WESTERN DIGITAL CORP

Previous 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.

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 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

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 wording

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 to further reduce our debt within one year from the Separation Date.

Previous wording

Information provided herein is presented on a continuing operations basis to reflect the impact of the Separation. 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 information regarding the Separation.

Current wording

Prior period information provided herein is presented on a continuing operations basis to reflect the impact of the Separation. 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 information regarding the Separation.

Previous wording

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 wording

The increasing long-term demand for data storage in the cloud is benefiting our HDD business. The adoption of artificial intelligence (“AI”) and workloads driven by hybrid data is driving additional 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.

Previous 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.

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 second quarter of 2026 as a result of these 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 Months Ended October 3, 2025 to Three Months Ended September 27, 2024

Current wording

Comparison of Three and Six Months Ended January 2, 2026 to Three and Six Months Ended December 27, 2024

Previous wording

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 wording

The mix of net revenue by geography for the three months ended January 2, 2026 was relatively consistent with the comparable period in the prior year. The mix of net revenue by geography for the six months ended January 2, 2026 compared to the comparable period in the prior year reflects higher revenue in the Asia and Europe, Middle East and Africa regions as customers expanded data center capacity in these regions in the first three months of the year.

Previous 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.

Current wording

Our top 10 customers accounted for 76% and 77%, respectively, of our net revenue for the three and six months ended January 2, 2026, compared to 67% and 65%, respectively, of our net revenue for the three and six months ended December 27, 2024. For the three months ended January 2, 2026, three customers accounted for 15%, 14%, and 14%, respectively, of our net revenue, and for the three months ended December 27, 2024, two customers accounted for 18% and 13%, respectively, of our net revenue. For the six months ended January 2, 2026, three customers accounted for 17%, 15%, and 14%, respectively, of our net revenue, and for the six months ended December 27, 2024, two customers accounted for 18% and 11%, respectively, of our net revenue.

Previous 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.

Current wording

Gross profit increased by $473 million for the three months ended January 2, 2026 from the comparable period in the prior year, due to an increased volume of shipments, a lower cost structure on our newer generation products and improved pricing on our higher capacity drives. Gross margin increased by 8 percentage points year over year, primarily due to a lower cost structure on our newer generation products and improved pricing on our higher capacity drives. Gross profit increased by $894 million for the six months ended January 2, 2026 from the comparable period in the prior year and gross margin increased by 8 percentage points year over year, primarily due to the same factors noted for the three-month period above.

Previous 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.

Current wording

Research and development (“R&D”) expense increased by $64 million for the three months ended January 2, 2026 from the comparable period in the prior year. The increase was attributable to higher variable compensation, as a result of our company performance and further investment for innovation, technology and product development. R&D expense increased by $96 million for the six months ended January 2, 2026 from the comparable period in the prior year. The increase was driven by the same factors noted for the three-month period above. In future periods, we expect modest increases in R&D as we continue to innovate and develop higher capacity and performance HDD.

Previous 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.

Current wording

Selling, general and administrative (“SG&A”) expense was relatively flat for the three months ended January 2, 2026 from the comparable period in the prior year, which reflects approximately $30 million of higher variable compensation, as a result of our company performance, offset by general corporate overhead roles in the prior year that have since transferred to Sandisk and were not backfilled after the Separation. SG&A expense decreased by $70 million for the six months ended January 2, 2026 from the comparable period in the prior year. The decrease reflects $37 million of lower compensation and benefits in the first three months of the year, 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 of lower service fees resulting from reduced marketing activities and legal costs in the first three months of the year.

Previous 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.

Current wording

Total interest and other income (expense), changed by $1.15 billion for the three months ended January 2, 2026 from the comparable period in the prior year. The change reflects an unrealized gain of $1.10 billion on our retained interest in Sandisk based on the mark-to-market value as of January 2, 2026, and lower interest expense of $39 million, which reflects the reduction in our debt. Total interest and other income (expense), changed by $1.78 billion for the six months ended January 2, 2026 from the comparable period in the prior year. The change primarily reflects an unrealized gain of $1.71 billion on our retained interest in Sandisk based on the mark-to-market value as of January 2, 2026, and lower interest expense of $79 million, which reflects the reduction in our debt.

Previous 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.

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 CAMT 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, also known as Global Minimum Tax (“GMT”). For 2026, we are subject to GMT in Thailand and the Philippines.

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 Malaysia, Thailand, and the Philippines.

Previous 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.

Current wording

The primary drivers of the difference between the effective tax rate for the three and six months ended January 2, 2026 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 interest in Sandisk 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 and six months ended January 2, 2026. Our income tax provision for the three and six months ended January 2, 2026 includes GMT for Malaysia as well as 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 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.

Current wording

The primary drivers of the difference between the effective tax rate for the three and six months ended December 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 six months ended December 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 U.S. Internal Revenue Service (“IRS”) calculations.

Previous 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.

Current wording

A total of $1.35 billion and $0.98 billion of our cash and cash equivalents was held by our foreign subsidiaries as of January 2, 2026 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 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.

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 $275 million for the six months ended January 2, 2026, compared to $1.04 billion for the six months ended December 27, 2024. The year over year decrease largely reflects a $232 million improvement in timing and collection of accounts receivable, a $127 million improvement from accrued compensation resulting from amount and timing of payment of variable compensation, and a $906 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 $520 million increase in cash used driven by the timing of recognition and payment of income taxes.

Previous 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.

Current wording

Net cash used in investing activities for the six months ended January 2, 2026 primarily consisted of $165 million in capital expenditures. Net cash provided by investing activities for the six months ended December 27, 2024 primarily consisted of $191 million in net proceeds from our sale of a majority interest in one of our subsidiaries and $92 million in net proceeds from activity related to Flash Ventures, partially offset by $208 million in capital expenditures, net of proceeds from disposals of assets.

Previous wording

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 wording

Net cash used in financing activities for the six months ended January 2, 2026 primarily consisted of $1.17 billion for share repurchases, $87 million for dividends on our common stock and Preferred Shares, $95 million for taxes paid on vested stock awards under employee stock plans, and $63 million for scheduled repayments on our term loan. These uses were partially offset by $32 million of proceeds from the issuance of stock under employee stock plans. Net cash used in financing activities for the six months ended December 27, 2024 primarily consisted of $225 million for repayment of amounts borrowed under the revolving credit facility and scheduled repayments on our term loan and $80 million for taxes paid on vested stock awards under employee stock plans, partially offset by $150 million of proceeds from drawing on the revolving credit facility and $52 million of proceeds from the issuance of stock under employee stock plans.

Previous 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.

Current wording

As of January 2, 2026, the liability for unrecognized tax benefits (excluding accrued interest and penalties) was $607 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 January 2, 2026 was $97 million. Of these amounts, approximately $130 million could result in potential cash payments to be made within the next twelve months.

Previous 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.

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 January 2, 2026, we paid cash dividends of $0.125 per share of our outstanding common stock, totaling $43 million, plus $1 million paid to holders of our Preferred Shares in accordance with their participation rights. During the six months ended January 2, 2026, we paid aggregate cash dividends of $0.225 per share of our outstanding common stock, totaling $77 million, plus $2 million paid to holders of our Preferred Shares in accordance with their participation rights.

Previous 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.

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 $37.74 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 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.

Current wording

The sale price conditional conversion feature of the 2028 Convertible Notes was triggered during the calendar quarter ended December 31, 2025 and, accordingly, the holders of the 2028 Convertible Notes have the right to convert the notes during the succeeding calendar quarter ending March 31, 2026. As a result, the 2028 Convertible Notes have been classified in Current portion of long-term debt in the Condensed Consolidated Financial Statements as of January 2, 2026. The Company will continue to evaluate the conversion feature quarterly to determine if the 2028 Convertible Notes remain convertible in future periods.

Previous wording

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.

Current wording

As of January 2, 2026, we have accrued GMT of $42 million that are not expected to be paid until the second quarter of 2028.