WD Converts a Fixed Capacity Base Into Record Margin as Seagate Closes the Exabyte Gap

Record gross margin of 54.4%, the 40TB ePMR platform shipping on the schedule set at Innovation Day in February, and areal density gains delivering exabyte growth without capital spending on unit manufacturing capacity reflect decisions made years earlier and executed against plan.

Revenue grew 12.3% sequentially on exabyte growth of 4.1%. CFO Kris Sennesael disclosed that the blended average year-over-year price increase per terabyte moved from high single digits in the prior quarter to high teens in the fourth quarter, describing it as a predictable and sustainable pricing strategy. Roughly two-thirds of the quarter's sequential growth came from price. In our opinion, a company reporting record margins on a fixed unit capacity base is monetizing an allocation position, and the first quarter guide calls for margin expansion at roughly a third of the fourth quarter's pace.

WD grew nearline exabytes 22.9% year over year to 209. Seagate grew 43% to 195, narrowing WD's lead from roughly 34 exabytes a year ago to 14. Seagate framed that gain as areal density delivered in a capital-efficient manner, with HAMR-based products at approximately 40% of nearline exabyte shipments exiting the year. That is the same fixed-unit-capacity approach WD describes, run on a recording technology that yields more density per disk. In our opinion the gap closed on physics. That places WD's recovery path on the 2027 HAMR entry, where the schedule is what it is, and away from capital allocation, where a response is available on demand. Both companies now guide to roughly 25% forward exabyte growth, which holds the gap near current levels if both execute and leaves margin per exabyte as the operative measure. WD leads there, 54.4% against 52.7%.

The two companies are integrating in opposite directions from the same market position. Seagate is moving down the stack into vertically integrated laser manufacturing, materials science, and nanoscale wafer production, targeting 70% HAMR penetration of nearline exabyte shipments by June 2027. WD is moving up, targeting UltraSMR at roughly 60% of nearline exabyte shipments exiting fiscal 2027 while positioning a software layer above the device. Seagate tried that direction and reversed, selling Lyve Cloud to Wasabi in April 2026 to refocus on nearline drive manufacturing and supply. WD's software layer differs, serving operators who own their infrastructure rather than selling capacity as a service, and fiscal 2027 is the year it has to show that.

Asked directly whether Seagate's stronger sequential growth and higher margin guidance reflected an earlier HAMR ramp, WD's response addressed long-term agreement pricing timing, capacity-point transitions, and operational efficiency. HAMR did not enter the answer. WD's technology argument for the ePMR and UltraSMR path, grounded in qualification cost and fleet homogeneity, went unmade when the opening was offered, and it has support the company did not cite. Toshiba began sample shipments of its M12 nearline series at 30 to 34TB, combining Flux Control MAMR with shingled recording on glass substrate media, and has signaled that HAMR arrives later in its roadmap. Two of the three remaining drive manufacturers now sequence energy-assisted PMR-class recording ahead of a HAMR transition, both citing qualification cost and fleet homogeneity. In our opinion that is a defensible engineering position, and WD has left others to make it.

Platform Expansion, announced in February for a 2027 launch, was not mentioned in the earnings release, the investor presentation, prepared remarks, or the question period. Management twice described extending innovation into new layers of the AI storage stack, and the content underneath both references was High Bandwidth Drive throughput and power efficiency. Fiscal 2026 operating expense grew 8% against revenue growth of 36%, and research and development grew 17%, which describes a company funding the transition from a shrinking expense base.