WESTERN DIGITAL CORP
For the period ended Oct 2, 2026. Filed Oct 23, 2026.
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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 2, 2026 · Filed Oct 23, 2026
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 2026-04-03; filed 2026-05-01.
0001628280-26-029054
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2026-10-02; filed 2026-10-23.
0001628280-26-066933
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 96 previous paragraphs and 99 current paragraphs.
42 unchanged; 31 reworded; 25 added; 21 removed; 2 previous and 1 current paragraphs rearranged.
Tables are not compared: 9 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 (25)
Current report
First Quarter Overview
Current report
Net revenue increased by 55% for the three months ended October 2, 2026 from the comparable period in the prior year, driven by strong demand in our Cloud, Client and Consumer markets as further discussed below.
Current report
Client revenue, representing 7% of total revenue, increased by 119% for the three months ended October 2, 2026 from the comparable period in the prior year, driven by an approximately 15% increase in exabytes shipped and an approximately 90% increase in average selling price per exabyte. The increase in average selling price was driven by a shift in product mix to higher capacity drives and an improved pricing environment, while our exabytes shipped increase was driven by strong demand for our products.
Current report
Consumer revenue, representing 5% of total revenue, increased by 19% for the three months ended October 2, 2026 from the comparable period in the prior year, which reflects an approximately 70% increase in average selling price per exabyte partially offset by an approximately 30% decrease in exabytes shipped. The increase in average selling price per exabyte was due to a shift in product mix to higher capacity drives and an improved pricing environment. The decrease in exabytes shipped was driven by general softness in demand in these end markets as a result of the increased pricing levels.
Current report
Beginning in the three months ended October 2, 2026, we updated our methodology for identifying customers for purposes of revenue concentration disclosure. Under the updated methodology, concentrations are attributed to the ultimate end customer when products are purchased on its behalf by distributors, contract manufacturers, or other resellers (collectively referred to as “intermediary purchasers”), rather than being attributed to such intermediary purchasers. We believe this presentation provides investors with a more meaningful reflection of the economic relationship with our customers. Prior year concentrations have been revised to conform to the current year presentation.
Current report
Research and development expense decreased by $11 million for the three months ended October 2, 2026 from the comparable period in the prior year. The decrease was attributable to lower compensation-related costs.
Current report
Beginning in 2027, we became subject to CAMT of 15% on corporations as our average annual AFSI exceeded $1.0 billion for the preceding three-year period. We anticipate that our CAMT liability will exceed our regular tax liability due to tax deductions in excess tax of book deductions attributable to stock-based compensation during the year. We anticipate that any CAMT paid in 2027 will generate credit carryforwards that can be carried forward indefinitely to offset future regular tax liabilities in cases where they exceed CAMT liabilities. Because we expect regular tax liabilities to exceed CAMT liabilities in future periods, no valuation allowance is required against these credit carryforwards. As a result, the CAMT liability did not impact the effective tax rate for the three months ended October 2, 2026.
Current report
In January 2026, the OECD released a side-by-side package that modifies key elements of the Pillar Two GMT by introducing new safe harbors and providing an exemption for U.S. based multinational companies from parts of the GMT. While these safe harbors and exemptions are generally favorable to us, they require local legislative action by each country before they can be considered enacted for financial accounting purposes. We evaluated the potential effects of these rules based on current local legislative developments in jurisdictions where we operate and expect the financial statement impact associated with their enactment to be immaterial. For 2027, our effective tax rate considers GMT in Malaysia and Thailand.
Current report
Net cash used for changes in operating assets and liabilities was $331 million for the three months ended October 2, 2026, compared to $99 million for the three months ended October 3, 2025. For the three months ended October 2, 2026, net cash used for changes in operating assets and liabilities primarily consisted of a $269 million increase in inventories as we ramped production in response to growing demand and a $206 million increase in accounts receivable driven by our growth in revenue. These uses were partially offset by a $131 million increase in income taxes payable resulting from the timing of tax payments.
Current report
For the three months ended October 3, 2025, net cash used for changes in operating assets and liabilities primarily consisted of a $503 million decrease in income taxes payable resulting from the timing of tax payments and a $101 million increase in inventories as we ramped production in response to growing demand. These uses were partially offset by a $248 million increase in accounts payable as we ramped up purchases for production as well as more favorable payment terms with suppliers, a $141 million increase in other assets and liabilities primarily driven by timing of recognition and application of taxes receivable, and a $131 million decrease in accounts receivable driven by timing of collections.
Current report
We expect capital expenditures to average 4% to 6% of revenue over the next five years; however, we anticipate capital expenditures as a percentage of revenue will be modestly above that range over the next two years as we invest in heads and media technology and factory automation.
Current report
On September 14, 2026, we issued a notice of redemption to redeem at par plus unpaid and accrued interest, on November 16, 2026 (the “Redemption Date”), all then-outstanding Convertible Notes that have not been converted prior to the Redemption Date. We currently expect that holders of substantially all Convertible Notes will convert such Convertible Notes before the Redemption Date.
Current report
In addition, as of October 2, 2026, we had $650 million outstanding on our Revolving Credit Facility maturing in January 2027 and had $600 million remaining available borrowing capacity under this facility, subject to customary conditions under the loan agreement. We believe our existing cash and cash expected to be generated from our business will be adequate to meet our debt repayment requirements.
Current report
On April 29, 2025, our Board of Directors authorized the adoption of a cash dividend program. See Part I, Item 1, Note 10, Shareholders’ Equity and Convertible Preferred Stock, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q under the caption “Dividends to Common Shareholders” for further details.
Current report
Share Repurchase Program
Current report
Our Board of Directors has authorized a Share Repurchase Program and as of October 2, 2026, we had $2.26 billion available for repurchases under the program. See Part I, Item 1, Note 10, Shareholders’ Equity and Convertible Preferred Stock, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q under the caption “Share Repurchase Program” for further details.
Current report
In connection with IRS settlements for the years 2008 through 2015, we expect to realize reductions to our mandatory deemed repatriation tax obligations aggregating to approximately $101 million. These tax receivables are classified in Other current assets on the Condensed Consolidated Balance Sheets as of October 2, 2026.
Current report
No new accounting standards were adopted in the quarter ended October 2, 2026.
Current report
Accounting Pronouncements Not Yet Adopted
Current report
In May 2026, the Financial Accounting Standards Board (“FASB”) issued accounting standards update (“ASU”) No. 2026-02, “Environmental Credits and Environmental Credit Obligations (Topic 818),” which introduces specific accounting models for entities that generate, purchase, or hold environmental credits, or have an enforceable regulatory compliance obligation that may be settled with such credits. Under the new guidance, environmental credits intended for compliance are recorded at cost, while certain non-compliance credits are tested for impairment or can be subject to a fair value accounting policy election. Additionally, the standard requires gross financial statement presentation, prohibiting the netting of environmental credit assets against related compliance obligations. This standard is effective for the year beginning July 1, 2028, and interim periods within that year, with early adoption permitted. Adoption will be applied on a retrospective basis through a cumulative-effect adjustment to the opening balance of retained earnings. We are currently assessing the impact of this standard on our consolidated financial statements and related disclosures.
Current report
In December 2025, the FASB issued ASU No. 2025-10, “Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities” (“ASU 2025-10”), which establishes guidance on the recognition, measurement, and presentation of government grants. The standard may be adopted using a full retrospective, modified retrospective, or modified prospective transition method. ASU 2025-10 is effective for the year beginning June 30, 2029, and interim periods within that year, with early adoption permitted. We are currently assessing the impact of this guidance on our consolidated financial statements and related disclosures.
Current report
In November 2025, the FASB issued ASU No. 2025-09, “Derivatives and Hedging (Topic 815): Hedge Accounting Improvements” (“ASU 2025-09”), which introduces targeted improvements to better align hedge accounting with entities’ risk management activities. ASU 2025-09 is effective for the year beginning July 3, 2027, and interim periods within that year, with early adoption permitted. We are currently assessing the impact of this guidance on our consolidated financial statements and related disclosures.
Current report
In September 2025, the FASB issued ASU No. 2025-07, “Derivatives and Hedging (Topic 815) and Revenue from Contracts with Customers (Topic 606): Derivatives Scope Refinements and Scope Clarification for Share-Based Noncash Consideration from a Customer in a Revenue Contract” (“ASU 2025-07”), which (i) expands the scope exception of Topic 815 to exclude certain contracts with a variable that is based on operations or activities specific to one of the parties to the contract and (ii) clarifies the scope of share-based payments from a customer in a revenue contract. ASU 2025-07 is effective for the year beginning July 3, 2027, and interim periods within that year. Early adoption is permitted and must be applied as of the beginning of the fiscal year that includes the interim period. We currently do not expect this standard to have a material impact on our consolidated financial statements and related disclosures.
Current report
In September 2025, the FASB issued ASU No. 2025-06, “Intangibles – Goodwill and Other – Internal-Use Software (Topic 350): Targeted Improvements to the Accounting for Internal-Use Software” (“ASU 2025-06”). ASU 2025-06 amends existing references to prescriptive and sequential software development stages to better align with current software development methods, such as agile development. Under the new standard, entities will begin to capitalize eligible software costs when (i) management has authorized and committed to funding the software project, and (ii) it is probable that the project will be completed and the software will be used to perform the function intended. ASU 2025-06 is effective for the year beginning July 1, 2028, and interim periods within that year, with early adoption permitted. We are currently assessing the impact of this standard on our consolidated financial statements and related disclosures.
Current report
In November 2024, the FASB issued ASU No. 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses,” which is intended to improve disclosures about the expenses of public entities. The new guidance requires more detailed information about the types of expenses in commonly presented expense captions (such as cost of sales and selling, general and administrative expenses) and requires public entities to disclose, on an annual and interim basis, the amounts of expenses included in each relevant expense caption presented on the face of the income statement, within continuing operations, in a tabular format. Additionally, public entities will be required to disclose a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively, the total amount of selling expenses and, in annual reporting periods, the definition of selling expenses. This standard is effective on either a prospective or retrospective basis with early adoption permitted. We are currently compiling the information required for these disclosures and assessing the basis of adoption and expect to adopt the guidance for annual reporting periods in our annual report on Form 10-K for the year ending June 30, 2028.
Removed paragraphs (21)
Previous report
Unless otherwise indicated, references herein to specific years and quarters are to our fiscal years and fiscal quarters. As used herein, the terms “we,” “us,” “our,” and the “Company” refer to Western Digital Corporation and its subsidiaries.
Previous report
Separation of Business Units and Monetization of Sandisk Shares
Previous report
On February 21, 2025, we completed the Separation to create two independent public companies, with Western Digital continuing our existing HDD business and 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. In June 2025, we used 21.3 million shares of Sandisk in a tax-free exchange to reduce approximately $800 million principal amount of our term loan A-3. In February 2026, we executed a series of transactions to monetize additional Sandisk shares and further reduce our outstanding debt. Initially, we entered into a $1.50 billion Bridge Loan, which was utilized to fully redeem all of our Senior Notes and consolidate the broad creditor base to two holders to facilitate a debt-for-equity exchange. Following the redemptions of the Senior Notes, we retired the Bridge Loan and our existing Term Loan A-3 through a tax-free exchange for 5.8 million shares of Sandisk common stock. As of April 3, 2026, we still held 1.7 million shares of Sandisk common stock, which we expect to monetize by the end of 2026 in one or more subsequent exchanges for our outstanding common stock.
Previous report
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 report
Conversion of Preferred Shares
Previous report
On February 17, 2026, we converted all remaining outstanding Preferred Shares into 7 million shares of our common stock in accordance with the Certificate of Designations, Preferences and Rights of the Preferred Shares.
Previous report
Third Quarter and Nine Month Overview
Previous report
Net revenue increased by 45% for the three months ended April 3, 2026 from the comparable period in the prior year, driven by a 34% increase in exabytes sold and a 9% increase in average selling price per exabyte, both of which were driven by strong demand across all of our end markets. Net revenue increased by 33% for the nine months ended April 3, 2026 from the comparable period in the prior year, driven by a 26% increase in exabytes sold and a 5% increase in average selling price per exabyte. The increase in exabytes sold and increase in average selling price per exabyte were attributable to the same factors noted for the three-month period above.
Previous report
Client revenue, representing 5% of total revenue, increased by 31% for the three months ended April 3, 2026 from the comparable period in the prior year, driven by a 19% increase in exabytes sold and a 10% increase in average selling price per exabyte. The increase in exabytes sold and average selling price per exabyte are driven by dynamics largely consistent with our other end markets. Client revenue, representing 5% of total revenue, increased by 20% for the nine months ended April 3, 2026 from the comparable period in the prior year, driven by a 4% increase in exabytes sold and a 16% increase in average selling price per exabyte. The increase in exabytes sold and increase in average selling price per exabyte were attributable to the same factors noted for the three-month period above.
Previous report
Consumer revenue, representing 6% of total revenue, increased by 24% for the three months ended April 3, 2026 from the comparable period in the prior year, driven by a 6% increase in exabytes sold and a 17% increase in average selling price per exabyte. The increase in exabytes sold and average selling price per exabyte are driven by dynamics largely consistent with our other end markets. Consumer revenue, representing 6% of total revenue, increased by 6% for the nine months ended April 3, 2026 from the comparable period in the prior year, driven by a 1% increase in exabytes sold and a 4% increase in average selling price per exabyte. The increase in exabytes sold and increase in average selling price per exabyte were attributable to the same factors noted for the three-month period above.
Previous report
Research and development (“R&D”) expense increased by $49 million for the three months ended April 3, 2026 from the comparable period in the prior year. The increase was attributable to $25 million of incremental product development related costs as we continue to execute on our innovative technology and product roadmap along with $20 million higher compensation-related costs aligned with the improved financial performance during the current year. R&D expense increased by $145 million for the nine months ended April 3, 2026 from the comparable period in the prior year. The increase was attributable to $95 million of higher compensation-related costs and $50 million of higher incremental product development related costs, driven by the same factors noted for the three-month period above.
Previous report
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 or 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 report
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 report
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% were the relative mix of earnings and losses by jurisdiction, credits, and tax holidays in the Philippines and Thailand that will expire at various dates between 2026 and 2033. These tax holidays 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. However, the tax effects of the mandatory capitalization of R&D expenses offset these decreases, resulting in our effective tax rate being close to 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. 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.
Previous report
We expect our capital expenditures generally to be approximately 4% to 6% of our net revenue.
Previous report
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 April 3, 2026, we paid cash dividends of $0.125 per share of our outstanding common stock, totaling $43 million. During the nine months ended April 3, 2026, we paid aggregate cash dividends of $0.350 per share of our outstanding common stock, totaling $120 million, plus $2 million paid to holders of our Preferred Shares in accordance with their participation rights.
Previous report
Subsequent to quarter-end, on April 29, 2026, our Board of Directors declared a cash dividend of $0.15 per share of our common stock, which will be paid on June 17, 2026 to our shareholders of record as of the close of business on June 5, 2026.
Previous 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.
Previous report
During the three months ended April 3, 2026, holders of $32 million aggregate principal amount of the 2028 Convertible Notes tendered them for conversion (the “Tendered Notes”). We made an irrevocable election to settle in cash the conversion obligation in excess of the principal amount of the Tendered Notes, as permitted by the Indenture. Settlement is scheduled for June 2026. We still retain the right to settle any conversion obligation in excess of the principal amount of the remaining 2028 Convertible Notes in cash or shares or a combination thereof, at its election.
Previous report
The sale price conditional conversion feature of the 2028 Convertible Notes was triggered during the calendar quarter ended March 31, 2026 and, accordingly, the holders of the 2028 Convertible Notes have the right to convert the notes during the succeeding calendar quarter ending June 30, 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 April 3, 2026. We will continue to evaluate the conversion feature quarterly to determine if the 2028 Convertible Notes remain convertible in future periods.
Previous report
For a description of recently issued and adopted accounting pronouncements, including the respective dates of adoption and expected effects on our results of operations and financial condition, see Part I, Item 1, Note 2, Recent Accounting Pronouncements, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
Reworded paragraphs (31)
Previous wording
We are a leading developer, manufacturer, and provider of data storage devices and solutions based on 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, smart video, to client and consumer.
Current wording
We are a leading developer, manufacturer, and provider of data storage devices and solutions based on HDD technology. HDDs are critical components of the global data infrastructure market and play an essential role in enabling the AI-driven data economy. They provide reliable, cost-effective, high-capacity storage for a broad range of applications, including cloud data centers, enterprise storage systems, edge computing, smart video, client and consumer devices.
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 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, sold under the Western Digital® and WD® brands, addresses our customers’ storage needs through multiple end markets: “Cloud,” “Client” and “Consumer”. Cloud is our largest and fastest growing end market 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 offers a comprehensive portfolio of HDD external storage products that we offer globally through our retail and channel partners.
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 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.
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 2027, which will end on July 2, 2027, will be comprised of 52 weeks, with all quarters presented consisting of 13 weeks each. Fiscal year 2026, which ended on July 3, 2026, was comprised of 53 weeks, with the first quarter consisting of 14 weeks and the remaining quarters consisting of 13 weeks each.
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 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.
Current wording
The increasing long-term demand for data storage in the cloud is benefiting our HDD business. The adoption of AI is contributing to additional data storage requirements as the development and use of AI applications increase the volume of data that is generated, collected and retained, including data used to train and operate AI models. In addition, the continued growth of cloud and other data-intensive workloads is increasing the need for scalable, cost-effective storage infrastructure. These trends are accelerating demand for high-capacity drives and are 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
Recent changes to U.S. trade policy, in particular with regard to tariffs, have caused substantial market uncertainty and, in certain cases, retaliatory measures by trading partners. Our business and results of operations have not been materially impacted through the third quarter of 2026 as a result of these actions, but we are actively monitoring developments and assessing options to mitigate potential future actions. For additional information, please see Part I, Item 1A, Risk Factors, included in our 2025 Annual Report on Form 10-K.
Current wording
Recent changes to U.S. trade policy, including with regard to tariffs, and related measures by trading partners, have not materially impacted our business and results of operations through the first quarter of 2027, but we are actively monitoring developments and assessing options to mitigate potential future actions. For additional information, please see Part I, Item 1A, Risk Factors, included in our 2026 Annual Report on Form 10-K.
Previous wording
The following table sets forth, for the periods presented, selected summary information from our Condensed Consolidated Statements of Operations by dollars and percentage of net revenue(1):
Current wording
The following table sets forth, for the periods presented, selected summary information from our Condensed Consolidated Statements of Income by dollars and percentage of net revenue(1):
Previous wording
Comparison of Three and Nine Months Ended April 3, 2026 to Three and Nine Months Ended March 28, 2025
Current wording
Comparison of Three Months Ended October 2, 2026 to Three Months Ended October 3, 2025
Previous wording
Cloud revenue, representing 89% of total revenue, increased by 48% for the three months ended April 3, 2026 from the comparable period in the prior year, driven by a 36% increase in exabytes sold and a 9% increase in average selling price per exabyte. The increase in exabytes sold was driven by strong demand for our high-capacity enterprise products. The increase in average selling price per exabyte was due to an improved pricing environment. Cloud revenue, representing 89% of total revenue, increased by 36% for the nine months ended April 3, 2026 from the comparable period in the prior year, driven by a 29% increase in exabytes sold and a 5% increase in average selling price per exabyte. The increase in exabytes sold and increase in average selling price per exabyte were attributable to the same factors noted for the three-month period above.
Current wording
Cloud revenue, representing 88% of total revenue, increased by 54% for the three months ended October 2, 2026 from the comparable period in the prior year, driven by a more than 20% increase in exabytes shipped along with an approximately 25% increase in average selling price per exabyte. The increase in exabytes shipped was driven by strong demand for our high-capacity products due to continued data growth, fueled by the ongoing expansion of cloud environments and the increasing storage demands from AI. The increase in average selling price per exabyte was due to an improved pricing environment.
Previous wording
The change in mix of net revenue by geography for the three and nine months ended April 3, 2026 from the comparable periods in the prior year reflects larger percentage increases in the Asia and Europe, Middle East and Africa regions as customers are ramping up data center capacity in these regions.
Current wording
The change in mix of net revenue by geography for the three months ended October 2, 2026 from the comparable periods in the prior year is largely driven by the deployment and build plans of our larger Cloud customers.
Previous wording
Our top 10 customers accounted for 71% and 74%, respectively, of our net revenue for the three and nine months ended April 3, 2026, compared to 73% and 68%, respectively, of our net revenue for the three and nine months ended March 28, 2025. For the three months ended April 3, 2026, three customers accounted for 17%, 15%, and 11%, respectively, of our net revenue, and for the three months ended March 28, 2025, three customers accounted for 18%, 16% and 13%, respectively, of our net revenue. For the nine months ended April 3, 2026, three customers accounted for 16%, 15%, and 13%, respectively, of our net revenue, and for the nine months ended March 28, 2025, two customers accounted for 18% and 11%, respectively, of our net revenue.
Current wording
Our top 10 customers accounted for 64% of our net revenue for the three months ended October 2, 2026, compared to 73% of our net revenue for the three months ended October 3, 2025. For the three months ended October 2, 2026, two customers accounted for 14% and 13%, respectively, of our net revenue, and for the three months ended October 3, 2025, four customers accounted for 16%, 13%, 13% and 12%, respectively, of our net revenue.
Previous wording
Gross profit increased by $764 million for the three months ended April 3, 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. Gross margin increased by 10 percentage points year over year, primarily due to a lower cost structure on our newer generation products and improved pricing. Gross profit increased by $1.66 billion for the nine months ended April 3, 2026 from the comparable period in the prior year and gross margin increased by 9 percentage points during the same year-over-year period, primarily due to the same factors noted for the three-month period above.
Current wording
Gross profit increased by $1.31 billion, or 14 percentage points, for the three months ended October 2, 2026 from the comparable period in the prior year, due to improved pricing, an increased volume of shipments, and a lower cost structure on our newer generation products.
Previous wording
Selling, general and administrative (“SG&A”) expense increased by $39 million for the three months ended April 3, 2026 from the comparable period in the prior year. The increase was primarily attributable to higher compensation-related expense, as a result of our improved financial performance. SG&A expense decreased by $31 million for the nine months ended April 3, 2026 from the comparable period in the prior year, as that period included substantial costs associated with the final planning and execution of the Separation, including duplicative personnel costs and higher outside service fees.
Current wording
Selling, general and administrative expense increased by $24 million for the three months ended October 2, 2026 from the comparable period in the prior year. The increase was primarily attributable to higher compensation-related costs.
Previous wording
Total interest and other income (expense), changed by $2.86 billion for the three months ended April 3, 2026 from the comparable period in the prior year. The change reflects a gain of $2.73 billion on our retained interest in Sandisk in the current period based on the mark-to-market value as of April 3, 2026, compared to a loss of $606 million in the prior year, and lower interest expense of $53 million, which reflects the reduction in our debt. These changes were partially offset by $545 million of costs incurred in connection with our debt-for-equity exchange, which reflects the discount provided on the monetization of Sandisk shares. Total interest and other income (expense), changed by $4.64 billion for the nine months ended April 3, 2026 from the comparable period in the prior year. The change primarily reflects an unrealized gain of $4.45 billion on our retained interest in Sandisk in the current period based on the mark-to-market value as of April 3, 2026, compared to a loss of $606 million in the prior year, and lower interest expense of $132 million, which reflects the reduction in our debt. These changes were partially offset by $545 million of costs incurred in connection with the debt-for-equity exchange as described above.
Current wording
Total interest and other income (expense) changed by $553 million for the three months ended October 2, 2026 from the comparable period in the prior year. The change reflects a non-recurring gain of $611 million on our retained interest in Sandisk in the prior period based on the mark-to-market value as of October 3, 2025, partially offset by lower interest expense of $48 million, which reflects the reduction in our debt.
Previous wording
The following table presents our Income tax expense (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 April 3, 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. These resulted in decreases to our effective tax rate below the U.S. Federal statutory rate for the three and nine months ended April 3, 2026. Our income tax provision for the three and nine months ended April 3, 2026 includes GMT for Malaysia as well as Thailand and the Philippines, countries for which we maintain tax holidays.
Current wording
The primary drivers of the difference between the effective tax rate and the U.S. Federal statutory rate of 21% for the three months ended October 2, 2026 are the relative mix of earnings and losses by jurisdiction, the deduction for FDDEI, excess tax over book deductions for stock-based compensation, as well as certain tax credits. We maintain tax holidays on a portion of our earnings in the Philippines and Thailand, which are set to expire at various dates from 2029 through 2033. The tax benefits from these holidays are minimized by the implementation of the GMT and are not material to our Condensed Consolidated Financial Statements for the three months ended October 2, 2026.
Previous wording
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 wording
Previously, TCJA eliminated the ability to deduct R&D expenditures in the year incurred, requiring capitalization and amortization. In July 2025, the 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 in 2026. The legislation also includes favorable modifications to international tax provisions, including changes to the Global Intangible Low-Taxed Income regime, which is renamed as Net CFC Tested Income and enhancements to the FDDEI deduction that became effective for us in 2027.
Previous 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.
Current wording
The following table summarizes our statements of cash flows.
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 $368 million for the nine months ended April 3, 2026, compared to $1.15 billion for the nine months ended March 28, 2025. The year over year improvement largely reflects a $365 million reduction in inventory as a result of increased shipments to customers, a $345 million improvement from accrued expenses resulting from a significant reduction in our derivative hedging activities since the Separation, a $225 million improvement from accrued compensation resulting from amount and timing of payment of variable compensation, and a $883 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 $504 million increase in accounts receivable driven by the growth in our business volume and a $518 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. The significant improvement in cash from operating activities for the three months ended October 2, 2026 was primarily driven by the improved profitability in the business from the comparable period in the prior year, partially offset by the increased net cash used for changes in operating assets and liabilities.
Previous wording
Net cash used in investing activities for the nine months ended April 3, 2026 primarily consisted of $310 million in capital expenditures. 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.
Current wording
Net cash used in investing activities for the three months ended October 2, 2026 primarily consisted of $227 million in capital expenditures. Net cash used in investing activities for the three months ended October 3, 2025 primarily consisted of $73 million in capital expenditures.
Previous wording
Net cash used in financing activities for the nine months ended April 3, 2026 primarily consisted of $1.92 billion for share repurchases, $1.56 billion for repayments of our debt, $197 million for taxes paid on vested stock awards under employee stock plans, and $130 million for dividends on our common stock and Preferred Shares. These uses were partially offset by $1.50 billion of net proceeds from a bridge loan and $32 million of proceeds from the issuance of stock under employee stock plans. Net cash provided by financing activities for the nine months ended March 28, 2025 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-3 and prior Term Loan A-2, $92 million for taxes paid on vested stock awards under employee stock plans, and $74 million paid for debt issuance costs.
Current wording
Net cash used in financing activities for the three months ended October 2, 2026 primarily consisted of $1.00 billion for share repurchases, $570 million to settle a portion of our Convertible Notes, $317 million for taxes paid on vested stock awards under employee stock plans, and $56 million of dividends paid on our common stock. These uses were partially offset by $300 million of net borrowings from our Revolving Credit Facility. Net cash used in financing activities for the three months ended October 3, 2025 primarily consisted of $553 million for share repurchases, $39 million of dividends paid on our common stock and Preferred Shares, $55 million for taxes paid on vested stock awards under employee stock plans and $31 million of scheduled repayments on our term loan.
Previous wording
We believe our cash and cash equivalents and our available 2027 Revolving Credit Facility (as defined below) will be sufficient to meet our working capital, debt, dividend and capital expenditure needs for at least the next twelve months and for the foreseeable future thereafter. We believe we can also access the various debt and equity capital markets to further supplement our liquidity position if necessary. Our ability to sustain our working capital position is subject to a number of risks that we discuss in Part II, Item 1A, Risk Factors, in this Quarterly Report on Form 10-Q and in Part I, Item 1A, Risk Factors, in our 2025 Annual Report on Form 10-K.
Current wording
We believe our cash and cash equivalents and cash flows from operations will be sufficient to meet our working capital, debt, dividend and capital expenditure needs and fund our share repurchases for at least the next twelve months and for the foreseeable future thereafter. We also believe we can access the various debt and equity capital markets to further supplement our liquidity position, if necessary. Our ability to sustain our working capital position is subject to a number of risks that we discuss in Part I, Item 1A, Risk Factors, in our 2026 Annual Report on Form 10-K.
Previous wording
In August 2024, we filed a shelf registration statement (the “Shelf Registration Statement”) with the Securities and Exchange Commission that expires in August 2027. The Shelf Registration Statement allows us to offer and sell shares of common stock, preferred stock, warrants, and debt securities. We may use the Shelf Registration Statement or other capital sources, including other offerings of equity or debt securities or the credit markets, to satisfy future financing needs, including planned or unanticipated capital expenditures, investments, debt repayments or other expenses. Any such additional financing will be subject to market conditions and may not be available on terms acceptable to us or at all.
Current wording
In August 2024, we filed a shelf registration statement (the “Shelf Registration Statement”) with the SEC that expires in August 2027. The Shelf Registration Statement allows us to offer and sell shares of common stock, preferred stock, warrants, and debt securities. We may use the Shelf Registration Statement or other capital sources, including other offerings of equity or debt securities or the credit markets, to satisfy future financing needs, including planned or unanticipated capital expenditures, investments, debt repayments or other expenses. Any such additional financing will be subject to market conditions and may not be available on terms acceptable to us or at all.
Previous wording
A total of $1.31 billion and $984 million of our cash and cash equivalents was held by our foreign subsidiaries as of April 3, 2026 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 $1.00 billion and $1.08 billion of our cash and cash equivalents was held by our foreign subsidiaries as of October 2, 2026 and July 3, 2026, respectively. There are no material tax consequences that were not previously accrued for on the repatriation of this cash.
Previous wording
The following is a summary of our known material cash requirements as of April 3, 2026. In addition, see the discussions further below related to liability for unrecognized tax benefits, litigation matters, cash dividend program, global minimum tax, foreign exchange contracts and indemnifications.
Current wording
The following is a summary of our known material cash requirements as of October 2, 2026. In addition, see the discussions further below for other potential uses of cash related to our cash dividend program, Share Repurchase Program, liability for unrecognized tax benefits, global minimum tax, foreign exchange contracts, litigation matters, and potential indemnifications.
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, we 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 $37.72 per share of common stock as of April 3, 2026. 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 5, Debt, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, as of October 2, 2026, $141 million in aggregate principal amount of Convertible Notes remained outstanding. The Convertible Notes are currently convertible at the option of any holder, at a conversion price of approximately $37.70 per share of common stock as of October 2, 2026. Upon any conversion of the 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 the Company’s 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. Through October 2, 2026, $31 million in aggregate principal amount of these notes had been tendered for conversion. We have elected to issue shares of our common stock to satisfy the conversion obligation in excess of the principal amount for substantially all of the notes tendered for conversion, which are expected to settle in the second quarter of 2027.
Previous wording
In addition to our outstanding debt, as of April 3, 2026, 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. During the three months ended April 3, 2026, the Company obtained investment grade ratings from two rating agencies and therefore, pursuant to the terms of the Loan Agreement, the guarantees and collateral on the 2027 Revolving Credit Facility were released. The Loan Agreement requires us to comply with a financial leverage ratio covenant. As of April 3, 2026, 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.
Current wording
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 Consolidated Financial Statements included in our 2026 Annual Report on Form 10-K and Note 5, Debt, of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Previous wording
The following tables include summarized financial information for the Obligor Group. The financial information for the Obligor Group is presented on combined basis, excluding intercompany balances and transactions between the Company and the Guarantor, excluding net intercompany balances between the Obligor Group and non-guarantor subsidiaries, and excluding investments in and equity in the earnings of non-guarantor subsidiaries. The Obligor Group’s amounts due from, amounts due to, and transactions with non-guarantor subsidiaries have been presented in separate line items in the tables below.
Current wording
The following tables include summarized financial information for the Obligor Group. The financial information for the Obligor Group is presented on a combined basis, excluding intercompany balances and transactions between the Company and the Guarantor, excluding net intercompany balances between the Obligor Group and non-guarantor subsidiaries, and excluding investments in and equity in the earnings of non-guarantor subsidiaries. The Obligor Group’s amounts due from, amounts due to, and transactions with non-guarantor subsidiaries have been presented in separate line items in the tables below.
Previous wording
In the normal course of business, we enter into purchase orders with suppliers for the purchase of components used to manufacture our products. These purchase orders generally cover forecasted component supplies needed for production during the next quarter, are recorded as a liability upon receipt of the components, and generally may be changed or canceled at any time prior to shipment of the components. We also enter into long-term agreements with suppliers that contain fixed future commitments, which are contingent on certain conditions, such as performance, quality and technology of the vendor’s components. These arrangements are included under “Purchase obligations and other commitments” in the table above.
Current wording
In the normal course of business, we enter into purchase orders with suppliers for the purchase of components used to manufacture our products. These purchase orders generally cover forecasted component supplies needed for production during the next quarter, are recorded as a liability upon transfer of the components, and generally may be changed or canceled at any time prior to shipment of the components. We also enter into long-term agreements with suppliers that contain fixed future commitments, which are contingent on certain conditions, such as performance, quality and technology of the vendor’s components. These arrangements are included under “Purchase obligations and other commitments” in the table above.
Previous wording
As of April 3, 2026, the liability for unrecognized tax benefits (excluding accrued interest and penalties) was $603 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 April 3, 2026 was $123 million. Of these amounts, approximately $133 million could result in potential cash payments to be made within the next twelve months.
Current wording
As of October 2, 2026, the liability for unrecognized tax benefits (excluding accrued interest and penalties) was $635 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 2, 2026 was $126 million. Of these amounts, approximately $351 million could result in potential cash payments to be made within the next twelve months.
Previous wording
As of April 3, 2026, we have accrued GMT liabilities of $62 million that are not expected to be paid until the second quarter of 2028.
Current wording
As of October 2, 2026, we have accrued GMT liabilities of $90 million, which encompass obligations originating from both 2026 and for the three months ended October 2, 2026. Due to transitional 18-month filing extensions permitted under the OECD Pillar Two framework, initial cash payments for these obligations are not expected to be fully settled until the second quarter of 2028.
Previous wording
We have prepared the accompanying unaudited Condensed Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The preparation of the financial statements requires the use of judgments and estimates that affect the reported amounts of revenues, expenses, assets, liabilities and shareholders’ equity. We have adopted accounting policies and practices that are generally accepted in the industry in which we operate. If these estimates differ significantly from actual results, the impact to the Condensed Consolidated Financial Statements may be material.
Current wording
We have prepared the accompanying unaudited Condensed Consolidated Financial Statements in accordance with U.S. GAAP. The preparation of the financial statements requires the use of judgments and estimates that affect the reported amounts of revenues, expenses, assets, liabilities and shareholders’ equity. We have adopted accounting policies and practices that are generally accepted in the industry in which we operate. If these estimates differ significantly from actual results, the impact to the Condensed Consolidated Financial Statements may be material.
Rearranged current paragraphs (1)
Current report — wording carried from elsewhere
The primary drivers of the difference between the effective tax rate and the U.S. Federal statutory rate of 21% for the three months ended October 3, 2025 were the relative mix of earnings and losses by jurisdiction, the deduction for FDDEI, certain tax credits, and the tax-free gain on the retained interest in Sandisk.
Rearranged previous paragraphs (2)
Previous report — wording carried elsewhere
(1)Percentages may not total due to rounding.
Previous report — wording carried elsewhere
For information regarding 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.