Samsung strike alert lifted! Where are memory stocks headed?

業績會第一現場

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西部數據2026財年Q3業績直播

Key Takeaways (AI-Generated)

Financial Performance

- Revenue was $3.3 billion, up 45% year over year, driven by strong demand across all end markets

- Earnings per share was $2.72, almost double compared to a year ago and above guidance range

- Gross margin expanded to 50.5%, improving 1040 basis points year over year and 440 basis points sequentially

- Operating income reached $1.3 billion, up 116% year over year, with operating margin of 38.6%

Business Highlights

- Strengthened balance sheet by monetizing 5.8 million SanDisk shares, reducing debt by $3.1 billion

- Received investment grade upgrades from S&P and Fitch rating agencies

- Board approved 20% dividend increase from $0.125 to $0.15 per share

- Advanced product roadmap with 44TB HAMMER and 40TB EPMR drives in qualification

Financial Guidance

- Q4 fiscal 2026 revenue expected at $3.65 billion plus or minus $100 million

- Gross margin expected in range of 51% to 52%

- Operating expenses anticipated between $385-395 million

- Diluted earnings per share expected at $3.25 plus or minus $0.15

Opportunities

- Agentic AI represents structural shift creating step function increase in capacity-oriented storage demand

- Next generation 40TB EPMR drives starting volume production in second half of calendar 2026

- Ultra SMR technology providing 20% capacity uplift without associated costs

- High capacity drive roadmap extends beyond 100TB on HAMMER technology

Full Transcript (AI-Generated)

Operator

Good afternoon and thank you for standing by. Welcome to Western Digital's Third Quarter Fiscal 2026 Conference Call. Presently, all participants are in listen only mode. Later, we will conduct a question and answer session. At that time, if you would like to ask a question, you may press *1 on your phone. As a reminder, this call is being recorded.

Now I'll turn the call over to Mr. Ambrish Srivastava, Vice President, Investor Relations. You may begin.

Ambrish Srivastava

Thank you and good afternoon everyone. Joining me today are Irving Tan, WDS Chief Executive Officer and Chris Senesal, WDS Chief Financial Officer. Before we begin, please note that today's discussion will contain forward-looking statements based on management's current assumptions and expectations, which are subject to various risks and uncertainties.

These forward-looking statements include expectations for our product portfolio, our business plans and performance, ongoing market trends and our future financial results. We assume no obligation to update these statements. Please refer to our most recent annual report on Form 10K and our other filings with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially from expectations in our prepared remarks.

Our comments will be related to non GAAP results on the continuing operations basis unless stated otherwise. Reconciliations between the non GAAP and comparable GAAP financial measures are included in the press release and other materials that have been posted in the Investor Relations section of our website at investor.wdc.com.

Lastly, I want to note that when we refer to we, us or all similar terms, we are referring only to WD as a company and not speaking on behalf of the industry. With that, I will now turn the call over to Irving for introductory remarks. Irving.

Irving Tan

Thanks, Ambrish and good afternoon everyone and thank you for joining us today. WD started calendar year 2026 with great execution driving strong sequential and year over year revenue growth in cloud, consumer and client businesses while expanding gross and operating margins.

Gross margin exceeded 50% driven by our continued innovation and focus on improving total cost of ownership for customers through higher capacity drives and increased adoption of our ultra SMR products. With strong operating leverage, lower interest expense and efficient tax structure, these efforts resulted in nearly doubling of our EPS compared to last year.

These results reflect our commitment to leading edge innovation and strong execution. This is an exciting time to be part of WD, a focused HDD company and a strategic partner to hyperscalers and cloud service providers in this AI driven data economy. We are well positioned with business momentum building across our entire portfolio with greater visibility into long term customer demand.

Looking at the bigger picture, it is clear that data and data storage are becoming more critical and valuable as AI workloads extend from training to large scale inferencing. Data generation is at an inflection point. This year, inference is expected to account for roughly 2/3 of all AI compute. This larger focus on inference increases the amount of data generated, which in turn increases the need for data storage.

The scale of what is happening is also considerable. One leading hyperscaler's LLM processes over 16 billion tokens per minute via direct API used by their customers, while another AI company processes over 2.5 billion prompts every single day from 900 million active users. While the resources that are used to create tokens are recycled, the data that is being created must be stored.

Every token, every prompt, and every query answered and checkpoint saved creates data that requires persistent, scalable and cost efficient storage. And the majority of this data is stored on hard disk drives. As we look ahead, we see the rise of agentic AI, the next wave and arguably the biggest yet.

What we are seeing with agentic AI frameworks represents a structural shift from AI that answers questions to AI that continuously executes workflows. That transition materially increases data generation and extends data retention cycles. Every hour of autonomous agent work and every action an agent takes creates data that must be stored.

As a result, we expect agentic AI to drive a step function increase in capacity oriented storage demand, particularly in cloud and enterprise environments. Beyond agentic AI, two more waves are building simultaneously. Synthetic data, the primary fuel for physical AI, is by design orders of magnitude larger than real world inputs that seeded across industries.

Physical AI data factory frameworks are being designed to transform limited training data into larger synthetic data sets at scale for robotics, autonomous vehicles and vision AI. And physical AI itself, robots, industrial systems, autonomous fleets generates continuous streams of video, sensor and motion data that must be stored, versioned, and fed back into training loops.

These forces are not additive, they are a compounding loop. Inference creates data, agents consume and generate more data, physical AI creates data and trains synthetic models that create more data, and ultimately the loop accelerates. We are truly seeing that the AI driven data economy is creating an unprecedented demand for high capacity, reliable and high performance storage on HDDs.

This reinforces our conviction that long term data storage growth will be greater than 25%. WD's technology and product road map is purpose built to meet this growing demand. As we shared on our innovation day in February, we continue to innovate to meet our customers needs through a combination of capacity leadership and performance innovation.

Our high capacity drive road map now extends from our 44 terabyte HAMMER and 40 terabyte EPMR drives that are currently in qualification to a road map that goes beyond 100 terabytes on Hammer. We are accelerating our development and we are now in qualification with four customers. We are qualifying our 40 terabyte EPMR drives with three customers and are on track to start volume production in the second-half of calendar year 2026.

With Ultra SMR technology, which works across both EPMR and HAMMER, we are expanding our customer base significantly. Three of our largest customers now have adopted the technology. Two are already meeting nearly all of their exabyte demand with Ultra SMR, while the third is rapidly ramping in that direction. We plan to have all of our major customers qualified on Ultra SMR by the end of calendar year 2027.

We are delivering on major aerial density improvements along with a focus on performance innovation with our high bandwidth drives. Customer response to our innovation has been very positive. Our high bandwidth drives are currently sampling with two hyperscale customers with an additional customer scheduled to start this quarter.

Our dual pivot technology is being built specifically for new AI workloads with an open API approach aimed at simplifying deployment at scale. Based on our industry leading technology and product road map, we are well positioned to support growing customer capacity demand and address their AI workload needs. Our long term visibility continues to improve with the duration of our agreements now extending into Calendar 28 and Calendar 29.

We continue to see strong demand from across our client, consumer and OEM enterprise customers as well. In summary, the tailwinds shaping our industry today are both exciting and dynamic. And at WD we remain focused on meeting our customers needs while enhancing the value proposition and delivering long term shareholder value to our investors. With that, let me now hand it over to Chris to share our Q3 results and outlook for Q4.

Chris Senesal

Thank you, Irving, and good afternoon everyone. The WD team delivered strong results, making solid progress against our strategic priorities with continued focus on innovation and disciplined execution, while advancing key initiatives and remaining tightly aligned with our customers growing exabyte demand.

As we move forward, we are encouraged by our momentum and remain confident in our ability to deliver sustainable revenue growth, expand gross and operating margins and create long term value for our shareholders. During the third quarter of fiscal 2026, revenue was 3.3 billion, up 45% year over year, driven by strong demand across all our end markets and an improved pricing environment.

Earnings per share was $2.72, almost double compared to a year ago. Revenue, gross margin and earnings per share were all above the high end of the guidance range. We delivered 222 exabytes to our customers, up 34% year over year. This includes over 4.1 million drives or 118 exabytes of our latest generation EPMR with capacity points up to 32 terabytes, demonstrating our ability to quickly ramp new technologies and products in support of strong customer demand.

Cloud represented 89% of total revenue at 3 billion, up 48% year over year, driven by strong demand for our higher capacity nearline product portfolio and a stronger pricing environment. Consumer represented 6% of revenue at 186 million, up 24% year over year. Client represented 5% of total revenue at 179 million, up 31% year over year.

Both client and consumer segments saw strong year over year exabyte growth and improved pricing. Gross margin for the fiscal third quarter expanded to 50.5%. Gross margin improved 1040 basis points year over year and 440 basis points sequentially. The drivers of strong gross margin performance include continued mix shift towards high capacity drives along with ongoing execution of our pricing strategy and tight cost control.

Operating expenses were 397 million or 11.9% to revenue, a 40 basis points sequential improvement demonstrating further operating leverage in the model. The sequential increase of operating expenses was driven by the acceleration of R&D project expenses as we continue to expand our Hammer qualifications with more customers.

Strong top line growth, expanding gross margin and leverage in the model drove operating income to 1.3 billion, up 116% year over year, translating into a strong operating margin of 38.6%, up 1260 basis points year over year. Interest and other expenses were 24 million and our effective tax rate in the fiscal third quarter was 16%, taking into account a diluted share count of 385 million shares. Earnings per share was $2.72, an increase of 97% year over year.

During the third fiscal quarter, we significantly strengthened our balance sheet by monetizing 5.8 million shares of SanDisk, which led to a 3.1 billion reduction in our debt. As a result, only 1.6 billion of convertible debt remains outstanding and with 2 billion in cash and cash equivalents, we ended the quarter in a net positive cash position of 450 million. At quarter end, we still owned 1.7 million shares of SanDisk.

Additionally, during the quarter, we received an upgrade from Standards and Poor's and Fitch to investment grade level. Operating cash flow for the third fiscal quarter was 1.1 billion and in combination with a disciplined approach to capital expenditures with CapEx of 145 million, this resulted in strong free cash flow generation of 978 million for the quarter and a free cash flow margin of 29%.

During the quarter, we made 43 million of dividend payments and increased our share repurchases to 752 million, repurchasing 2.9 million shares of common stock. Since the launch of our capital return program in the fourth quarter of fiscal 2025, we have returned 2.2 billion to our shareholders by way of share repurchases and dividend payments.

Also, given the Board and management confidence in the business, the Board has approved a 20% increase of the cash dividend from 12.5 cents per share of the company's common stock to $0.15 per share payable on June 17, 2026 to shareholders of record as of June 5th, 2026.

I will now turn to the outlook for the fourth quarter of fiscal 2026 as we continue to operate in a strong demand and pricing environment with longer term visibility across our cloud consumer and client businesses. We anticipate revenue to be 3.65 billion plus or minus 100 million at midpoint. This reflects a growth of 40% year over year.

Gross margin is expected to be in the range of 51 to 52%. We expect operating expenses in the range of 385 million to 395 million. Interest and other expenses are anticipated to be 10 million. The tax rate is expected to be 16%. As a result, we expect diluted earnings per share to be $3.25 plus or minus 15 cents based on a non GAAP diluted share count of 385 million shares.

In summary, this quarter's results and outlook highlight our commitment to disciplined execution, focus on innovation and deep customer engagements. Our strengthened balance sheet and robust free cash flow empowered us to invest with confidence in the business. With strong momentum and a clear capital allocation framework, we are well positioned to drive durable earnings and free cash flow growth and create long term shareholder value. With that, let's now begin the Q&A. Ambrish.

Ambrish Srivastava

Thank you, Chris. Operator, you can now open the line to questions please. And to ensure that we hear from as many analysts as possible, please ask one question at a time. After we respond, we will give you an opportunity to ask one follow up question. Operator, thank you.

Operator

Ladies and gentlemen, we will now begin the question and answer portion of today's call. If you have a question, please press *1 on your phone. If you would like to withdraw your question, please press *2. One moment please for the first question. And today's first question comes from Eric Woodring at Morgan Stanley. Please go ahead.

Eric Woodring

Great guys. Thank you so much for taking my question. And Irving, Congrats on the really nice results. I would love if you could maybe go into a bit more detail on the specific tailwinds that HDDs and Western Digital are seeing from Agentic AI, meaning exactly what parts of the workflow in Agentic are ripe for HDDs. And again, just tying that back to your comment on greater than 25% long term exabyte growth, where does that go as a result of the Agentic AI? Thank you so much.

Irving Tan

Thanks Eric for the question. We really see 3 core drivers of HDD growth going forward, one that we've seen for quite a while right now, which is the ongoing storage requirements that's associated to training. So that's not going to end. Training will continue. Re learning, reinforcement, retraining is going to happen.

What we're seeing from our customers as they retrain and reinforce learning with these models, the quality of the model results that they get are improving. So they continue to store all the data they're generating to enable improved quality of the model. So that's one continued driver that we see.

The second driver that we're seeing is obviously the rise of agentic AI and inferencing. With every inference that happens, new data is getting generated and what's happening is that all that new data that's getting generated is getting stored as well to both feedback into training models and be sought to support future inference references as well. So that's the second key driver of what we're seeing both in terms of agentic AI and inferencing.

The third driver that we see for data storage for HDDs is obviously physical AI. As we've highlighted before, physical AI with the limited data sets that it has, whether it's autonomous vehicles or robotics is using AI to generate a lot of synthetic data to further train and enable physical AI as well. And obviously that needs to any data that's generated out of it gets stored and feeds that whole training and synthetic data development loop as well.

So those are the three big drivers of growth that we see going forward, Eric. That's why we have the confidence to see exabyte growth going beyond 25% going forward. Thank you, Eric. And did you have a follow up?

Eric Woodring

Yeah, just a quick follow up Chris for you. Over the last four quarters you guys have really shown a lot of gross margin expansion. I think it's 260 basis points on average over the last four quarters and you just did 4 1/2 points of gross margin expansion for the June quarter. Guidance implies about 100 basis points of gross margin expansion.

So just curious if there's conservatism baked into that forecast or if there are any emerging headwinds we need to consider just given you should, accelerating cost downs and you're seeing a really nice pricing growth. So just want to get some context around the June quarter gross margin, please and thanks so much, guys.

Chris Senesal

Yes, Eric, first of all, I'm really pleased that we delivered strong gross margin in the third quarter and breaking into the 50% gross margin range at 50.5%. For Q4, we are guiding to 51 to 52%. So some further good improvement in the gross margins.

If you look at the incremental gross margins on a year over year or quarter over quarter basis for 3 quarters in a row now and including a fourth quarter, the quarter that we guided to, you see very strong incremental gross margins in the plus 70 plus 75 percent range on a year over year and quarter over quarter basis.

And so we believe that we will be able to continue to further improve gross margins. Obviously, we'd only guide in 1 quarter at a time, but we definitely based on the strong pricing environment that we operate in, which is based on more and more value that we provide to our customers, as well as a better mix as we move to higher capacity drives with EPMR.

And later on, of course moving to hammer drives as well as more and more moving and driving adoption of Ultra SMR will give us further gross margin uplift. And then of course, we continue to execute well from an operations point of view. And so when you put it all together, very pleased with the gross margin and the gross margin trends going forward.

Operator

Operator, next question please. Thank you. And our next question today comes from Amit Daryanani with Evercore. Please go ahead.

Amit Daryanani

Thanks for taking my question and Congrats on a nice set of numbers here. I guess my first question is just on the pricing side. And I think on a per TB basis, pricing was up like 8-9 percent high single digits in March. It's a big step up from the flattest trends that you've seen in the last few quarters.

So could you help us understand what is sort of enabling this step up and is it reflective of some of these LTA contracts that you have engaged in? Just try to get a sense of, really, Irving, if this is the new normal and pricing as we go forward.

Irving Tan

Yeah, So Amit, thanks for the question. Pricing was up 9% year over year. It was driven by a couple of things. Obviously, the ongoing value that we're creating for our customers, better TCO value. As we said, our whole pricing philosophy is to be able to enable better TCO value for our customers and to be able to share in that value creation through pricing.

As we highlighted at innovation day, as Chris highlighted also we said that as we move forward towards the latter part of calendar 26, we would see pricing increase more towards the high single digit range. And so that's what you're seeing from us and that's really reflective of the timing of new LTAs coming on board.

As we move forward to new periods of LTAs, obviously we're about to deliver our next generation of EPMR in the second-half of this calendar year. That will be a step up in capacity point that will deliver more TCO value. So therefore we are able to share in better pricing as a result of that as well.

Amit Daryanani

Your follow up on it, I do thank you Ambrish. Maybe just on the other side of this, cost per exabyte I think was down again 10% give or take in the quarter. Can you just talk about what is the wide framework for us to think about cost per exabyte decline and should we expect a bigger step down as you transition towards the higher density next Gen EPMR into this year? Thank you.

Irving Tan

Yeah, I think if you look at the cost down, we delivered 10% year over year and that's probably the right way to look at it going forward. We continue to be focused on delivering higher aerial density. That's a big cost driver. As I mentioned, we will be introducing and ramping up our next Gen EPMR in the second-half of the year.

We also have an increasing uptake of customers on ultra SMR, which is a good cost driver for us as well. Obviously, we get 20% uplift on capacity without the associated cost. By the end of fiscal year 27, close to about 60% of all the exabytes that we ship will be on ultra SMR.

Our teams continue to work on platforming the products to drive further cost downs and also ongoing value engineering to see how we can further reduce high cost elements of our bill of materials and obviously the ongoing just supply chain efficiency that we have both from our procurement and manufacturing operations. If you put that all together, we feel confident that we can continue to deliver the trend that we've just mentioned.

Operator

Thank you, Amit. We can go to the next question please. Absolutely. Our next question today comes from Aaron Rakers at Wells Fargo. Please go ahead.

Aaron Rakers

Yeah, thanks for taking a question and Congrats on the results. I want to go back to the 25% growth rate and think about as you see agentic AI drive incremental structural demand. Maybe you can help us appreciate how you're thinking about the capacity to fulfill that demand. Is it a continued ability to just mix higher or is there a point in time where some capacity investment might have to play itself out?

Irving Tan

Yeah, thanks for the question, Aaron. So maybe just to hit this straight on, at this juncture, we still do not see any need to increase unit capacity. So we have no plans for that. Our focus is really to continue to improve aerial density. So as we introduce our next Gen EPMR, which is a 40 terabyte drive, there'll be a 25% step up already from our current drives which are at the 32 terabyte capacity range.

And then there's this opportunity to further mix up our customers as we've highlighted in the past as well. So we've seen an acceleration of mixing up and as we introduce the high capacity drives in the next two quarters, we will see an acceleration of that going forward as well.

Aaron Rakers

Follow up, Aaron. Yeah, I do. Thanks Ambrish. Maybe on the capital structure now with the debt for equity transfer behind you, you've still got 1.7 million shares of SanDisk and I know that you increased your dividend, I think it was 20% with this quarter. Chris, I'm kind of curious, any updated thoughts how you're thinking about capital return, building cash and a balance sheet versus maybe just returning what appears to be very strong free cash flow generation going forward? Thank you.

Chris Senesal

Yes, Aaron and I agree with you. We do have a very strong free cash flow and free cash flow margin. The free cash flow margin last quarter was 29% and so we're approaching our plus 30 or above 30% free cash flow margin. In terms of capital allocation and capital return to our shareholders, we're not changing our policy or our framework here.

We are returning all the excess free cash flow back to the shareholders through combination of our dividend program and share buyback program. As you have seen what we've done last quarter, we will continue to do so going forward. We are making an increase to the dividend with a 20% increase to $0.15 per quarter and we will continue to execute on our share buyback program.

Operator

Thank you. Our next question today comes from Tom O'Malley at Barclays. Please go ahead.

Tom O'Malley

Hey guys, thanks for taking my question. Congrats on the good results. So I'm looking at Micron's results which are out tonight too and I'm seeing over 100% sequential pricing increases. I know you guys got asked on pricing already and it's sensitive, but just from a 30,000 foot view, maybe you could talk about with the gap kind of exploding between NAND and some of the hard disk drive players, how much appetite do customers have to keep on taking pricing increases and what's your strategy there about how much you could push given the gap is moving higher?

And then secondarily, you're hearing about some of the industry potentially doing long term agreements where you have prepayments. Could you maybe talk about your appetite to do that and what that would mean for the industry if you saw some of that? Thank you.

Irving Tan

Thanks Tom for the question. So in terms of pricing, our pricing philosophy is really to provide predictable pricing to our customers. The one thing that they appreciate and want to avoid is volatility in terms of pricing. So our whole focus is really to provide predictable pricing.

As we said, as we deliver higher, more value to better TCO to higher capacity drives as we deliver more innovation in terms of performance, whether it's throughput or bandwidth enhancements as we laid out in innovation day, that gives us the opportunity to create more value for our customers to be able to share in that through better pricing.

Our whole philosophy is ensure that we do that in a very predictable way. Why do we want to do that? Because predictable pricing enables our customers to make long term architectural decisions and that's really our focus and that gives us the confidence of why we are putting forward the road map that we have, why we're making the investments that we're making.

So we're not looking at for it to be optimistic from a pricing standpoint, but really provide that predictability of pricing, enable our customers to make those long term architectural decisions that supports the structural change in the hard drive industry that we've been talking about going forward.

To your question around LTAs, we continue to make progress in LTAs. We now have LTAs to extend into calendar year 29 as well. Obviously as we shared in the past, those LTAs are exabyte base with a degree of pricing associated with it. Obviously the LTA volume that we are putting together for our customers does not meet the full requirement that they want.

And anything that we can deliver above and beyond what we call the base volume requirement that we've agreed for our customers that's subject to a different pricing regime that gives us an opportunity to drive some incremental upside from pricing as well.

Operator

All right, no follow up for Mr. O'Malley. We'll go to the next caller please, operator. Thank you. Absolutely. Our next question today comes from Asiya Merchant with Citi. Go ahead.

Mike Cadius

Hi, good afternoon. This is Mike Cadius for Asiya Merchant at Citi. Congratulations on the quarter. So my first question is, would you be able to provide any color or additional color on yields and reliability? And as a result, are there any implications to the cost per bit decline that we should consider?

Irving Tan

Sure. I mean if you look at EPMR products that we're shipping today and what we're anticipating as we go into volume ramp in the second-half of the year of our next generation EPMR, they continue to be in the 90% range, right. Quality also which has been one of our key considerations remains very high.

This is the hallmark of who we are as a company, high yields, high quality products and that's something we'll continue to focus on both in our EPMR products, which is current, and in our hammer products, which is the focus of our hammer qualification right now to ensure we have the right reliability, we have the right quality, we have the right manufacturing yields as well. So that remains constant.

And currently in terms of current yields and quality, we don't see any changes. Follow up, Michael.

Mike Cadius

So given the price differential currently between hard drives and flash, would you be able to attribute the strength in HDD demand because of that and are you seeing any architectures changing which I think you said at this point maybe not.

Irving Tan

Yeah, look, I think flash is a great technology. It has a specific role in the storage stack. We both play in slightly different spaces, right. If you look at large scale object storage, which requires long term retention, that's where HDD really comes to the fore. That's 80% of all data that's stored within hyperscale data center.

If you look at workloads that require high IOPS, high throughput, that's where Flash really comes to the fore. And even in inferencing, right, we see a symbiotic relationship. The new data that's created from inferencing typically will get stored on HDDs. The vectoring data that's required for inferencing that's actually stored on Flash. So it's a very symbiotic relationship.

Obviously, some of the new innovations that we are delivering, our high bandwidth drives as an example, our dual pivot technology that will improve throughput and bandwidth. We'll continue to improve the performance of our HDDs and continue to deliver more value to our customers going forward.

But we don't see any at this point any major structural changes to architecture. But that's why, again, we want to make sure there's predictability in the pricing we provide so customers can make decisions not one year out, but they're making architectural decisions 2-3 years, five years out as well. Thank you, Michael.

Operator

Thank you. Our next question today comes from Sami Chatterjee with JP Morgan. Please go ahead.

Sami Chatterjee

Hi, thanks for taking my question. Maybe for the first one, if I can just ask you about the quarter. You obviously had a strong set of numbers here including both on revenue and margins, gross margins coming in above the high end of your guide. But when I look at it, the outperformance and gross margin was a lot more relative to the outperformance on the high end of the revenue.

Is there something more specifically going on with gross margins maybe in terms of like cost reduction, what really outperformed relative to your own expectations is probably where what I'm trying to get to in terms of the magnitude of the outperformances on those two metrics? Thank you.

Chris Senesal

Yeah, and again on gross margins, there's three major drivers. The first one is pricing and the pricing environment and that obviously continues to be very strong and was a little bit better during the quarter than we expected when we provided the guidance. As we've indicated, not all the pricing going into the quarter is locked.

And so we do have some opportunities by the way, not only in our cloud business, but also in our client and consumer business where we see further continued opportunities in terms of pricing. Secondly, mix and there again, we're making good progress driving to higher capacity drives and more adoption of ultra SMR and that's playing out really well and then the teams continue to execute really well on driving down cost across the board throughout the supply chain.

And so great execution during the quarter and I expect going forward similar levels of execution. Your follow up Sami?

Sami Chatterjee

Yes, please. Maybe just sort of then looking at the cost per exabyte and sort of a follow up to Amit's question earlier. You're doing this sort of 10% decline in cost per exabyte right now as you start shipping the 40 terabyte EPMR and then eventually the hammer drive. Why shouldn't we expect that cost per exabyte to maybe decline to accelerate?

I'm just trying to think about the trajectory and as you ship those sort of lower cost profiles, why shouldn't that trend sort of accelerate from where it is today? Thank you.

Chris Senesal

Yeah. So we're first of all, we're only guiding 1 quarter at a time, but I have confidence that the teams will again continue to execute on those 3 levers that we have that I discussed just a moment ago. We are ramping the next generation EPMR in the second-half of calendar year 26. So that's not that far out as Irving already talked about that.

We're feeling good about that ramp, the manufacturability and the yields there. The hammer ramp, we're making really good progress on the qualifications now with four customers getting really good feedback from the customers and we expect to ramp that in 2027. Still a little bit of work to be done in terms of yield and reliability and quality, but good progress being made by the operations teams.

There is going to be an adoption curve, right. We're not switching overnight to those new products that are being launched and so the improvements will be based over the ramp. Thank you so much.

Operator

Thank you. And our next question today comes from Wamsi Mohan with Bank of America. Please go ahead.

Ashlyn Greninger

Hi, this is Ashlyn Greninger on for WAMSI. Congrats on the results. And just one question from me, you mentioned the Ultra SMR JBOD platform as a way to broaden adoption beyond your current target base. Can you just talk about whether that primarily expands your reach into Tier 2 CSP customers or enterprise customers and just how material could this opportunity become over the next one to two years? Thanks.

Irving Tan

Yeah. We definitely see it as an opportunity to expand our reach into Tier 2 hyperscale CSPs, even some of the hyperscalers in the Asia region as well. And that's one of the enablers where we are forecasting by the time we get to end of calendar year 2027, the vast majority of our key customers will all be on Ultra SMR either fully adopted or materially underway in terms of qualification.

And that gives us also the confidence as I mentioned. But as we get to the end of fiscal 27, close to about 60% of the exabytes that we ship will be on ultra SMR. Thank you, Ashley.

Operator

Thank you. And our next question today comes from CJ Muse at Cantor Fitzgerald. Please go ahead.

CJ Muse

Yeah, good afternoon. Thank you for taking the question. I'm curious on the agreements, particularly as they extend out into 2728 and beyond, how should we think about pricing and what is embedded inside there? Is there fixed kind of variable kind of different percentages or what?

Irving Tan

Yeah. So CJ, thanks for the question. So the construct of the LTA is broadly, obviously there's an exabyte volume tied to it. There's a pricing tied to it. Depending on the duration, there may be periods of pricing adjustment as we introduce new capacity points. As we introduce new capabilities that gives us the opportunity to adjust pricing going forward.

CJ Muse

Curious on the remaining SanDisk position, now that it's beyond 12 months, is that something that is now taxable any sort of implications of beyond that window and how are you thinking about time frame in terms of monetization?

Chris Senesal

Yeah. So we still have 1.7 million SanDisk shares after we did the debt for equity monetization in Q3 of fiscal 26. It's our intention to monetize the remaining 1.7 million shares in an equity for equity transaction. We've indicated it's our intention to do that before the end of calendar year 26 and this will be in a tax free manner. Thank you, CJ.

Operator

Thank you. And our next question today comes from Karl Ackerman at BNP Paribas. Please go ahead.

Karl Ackerman

Yes, thank you. I have one for Irving and one for Chris by May, but I'll ask Irving first. Irving, when would Western Digital consider adding internal heads and media capacity to support these multi year commitments from customers? For example, have you had discussions regarding prepayments for future capacity adds?

Irving Tan

Yeah, we definitely are looking at heads and media investments. As we said in the past, we're not adding, we're not making any investments in terms of adding unit capacity. But when we talk about aerial density improvements or increasing the capacity per drive, that does involve technology investments to support new media recipes, new media substrate, new head designs as well as the potentially to increase disks over time.

As we've highlighted in our innovation day, where we are able to get to 14 disks over time. Now our number one focus is to increase the terabytes per disk to make sure that it's very competitive within the industry. And then beyond that, we were able to be able to add more platters to the drive as well. So that's the most cost effective way to deliver incremental capacity to our customers.

So we're definitely looking and if it makes economic sense, we'll look to add heads and media capacity in terms of investments, but not unit capacity investments. Karl, you want to follow up for Chris?

Karl Ackerman

Yes, I may. Chris, when you note that you have agreements extending into 2028 and 2029 with their major customers, could you delineate that with respect to bill to order and LTAs? For example, do you have bill to order contracts addressing much of your nearline capacity this year or does that extend into 2027 as well? Thank you.

Chris Senesal

Yeah. And so the manufacturing lead times is about a year and so most of the purchase orders are being placed a year in advance. And then if you look beyond the first year, we are going into those LTA frameworks that has been explained by Irving before. So there is still a little bit more variability beyond the first year. Thank you.

Operator

We go to the next question please. Absolutely. Our next question today comes from Chris Sankar with TD Cowen. Please go ahead.

Eddie

Hey guys, this is Eddie for Chris Irving. When you look across your four largest hyperscale customers, are you seeing demand patterns that are broadly similar or is there a meaningful divergence? And how aggressively different customers are scaling based on their AI AI roadmaps. I'm just wondering if there's anything specific outside over all CapEx growing that is driving demand for HDDs.

Irving Tan

No, I would say in general the profile is quite similar. Obviously as I've highlighted, the demand for storage is increasing because storage is persistent, right. If you look at it, if you talk about inferencing, the resources that are used in inferencing, whether it's compute or whether it's memory, they can get recycled, but the data that's getting generated for inferencing is not being recycled.

All that data that is getting generated is getting stored and that storage, the data that's being stored is persistent. And that is consistent with what we see with all our top 4 customers, whether their business model is in search or whether their business model is in advertising or in the enterprise software space. It's pretty consistent.

It's really this ongoing data storage requirements to support training, improvements in training, to support the demands of inference and to support synthetic data being driven by physical AI. Thank you, Eddie.

Operator

Operator, we'll go to our last caller please. Absolutely. Our last question for today comes from Jim Snyder at Goldman Sachs. Please go ahead.

Jim Snyder

Good afternoon. Thanks for taking my question. I was wondering if you can maybe talk about at some point in time in the future, let's say at the end of calendar 27 when you what level of coverage you would expect to be shipping in terms of Hammer in terms of exabyte shipments?

Irving Tan

Yeah, we don't have a number that we are putting out there right now Jim. Obviously our focus has been to as we stated repeatedly is to ensure we de risk the transition for customers to HAMMER. We have taken a slightly different path where we have a dual track process. We continue to deliver aerial density improvement and high capacity EPMR drives even as we introduce Hammer.

And that gives the customers both the confidence in the transition, but at the same time to be able to enjoy better TCO through the higher aerial density. And when we get to the right reliability, we get to the right yields, we'll make that transition accordingly to Hammer to become to make it the mainstream of exabytes that we ship.

Chris Senesal

Yeah. And just to add there, we indicated we have now 4 customers in qualification with Hammer. We are somewhat ahead of schedule compared to our initial plan. The feedback that we are getting from all our customers is very positive. And so our Hammer development is going really well. Thank you, Jim.

Operator

Thank you. And that concludes our question and answer session. I'd like to turn the conference back over to Mr. Tan for any closing remarks.

Irving Tan

Thank you. As we shared today, we're really excited about the opportunity ahead of us and the road map that we've put forward in WD really positions us well to address our customer needs and the demands that they have going forward. I want to take this moment to really thank all of WD drivers, our business partners for their commitment to our customers and all that they do for WD.

So thank you again for joining us here today and hope all of you have a great rest of the day. Thank you.

Operator

This concludes today's conference call. Thank you for joining. You may now disconnect your lines.

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