On February 21, 2025, Western Digital completed the separation of its HDD and Flash business units, with Western Digital now focusing solely on its HDD business. This strategic move aims to better position each unit for innovative technology development and unique growth opportunities.

The company's strategy emphasizes leadership in providing economical, high-capacity storage solutions for large cloud data centers, especially in the age of AI. Its multi-year product roadmap includes advanced technologies like ePMR, OptiNAND, UltraSMR, and triple stage actuators to capitalize on growing storage demands.

Following the Separation, the Cloud end market accounted for a significant 88% of total revenue in 2025, up from 55% and 56% in 2024 and 2023, respectively. This increased concentration, with three customers accounting for 10% or more of net revenue, highlights a more focused, albeit concentrated, business model.

Management's actions to align operations to market conditions, including cost reductions from improved manufacturing and a decrease in business realignment charges to $(6) million in 2025 from $209 million in 2024, significantly contributed to the $1.92 billion increase in gross profit.

Management successfully reduced the principal amount of debt by $2.78 billion during fiscal 2025 through strategic capital allocation actions, including a debt-for-equity exchange of 21.3 million Sandisk shares for $800 million of Term Loan A-3, indicating prudent financial management.

Management concluded that the company's internal control over financial reporting was effective as of June 27, 2025, based on criteria established in the COSO framework. This indicates strong governance and a reliable financial reporting environment.

The company highlights that its business is significantly dependent on global and regional conditions, including trade wars, tariffs, political uncertainty, and macroeconomic factors, which could materially harm demand, revenue, and profitability. Changes in U.S. trade policy and retaliatory actions by other countries are specifically noted as potential adverse impacts.

The filing emphasizes that cybersecurity incidents, including increasingly sophisticated AI-leveraged attacks, pose a material negative impact on the business. These threats could lead to operational disruptions, loss or misuse of sensitive information, and significant financial and reputational harm.

Western Digital relies on a limited number of qualified suppliers for critical components, some of which are sole-source. Industry consolidation among suppliers, coupled with potential geopolitical conflicts or natural disasters, increases the risk of product shortages, quality issues, or increased manufacturing costs.

Western Digital asserts its well-positioned status in the competitive industry, citing its leading product portfolio, differentiated innovation engine, global manufacturing footprint, and leadership in driving areal density and cost efficiency for HDDs.

The company faces strong competition not only from traditional HDD competitors like Seagate and Toshiba but also from NAND flash suppliers. These alternative storage technologies, particularly flash-based solutions, are increasingly targeting Western Digital's larger addressable markets, including the Cloud.

For 2025, the Cloud end market accounted for 88% of total revenue, with the top 10 customers representing 68% of net revenue, and three customers individually accounting for 10% or more. This concentration gives large customers increased leverage in negotiating prices and terms, intensifying competitive pressure on profitability.

Gross margin increased by 10.7 percentage points in 2025 to 38.8% from 28.1% in 2024. This improvement was driven by cost reductions achieved through improved manufacturing operations, cost-saving actions, and a more favorable product mix, alongside the absence of $155 million in unabsorbed manufacturing overhead charges from the prior year.

The cash conversion cycle decreased to 53 days in 2025 from 80 days in 2024, a notable improvement. This was primarily due to a 21-day decrease in days in inventory and a 4-day decrease in days sales outstanding, reflecting better inventory management and customer collections.

Research and development (R&D) expense increased by $44 million, or 5%, in 2025 compared to 2024. This increase was primarily driven by a $46 million rise in compensation and benefits costs, attributed to an increase in headcount to support the company's technology and product roadmap.

Western Digital invests considerable resources in R&D, manufacturing infrastructure, and capital equipment for recording head and media technology. Its multi-year product roadmap includes cutting-edge high-capacity HDD technologies like ePMR, OptiNAND, UltraSMR, and triple stage actuators, positioning it to capitalize on storage market opportunities.

The company's innovation is described as powering the global technology ecosystem, anchored in the cloud and extending to the edge, enabling the data-driven future, including AI and emerging applications. HDDs are believed to remain the most economical solution for large cloud data centers in the age of AI.

Western Digital possesses a wide range of intellectual property assets, including approximately 4,500 active patents covering groundbreaking data storage technologies. This IP portfolio is a foundational element for solidifying its position as an essential building block of the digital economy.

The company reduced its principal debt by $2.78 billion during fiscal 2025 through various actions, including the redemption of $1.80 billion of 4.75% senior unsecured notes and a $800 million debt-for-equity exchange using Sandisk shares, strengthening its balance sheet.

On April 29, 2025, the Board of Directors authorized a quarterly cash dividend program, paying $0.10 per share in fiscal 2025, totaling $36 million. This move, along with a subsequent declaration for Q1 FY26, indicates management's confidence in future cash flows and commitment to shareholder returns.

A new $2.0 billion share repurchase program was authorized on May 9, 2025, under which the company repurchased 2.8 million shares for $149 million in fiscal 2025. This action, expected to be funded by operating cash flows, suggests management views the company's shares as undervalued.

Western Digital has set new environmental goals post-Separation, including expanding its focus to carbon-free energy alternatives, adding an upstream direct emissions reduction goal, and increasing recycled content in its enterprise HDD portfolio, demonstrating a proactive approach to sustainability.

In 2025, Western Digital was named one of the World’s Most Ethical Companies by Ethisphere for the seventh consecutive year. This recognition underscores its commitment to conducting business ethically and responsibly worldwide, fostering trust among stakeholders.

The company invests in developing its people, cultivating an inclusive environment, and offering competitive compensation and benefits. Initiatives include intern and new college graduate recruitment programs, an apprenticeship program for veterans, and employee resource groups to foster diversity and engagement.

In fiscal 2025, the company observed an improvement in the supply and demand dynamic compared to the prior year. Management anticipates that digital transformation, including the AI data-cycle, will drive improved market conditions in the long term.

Cloud revenue increased by 65% in 2025 compared to 2024, primarily driven by a 36% increase in units sold and a 20% increase in average selling price per unit. This highlights the critical role of cloud data center expansions and demand for high-capacity enterprise products in the company's performance.

Despite improvements, macroeconomic factors such as tariffs, inflation, changes in interest rates, and recession concerns continue to affect demand for products. Changes in U.S. trade policy and retaliatory actions by other countries are noted as potential adverse impacts that could reduce demand and negatively affect financial results.