Western Digital’s latest earnings have a little accounting puzzle tucked inside a strong sales quarter. Revenue climbed, operating profit improved, and yet GAAP earnings per share fell from the previous quarter. Before that last number gets to run away with the story, let’s look at what was in the comparison.
Western Digital’s October 22 release reported $4.381 billion in revenue for fiscal Q1 2027, ended October 2. That was up 55% from a year earlier. GAAP diluted EPS was $4.63, versus $8.21 the previous quarter.
The earlier quarter brought a Sandisk gain
I’d pause over the earlier quarter. In its August results, Western Digital reported a $2.050 billion gain on its retained Sandisk interest. It also recorded $362 million in costs associated with debt and equity transactions. Both sat below operating income, and both were excluded from its adjusted results.
Those items help explain why the earlier quarter’s GAAP EPS was so much higher than its $3.56 adjusted EPS. The comparison brings along investment-related gains and transaction costs, rather than offering a clean measure of changes in storage operations.
For the latest quarter, the earnings presentation shows GAAP operating income rising to $2.046 billion from $1.563 billion. Adjusted diluted EPS rose to $4.64 from $3.56. Those comparisons point in the opposite direction from the sequential GAAP EPS decline.
That sends me back to the adjustments before drawing a conclusion from either growth rate. An investment gain can be economically important without telling us how much better the company became at selling its products. A cost excluded by management still deserves a look, too. Our guide to reading an earnings report walks through comparing those measures.
More storage, but not a pure volume story
The presentation’s operating charts show 248 exabytes shipped, versus 204 a year earlier. That is about 21.6% growth, calculated from the disclosed totals. Cloud represented 88% of revenue, while adjusted gross margin reached 58.1%, up from 43.9% a year earlier.
Revenue grew faster than the amount of storage shipped, and management supplied a more specific pricing measure on the October 22 earnings call. CFO Kris Sennesael reported that blended average selling price per terabyte rose 28% year over year. That’s a company-wide average, not evidence that every identical drive received a 28% price increase.
Cloud is also an end-market category, not a measurement of revenue earned exclusively from AI. The category label cannot do that extra homework for us. That concentration means a slowdown among large cloud customers would matter.
For an investor following the storage cycle, that leaves a useful question: how much of the next improvement comes from additional demand, and how much depends on pricing holding up? The distinction matters when thinking beyond one quarter.
Cash generation deserves its own check
Western Digital’s cash-flow reconciliation shows $1.604 billion of operating cash flow, less $227 million of net property and equipment purchases, producing $1.377 billion of free cash flow. That was up about 7.5% sequentially.
The balance sheet and financing statement also show cash falling $265 million. Share repurchases and convertible-note settlements were among the financing outflows.
I’d keep those two views of cash together. The operating business generated cash after capital spending, while financing decisions used it. Looking only at free cash flow would miss where much of that money went.
On the call, Sennesael forecast capital spending modestly above 4% to 6% of revenue over the next two years, while retaining that range as a five-year average. He said the investment targets heads, media and factory automation, rather than adding drive-unit capacity.
The next quarter is still a forecast
For fiscal Q2, the company’s outlook calls for revenue of $5.0 billion to $5.2 billion, adjusted gross margin of 60% to 61%, and adjusted diluted EPS of $5.60 to $6.00.
The guidance notes identify approximately $95 million of known excluded expenses. Other adjustments could arise, and the company says a complete reconciliation to GAAP guidance is unavailable without unreasonable effort.
Sennesael also flagged rising DRAM and NAND input costs. He expects near-term cost per terabyte to fall by less than 10% year over year, compared with a longer-run reduction goal of about 10%. Cheaper storage production remains the aim, but the memory-chip bill is pushing back.
I’m especially curious about the margin outlook. Western Digital expects another increase in adjusted gross margin after a substantial improvement this quarter. Following shipment volume, pricing commentary and those actual margins together should make the next report much more revealing than a glance at headline EPS.
Sources checked October 22, 2026, at 6:15 p.m. Central, including company releases, presentation, SEC materials and the earnings-call transcript.