Western Digital Corp. shares climbed roughly 8% on Tuesday following the company's Innovation Day event in New York, where executives laid out a set of ambitious financial goals for the coming years.
At the presentation, management presented a growth forecast calling for revenue to climb at a compound annual growth rate (CAGR) of more than 20%. The company attributes that rise primarily to expansion in nearline storage, which it estimates will grow at a mid-20s CAGR, and to an expectation of stable pricing across relevant markets.
Profitability targets were a central element of the plan. Western Digital set an objective of achieving gross margins in excess of 50%. Management said that margin expansion would be driven by a strategic shift toward higher-capacity hard disk drives (HDD) and by continued product cost reductions.
Beyond gross margin, the firm outlined an operating margin goal exceeding 40%, which it expects to realize through operating leverage as revenue scales. The company also disclosed a free cash flow margin target above 30% and indicated that it plans to deliver that metric through tight working capital management paired with capital expenditures equal to roughly 4% to 6% of revenue.
Investors reacted positively to the targets disclosed at the Innovation Day, pushing the stock up about 8% on the trading day following the event.
Summary of the outlook presented
- Revenue growth target: greater than 20% CAGR, driven mainly by nearline storage expansion with an estimated mid-20s CAGR and stable pricing.
- Profitability targets: gross margins above 50% and operating margins exceeding 40%, achieved via higher-capacity HDD mix and product cost improvements.
- Cash flow and capital deployment: free cash flow margin goal above 30%, supported by working capital discipline and capex of 4% to 6% of revenue.
These targets outline a clear emphasis on favorable product mix, cost structure improvements, and capital efficiency. The nearline storage segment and higher-capacity HDDs are central to the plan, according to the presentation, and management highlighted operating leverage and working capital as mechanisms to convert revenue growth into outsized margins and cash flow.