西部数据 (WDC) 2027财年第一季度业绩电话会：利润率上升，HAMR量产推进lg...

核心要点

• 西部数据公布2027财年第一财季营收为44亿美元，同比增长55%；出货量达248 EB，同比增长22%，环比增长8%。
• Non-GAAP毛利率上升1420个基点至58.1%，营业利润率达到49.1%。稀释后每股收益（EPS）增长161%至4.64美元。
• 在高容量近线机械硬盘（HDD）需求和有利定价的支撑下，云业务营收达到39亿美元，占总营收的88%。每TB平均价格同比增长28%。
• 管理层预计2027财年第二财季营收为51亿美元（上下浮动1亿美元），毛利率为60%至61%，稀释后每股收益为5.80美元（上下浮动0.20美元）。
• 西部数据预计将在2027日历年第一季度完成两家超大规模客户的第一代HAMR认证，并于2027日历年上半年开始批量出货。
• 该公司产生自由现金流14亿美元，并通过回购和股息向股东派还11亿美元。其季度股息增长17%至每股0.175美元。

核心财务数据

除非另有说明，管理层呈报的业绩均为Non-GAAP数据。

业务与运营表现

近线机械硬盘（HDD）依然是主要增长引擎。西部数据已开始提升其最新ePMR平台的产能，该平台提供高达40 TB的容量。管理层预计，该平台在2027财年第二财季将占近线出货量的约30%，在2027财年第三财季将占50%。

该公司将毛利率提升归因于强劲的定价、更高容量硬盘的产品组合优化、更高的面密度以及严格的运营纪律。管理层表示，更高容量的硬盘通过提高机架密度和降低功耗，改善了客户的总拥有成本。

西部数据还通报了HAMR（热辅助磁记录）技术的进展。公司预计将于2027日历年第一季度完成两家超大规模客户的认证，并于2027日历年上半年开始批量出货。预计今年上半年还将启动另外两家客户的认证。第二代HAMR认证计划于2027日历年下半年开始，采用单盘5 TB、11盘片平台。

管理层表示，在其前七大客户中，需求可见度已延伸至2030或2031年。公司认为存储需求正在超越成熟的云服务和超大规模客户，扩展至企业环境、新兴云服务提供商、人工智能实验室及物理AI应用领域。

西部数据还在向多家客户送样高带宽硬盘。管理层称该机遇尚处于早期阶段，但表示这些产品有望从2027日历年末至2028年及以后，将HDD的应用扩展至AI推理缓存和视频流工作负载领域。

管理层业绩指引

对于2027财年第二财季，管理层给出了以下展望：

随着更高容量的ePMR和HAMR产品提产，管理层预计EB级出货量增速将在2027和2028财年进一步加快。

预计在五年内，资本支出平均占营收的4%至6%。不过，管理层预计未来两年的支出将略高于该区间，以支持HAMR磁头和介质技术以及工厂自动化。公司强调，该支出并非为了增加单位产能。

风险与关注领域

• 在供应链紧张的环境下，西部数据正面临DRAM和NAND更高的投入成本。管理层预计，在价值工程举措得到验证期间，近期每TB成本的降幅将继续低于每年约10%的长期目标。
• HAMR的增长取决于完成客户认证、筹备生产运营以及协调配套供应链。
• 分析师对潜在的增量单位产能及行业整合提出了担忧。管理层表示，尚未看到长期行业基本面发生变化，并将继续专注于通过提高面密度而非增加单位产能来扩大供应。
• 长期协议提供了产品、出货量及一定程度的定价可见度，但管理层指出，随着时间进一步推移，这些协议所覆盖的出货量会有所减少。
• 管理层预计，每TB价格的同比增长在未来三到四个季度仍有进一步扩大空间，但也表示这一增长最终将会放缓。

分析师问答环节要点

HAMR产能提升：管理层表示，目前尚未出现会推迟从认证向批量出货过渡的客户反馈。技术支持、制造和供应链团队正与客户协作，以支持2027日历年的产能提升。

定价与毛利率可持续性：西部数据指出了驱动毛利率的三大主要因素：合同定价与现货定价、向更高容量硬盘转变的产品组合调整，以及能以无需同比例增加单位出货量的方式交付更多EB容量的更高面密度。

EB级出货量增长：管理层将第一财季22%的同比增长形容为底部水平，并预计随着ePMR和两代HAMR实现规模化，未来六至八个季度的增长将有所加速。公司维持对近线EB级出货量增长超过25%的长期预期。

产能策略：西部数据重申，资本投资主要投向磁头、介质和自动化。HAMR组件需要更长的生产周期，而未来平台可能会使用多达14张盘片，这增加了组件需求，但不一定会提高硬盘单位出货量。

AI相关需求：管理层总结了存储增长的四大驱动因素：持续的云扩展、AI模型训练与开发、推理与代理式AI，以及物理AI。公司表示，在这些领域的多元化布局应能减少对任何单一客户群体的依赖。

资本回报：季度股息从每股0.15美元上调至0.175美元。预计将于2026年12月17日向截至2026年12月4日登记在册的股东派发。

财报电话会议完整文本

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完整财报电话会议逐字稿

管理层陈述

Operator

Good afternoon, and thank you for standing by. Welcome to Western Digital's First Quarter Fiscal 2027 Conference Call. [Operator Instructions] As a reminder, this call is being recorded. Now I would like to turn the call over to Mr. Ambrish Srivastava, Vice President, Investor Relations. You may begin.

Ambrish Srivastava

Thank you, and good afternoon, everyone. Joining me today are Irving Tan, WD's Chief Executive Officer; and Kris Sennesael, WD's Chief Financial Officer.

Before we begin, please note that today's discussion will contain forward-looking statements based on management's current assumptions and expectations which are subject to various risks and uncertainties. These forward-looking statements include expectations for our product portfolio, business plans and performance, ongoing market trends and future financial results. We assume no obligation to update these statements. Please refer to our most recent annual report on Form 10-K and other filings with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially from expectations. Unless stated otherwise, today's remarks reflect non-GAAP results. Reconciliations to GAAP results are available in our press release and at investor.wdc.com.

With that, I will now turn the call over to Irving.

Tiang Yew Tan

Thanks, Ambrish. Good afternoon, everyone, and thank you for joining us today. Q1 marked a strong start to fiscal 2027, reflecting solid execution across the business and results ahead of our expectations. Revenue grew 55% year-over-year, while gross and operating margins expanded meaningfully to 58% and 49%, respectively. EPS grew 61% year-over-year, and we generated $1.4 billion in free cash flow. These results reflect ongoing robust customer demand, operational discipline and successful execution of our product and technology road map.

Demand remains strong across our customer base and end markets. Our visibility is extending further and with it our conviction in the durability of demand for data storage on HDDs. We are increasingly seeing storage demand grow beyond our core cloud and hyperscale customers. into enterprise environments and into newer end markets, such as new cloud and EI Frontier labs, resulting in a larger and more diversified customer base. Our customers are making longer-term infrastructure investments and continue to extend their planning horizons into the next decade as the value of data is increasing, they are investing with confidence to support their growing needs for data storage with the vast majority of the data being started on CDs.

We see this firsthand in our customer conversations and in broader industry research, a recent IDC survey of more than 750 companies across several countries, founded organizations are storing more data, retaining it for longer periods and increasingly putting archive data back to work. At the core of these trends is continued data growth, fueled by the ongoing expansion of cloud environment, and the increasing storage demands from AI. While much of the conversation around AI focuses on compute, we believe the more enduring opportunity is in data. AI is fundamentally a data system. Every workload creates more data and that data as we store, managed and accessed in a scalable and economical manner. As year adoption continues to expand across industries worldwide, data creation and storage requirements are expanding with inference and agenetic AI systems are generating significant volumes of logs, model outputs and system performance data, there must be stored and retained.

Physical AI applications, such as robotics, factory automation, and autonomous vehicles are further accelerating this trend with AI-generated content and video workloads that are creating and retaining data at scale. Let me now turn to our industry-leading technology and innovative products. We are executing well against our technology road map and remain on track transitioning our customers to higher capacity drives. As we ramp production across our next-generation ePMR and Hammer platforms, we expect [ exabyte ] shipments to continue to increase through fiscal 2027 and beyond. Volume production of our latest PMR platform, delivering up to 40 terabytes of capacity is after a strong start.

Customer adoption is progressing ahead of prior transitions, and we expect this platform to represent close to 30% of our nearline shipments by the second quarter and 50% by the third quarter of fiscal 2021. On our first-generation Hammer product, we are on track to finish qualifications with 2 hyperscale customers in the first quarter of calendar year 2027 and are on schedule to begin volume shipments in the first half of calendar year 2027. We also expect to begin qualifications with 2 additional customers during the first half of calendar year 2027. Further expanding customer validation and supporting broader adoption of our hammer products. As AI workloads scale, customers not only need more capacity, but also greater performance from their storage infrastructure.

We are expanding the role of HDDs within cloud and AI infrastructure through innovations such as our high-bandwidth drive and dual pivot technology. By combining the economics of HDDs with significantly higher levels of performance, we believe this technology can address a broader range of existing and emerging workloads. We are currently sampling a high benefit drives with multiple customers, and the feedback has been positive with clear use cases and value creation identified. In summary, WD is executing with momentum. We are deepening customer relationships, extending visibility and broadening the customer base, while our product and technology road map delivers precisely what customers need.

As data growth in volume and value across cloud, AI and emerging workloads, we have high confidence in the durability of long-term storage demand.

With that, let me turn it over to Kris.

Kris Sennesael

Thank you, Irving. Our first quarter results demonstrate ongoing strength of our business in combination with outstanding execution on all fronts. Customer demand remains healthy and our visibility is extending further out. Our product transitions are progressing well, resulting in higher capacity products, solid year-over-year growth in exabyte shipped and improved pricing. All driving another quarter of strong financial performance.

During the first quarter of fiscal year 2027, revenue was $4.4 billion, up 55% year-over-year. driven by strong exabyte growth and a favorable pricing environment. We delivered 248 exabytes in the quarter, up 22% year-over-year and up 8% sequentially. Nearline products continue to drive growth as we execute on our product transitions. Starting with the ramp of our latest generation ePMR drives with capacities up to 40 terabytes and followed by the introduction of our HAMR technology in the first half of calendar year 2027, setting us up for stronger year-over-year growth in exabyte shipments.

Cloud revenue was $3.9 billion, representing 88% of total revenue and increasing 54% year-over-year, driven by durable demand for our high capacity nearline HDDs, including the initial ramp of our latest EPM platform. In addition, continued pricing strength reflects the value and TCO advantages we deliver to our customers. Client represented 7% of total revenue at $320 million, up 119% year-over-year. Consumer represented 5% of revenue at EUR 193 million, up 19% year-over-year.

Gross margin expanded to 58.1% and up 1,420 basis points year-over-year, with incremental year-over-year gross margin above 80%. Gross margin reflects a mix shift towards higher capacity drives, disciplined operational execution and a favorable pricing environment across our portfolio as we continue to deliver greater value to our customers. Year-over-year growth in average price per terabyte further increased to 28% versus the high teens we reported in the prior quarter. Operating expenses were $391 million or approximately 9% of revenue, a 130 basis point sequential improvement, demonstrating continuing operating leverage in the model.

Operating income of $2.2 billion increased 152% year-over-year driven by strong revenue growth, expanding gross margin and operating leverage. Operating margin expanded to 49.1% in the quarter, demonstrating our ability to continue to drive sustainably higher levels of profitability in the business. Interest and other expenses were $10 million, and our effective tax rate was 17%. Taking into account the diluted share count of 383 million shares. EPS was $4.64 and an increase of 161% year-over-year. We generated $1.4 billion in free cash flow during the quarter and returned $1.1 billion to shareholders through share repurchases and dividends.

Reflecting confidence in the durability of free cash flow generation and our ability to drive long-term shareholder value. supported by the strength of the free cash flow generation and consistent with our capital allocation framework, the Board has approved a 17% increase in the quarterly cash dividend from $0.15 per share to $0.175 per share, which will be paid on December 17, 2026, to shareholders of record on December 4, 2026. Turning to the balance sheet. During the quarter, we took additional steps to simplify our capital structure by substantially reducing our remaining 2028 convertible notes. Our balance sheet remains strong, and we ended the quarter with a net cash position of EUR 0.5 billion.

Let me now turn to the outlook for the second quarter of fiscal 2020. We we continue to operate in an environment of strong demand and favorable pricing in all our end markets. For the second quarter of fiscal 2027, we expect revenue to be $5.1 billion, plus/minus $100 million. At the midpoint, this reflects a 69% increase year-over-year. Gross margin is expected to be in the range of 60% to 61% as we continue to benefit from the shift to higher capacity drives, along with a strong pricing environment. We anticipate operating expenses of $400 million to $410 million, a sequential increase driven by the project expenses related to increased product qualification activities.

Interest and other expenses are expected to be $15 million. The tax rate is expected to be 17%. As a result, we expect diluted earnings per share to be $5.80 plus/minus $0.20 based on a non-GAAP diluted share count of 380 million shares. As we look ahead, demand remains robust. Customer engagements continue to deepen and broaden, and our visibility continues to improve. And as we execute on our technology and product transitions, we expect to accelerate exabyte supply growth throughout fiscal year 2027 and 2028. Our strong balance sheet and free cash flow generation give us the ability to make targeted investments that strengthen our technology leadership and support our customers' growing storage needs.

While we expect capital expenditures to average 4% to 6% of revenue over a 5-year period, we anticipate that CapEx as a percentage of revenue will be modestly above that range over the next 2 years. as we continue to invest in [ Hansen ] media technology and factory automation, supporting our industry-leading aerial density and higher capacity drives without having to spend CapEx to add unit capacity. In summary, accelerating exabyte growth, technology leadership, expanding margins and disciplined capital allocation provide a solid foundation for sustainable earnings free cash flow growth and long-term shareholder value creation.

With that, let's now begin the Q&A. Ambrish?

分析师问答

Sreekrishnan Sankarnarayanan

Thank you, Kris. Operator, you can now open the line to questions, please. [Operator Instructions]

Operator

[Operator Instructions] Our first question today comes from Amit Daryanani from Evercore. .

Amit Daryanani

I guess maybe to start with, Irving, there's always a lot of focus on HAMR. And you outlined sort of completing qualifications with 2 hyperscalers in March, volume shipments mid- -- can you just talk about what are the remaining milestones between those 2 steps from your perspective? And then what determines how quickly you scale from there? Is it more driven by customer deployment schedules or your manufacturing readiness, just any help there.

Tiang Yew Tan

Yes. I mean, thanks for the question. First of all, I'm very pleased with the progress that we're making with HAMR. As we've highlighted in the past, feedback from our customers have been very positive, particularly around the failure rates that we've seen in our dry performance vis-a-vis what they've seen with other players within the market. As a result of that, we are very confident in terms of finishing qualifications with the 2 customers that we have, our first-generation car products in Q1.

We will be starting qualification with 2 additional customers in the first half of calendar '27 as well. We haven't had any feedback that would give us any reason for pause in terms of us translating that core completion to volume shipments. Starting first half 27, both our technical support teams are working very closely with customers to complete those call schedules and get them into production across our global operations teams, we are working closely with our own internal manufacturing assets. and vendors to get the supply chain really to support the ramp as well. And then starting in the second half of calendar year 2027, we will also start qualification of our second-generation HAMR drives, and this will be at 5 terabytes per platter on 11 disk platform.

So overall, very pleased with the progress. I think the engineering and operations teams across the company have done a great job in really helping us accelerate development of the products, the reliability of it, and then we are focused very much on scaling it up and getting it into customers' hands.

Ambrish Srivastava

Did you have a follow-up on it?

Amit Daryanani

I do. Maybe just to follow up on the cost per terabyte. I realize you folks in the past have talked about some of the input cost inflation headwinds. But I think cost per terabyte was down like 4%, 5% in December quarter. That's the lowest we've seen in a while. Maybe you can just touch on what's happening there and what's the right way to think about this longer term because I do realize you're guiding for some really strong gross margins in December. So just a little bit on the cost per terabyte number would be helpful.

Kris Sennesael

Yes. So as Irving just indicated, we continue to execute well on our technology road map and product transitions, basically moving to higher capacity drives based on a better and higher areal density. And so we're well on track in the long run to reduce our cost per terabyte approximately 10% year-over-year. In the near term, and I've indicated this before, this is not a surprise. We are facing some input cost increases.

As most of you know, we use some DRAM and some NAND inside our hot test drives. And the whole supply chain really operates in a very tight environment. And so -- we are seeing some of those input cost increases. We are addressing all of them through value engineering initiatives that we are seeing some good traction. It takes a little bit of time to implement and qualify those solutions. And so in the near term, our cost per terabyte will be less than 10% down year-over-year. Taking us all into account, as you indicated as well, we are delivering very strong free gross margins and in the September quarter as well as a strong guide for the December quarter.

Our incremental gross margins continue to be very strong, well above 80%. And so I think we are very well set up to continue to increase our gross margins over time.

Operator

Our next question comes from Wamsi Mohan from Bank of America.

Wamsi Mohan

Ring, I was wondering if you could just address this angst around incremental capacity adds from the smallest player in the market, and there's been some chatter around potential consolidation in the industry. Just would love to get your high-level take on what do you think could be if there is any potential impact that at an industry level?

And is that impacting any of your price negotiations with hyperscale customers in the out years?

Tiang Yew Tan

Yes, Wamsi, thanks for the question. I would say at a high level, we don't see any change in terms of the long-term fundamentals of both the industry or our business specifically, right? We continue to see demand continuing to be very strong, 25%-plus CAGR, as we've highlighted consistently in a very tight supply environment. And we remain committed to our strategy and our focus to mean that supply demand growth based on living aerial density, and that's delivered through technology, particularly through our head and media technology because that is the best way to deliver the best TCO to our customers and to also drive greater profitability of our business -- for our business as well.

And that's you can see that focus in terms of the investments we are making both into research and development and into capital investment into our head and media parts of the business. And I think the unique differentiation that we have with our own head and media development, the drive integration capability that we have, gives us the confidence to be able to meet that growth trajectory through aerial density and therefore, remain committed to not investing in any incremental unit capacity. There may be some other players in the market who don't have that unique ability to build their own media, build out our own hits, drive that density improvement. And you have to compensate that by potentially maybe increasing the number of units just to maintain their share and position in the marketplace.

Ambrish Srivastava

Do you have a follow-up, one?

Wamsi Mohan

Yes, so on the exabyte shipments, you grew 22%, as I'm hearing you talk about sort of the trajectory here for the rest of the year? It looks like you expect that growth to improve as you execute on these product transitions and then have hammer in the mix.

Could you just give us some sense of what it is at the high level, like is it right to think of fiscal '27 at roughly your longer-term range for the year? Is that the right way to think about it? And maybe just if you think about unconstrained sort of demand? Like how much higher is that relative to where your supply is? And do you see that widening because of just how strong the demand is over the next couple of years?

Kris Sennesael

Yes. Thanks for the question, Wamsi. We sort of see the current quarter as being sort of the floor in terms of exabyte growth, and we see that accelerating through the rest of the fiscal year. And obviously, as Kris highlighted in the script to 2018 and beyond that, as well. That's really driven by the confidence that we have in the new platforms that we'll be introducing.

Obviously, we have HAMR coming out in the first half of fiscal '27. And then as I highlighted, we have second-generation heme drive starting qualification in the second half as well. So we're very quickly at the top end going from a 32-bit drive to 44 terabyte drive to 55-type drive and beyond, and that's the best way at the most economical way for both our customers and for us to be able to meet the demands that they have in terms of our products.

To your question around the demand. As I said, we see that continuing to grow. We see it being very doable. There hasn't been any diminishing in demand, and we don't see the gap in supply or demand that exists today perishable in the near term as well. So we continue to focus on supporting our customers the best we can with the technology that we have.

Operator

Our next question comes from Erik Woodring from Morgan Stanley.

Erik Woodring

Congrats on the quarter and the guide. Irwin, can you maybe just share a bit more granular detail on your visibility comments, meaning how far out are we talking? How many customers are we talking and for those customers that are planning that far out, just what are their exabyte needs today or in the future relative to 3 or 6 months ago? Do you see that demand kind of expanding relative to, again, 3 or 6 months ago?

Tiang Yew Tan

Yes, Eric, thanks for the question. I think in terms of visibility outlook, if you take our top 7 customers as an example, we have good visibility up to 2030, 2031 across all of them. And that's something that we've highlighted that we've always really much appreciated, so we can make sure we both deliver both the technology and the supply to meet that growth in demand going forward. And so we have good visibility in that.

In fact, we see quarter after quarter, the demand signal actually increasing over time. And as we move forward into the '28, '29, '30 time frame, we see that demand continuing to be very durable.

Ambrish Srivastava

Do you have a follow-up, Eric? .

Erik Woodring

And then just as a follow-up, you obviously just grew revenue 55% year-over-year. You're guiding to 69% year-over-year revenue growth at the midpoint in December, incredibly strong. And obviously, you're referencing some exabyte growth acceleration, but that also implies that you're going to be accelerating pricing in the December quarter as well. So can you maybe just help us understand what is the source of that pricing acceleration? Is that coming from the non nearline side? Is that the nearline side?

I assume it's probably both. But just any more granular color you can provide on why we're seeing that acceleration in pricing in the December quarter and how sustainable that is?

Tiang Yew Tan

Yes, Eric, we continue to operate in a very strong favorable pricing environment. You saw our blended average selling price per terabyte was up 28%. And on a year-over-year basis. And we saw that strength across the board in nearline and non nearline, some of our consumer and client businesses as well. the pricing environment is strong because we do execute on our technology and product road map, and we continue to deliver higher capacity drives to our customers that help our customers to reduce their total cost of ownership because you have better rack density, lower power consumption and a lot of benefits for our customers.

As we continue to execute on that strategy and continue to deliver higher capacity drives, there is an opportunity to further enhance our price per terabyte over time. As you probably know, some of that business is under LTAs. Some of the LTAs are expiring and new agreements are being put on place. And in addition to that, of course, some of our exabytes are not under contract as well, and we do see a very strong price environment for those exabytes that are not under contract as well.

Operator

Our next question comes from CJ Muse from Cantor Fitzgerald.

Christopher Muse

I guess, Irwin, you started the conversation talking about results ahead of expectations. And just to follow up on the last question. For gross margins, you initially guided kind of incremental 62% and you reported 80% and now guiding 75%. So really trying to drill down as to what is driving that incremental strength? Is it more bids that are not under contract? Is it contracts that are unwinding in repricing? And I guess, as we think beyond the near term, actually think about the sustainability in 27 and beyond.

Tiang Yew Tan

Yes. I think at a high level, CJ, first of all, we think the sustainability of gross margin expansion is absolutely there. There are 3 drivers of that. Obviously, pricing, as Kris highlighted, we have a bunch of LTAs that have contractual price increases as we move into different periods as they reach sort of anniversary their price adjustments as we deliver higher capacity platforms to get better TCO value that we're able to share in that and drive higher pricing for those contracts that we have customers with LTAs we are also able to get better spot pricing with nearline customers who aren't on LTAs given the tight supply environment.

And as Kris also highlighted, across the board, we are seeing better pricing environment in our client and consumer segments of the business as well. So pricing is 1 key element in a second. We've also been up mixing our customers to higher capacity drives. So as we move them up to higher capacity drives, obviously, these are more profitable for us because the ASPs the drives are much higher as well. So that's the second driver of gross margin expansion that we expect to remain over a longer-term time period. as well. And third, obviously, we'll be shipping more exabytes, right, to higher areal density. And so we are able to deliver more exabytes to higher aerial density, you avoid the fixed cost of having to produce more units, and that's another driver of gross margin expansion.

So you put the combination of those 3 factors together, we feel very optimistic about ongoing gross margin expansion. Do you have a follow up, CJ?

Christopher Muse

I do embrace -- you talked about broadening breadth of customers, including enterprise and NCPs. I'm curious how is that perhaps changing the duration of LTAs pricing and deposits perhaps? Just would love to hear how your customer base is evolving and how that might impact kind of your contracts.

Tiang Yew Tan

Yes. So we definitely see, I would say, a diversification of our customer base, right? And is something that we've communicated in the past where the sort of 3-tier architecture, the critical role that HDDs play, both in terms of the scalability, reliability and the economic value that it provides to customers is truly playing out, right? And we definitely see that demanding happening from the Frontier AI labs from the new cloud players and also hybrid cloud solution OEM providers as well.

So we are factoring in the demand signal as well as we look forward and that's translating into the expanding demand signal that we've highlighted in my response to the earlier questions. And again, we're delivering -- we're building technology. We're making investments into hidden media to be able to provide the aerial density and the capacity to support all our customers in this more diversified customer environment.

Operator

Our next question comes from Asiya Merchant from Citigroup.

Asiya Merchant

Irving, I think you talked about some of the high bandwidth drives as well and opportunity there to grow. Maybe if you could just embolic on how how big is that opportunity today? How many of these are you shipping if you can elaborate on that? And how big do you think that opportunity could be for you?

Tiang Yew Tan

Yes. Thanks for the question, Irving. Look, I think the opportunity is still somewhat nascent today, our primary focus is obviously to get capacity into the hands of the customers. But as we move into latter part of calendar year '27, '28 and beyond, this becomes what we feel a big differentiator for us because things like high bandwidth drives provide customers with an opportunity to use HDDs for different workloads that they may have to use alternative storage media fall, which may be much more costly. For example, KB cash workloads in AI inferencing and in video streaming as well. So we've.

Been actually providing samples to many of our customers in terms of this product so that they can test out different use cases in a highlighted that's been very positively received. And so we're working through sort of the commercial structure of how we would price those high-bandwidth capabilities to customers. But from a technical capability standpoint, very positive, we are working through the sort of commercial construct of how we would price that going forward.

Ambrish Srivastava

Your follow-up here? Yes, go ahead.

Asiya Merchant

Yes, sure. If I can just ask about the physical AI as well. I think you talked about that as well in your script. Any early indications again of -- how big is that opportunity today? Are you shipping towards that? Probably still in the early innings now, but how do you think about it through calendar 2017 and into calendar 28?

Tiang Yew Tan

Yes. I think we're definitely seeing very promising signs from the physical AI segment of the market. For example, some of our customers in Asia who are in the autonomous vehicle space. definitely looking for increased demands, supply from us to be able to support their physical AI initiatives, a good data point of that is NVIDIA themselves have just recently highlighted the port in terms of revenue from fiscal AI being in the $10 billion range, right?

So if you see that happening in compute, there's obviously the demand for storage to support that compute as well. So we see it very positively. Obviously, autonomous vehicles will be 1 robotics is also becoming a key area for us. A lot of it is actually happening out in Asia, but I anticipate that will happen throughout the rest of the world over the next 2 to 3 years as well.

Operator

Our next question comes from Ben Reitzes from Melius Research.

Benjamin Reitzes

Pit wanted to go back to 1 of the earlier questions on the competitive aspect of adding capacity. I think there's just some basics that would be helpful. How can somebody go from 10% to 30% capacity share? Is there enough materials to do media and heads to be able to do something like that. Maybe you can address the question from that. And what would be the is your view that somebody could do that? And what would be the bottlenecks in doing so? .

Tiang Yew Tan

Yes, Ben, thanks for the question. I can't comment about somebody else doing it. I can share what we are doing to enable it. So first and foremost, it all starts with technology. Our R&D teams do a great job in terms of designing, head designs, media recipes to really enable high high aerial density products.

Obviously, we combine that with our firmware capabilities and drive server mechanics capabilities. So it's not only about individual components. But when you integrate all of it together, do you get the optimum density per drive. So that's really at the engineering level, and that's 1 of the differentiators that we view versus maybe what are the player in the market who is dependent on third-party suppliers, so they're not vertically integrated.

Secondly, as you've touched on a key element of it is not so much the unit capacity that you have. It's the availability to produce at scale, the needed media and hits to support the higher yield density in the drives as well. And again, that's something we have been and we'll continue to make investments in in WD, both in terms of our R&D capability, but also into our manufacturing assets, specifically to enable greater area density to our head and media assets to drive that. So I think that's what we're doing and we see the results of that.

Other organizations that don't have that degree of vertical integration, I would say we'll have a harder time being able to reach the same levels of growth that we are seeing.

Ambrish Srivastava

Do you have a follow-up, Ben?

Benjamin Reitzes

Yes. Thanks a lot, Ambrish. There's obviously a lot of fear out there as you guys see and well know going into this call. I was just wondering if you could give more color around how big BioCloud are for you now and in your forecast. And if there was a hiccup in demand there just due to timing of capital how we would see it, how big a concern would that be for you?

Tiang Yew Tan

Yes. I think, first of all, we need to take a step back there. There are really 4 drivers of growth within the storage space, right? One is the ongoing secular growth of the cloud. And the cloud itself has been around for those to do tirades it's still growing at a very healthy pace. In fact, accelerating really driven by a lot more storage being driven by video content.

So a lot more demands because of a lot of content being stored is video. And obviously, a lot of the cloud-based services are becoming AI-enabled. So that's driving greater storage requirements. So that's 1 key driver of growth that will continue over the foreseeable future. The second driver of growth has been model training and development, and we see that continuing to grow as new models get created as reinforcement learning is happening, more data needs to be stored to support reinforcement learning of existing models as well, and that's where the new clouds to play a part in. But we don't see that being in any way a major hiccup if there is a bit of a slowdown in the new cloud segment.

Third is around inferencing and agent AI. And that's where we see a lot of opportunity going forward, and we're starting to see a tremendous amount of growth coming from that area as customers need to store locks, checkpoints, more outputs of that inferencing and sort of the genetic system decision points to support reinforcement learning as well. And then finally, physical AI that we've just touched on as well. So if you add those 4 things together, I think the demand remains very durable, even if there may be a slight softness in 1 of the 4 segments the demand will be easily picked up by any 1 of the other 3.

So all things added together, we see a very positive outlook in terms of the demand remaining strong and meaning durable in terms of how we look at the neocloud segment, obviously, we are very diligent in looking at the strategic neoclouds that we want to engage with those that we think have a very strong balance sheet, have underpinned by a very good end customer base as well. And so we prioritize that over other players within the market.

Operator

Our next question comes from Tom O'Malley from Barclays.

Thomas O'Malley

If I look at kind of the CAGR of total HDD exabyte shipments over the last couple of quarters, we range from low 20s kind of up to the mid-30s. And I plug that in for your guide. It looks like your year-over-year pricing that's implied for the December quarter is above that 30% year-over-year mark. So you guys have historically kind of said high teens as the sustainable growth rate.

You are now well above that for the past couple of quarters. Do you think you could give us an update about what the right way to look at that is in terms of sustainability of that pricing increases on a go-forward basis? .

Tiang Yew Tan

Yes, Tom, I think the 10% or whatever number you were referencing that we're operating well above that, right? Just in the 1 quarter ago, we were already at 18% ASP increase on an ASP per terabyte basis. And so last quarter, we did 28%. And as I indicated before, given the strong demand environment that we operate in, given the fact that we continue to move to higher capacity drives and continue to add more value to our customers, there is definitely further room for ASP per terabyte increases going forward. over the next, call it, 3, 4 quarters.

I would assume eventually that is going to slow down a little bit. But for the next 3, 4 quarters, there's definitely further room to expand our ASP per terabyte year-over-year growth. follow-up, Tom just follow .

Thomas O'Malley

Just following up on the commentary, just the CapEx, on average, 4% to 6% of revs over a 5-year period, but modestly had that in the next 2 years. I think like the knee-jerk reaction to that is making sure that, that is just investing in heads, and this is not something about expanding capacity or feeling like you need to take advantage of a market as it's nearing a potential peak not saying that just outlining what you could hear.

So maybe could you spend a little bit of time talking to us about why the investment is needed in heads? Is this around diversification efforts because of what we've heard the media lately or just a desire to get your internal efforts a better spot would love just to hear your kind of thoughts on that.

Tiang Yew Tan

Yes. And Tom, just to be clear in the prepared remarks, we explicitly said that the CapEx is going to head and media and factory automation and not to expanding our unit capacity. Yes. So I didn't Chris summarized it really well. And obviously, as we look to transition to Hammer, obviously, there are longer cycle times in terms of the steps that are involved in terms of the the hits that we need to hit wafers that we need to produce and also the media products that we need to produce.

So we're making the appropriate investments to support both the technology capabilities and at the same time to recognize that they are slightly longer cycle times because there are slightly more steps that are involved to produce the head and media components that's needed for HAMR?

Operator

Our next question comes from Timothy Arcuri from UBS. .

Timothy Arcuri

You guys talked about an acceleration in exabyte growth. You've been undershipping your peer by about 10 points there you're sort of mid-20s and the sort of mid-30s. So Kris, when you mentioned that, like, what is the target? Should we think that maybe over a multitude of quarters you could get to like the mid-30s is the goal to sort of close that gap?

Tiang Yew Tan

So yes, we did 22% last quarter, and we've talked about that. We are in between to product transitions. The last couple of quarters, we executed really well. on our up to 32 terabyte ePMR transition. We are now started to execute on our up to 44 terabyte ePMR transition. And then we have our hammer transitions first and second generation coming up. and that is going to drive a meaningful increase in our aerial density and a meaningful increase to higher capacity drives, and that will definitely accelerate our exabyte year-over-year supply growth over the next 6, 7, 8 quarters. follow-up you. I do. I do.

Yes. So just to kind of double-click on that. So Chris, should we think of you in 6 quarters, shipping like 35% exabyte growth? Is that the message? So we're only guiding 1 quarter at a time, but you're thinking about it in the right direction.

Operator

Our next question comes from Krish Sankar from TD Cowen.

Sreekrishnan Sankarnarayanan

Them to -- and Chris, thanks for the color on the pricing. I'm just curious as your both kind of Harmon customers ramp in the first half, would there be any impact on the ASP growth mainly because you're helping your early customers ramp HAMR or should not have any impact? .

Tiang Yew Tan

No, we're not discounting our HAMR products in any way versus our EPM products. So we price them on a dollar per terabyte and we have LTAs that we -- that I mentioned that have appropriate price reviews periodically. And so whether we ship a hammer bit or EPR bit, the price is the price.

Sreekrishnan Sankarnarayanan

Got it. Got it. And then as a quick follow-up. I totally understand your argument about adding head capacity but not units. I'm just trying to play the devil to advocate by adding head capacity, you are increasing the capacity per unit. So I'm just wondering, isn't that lead to the fact that you are actually adding capacity even though if it had not unit, leading to more capacity increase versus the mature between a unit or the head?

Tiang Yew Tan

Yes. I think there are 2 factors there. First of all, we said we are investing into head capacity. And part of it is, as I mentioned, for example, a hammer hit just require more cycles to produce. So there's a bit of throughput loss, so we need to offset, so we do need to put in more capacity. So that does not translate into more hits and therefore, more units. And we have also indicated that our Innovation Day back in February of this year, we have a road map to deliver drives with up to 14 plateaus as well.

And therefore, you will need more hits within the existing number of drives that we have as well. So we're making the investments to support that road map going forward as well. .

Wamsi Mohan

And Kris, last quarter, we shared with you the planner count growth on very minimal unit growth, right? So that's 1 of the reasons we have to invest on the head side.

Tiang Yew Tan

And that applies to me there as well. Same thing.

Operator

Our next question comes from Jim Schneider from Goldman Sachs.

James Schneider

I was wondering if you could maybe just clarify with respect to your head strategy currently whether you use external vendors for any of your products or for surge capacity and to what extent the head investments beyond just the hammer items you mentioned before are meant to sort of eliminate the need for any potential vendors in the future and sort of take that external line off the table completely? .

Kris Sennesael

Thanks for the question. So we do use some external hit capacity that we always have done. We do that for media as well. That is part of our sort of innovation approach where we build and buy. So we're able to benchmark our performance of our components with our the third-party suppliers as well as a great way for us to continue to drive innovation, both internally and with our partners as well.

Our focus on our investment is to continue to ensure that we have the latest technology internally to support our products. Going forward, what we do buy from third parties are typically used in our lower capacity drives. So all the high cap leading edge platforms that we introduce are all on our own internal heads. Do you have a follow-up, Jim.

Sreekrishnan Sankarnarayanan

Yes. Just as a follow-up, in a hypothetical situation where 1 of your competitors were to meaningfully expand unit capacity, what would be for your response in that case?

Kris Sennesael

Well, again, you can -- it boils down to not just unit capacity, but at what capacity point is unit shipping as well. So again, our focus is on delivering that capacity that customers need to higher capacity drives, true aerial density. So our response is going to be the same as we've communicated over the last year to continue to focus on the aerial density translate that into the highest capacity drives that we can bring into the market. That's the best TCO for our customers and drives the best economics for us as well. .

Operator

Our next question comes from Karl Ackerman from BNP Paribas. .

Karl Ackerman

Irving and Kris, you indicated that HAMR will ramp over the next couple of quarters. But do you expect non-HAMR nearline drive capacity to also expand while HAMR ramps as well?

Mehdi Hosseini

So we expect obviously, we are looking to ramp HAMR in the first half of calendar year 2017. In parallel, we will also continue to ramp and supply our latest EPM platform. As we highlighted, it is making a very successful transition. In fact, the fastest transition of any ePMR platform that we've seen.

In this quarter, Q2, we expect 30% of all the nearline bids to be on that up to 40 terabyte platform. By Q3 of calendar year of fiscal '27, we expect 50% of all the nearline bids that we ship will be on that 40-terabyte platform. as well. And then obviously, we'll continue to scale. So I think we have 2 very strong process in the mix to deliver high cap drives to support the demand that our customers need.

Operator

Our next question comes from Mark Newman from Bernstein.

Mark Newman

Number today. I wonder if I could just ask a bit more on the pricing. Picenoni to be extremely strong and this last quarter, it seems to be further accelerating. You talked about you have demand visibility all the way to 2030, 2031. I wonder if you could update us on how far out you have for price visibility such as in your purchase orders already signed or long-term agreements. .

Like how far out should we expect this price to remain continuing at this cadence? Or potentially, can we expect it to further accelerate from here? Any comments on price visibility from here would be great.

Tiang Yew Tan

Yes. So the most important thing with LTAs and our customer engagements is to create that long-term visibility and making sure we are aligned from a technology and product road map were aligned on those product transitions that are being planned ahead for the next couple of quarters and years and making sure that we put in place the necessary exabyte capacity to support the demand. That's the most important thing that we're trying to achieve here.

In terms of pricing, in those LTAs, we do have some pricing components Keep in mind that there is base volume, there is upside volume. So there is definitely some flexibility. And keep in mind, of course, that not all our exabytes are covered by the LTAs. The further you go out, the less of it is covered under LTAs and for sure, under pricing component of the LTA. So we think in the current environment, that's the best way to approach it. And again, as we -- for us, it's all about execution on our technology product road map, get to the higher capacity drives, deliver more value to our customers and that's a very favorable setup for pricing and further increases in our ASP per terabyte.

Mark Newman

Thank you, Mark. Can I ask 1 quick follow-up on the exabyte growth, 22% year-on-year. Is your I believe you guided long-term exabyte growth for nearline at 25%. I just wanted to clarify if that is still intact, which also your competitor had also outlined, is that 25% of group guidance long term for nearline exabyte growth.

Tiang Yew Tan

We actually said greater than 25%, right? And again, we've indicated that currently, it's slightly below the 25% because we are in between those 2 product transitions, but as the product transitions are getting more traction, we will exceed that 25%.

Operator

And at this time, we'll conclude today's question-and-answer session. I would like to turn the floor back over to Irving Han for closing remarks.

Tiang Yew Tan

Thank you, operator. I would like to leave all of you a few thoughts. The first phase of AI investment focused on building the infrastructure to train models. Even as that continues, the next phases are about deploying AI to work at scale from inference to agents to physical AI. As that happens, data will continue to compound driving customers to plan further ahead, adopt higher capacity products and align their infrastructure road maps more closely with our technology road map.

For WD, this creates an opportunity that extends well beyond the initial AI infrastructure build-out. As AI scales data creation and associated storage requirements will accelerate and compound. As always, my thanks to our customers, partners and the entire WD team for all of you for your interest and support of WD.

Operator

The conference has now concluded. We do thank you for attending today's presentation. You may now disconnect your lines.

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