Western Digital - which in its releases calls itself WD - reported fiscal first-quarter 2027 results on Thursday, October 22, after the close, for the period ended October 2, 2026.
Revenue: $4,381 million, a jump of 55%. Gross margin rose 1,430 basis points, operating income rose 158%, and non-GAAP earnings per share 161%. And the stock fell.
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What was reported
| GAAP (millions of dollars, except per share) | Q1'FY27 | Q4'FY26 | Q1'FY26 | Q/Q | Y/Y |
|---|---|---|---|---|---|
| Revenue | 4,381 | 3,747 | 2,818 | +17% | +55% |
| Gross margin | 57.8% | 54.1% | 43.5% | +370 bps | +1,430 bps |
| Operating income | 2,046 | 1,563 | 792 | +31% | +158% |
| Operating margin | 46.7% | 41.7% | 28.1% | +500 bps | +1,860 bps |
| Diluted net income | 1,779 | 3,195 | 1,154 | -44% | +54% |
| Diluted earnings per share (dollars) | 4.63 | 8.21 | 3.07 | -44% | +51% |
Source: WD's fiscal first-quarter 2027 press release, October 22, 2026, filed with the SEC on Form 8-K as Exhibit 99.1.
| Non-GAAP (millions of dollars, except per share) | Q1'FY27 | Q4'FY26 | Q1'FY26 | Q/Q | Y/Y |
|---|---|---|---|---|---|
| Gross margin | 58.1% | 54.4% | 43.9% | +370 bps | +1,420 bps |
| Operating income | 2,153 | 1,655 | 856 | +30% | +152% |
| Operating margin | 49.1% | 44.2% | 30.4% | +490 bps | +1,870 bps |
| Diluted net income | 1,779 | 1,382 | 655 | +29% | +172% |
| Diluted earnings per share (dollars) | 4.64 | 3.56 | 1.78 | +30% | +161% |
Non-GAAP gross margin, operating income and earnings per share are non-GAAP measures, as the company defines them.
‼ The trap: why earnings per share fell 44% and rose 30% in the same quarter
This is the line that can mislead anyone looking only at the prior quarter:
- On a GAAP basis: earnings per share fell 44% from the prior quarter - from $8.21 to $4.63
- On a non-GAAP basis: the same earnings per share rose 30% - from $3.56 to $4.64
And the explanation is not in the business, but in the prior quarter. In fiscal fourth-quarter 2026, GAAP net income was $3,195 million, while non-GAAP net income was $1,382 million - a gap of $1,813 million in GAAP's favour. In other words, that quarter carried a large one-time, non-operating item.
And you can see it in the current quarter: GAAP net income and non-GAAP net income are identical - $1,779 million for both. This quarter is almost free of adjustments, which is what makes it the one that allows comparison.
So: the 44% decline is a product of an inflated comparison base, not of a business that shrank.
The leverage, and where it sits
Two lines that have to be read against each other:
- Revenue rose 55% - from $2,818 million to $4,381 million
- Operating income rose 158% - from $792 million to $2,046 million
When operating income grows at almost three times the rate of revenue, the leverage sits in gross margin: 57.8% against 43.5% - an increase of 1,430 basis points. That is not cost saving; it is price and mix.
Chief executive Irving Tan attributes it to "robust customer demand and disciplined execution", and notes the technology transition the company is working through. Chief financial officer Kris Sennesael mentions exabyte growth and improved pricing - the two factors that explain margins like these.
The outlook, and it is aggressive
| Q2'FY27 guidance (non-GAAP) | |
|---|---|
| Revenue | $5.1 billion, plus or minus $100 million |
| Gross margin | 60% - 61% |
| Operating expenses | $400 - $410 million |
| Interest and other expense, net | about $15 million |
| Tax rate | about 17% |
| Diluted earnings per share | $5.80, plus or minus $0.20 |
| Diluted weighted average shares | about 380 million |
The midpoint is $5.1 billion - up about 16% from the current quarter, and according to the company 66% to 72% year over year. And gross margin is expected to rise again, to 60% to 61% from 58.1%.
And it is worth noting that the guidance components reconcile with one another: $5.1 billion at a 60.5% margin gives gross profit of about $3,085 million; deducting operating expenses of $405 million and interest of $15 million, and applying a 17% tax rate, yields about $2,212 million - which divided by 380 million shares gives about $5.82 per share. The guidance is not a figure pasted on from above.
The company provides guidance on a non-GAAP basis only, explaining in the release that some of the information needed to reconcile it to GAAP depends on future events outside its control.
The dividend was raised 17% to $0.175 per share, payable December 17, 2026 to stockholders of record December 4.
‼ What the company itself lists first among its risks
In the risk factors section, the first item the company lists is the concentration of revenue in its Cloud end market and among its top customers.
That is worth noting precisely in a report like this one: a company whose revenue rose 55% and whose gross margin rose 1,430 basis points states itself that the growth is concentrated in a small number of customers and a single end market. The release contains no numerical breakdown of that concentration.
The stock
The report was published on Thursday, October 22, and the investor call was held at 1:30 p.m. Pacific - 4:30 p.m. Eastern, after the close. So the trading reaction to the report is Friday, October 23.
The stock fell 2.97% to $343.67, from the close of $354.19. It opened at $346.10 - a negative gap of 2.28% - fell as low as $339.55 and rose as high as $360.66, meaning it did trade above the pre-report close during the day before coming back and closing below it. Volume: 14.0 million shares, almost identical to the day before.
And for the record: on the day of the report itself, before publication, the stock had already fallen 6.43% - from $378.51 to $354.19. That is two consecutive down sessions around a report in which every operating line improved.
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דעה אישית של אילן אברמוב - לא ייעוץ ולא המלצה
This is the kind of report where all the figures are strong and it is still worth stopping on three things.
The first, and it is genuinely impressive: a 57.8% gross margin at a hardware company. That is not a figure one sees often. Revenue up 55% with operating income up 158% says the growth arrived with price, not at its expense - and the chief financial officer points explicitly to improved pricing alongside volume. That is the combination that separates growth that was bought from growth that was sold.
The second, and to my mind the thing that explains the most: the GAAP to non-GAAP gap in the prior quarter. A $1,813 million difference in a single quarter is an enormous number, and in this quarter the difference is zero - both figures $1,779 million. Anyone reading only the GAAP sees earnings per share that collapsed 44%; anyone reading only the non-GAAP sees a 30% rise. The real picture is that the current quarter is the cleaner of the two, and so it is the one that measures.
And the third, which I hold in doubt: the guidance. $5.1 billion with margins of 60% to 61% means another 16% jump in a single quarter, after a quarter of 17%. The guidance reconciles mathematically - I checked - but it implies that pricing and volume keep moving in the same direction without pause. And against that it is worth setting what the company itself wrote: the first risk in the report is revenue concentration in Cloud and among top customers. A single end market that prices well is also a single end market that can stop.
And why did the stock fall? I do not know, and I will not manufacture an explanation. A report like this met with a decline says that what is being measured is not the quarter but the gap between it and what was already priced in - and that gap is not something I know how to measure.
What I will follow: gross margin against the 60% to 61% guidance, because in hardware that is the measure that says whether price is holding; and whether the company begins to quantify the customer concentration it lists as its first risk.
(To be clear: this is my personal opinion only. Nothing here is a recommendation to take any action, and there is no forecast here of the price of any security.)
Ilan Abramov, the author, or anyone on his behalf may hold some of the securities or funds mentioned in this article.
