Don Bennett
Thank you, Irving, and good morning, everyone. In the fiscal third quarter, Western Digital delivered strong financial results and successfully completed the planned separation of the company's Flash business on February 21. As such, the historical results for the Flash business segment are reported as discontinued operations and excluded from these results unless otherwise noted in my comments.
Total revenue for the quarter was $2.3 billion, down 5% sequentially and up 31% year over year. Non-GAAP earnings per share was $1.36, driven by gross margin of 40.1%, disciplined cost management and tax benefits. Total exabytes shipments were down 6% sequentially, driven by lower nearline shipments related to deployment plans of our customers. Average price per unit increased 4% sequentially to $179. Looking at end market cloud represented 87% of total revenue at $2.0 billion, down 4% sequentially and up 38% year over year.
On a sequential basis, the decline was due to a 6% reduction in nearline byte shipments to 145 exabytes, while pricing per unit in cloud was up 5%. On a year-over-year basis, both revenue and byte shipments grew at 38% and 32%, respectively, driven by the strength of our product portfolio.
Client represented 6% of total revenue at $137 million, down 2% on both a sequential and year-over-year basis compared to last quarter and last year, revenue was down due to lower unit shipments. Consumer represented 7% of revenue at $150 million, down 13% sequentially and 4% year over year. The sequential decline in consumer was primarily due to lower unit shipments, while year over year, the decrease was largely due to pricing.
Moving to the rest of the income statement. Please note, my comments will be related to non-GAAP results on a continuing operations basis, unless stated otherwise. Gross margin for the fiscal third quarter was 40.1%. Sequentially, gross margin improved 1.7 percentage points ahead of our guidance of 50 basis points improvement. Operating expenses were down sequentially to $324 million.
Our results demonstrate continued focus on cost discipline, as we concluded our business separation process. Operating income was $596 million, up 85 basis points sequentially, driven by higher gross margin and lower operating expenses, partially offset by lower revenue.
Operating margin was 26.0%, up 1.5 percentage points sequentially and up 17.3 percentage points on a year-over-year basis. Income tax expense was $12 million, and the effective tax rate for the fiscal third quarter was 2%. The decline in the company's effective tax rate from guidance is a result of the recognition of onetime deferred tax benefits in conjunction with the separation of the Flash business.
Turning to the balance sheet. At the end of our fiscal third quarter, cash and cash equivalents were $3.5 billion and total liquidity was $4.7 billion, including undrawn revolver capacity. Gross debt outstanding was $7.4 billion at the end of the fiscal third quarter. Inventory was $1.3 billion, representing 86 days of inventory, up $63 million sequentially and down $174 million on a year-over-year basis. Our net leverage ratio at the end of the fiscal third quarter was 1.7 times.
Please note after the close of the March quarter we successfully redeemed $1.8 billion of our 2026 senior notes using cash on hand. The redemption reflects our commitment to strengthening the balance sheet and achieving our target net leverage ratio of 1.0 to 1.5 times as outlined at our Investor Day. Operating cash flow for the fiscal third quarter was $508 million and cash capital expenditures represented a cash outflow of $72 million, resulting in free cash flow generation of $436 million for the quarter. Please note that this is on a consolidated basis for the quarter.
As Irving highlighted in his opening remarks, we are pleased to announce that we are initiating a quarterly dividend of $0.10 per share, reflecting the strength of our balance sheet and confidence in the long term cash generating ability of our business. This decision underscores our commitment to delivering value to our shareholders.
I'll now turn to the fiscal fourth quarter non-GAAP guidance. This guidance includes our current anticipated or known tariff-related impacts on our business in this period.
We anticipate revenue to be $2.45 billion, plus or minus $150 million. Gross margin is expected to be between 40% and 41%. We expect operating expenses to increase slightly on a sequential basis to a range of $330 million to $340 million dollars. The increase is due to the variable compensation reflecting improvement in the underlying business, hiring to fill critical open positions resulting from the business separation and increased investments in research and development.
As a result, our first fiscal quarter in FY26 will have 14 weeks. In addition, we expect the tax rate for FY26 to be between 16% and 18%.
In closing, Western Digital is well positioned to navigate the current dynamic environment. We remain focused on creating value for our stakeholders and investing in our future to capture the significant growth in data ahead. while maintaining a healthy supply and demand environment.
With that, I'll now turn the call back to Irving.
Irving Tan
Thanks, Don. Western Digital's results this quarter and guidance reflect the ongoing structural transformation of our business with continued progress towards a business that delivers sustained profitability. We continue to maintain strong conviction in the business and are confident that we will weather this uncertainty and come out even stronger.
With that, let's now begin the Q&A.
Ambrish Srivastava
Thank you, Irving. Operator, you can now open the line to questions, please. (Event Instructions) Operator?
Operator
(Operator Instructions) Erik Woodring, Morgan Stanley.
Erik Woodring
Congrats on the nice quarter at the gate. Instead of asking a demand question, I wanted to actually ask about capital allocation. And so Irving, you have a dividend yield of about 1% soon to be lower than that given how your stock is trading in the premarket, that's about $100 million annual cash outflow. Can you maybe just help us understand how we should be thinking about both dividend growth going forward, given it seems like you have some capacity there, but then also maybe how you're thinking about potential share buybacks. And I know your intent is to delever with the SanDisk stake.
But just help us understand on the cash return side to equity holders, how we could be thinking about the cadence of both dividend growth and buybacks.
Irving Tan
Yes, Erik, thanks for the question, and I appreciate it. Well, as we laid out at our Investor Day, our goal is to get our net leverage down to the 1.5 times range. And once we're there, we intend to return 100% of our excess cash to our shareholders, and that will be in the form of both dividend and share buybacks. As we also indicated at Investor Day, which we have honored and committed to today, we're starting off with a relatively small dividend to begin with. And then as we progress, we'll look to increase that and complement that with buybacks as well.
So stay tuned for that.
Ambrish Srivastava
Erik, did you have a follow-up.
Erik Woodring
Yes, just the quick follow-up was Irving, what I hear from you is kind of more visibility because of some of these LTAs. And I'm just -- and I'm curious, with customers now giving you some indications into the first half of calendar '26, does that mean you have enough visibility to expect revenue margins and EPS sequential growth through calendar '25? Or is it too early to make that call?
Irving Tan
Yes, Erik, thanks. Well, I think the shift to LTAs has given us greater visibility. And as I highlighted in my opening comments. We now have two hyperscale customers that have given us LTAs up to the first half of calendar '26. And that's really helped us plan our supply chain appropriately, along with the CapEx investments that we need to -- it gives us a lot more confidence in the business.
And so as I've highlighted in the past, I think especially when it comes to the hyperscaler business, we see demand continuing to be strong and robust throughout the calendar year '25 and now, as I mentioned, into the middle of calendar year '26 as well.
Operator
Aaron Rakers, Wells Fargo.
Aaron Rakers
Congrats on the first quarter out of the gate. In the comments around the guidance you guys alluded to into the fiscal fourth quarter, you did point out that it reflected all known or anticipated tariff impact. I'm curious if you could unpack that a little bit I believe the majority, if not all, of your manufacturing footprint is in Thailand. So just curious on how you're thinking about how your best assessment of what these tariff impacts might be or any indications that you've seen with customers at this point?
Irving Tan
Yes, Aaron, thanks for the question and good to hear from you again. Well, in Q4, we don't anticipate any direct tariff impact in relation to its translation into pricing or cost to customers. But where, as we've highlighted in our prepared statements, we do see some potential demand uncertainty in the enterprise distribution and retail segments of the business just due to the unpredictability and volatility, and you would have heard a lot of comments in the marketplace around enterprises and consumers sort of pausing or holding back on making purchases as well. So factoring all that in, that's the guide that we gave. But again, the growth that we've guided to is really driven primarily by the strength that we continue to see in the data center, specifically in our hyperscale business.
Don Bennett
And Aaron, I'll just add that in Irving's prepared remarks, we talked about establishing cross-functional teams to minimize disruption and mitigation to both our customers as well as our internal operations. Additionally, we're taking a strategic view on looking at multiple alternatives, depending on what the tariff situation looks like tomorrow or in mid-May or June, whatever the next round of tariff guidance comes out on our products. As you know, we're part of the semiconductor group. We currently have 0% tariff on our products.
Ambrish Srivastava
Aaron, did you have a follow-up?
Aaron Rakers
Yes, I do. Thanks, Ambrish. When I think about the gross margin, right, 40.1%, I think at the Analyst Day, you talked about 38% plus is kind of being the longer-term model. When I look at the guidance into this next quarter, if my math is right, it looks like the incremental margin that you're alluding to is like north of 45%. So I guess my question is, is there anything structurally in the business or kind of the path forward that keeps us from thinking that gross margin could trend into that mid-40%, if not higher range overtime?
Irving Tan
Yes. I think, Aaron, on -- at Investor Day, we provided a guide or a model on gross margin, that was a floor of 38%, and that's over a five-year period. As you know, they are market vagaries and ups and downs along the way. So 38% was the floor. We obviously were able to deliver very strong gross margins this quarter.
We crossed the 40% threshold. And that's really driven by the value that customers see in the technology that we are providing them as well as very strong operational discipline and also pricing discipline that we've experienced within the market. So we -- as we continue to currently deliver total cost of ownership value to our customers, innovation capability, whilst maintaining their operational discipline within the customers -- within our operations, sorry, we see gross margins continuing to remain strong.
Operator
Karl Ackerman, BNP Paribas.
Karl Ackerman
For my first question. I know you have focus on technology transitions to drive exabyte demand from here. However, what are the hurdles for you to add manufacturing capacity? Is it driven by a certain visibility you have on LTAs or other things we should consider.
Irving Tan
Yes. Thanks for the question, Karl. A lot of our exabyte growth has really been driven by air density improvement and technology improvement as we've highlighted, our UltraSMR technology, which is unique to us, gives us a 20% capacity uplift over the standard recording media. So our ability to deliver incremental exabytes without having to put in CapEx in terms of more production units has been one of the big differentiators that we've been able to create.
And so that's an area that we continue to invest in. In our R&D function to continue to drive greater air density performance, we've recently just launch our 26 and 32 terabytes industry-leading platforms and will bring out in the next few months our 28 and 36 terabyte platforms as well. So those increases to air density will continue to enable us to deliver exabyte growth without having to invest in CapEx for additional unit growth.
Ambrish Srivastava
Do you have a follow-up, Karl.
Karl Ackerman
I do, Ambrish, please. Thanks for that, Irving. I wanted to follow up on the comments you made with regard to LTAs. It sounds like demand for hyperscale is quite good and has strong visibility into the first half of '26. However, I was hoping you could provide a bit more color on the growth curve of private cloud and SMB customers.
I'm curious whether you have seen perhaps any pull forward in counter Q2 ahead of tariffs? And secondarily, how you think about the demand dynamic for those customers in the second half?
Irving Tan
Thank you. We definitely do see opportunities, especially in sovereign clouds and private clouds going forward. Even in the age of AI, where the primary beneficiaries have been the large hyperscalers, we also see growth sort of at the edge happening. So that's an opportunity that we look to pursue going forward as well as a growth driver. We haven't seen any pull forwards.
The linearity that we saw within Q3 was very consistent with the linearity that we've seen in the past. And then also as we look at sequential quarter-on-quarter growth very consistent with what we've seen in the past. So no real change in terms of pull-ins both last quarter and what we see happening in this quarter as well.
Operator
CJ Muse, Cantor Fitzgerald.
C.J. Muse
I guess to follow up on the prior question, I was hoping you could speak a bit about supply and what kind of exabyte growth you can get just from delivering higher capacity drives. And I guess what is the time frame where you would potentially consider adding more capacity?
Irving Tan
Thanks for the question, C.J. Look, we feel confident right now with the forecast that we have and the outlook that we see in terms of exabyte growth. We are able to deliver that through, again, the technology and innovation we are delivering that provides us that capacity uplift without putting in any capacity, if there was any need to put in any capacity, it would probably be more on the hidden media side of the house, but we don't anticipate any capacity investments in those areas for the near term.
Don Bennett
And CJ, I'll just add that in this uncertain environment, we're very tightly managing our capital expenditures and we're -- we continue to manage the business to the low end of our guidance range of 4% to 6%.
Ambrish Srivastava
Do you have a follow-up, CJ?
C.J. Muse
I do, Ambrish. I guess could you speak to gross margins? Obviously, great results and guide. Curious in terms of the drivers from here, is there still kind of a fixed cost benefit that would arise? Or is it really all about higher capacity drives delivering higher ASPs?
Is that the main driver? Or are there other factors that we should consider?
Don Bennett
Yes. CJ, you hit it right. It's really about the product technology that we're delivering to our customers. We continue to add TCO benefit to them, and we're participating in that value that we're bringing to the customers. We're tightly matching supply and demand.
So we're not going to see great impact from increased production over time because we're very tight in our supply allocation. So it's really about delivering value to our customers through technology and continue to drive leading-edge products at scale.
Operator
Wamsi Mohan, Bank of America.
Wamsi Mohan
Nice results here. Irving, if I heard right, the potential for some enterprise slowdown driven by tariffs. I was curious, have you seen anything in your order patterns to suggest that? Or is this sort of more anticipatory in terms of what could happen if a tariff regime became more onerous.
Irving Tan
Yes. Thanks for the question, Wamsi. It's more the latter, right? We haven't seen any slowdown just yet, but obviously, there is demand uncertainty because of the tariffs. And obviously, we've heard a lot of news coming out of enterprises and earnings over the last few days around customers being a bit more cautious in terms of spending and capital investments as well.
So given that, we've just factored that into the guide. But nothing untowards for the time being. That's how we just widen the range in terms of our guide for Q4.
Ambrish Srivastava
A follow-up, Wamsi?
Wamsi Mohan
Yes. Thanks, Ambrish. Maybe for Don, as you look into the September quarter, where you're calling out the 14 weeks, any parameters you can help us think through in terms of revenue and OpEx into that quarter, please?
Don Bennett
Yes. So we guide one quarter at a time, but the reason I mentioned a 14-week is because, obviously, we'll have 14 weeks of expenses typically our customers order on a quarterly basis. So the revenue will be -- it will follow typical seasonal patterns. But at this point, we're not guiding revenue for that quarter.
Operator
Asiya Merchant, Citigroup.
Asiya Merchant
Great quarter, by the way. Just there seems to be some concerns like just around hyperscalers. I know your competitor talked about demand being very strong there as well and good visibility. Just anything on why you don't think this could be double ordering? Anything as it relates to pricing negotiations that would limit the impact if indeed there was any double ordering?
Irving Tan
Yes. Thanks for the question, Asiya. We definitely don't see any double ordering at this time as I think one of the key things is we are in a very tight supply demand environment. So even if there were double orders, I think we will be challenged to fulfill them, right now. And I think, more importantly, the demand profile that we are seeing given the LTA visibility that we have all the way to middle of 2026 is -- we are seeing order patterns very much follow the LTA demand.
So there's nothing really abnormal. As Don mentioned, it follows very much both seasonality quarter to quarter and linearity within quarter as well. So we don't see any double ordering. If anything on pricing, obviously, as we transition to new platforms that always gives us an ability to deliver better TCO value to our customers and the opportunity for us to deliver greater pricing upside as well.
Ambrish Srivastava
Asiya, did you have a follow-up?
Asiya Merchant
Yes, sure. On gross margins, it was better than expected in the current quarter that you reported. Why can't gross margins do similar incremental step up, you are seeing better revenues in the June quarter? And then as you think about the remainder of the calendar or the fiscal '26, should we continue to expect margin expansion from these levels?
Irving Tan
Yes. Thanks for the question. I think the strong gross margins that we have delivered and also guided to is a reflection of the value that we bring to our customers, particularly through the technology enhancements that really gives them both better TCO, but also very fast time to value. And that's what we continue to focus on. And if we are able to continue to deliver that innovation, continue to deliver that total cost of ownership benefit and giving them fast time to value.
We don't see any reason why gross margin could expand going forward as well. So that's our focus. We don't worry too much about the gross margin but continue to focus on delivering value to our customers, and I think the gross margin will flow from that.
Operator
Amit Daryanani, Evercore.
Amit Daryanani
I guess maybe just to stop on the tariff dynamic, I realize you don't have much of an impact on tariff right now. But as you're signing these LTAs in 2026, can you talk about if you sort of have tariff escalators embedded in them to ensure you can pass through the cost of these to your customers? Or would that be a difference sort of discussions to be had once you know what the tariff scenario looks like?
Irving Tan
Yes. Thanks for the question. We are obviously working very closely with our customers. As we all know, I think the situation is evolving on a daily basis and extremely fluid. So it's hard for us to really speculate what the outcome would be.
Right now, as I mentioned in my prepared remarks and Don emphasized as well, we have teams that are working across the company closely with our customers to really understand how we can mitigate the impacts of tariffs and also any supply disruptions in the near term. And then in the long term, we're also evaluating with them what their supply chain shifts may be so that we can also align to that. So we are also prepared both from an agility, resiliency and long-term readiness perspective to be able to work for our customers as they shift their supply chains to be able to best support them as well.
Ambrish Srivastava
Amit, did you have a follow-up?
Amit Daryanani
I do. And then maybe just on the HAMR side, I think you folks mentioned you're working with two cloud customers at this point on HAMR. Just any sense on when you expect these qualifications to happen, and as you work towards them, should we think of some sort of upside bias to your R&D or OpEx investments through that process?
Irving Tan
I think we've laid it out very clearly at Investor Day. We are looking to start qualification in the second half of calendar year '26 and then ramping up production at scale in the first half of calendar year '27. We have engineering samples with two large hyperscalers already today, we're in close contact with them on the performance of those trials, we're getting regular feedback from them. I would say so far, the performance has been meeting the milestones that we both laid out. And on a quarterly basis, based on the feedback that we see from them, we are delivering the next generation of enhancements on those drives.
So I'll say we are comfortable with where we are. We're on track with that road map that we laid out. At the same time, we're also preparing to introduce our new 28 terabyte and 36 terabyte ePMR platforms as well. So our whole focus is on ensuring that we really derisk transitions, how our customers continue to deliver very scalable, predictable, reliable capacity points that gives them the fastest time to value.
Operator
Tom O'Malley, Barclays.
Tom O'Malley
I just wanted to focus in a little bit on the LTA. So we had this period in memory on the NAND and DRAM side through the pandemic, where in the end, LTAs were pretty much torn up and were largely hyperscalers advantage over suppliers. Could you talk about like what benefit you get from these LTAs, like is this a take-or-pay agreements, are these in writing where you get some sort of compensation if your customers aren't going to take these? Or is this just like a framework that you have with your customers that says we will supply this much over this period of time. Can you just maybe dive into those a little bit because historically, they really haven't meant much.
Irving Tan
Yes. Thanks for the question, Tom. Well, first of all, we don't disclose the terms of the commercial contracts that we have. But I think it's important to note there's some quite significant structural changes that have happened within our business, I would say, across the entire hard drive industry over the last year, where a lot of the excess capacity and existing inventory within the supply chain has been removed from the system to really reset the entire supply base to where we think the right demand profile is going forward. And the LTAs play a very critical role to ensure that we have that right supply demand balance.
And given the criticality that hard drives plays to the business of our hyperscale customers, I think as I've mentioned in my opening comments as well, they've been working very closely with us to ensure that sort of supply-demand imbalance that we saw during COVID and post COVID as well, doesn't reoccur. And I think we're in a good place where the LTAs really give us good visibility. We're seeing pretty much demand stick to those LTAs that we've outlined with them with -- and the LTAs have moved from pretty much three to six months now to 9 to 12 months as well. So that's giving us a lot more visibility to plan our supply chain very closely for our customers as well.
Ambrish Srivastava
Do you have a follow-up, Tom?
Tom O'Malley
Yes. I just want to dive into the differences between the unit and pricing in the guide. So like you had a pretty consistent track over the last couple of years of increased pricing. Is there any different type of dynamic we should think about? I know you guys don't guide by more than one quarter out.
But looking into the June quarter, units versus pricing? Any commentary you have that get you to that guide?
Don Bennett
Sure, Tom. Yes, we've had, as Irving mentioned, a structural change in our business. So the majority of our business today is in data centers or at the edge. And so we've seen this continued progression of ASP. Currently, we announced we're at $179, which is up 23% year over year on an aggregate weighted average basis.
So as that mix continues to move to cloud, we should see sustained increases in ASP, obviously, it will move around quarter to quarter depending on what our client and consumer mix is because that typically is a lower capacity drive overall. But -- so it's impacted by segment mix, customer mix as well as we continue to drive TCO value to our customers. So we see price per unit stable or up in most cases as we deliver further technology into those accounts.
Operator
Steven Fox, Fox Advisors.
Steven Fox
I guess, first one, I just was curious if you could sort of give yourself a grade on the free cash flow for the quarter. It seemed pretty good to me at 78% of net income. And how we can think about sort of what you're measuring yourselves against in future quarters for free cash flow? And then I have a follow-up.
Don Bennett
Yes. Thanks for the question. So free cash flow, we don't guide cash flow on a quarterly basis because there's a lot of moving parts in cash flow. As you mentioned, we did have very strong both operating and free cash flow. We are driving the business to operating profit and to free cash flow generation so that we can execute on our capital allocation priorities, and Irving laid those out in the script, but I'll just repeat them.
One is to reinvest in the business, to deliver leading-edge technology at scale our customers. The second thing is to delever our balance sheet. And you've seen us do that with taking out $1.8 billion of our 2026 notes. So we're now down below $4 billion of net debt on the balance sheet. And lastly is returning capital to our shareholders.
We started that with the initiation of the dividend, and there will be more to come on that in the future.
Ambrish Srivastava
Did you have a follow-up, Steve?
Steven Fox
Yes. I was just curious, when we think about non-enterprise and non-cloud markets, how you're managing those against all the demand you're seeing? Do you feel like you're deemphasizing those or figuring out a way to maybe more efficiently manage them? I'm just curious what we think about those markets over the next year or two.
Irving Tan
Yes. We're definitely not deemphasizing them. There's still a material part of our business. The supply chains for cloud and non-cloud business are really quite discrete and separate, and we sort of manage them independently. If anything, we are looking at opportunities to see whether we can sort of drive incremental growth in those areas.
Operator
Mark Miller, Benchmark Company.
Mark Miller
Congratulations on your first report after the spin out. I'm just curious, can you tell us how many shares you currently hold with SanDisk? And have your plans changed because of the relatively low price of SanDisk about what you're going to do with the shares?
Irving Tan
Yes. We own 19.9% of SanDisk as the retained stake that we have. And as we've communicated in Investor Day, we will look to disposition those shares, ideally over a 12-month period, starting in February as part of our deleveraging strategy going forward.
Operator
Harlan Sur, JPMorgan.
Harlan Sur
Great job on the quarterly execution. Back in February, the team outlined a three-year nearline exabyte growth CAGR of around 20%, 25%, which is what some of the third-party research firms are kind of forecasting for this calendar year, which is also consistent, Irving, with the strong cloud data center CapEx spending trends that you talked about this year, given your fairly good visibility. Does your forward profile also suggest a low 20% exabyte growth profile in this calendar year or better?
Irving Tan
I think you're in the ballpark.
Ambrish Srivastava
And Harlan, this is Ambrish. Remember, we had given a three- to five-year forecast. Did you have a follow-up, Harlan?
Harlan Sur
Yes. No, I know Irving had given a three- to five-year forecast, but that sort of 23% kind of aligns with some of the what the third-party research guys are kind of forecasting for this calendar year, but I appreciate the answer there. Also, back in February, Irving, you did articulate about a 40% like current mix of your nearline capacity was UltraSMR base. As you look at your order book and shipment plans, where do you expect that mix to be either second half of this year or exiting this calendar year and you're driving obviously strong TCO benefits. You're driving strong pricing power.
But on a like-for-like basis capacity-wise, which carries the higher gross margin profile? Is it your CMR or UltraSMR based drives?
Irving Tan
Well, I think we look to deliver value across the portfolio. So I think we see pricing leverage across both our CMR and UltraSMR platforms. Obviously, our UltraSMR platforms give us better ASPs per drive because of the additional capacity we deliver from it. It also helps us with CapEx, as I've highlighted earlier, because of the technology benefit we have without having to put CapEx into it. In terms of mix in any given quarter, it's probably around 40% to 45% ratio.
So it depends on -- because these are large hyperscalers and they have different deployment timeframes and different hyperscalers use different technologies. So it can fluctuate from quarter to quarter, but somewhere between 40% to 45% in any given quarter is what we see.
Operator
Ananda Baruah, Loop Capital.
Ananda Baruah
Congrats on getting out the gate here as Newco. I guess, yes, Ambrish, to you if I could. I guess the first one is really an architectural question. So as -- like assuming Seagate continues to progress with HAMR and you guys continue to progress over the next, call it, 24 months with your legacy tech kind of pre getting to HAMR volume just as per the Analyst Day. Does that create any new architectural realities inside the data center with what can be mixed and matched or how folks begin thinking about storage system stacks would love any context there if there's anything?
And then I have a quick follow-up.
Irving Tan
Yes. Look, I think there will be some architectural adjustments accordingly. Obviously, at the highest level the interplay between what's on flash, what's on hard drives and what's on take will continue to be there. As we've highlighted at Investor Day, how drives again will be the predominant storage media with over 80% of bytes stored start on hard drives. We don't anticipate that changing, whether that's ePMR or HAMR.
Going forward, there are some rack level changes that will be required for the deployment of HAMR, so you're not going to be able to mix and match the drive that easily similar to UltraSMR, there are some whole site software changes that are required as well. But these are very sophisticated customers, their data center architects are very familiar with what's needed to be done. And again, the success that we've had and the continued growth that we see in our UltraSMR portfolio is a great example of people really embracing the technology and really making and investing in the architectural changes within both their data center environment in their software stack to be able to take advantage of that benefit, and we see that going forward.
Ambrish Srivastava
You had a follow up Ananda.
Ananda Baruah
Yes. Maybe this is for Don. I guess the March quarter gross margin, am I correct in recalling that March quarter gross margin was actually originally anticipated to be impacted by product transition, yield dynamics, normal stuff. And if that did in fact occur, does that actually mean that the normal -- the structural margin is actually set up higher than what you guys reported?
Don Bennett
Well, I think we guided at 50-basis-point improvement. We actually saw better yields and utilization and the ramp of our new product technology was faster than expected as we announced in our press release. So we shipped over 800,000 units of our new 11 disc platform, and that's being produced at very high quality, reliability and yields in our factory today. So that was one of the things that improved gross margin above guide.
Operator
Mehdi Hosseini, SIG.
Mehdi Hosseini
Your main competitor recently announced their intention to acquire Intevac. And I want to learn more how you're thinking about procuring the key components for HAMR technology, especially as you engage with two hyperscalers that you highlighted in your prepared remarks. And I have a follow-up.
Irving Tan
Yes. First and foremost, I think the Intevac acquisition by our peer doesn't have any impact on us because we have obviously two sputtering systems that we use. So we have resiliency within our technology supply chains as well. We're obviously looking out for opportunities in which we can continue to capture even more value and create even more value to our products through potential acquisitions and vertical integration. So we continue to keep a lookout for them.
In many cases, in terms of two providers, we actually do feel and our philosophy is that they actually benefit from actually servicing multiple customers because that's how they can innovate better as well, but that's generally our rule of thumb. But we're constantly looking at opportunities to see how we can continue to vertically integrate and capture more value within our portfolio.
Ambrish Srivastava
Do you have a follow-up, Mehdi.
Mehdi Hosseini
Yes, sir. And a follow-up has to do with the CFO, sir, especially since you're executing well read and coming into dividend, cash dividend. And to what extent, what's the update on the CFO search? And how should we think about the execution and search for the CFO.
Irving Tan
Yes. Thanks for the question. First and foremost, I really must thank Don for agreeing and stepping into the interim CFO role. He's done a great job, as you can hear from the results as well. The search is progressing very well, and we'll communicate in due course once we have a CFO identified.
Operator
Tim Arcuri, UBS.
Tim Arcuri
Drive units were down from $13.5 million down to like $12.1 million in March. So is $13.5 million, is that kind of like -- should we think about that as the high watermark for the number of drivers you could produce in a quarter?
Irving Tan
I wouldn't use that as a watermark. I think it really depends on mix. It also depends on the various capacities that we are delivering. As Don mentioned, the teams continue to do a great job on really pushing the boundaries of yield and output that we can within the supply environment that we have. So again, it fluctuates really based on yield and the mix of products that we have.
Don Bennett
And I'll just add, there's segment mix, client and consumer was down for the quarter as we ramp in the seasonal periods with Prime Day and back-to-school and Christmas. We may see some of that volume come back in the client and consumer space as well, and we have capacity there to expand.
Ambrish Srivastava
Did you have a follow-up, Tim?
Tim Arcuri
I do. Yes. Just back on this question about these LTAs. I mean these same large customers have similar deals for memory, and they routinely overstate what they need. So why would they not be doing that with you as well? So I mean, I certainly understand that demand is good. But for this stuff that is looking out to next year, why would they not if they need two drives, why would they not tell you that they need three? And if they didn't take the driver, are you going to enforce the cancellation policy on them?
Irving Tan
Yes. Look, I think we've got into a good healthy relationship with our customers. They have understood that in order for the hard drive industry to be healthy for us to continue to be able to be profitable and invest in innovation that they benefit from, from a TCO advantage, it's in both our best interest to provide as best as possible the demand outlook given the long lead times, especially when it comes to nearline drives. So that's something we've clearly gotten visibility. And in fact, for the two LTAs that we have into the first half of calendar '26, we actually have some POs associated with them as well.
I guess the question is, do we put in a clause around take or pay? To be frank, I'm not -- we are not a fan of that because all you're doing is creating problems down the road. And so we rather work with our customers to smooth out demand and make sure we continue to work with them to have the right and appropriate supply-demand balance to sustain a profitable business that we can continue to invest in innovation for them going forward.
Operator
Vijay Rakesh, Mizuho.
Vijay Rakesh
Just a quick question on the hammer side. When you look at the two hyperscale customers you mentioned, is that -- are you still looking at ramping those like in calendar '26, second half '26, I think, as you mentioned on the Analyst Day, Irving?
Irving Tan
Yes. So as per the road map, we've communicated, which has been shared with our customers for quite a while at Analyst Day, it was when we made it more public to the general population, but that roadmap has been done in partnership with customers for quite a while. Just to reiterate what we shared, we're looking to start qualifications in the second half of calendar '26 with high-volume production ramp in the first half of calendar '27.
Vijay Rakesh
Got it. And then on the tariffs, just a quick clarification. When you look at shipping into China, is that going from your Malaysia facilities? Or do you ship hard drives into China? And likewise, in the US, how much of that is you have production here versus coming in from Malaysia, et cetera? If you can give a little bit of color around that.
Irving Tan
Yes. We have production facilities throughout Asia. So none of our products that we ship into the US is coming from China. Most of it is coming in from Southeast Asia products going into China are not subject to any tariffs. As of April 11, products that we ship into the US are also not subject to any tariffs. Obviously, that situation is evolving and fluid. So we stay very close to it.
Operator
Krish Sankar, TD Cowen.
This is Eddie for Krish. How should investors think about the impact from export control from China? I think historically, you guys were able to recycle some of these metals. But at some point, it didn't impact your margins. I just wonder if down the road, it's an area investors should be thinking about?
Irving Tan
Yes. Thanks for the question, and it's a good one. We, over the last few years, have really been on a supply chain resiliency program where we have been able to develop alternate sources of supply for both rare earth and precious minerals as well. So we don't anticipate there being any material impact as a result of some of those controls.
Ambrish Srivastava
Did you have a follow-up?
Sure. And as you guys ramp the 11 disc platform, how should we think about the margin impact? Because my understanding is as you add discs it may reduce the gross margin accretion? Or do you think it's at a point where it's mature enough where margins would be unaffected by that ramp.
Don Bennett
Yes. So the margin accretion is included in our guidance. So we factor the ramp of the new technology into guidance.
Irving Tan
Yes. Maybe just to add on to Don's comment, we were already ahead of our ramp plans in Q3, as I mentioned in my prepared remarks, we shipped over 800,000 units of that new 11 disc platform. We'll be shipping well over 1 million units in we are seeing very high yields and productivity coming out of those platforms. So I guess to your question, they're actually margin accretive as opposed to being dilutive.
Operator
This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Irving Tan, Chief Executive Officer, for any closing remarks.
Irving Tan
Well, first, thank you all very much for joining us today, and it's very exciting to have our first quarter out as a stand-alone HDD company. As you can see from the results in the guide. We're executing well on our strategy that we've laid out at Investor Day, really being focused on our customers, driving leading-edge innovation being extremely disciplined on operational excellence and having rigorous financial discipline and a very capital-friendly return policy this quarter and the guide that we have shared, I think, truly reflects that. And so we ask that -- we thank you for your ongoing interest in WDC, and I look forward to catching up with all of you in due course.
Operator
This concludes today's conference call. Thank you for joining us. You may now disconnect.
