Western Digital's profit gain rests on what each terabyte sells for

Western Digital makes hard drives, most of them high-capacity models bought by the cloud companies that hold the world's data. In the September 2026 quarter its revenue rose 55% from a year earlier. The amount of storage it shipped, counted in exabytes (an exabyte is a million terabytes), rose 22%. The rest came from price: the company said its average price per terabyte was 28% higher than a year before, when it had described price growth in the low single digits.

The filed results tell the same story. Divide revenue by exabytes shipped and each exabyte brought in about $17.7 million last quarter, against $13.8 million a year earlier, a rise in line with the company's own price figure. It is a blended measure. Part of it reflects customers moving to bigger drives, which earn more per terabyte, so not all of it is a like-for-like price increase.

Cost is where the picture differs. In April 2026 the company said a decline of about 10% a year in the cost of each exabyte was the right way to look at it. Calculated the same way as revenue, last quarter's cost of revenue per exabyte was only about 4.5% lower than a year earlier. The chief financial officer, Kris Sennesael, said the near-term decline in cost per terabyte would be smaller than that long-run rate, and pointed to the DRAM and NAND memory chips built into the drives, which have become more expensive.

Put the two together and the source of the profit is plain. Gross profit per exabyte rose by about $4.2 million, and almost all of that came from higher revenue per exabyte rather than lower cost. That is how non-GAAP gross margin reached 58.1% without the drives becoming much cheaper to build.

What keeps the price up, by management's account, is a mix of things. The chief executive, Tiang Yew Tan, named long-term agreements with built-in price increases, new agreements replacing ones that expire, and better prices on drives sold to customers outside those agreements while supply is tight. He also marked the limit of that support. Not all exabytes sit under the agreements, and "The further you go out, the less of it is covered under LTAs", meaning both volume and the pricing terms. He said price growth had room to keep widening year on year for the next three or four quarters and would eventually slow.

The near-term outlook leans the same way. For the current quarter the company guided revenue of $5.1 billion and non-GAAP gross margin of 60% to 61%. Its revenue has come in above the midpoint of the range it gave a quarter earlier in each of the last four quarters. That is a record of past guidance, not a forecast for this one.

What has changed is spending. In January 2026 the company said capital spending would stay within 4% to 6% of revenue on a run-rate basis, even with the ramp of HAMR, its next recording technology. It now expects capex to run modestly above that range for the next two years. Last quarter capex was 5.2% of revenue, calculated from the filed cash-flow statement, against 3.2% for the fiscal year that ended on July 3.

Management said the money is going into recording heads, disk media and factory automation, not into adding capacity to build more drives. That fits its account of price: the company is spending to make each drive hold more, which is the same lever it says lets it charge more per terabyte, without adding to the number of drives it can build.