| | | 'All Boats Are Rising' in Data and Memory, Says Western Digital Finance Chief. Just Look at the Stocks. -- Barrons.com
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| Dow Jones Newswires January 30, 2026 10:18:00 AM ET
Western Digital's stellar earnings report Thursday evening validated the hype that has been building in a once-sleepy corner of the technology sector.
The company posted adjusted earnings of $2.13 a share for its fiscal second quarter, surpassing analysts' consensus estimates of $1.93. Revenue totaled $3.02 billion, above Wall Street's call for $2.93 billion.
Western Digital's primary rival, Seagate Technology, had its own blockbuster earnings print earlier this week, which caused both companies' stocks to surge.
Western Digital, while down 4.8% on Friday, has risen 54% this year and 440% over the past 12 months.
Artificial intelligence has boosted the value of companies' data, fueling demand for high-capacity hard-disk drives, or HDDs, at data centers. At the same time, Western Digital and Seagate have kept unit supply tight, resulting in wider margins.
But data-storage is a notoriously cyclical industry. It tends to go through deep lulls once customers get their drives in place and supply catches up to demand. Western Digital posted losses in fiscal 2023 and 2024 during the last downturn. Investors are hoping things will be different in the AI era.
Barron's caught up with Kris Sennesael, Western Digital's chief financial officer, after the company's earnings call to understand how he is handling the burst in demand and whether AI will alter the data-storage industry for good.
AI-Driven Demand
"Everything you learned about hard-disk drives and storage and everything you learned about Western Digital over the last three, five, or 10 years, you can delete it and throw it away," Sennesael told Barron's.
The company is focused on providing high-capacity HDDs to the so-called AI hyperscalers. These customers are using and then creating more and more data, so their HDD purchases are no longer seasonal or cyclical, Sennesael argued.
"You get this flywheel of more data that's being used, more data that's being created, more data that's being stored," he said.
The company has changed its business model as a result of dealing with a limited number of massive companies. It is prioritizing collaboration and long-term purchase agreements. Western Digital's 2026 calendar year is booked, and it also has two agreements through 2027 and one through 2028.
"And with all our other customers, we have continuous discussions to potentially going to '28 or '29. Some are even asking about '30," Sennesael said. "They want to secure supply many years out."
Managing Supply
The hyperscalers have decent visibility on what they will need for data storage, Sennesael said, which in turn helps Western Digital plan supply.
The company doesn't commit all of its capacity in these long-term agreements, with customers instead agreeing to a " base volume." If they need more drives, Western Digital may be able to provide them, but it will do so at even more favorable terms.
As for adding volume to keep up with demand, the company wants to produce and move customers to higher-capacity, higher-margin drives as opposed to shipping more units.
"That's where all the innovation comes into play," Sennesael said. "We have tremendous smart engineers that know how to drive to higher capacity drives."
The plan should result in bigger profits. Western Digital's gross margin expanded to 46.1% last quarter, up from 38.4% just a year ago. It forecast a margin between 47% and 48% in the current quarter.
Fending off the Competition
The data-storage industry has consolidated in recent years, lessening the competitive pressures on Western Digital. But some observers have concerns that flash-memory chips from companies like Sandisk Corp. and Micron Technology could cannibalize HDD sales.
That would be an awkward scenario for Western Digital. It spun off Sandisk as an independent company last February. Since then, Sandisk stock has soared some 1,700%.
Sennesael said Western Digital doesn't have any regrets about the (amicable) divorce. He still agrees with the board's conclusion that two businesses with clear strategic focuses would create more value separately than together.
"All boats are rising," Sennesael said.
Flash memory does have advantages in some use cases. Most notably, it can transport data between AI processors more quickly. But it is also around 10 to 15 times more expensive on a per-terabyte basis, Sennesael estimated, making it less scalable as data loads grow.
"Just from an economics point of view, for our customers, that doesn't really work," he said.
It helps that Western Digital still has around 7.5 million Sandisk shares, now worth roughly $5 billion. The company has said it will monetize those shares within the next three weeks to help pay off debt, giving it further fuel to buy back shares and expand its dividend program. |
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