Citi Western Digital (WDC.N) Management Callback Takeaways
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Citi reiterates a Buy rating on Western Digital (WDC.N) with a target price of $280 following a constructive management callback. Management clarified the structure of their long-term agreements (LTAs) spanning 2026 to 2028. The 2026 LTAs feature firm purchase orders defining both price and volume, while the 2027-2028 agreements establish base quantities with incremental volumes to be negotiated separately. Importantly, these LTAs are technology-agnostic and denominated in exabytes. The company intends to meet rising demand without adding unit capacity, instead relying on areal density gains from ePMR and HAMR technologies, alongside product mix shifts. Western Digital shipped 3.5 million ePMR drives in the December quarter and expects approximately 4 million in the March quarter. HAMR certification is progressing, with two hyperscale clients anticipated in the first half of 2026 and a third in the second half. Mass production ramp is slated for the first half of 2027. Cost per terabyte is declining annually by roughly 9-10%, while pricing per terabyte saw low-single-digit increases in the December quarter. Management's long-term gross margin model targets a comfortable zone above 50%. The firm intends to eliminate debt, potentially unlocking enhanced capital return capabilities moving forward.