect of the remainder, if any, of our conversion obligation in excess of the aggregate principal amount of the notes being converted. On or after November 15, 2026, we may redeem for cash, at par plus accrued interest, all or any portion of the 2028 Convertible Notes, at our option, if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 10 trading days during any 20 consecutive trading day period immediately preceding the date of our redemption notice.
Previous wording
The sale price conditional conversion feature of the 2028 Convertible Notes was not triggered during the calendar quarter ended March 31, 2025 and, accordingly, the holders of the 2028 Convertible Notes do not have the right to convert the notes during the succeeding calendar quarter ending June 30, 2025. As a result, the 2028 Convertible Notes were classified as Long-term debt in the Condensed Consolidated Financial Statements as of March 28, 2025. The Company will continue to evaluate the conversion feature quarterly to determine if the 2028 Convertible Notes become convertible in future periods.
Current wording
The sale price conditional conversion feature of the 2028 Convertible Notes was triggered during the calendar quarter ended September 30, 2025 and, accordingly, the holders of the 2028 Convertible Notes have the right to convert the notes during the succeeding calendar quarter ending December 31, 2025. As a result, the 2028 Convertible Notes have been classified as Current portion of long-term debt in the Condensed Consolidated Financial Statements as of October 3, 2025. The Company will continue to evaluate the conversion feature quarterly to determine if the 2028 Convertible Notes become convertible in future periods.
Previous wording
In addition to our outstanding debt, as of March 28, 2025, we had $1.25 billion available for borrowing under our revolving credit facility maturing in January 2027 (the “2027 Revolving Credit Facility”), subject to customary conditions under the Loan Agreement. The agreements governing our credit facilities each include limits on secured indebtedness and certain types of unsecured subsidiary indebtedness and require us and certain of our subsidiaries to provide guarantees and collateral to the extent the conditions providing for such guarantees and collateral are met. The loan agreement governing our 2027 Revolving Credit Facility and our Term Loan A-3 (as amended, the “Loan Agreement”) requires us to comply with a financial leverage ratio covenant. As of March 28, 2025, we were in compliance with the financial covenant. Additional information regarding our indebtedness, including information about availability under our 2027 Revolving Credit Facility and the principal repayment terms, interest rates, covenants, collateral and other key terms of our outstanding indebtedness, is included in Part II, Item 8, Note 7, Debt, of the Notes to the Consolidated Financial Statements included in our 2024 Annual Report on Form 10-K and Note 8, Debt, of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Current wording
In addition to our outstanding debt, as of October 3, 2025, we had $1.25 billion available for borrowing under our revolving credit facility maturing in January 2027 (the “2027 Revolving Credit Facility”), subject to customary conditions under the Loan Agreement. The agreements governing our credit facilities each include limits on secured indebtedness and certain types of unsecured subsidiary indebtedness and require us and certain of our subsidiaries to provide guarantees and collateral to the extent the conditions providing for such guarantees and collateral are met. The Loan Agreement requires us to comply with a financial leverage ratio covenant. As of October 3, 2025, we were in compliance with the financial covenant. Additional information regarding our indebtedness, including information about availability under our 2027 Revolving Credit Facility and the principal repayment terms, interest rates, covenants, collateral and other key terms of our outstanding indebtedness, is included in Part II, Item 8, Note 8, Debt, of the Notes to Consolidated Financial Statements included in our 2025 Annual Report on Form 10-K and Note 7, Debt, of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Rearranged current paragraphs (1)
Current report — wording carried from elsewhere
Subsequent to quarter-end, on October 29, 2025, our Board of Directors declared a cash dividend of $0.125 per share of our common stock, which will be paid on December 18, 2025 to our shareholders of record as of the close of business on December 4, 2025.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
(1)Percentages may not total due to rounding.