WESTERN DIGITAL CORP

Western Digital Corporation operates in the data storage industry, where HDDs are critical components in the worldwide data infrastructure market, powering the digital economy. The company believes there is tremendous market opportunity created by the rapid global adoption of technology built with cloud infrastructure, connected intelligent devices, and high-performance networks, with the increase in computing complexity and advancements in AI driving rapid growth in the volume of digital content to be stored. HDDs occupy a unique place in the market by providing an economical means to create, store and utilize an increasing amount of data in the age of AI, and the company believes HDDs provide a sustainable total cost of ownership advantage to cloud customers.

The company believes it is well positioned as a leading supplier in the industry given the depth of its industry knowledge and the breadth of its product portfolio. Competitors named in the filing include HDD competitors such as Seagate Technology Holdings plc and Toshiba Electronic Devices & Storage Corporation, along with NAND flash suppliers that provide and enable alternative storage technologies, as well as storage systems and solutions providers. The company states it has a wide range of intellectual property assets, including patent portfolios containing approximately 4,500 active patents ¹, covering groundbreaking data storage technologies, magnetic recording and other technology building blocks.

The company generates revenue by developing, manufacturing, and providing data storage devices and solutions based on HDD technology. Its broad portfolio of technology and products addresses customers' storage needs through multiple end markets: Cloud, Client, and Consumer, and is comprised of the Western Digital and WD brands. The company also generates immaterial license and royalty revenue from its extensive intellectual property portfolio, which is included in each of these three end market categories.

The Cloud end market is comprised primarily of products for public or private cloud environments and enterprise customers, and the company provides this end market with an array of high-capacity enterprise HDDs and platforms. For the year ended June 27, 2025, the Cloud end market accounted for 88% of total revenue ² and generated $8.341 billion ³ in revenue. The Client end market provides OEM and channel customers a broad array of high-performance HDD solutions across desktop and notebooks, generating $556 million ⁴ in revenue for fiscal 2025. The Consumer end market serves customers with a portfolio of HDD external storage products and generated $623 million ⁵ in revenue for fiscal 2025.

The company's HDD products provide non-volatile data storage by recording magnetic information on rotating disks, and the company develops and manufactures substantially all of the recording heads and magnetic media used in its HDD products. The multi-year product roadmap for high-capacity HDDs includes ePMR, OptiNAND, UltraSMR and triple stage actuators to deliver a cutting-edge portfolio of drives. The company's products generally leverage a common platform for various products within product families, resulting in the commonality of components which reduces exposure to changes in demand, facilitates inventory management and allows the company to achieve lower costs through purchasing economies.

On February 21, 2025, the company completed the separation of its HDD and Flash business units to create two independent public companies, with Western Digital focusing on its existing HDD business and Sandisk Corporation holding the Flash business. The Separation was effected through a pro rata distribution of 80.1% ⁶ of the outstanding shares of Sandisk common stock to holders of the company's common stock. The company retained 28.8 million ⁷ shares of Sandisk common stock, or a 19.9% ⁸ stake, and during the quarter ended June 27, 2025, disposed of 21.3 million ⁹ shares of Sandisk common stock, along with $4 million ¹⁰ in cash, in a tax-free exchange for $800 million ¹¹ principal amount of the company's term loan A-3. On April 29, 2025, the Board of Directors authorized the adoption of a quarterly cash dividend program, and during the year ended June 27, 2025, the company paid cash dividends of $0.10 ¹² per share of outstanding common stock, totaling $36 million ¹³. On May 9, 2025, the Board of Directors authorized a share repurchase program for the repurchase of up to $2.0 billion ¹⁴ of common stock, and for the year ended June 27, 2025, the company repurchased 2.8 million ¹⁵ shares for a total cost of $149 million ¹⁶.

Net revenue increased by 51% in fiscal 2025 compared to fiscal 2024, primarily driven by a 29% increase in average selling price per unit as a result of a shift in product mix to higher capacity drives and a 15% increase in units sold. Gross profit increased by $1.92 billion ¹⁷ in fiscal 2025 compared to fiscal 2024, and gross margin increased 10.7 percentage points ¹⁸ to 38.8% ¹⁹. Net income from continuing operations was $1.643 billion ²⁰ in fiscal 2025, compared to a net loss from continuing operations of $765 million ²¹ in fiscal 2024. Net cash provided by operating activities was $1.691 billion ²² in fiscal 2025, compared to net cash used in operating activities of $294 million ²³ in fiscal 2024.

The company believes there is tremendous market opportunity created by the rapid global adoption of technology built with cloud infrastructure, connected intelligent devices, and high-performance networks, with the increase in computing complexity and advancements in AI driving rapid growth in the volume of digital content to be stored. The company anticipates that digital transformation, including the AI data-cycle, will drive improved market conditions in the long term. The company's multi-year product roadmap for high-capacity HDDs, which include ePMR, OptiNAND, UltraSMR and triple stage actuators, positions Western Digital to capitalize on the opportunities presented by the large and growing storage markets.

The company believes the Separation of its HDD and Flash business units better positions each business unit to execute innovative technology and product development, capitalize on unique growth opportunities, extend respective leadership positions, operate more efficiently with distinct capital structures, and pursue capital allocation strategies that maximize long-term shareholder value. The company expects to monetize its remaining stake in Sandisk within one year from the Separation Date. The company also expects to realize reductions to its mandatory deemed repatriation tax obligations and tax savings from interest deductions in future years aggregating to $166 million ²⁴ from the settlements for tax years 2008 through 2015.

Gross margin increased 10.7 percentage points ²⁵ in fiscal 2025 compared to fiscal 2024, with approximately 2.5 percentage points ²⁶ of the increase due to the impact of unabsorbed manufacturing overhead costs in the prior year and the remainder driven by higher revenues, cost reductions due to efficiencies achieved through improved manufacturing operations, cost-saving actions, and a more favorable product mix. The company expects its capital expenditures for fiscal year 2026 to be between 4% to 6% ²⁷ of its net revenue.

The company's vertically integrated, in-house assembly and test operations are concentrated in Prachinburi and Bang Pa-In, Thailand; Penang, Johor Bahru, and Kuching, Malaysia; Laguna, Philippines; Shenzhen, China; and San Jose and Fremont, CA, USA. The company continually evaluates its manufacturing processes in an effort to increase productivity, sustain and improve quality and decrease manufacturing costs, and also leverages contract manufacturers when strategically advantageous. At the end of fiscal 2025, the company employed approximately 40,000 ²⁸ people worldwide.

The company's Board of Directors authorized a share repurchase program for the repurchase of up to $2.0 billion ²⁹ of common stock, and as of June 27, 2025, the remaining amount available to be repurchased was $1.85 billion ³⁰. During the year ended June 27, 2025, the company paid cash dividends of $0.10 ³¹ per share of outstanding common stock, totaling $36 million ³². The company expects share repurchases to be funded principally by operating cash flows. The company's research and development expense was $994 million ³³ in fiscal 2025, and capital expenditures were $412 million ³⁴ in fiscal 2025.

The United States has recently announced changes to its trade policy, including increasing tariffs on imports, in some cases significantly, which have caused substantial uncertainty and have also resulted in retaliatory measures on U.S. goods. The company's business and results of operations were not materially impacted in fiscal 2025 as a result of the recent tariff actions, but there can be no assurance that the company will be able to successfully offset or mitigate any resulting increase in its costs. The impact of the tariff actions on customers, retaliatory measures by other countries in response to U.S. trade policy and any resulting decline in consumer confidence, significant inflation and diminished expectations for the economy could reduce demand for the company's products.

The company's business is subject to variability of sales because it is largely dependent on the buying patterns of its large Cloud customers, driven by their needs for deploying technology in their data center buildouts, as well as on their ability to procure other products that go into such buildouts. The company's business is also impacted by cyclicality in the industry, as well as macroeconomic factors. In fiscal 2024, the company and its industry experienced a supply-demand imbalance, which led to reduced shipments, negatively impacted pricing, and resulted in business realignment charges and charges for unabsorbed manufacturing overhead costs due to the underutilization of facilities.

The company faces significant risks from the separation of Sandisk, as it is now a smaller and less diversified company, and there can be no assurance that the anticipated benefits of the Separation will be realized. The company's revenue is highly concentrated, with the Cloud end market accounting for 88% ³⁵ of total revenue and the top 10 customers accounting for 68% ³⁶ of net revenue in fiscal 2025, with three customers each accounting for 17% ³⁷, 12% ³⁸, and 10% ³⁹ respectively. The company is dependent on a limited number of qualified suppliers for critical components, and a disruption in the supply chain could negatively affect the business. The company's level of debt, which totaled $4.749 billion ⁴⁰ in principal as of June 27, 2025, could negatively impact liquidity and restrict operations, and the $1.6 billion ⁴¹ principal amount of convertible notes is classified as current debt due to a triggered conversion feature. Changes in U.S. trade policy, including tariffs, could have a material adverse effect on the business, as the company's international sales represented 55% ⁴² of net revenue in fiscal 2025.

Management's message emphasizes that the Separation of the HDD and Flash business units better positions each business unit to execute innovative technology and product development, capitalize on unique growth opportunities, extend respective leadership positions, operate more efficiently with distinct capital structures, and pursue capital allocation strategies that maximize long-term shareholder value. Management states that as global data creation continues to accelerate, particularly in the age of AI, and as the need to store and retain data also grows, the company believes HDDs will continue to remain the preferred technology for storing large volumes of data as the most economical solution to the large cloud data centers for their mass storage needs. The company's overall strategy focuses on leadership, innovation and execution, with a goal of furthering Western Digital as an industry-leading and broad-based developer, manufacturer and provider of storage devices and solutions, reflecting foundational elements including enhanced customer focus, product and technology leadership, rigorous financial discipline, operational excellence, innovation and growth, and high performance teams.