Western Digital ( Western Digital , NASDAQ : WDC ) announced on October 22 its financial results for the first quarter of fiscal year 2027 and guidance for the second quarter, which significantly exceeded Wall Street's expectations. However, the company's stock price still fell by about 8% after the market closed. The company's revenue in the first quarter increased by 55% year-over-year to $4.38 billion, and the adjusted earnings per share reached $4.64, both of which were higher than market expectations; the median forecast for second-quarter revenue even exceeded expectations by about 12%. Nevertheless, management warned during the earnings conference call about rising input costs such as raw materials and predicted that capital expenditures will remain high in the coming years, raising concerns among investors regarding future cash flow and profitability. Western Digital's stock price initially rose by about 4% after the market closed but then quickly turned down.
Western Digital reported revenue of $4.38 billion in the first quarter of its 2027 fiscal year, a year-over-year increase of 55%, exceeding analysts' forecast of $4.14 billion; adjusted earnings per share reached $4.64, higher than the market's expectation of $4.08, with a year-over-year increase of 161%. The company stated that strong customer demand and improved operational efficiency drove the quarter's performance growth.
In terms of profitability, Western Digital's adjusted gross margin reached 58.1%, an increase of 14.2 percentage points from 43.9% in the same period last year, and its operating profit margin reached 49.1%. The company generated $1.6 billion in operating cash flow during that quarter, with free cash flow amounting to $1.38 billion, demonstrating a strong ability to create cash.
Looking ahead to the second quarter, Western Digital expects revenue to range from $5 billion to $5.2 billion, with a mid-range estimate of $5.1 billion, which is about 12% higher than the market's consensus forecast of $4.57 billion. Adjusted earnings per share are expected to reach $5.60 to $6.00, with a mid-range of $5.80, which is about 20% higher than the market's forecast of $4.82.
Western Digital's CEO, Evan Chen ( Irving Tan ), stated that the company had a strong start to the fiscal year 2027, with performance exceeding expectations, mainly due to robust customer demand and strict operational execution.
Despite strong performance and guidance, Western Data's stock price turned down during the earnings conference call, mainly due to the management's stance on future investment costs and capital expenditures.
The company expects that in the next five years, capital expenditures will average 4% to 6% of revenue, with the proportion of capital expenditures possibly being slightly higher than this long-term range in the first two years. As the scale of revenue expands rapidly, this means that the company may need to invest more funds in the future for manufacturing equipment, capacity expansion, and related technological upgrades.
At the same time, Western Digital warns that raw material and other input costs are rising, which may put pressure on future profit margins. However, management indicates that the company is still expected to achieve its goal of reducing the cost per unit of storage capacity, namely the cost per TB, by about 10% year-on-year in the near term, thereby offsetting some of the impact of the rising costs.
This statement has prompted investors to re-evaluate the company's future profitability. Although there is currently strong demand for storage products, with both selling prices and profit margins remaining at relatively high levels, if input costs continue to rise and capital expenditures increase as well, future free cash flow growth may be affected to some extent.
Western Digital's stock price fell 6.43% during regular trading on October 22, closing at $354.19. After the release of its financial report, the stock price initially rose by about 4% as both the first-quarter results and second-quarter guidance far exceeded expectations. However, after management disclosed the prospects for costs and capital expenditures, the price quickly reversed, falling by about 8% at one point.
This stock price fluctuation also occurred against the backdrop of general pressure on AI related stocks. Recently, investors have become increasingly sensitive to the financing costs, capital expenditure scales, and investment return cycles of artificial intelligence infrastructure construction. Even if companies release strong financial reports, the market may still react negatively to future cost increases.
However, Western Digital is still releasing cash through shareholder return measures. The company announced an increase in the quarterly cash dividend by 17% to $0.175 per share, with plans to distribute it to shareholders registered as of December 4 on December 17.
This financial report reflects a clear contrast between Western Data's current operational performance and market expectations: the company has not only achieved a 55% increase in revenue but also seen a significant improvement in gross margin, and its performance forecast for the next quarter far exceeds Wall Street's predictions. However, with the stock price having risen previously, investors have begun to pay more attention to whether future capital expenditures and cost increases will erode profit margins. Whether management can continue to offset rising input costs by reducing unit storage costs will become an important indicator to watch for subsequent performance.
