v3.26.1
Income Tax Expense
 12 Months Ended
Jul. 03, 2026
Income Tax Disclosure [Abstract]  
Income Tax Expense Income Tax Expense
Income (Loss) Before Taxes
The domestic and foreign components of Income (loss) before taxes were as follows:
202620252024
(in millions)
Foreign$2,143 $(1,348)$(543)
Domestic10,874 (131)40 
Income (loss) before taxes$13,017 $(1,479)$(503)
Income Tax Expense
The components of income tax expense were as follows:
202620252024
(in millions)
Current:
Foreign$249 $165 $158 
U.S. - Federal1,197 7 20 
U.S. - State18 2 7 
1,464 174 185 
Deferred:
Foreign(29)(13)7 
U.S. - Federal147 1 (19)
U.S. - State2 — (4)
120 (12)(16)
Income tax expense$1,584 $162 $169 
H.R. 1, more widely known as the One Big Beautiful Bill Act (“OBBBA”), was signed into law on July 4, 2025. It reversed the requirement for capitalization of U.S. research and development expenditures that came into law under the Tax Cuts and Jobs Act of 2017, but the mandatory requirement of capitalization of foreign research and development expenditures remains. The tax rates for income earned by the Company’s foreign subsidiaries will also be changed under H.R. 1. Depending on the Company’s operating results, these changes can materially impact the Company’s effective tax rate and reduce its operating cash flows. During the year ended July 3, 2026, the Company recorded a $10 million tax benefit in relation to the OBBBA’s impact on its 2025 tax provision.
On August 16, 2022, the Inflation Reduction Act of 2022 was signed into law, which contained significant changes to laws related to tax, climate, energy, and health care. The tax measures include, among other things, a corporate alternative minimum tax (“CAMT”) of 15% on corporations with three-year average annual adjusted financial statement income (“AFSI”) exceeding $1.0 billion. The Company does not expect to be subject to the CAMT of 15% for fiscal year 2026 as its average annual AFSI did not exceed $1.0 billion for the preceding three-year period.
On December 20, 2021, the Organisation for Economic Co-operation and Development G20 Inclusive Framework on Base Erosion and Profit Shifting released Model Global Anti-Base Erosion rules under Pillar Two (“Pillar Two”). Pillar Two is currently effective in most of the jurisdictions in which the Company operates. Accordingly, these taxes are included in the Company’s Income tax expense for the year ended July 3, 2026.
The following table presents the Company’s Income tax expense and the effective tax rate:
202620252024
(in millions)
Income (loss) before taxes$13,017 $(1,479)$(503)
Income tax expense1,584 162 169 
Effective tax rate12 %(11)%(34)%
The relative mix of earnings and losses by jurisdiction, foreign-derived deduction-eligible income, credits, and tax holidays in Malaysia that will expire at various dates during years 2028 through 2031 resulted in decreases to the effective tax rate below the U.S. statutory rate for the year ended July 3, 2026.
The primary drivers of the difference between the effective tax rate for the year ended June 27, 2025 and the U.S. federal statutory rate of 21% are the relative mix of earnings and losses by jurisdiction, the goodwill impairment, the foreign income inclusion, credits, and tax holidays in Malaysia.
The primary drivers of the difference between the effective tax rate for the year ended June 28, 2024 and the U.S. Federal statutory rate of 21% are the relative mix of earnings and losses by jurisdiction, the foreign income inclusion, credits, and tax holidays in Malaysia.
Deferred Taxes
Temporary differences and carryforwards, which give rise to a significant portion of deferred tax assets and liabilities were as follows:
July 3,
2026		June 27,
2025
(in millions)
Deferred tax assets:
Sales related reserves and accrued expenses not currently deductible$63 $38 
Accrued compensation and benefits not currently deductible26 29 
Net operating loss carryforward43 41 
Business credit carryforward76 44 
Long-lived assets35 22 
Interest and hedging costs not currently deductible— 15 
Other23 15
Total deferred tax assets266 204 
Deferred tax liabilities:
Long-lived assets(10)(7)
Unremitted earnings of certain non-U.S. entities(46)(77)
Unrealized gain on Marketable equity securities(172)— 
Other(15)(18)
Total deferred tax liabilities(243)(102)
Valuation allowances(118)(61)
Deferred tax assets, net$(95)$41 
The decrease in the net deferred tax assets is attributable primarily to unrealized gain on marketable securities, offset by a decrease in deferred tax liabilities on undistributed foreign earnings. The Company continues to assess and adjust its valuation allowance based on operating results and market conditions. After weighing both the positive and negative evidence available, including, but not limited to, earnings history, projected future outcomes, industry and market trends and the nature of each of the deferred tax assets, the Company determined that it is able to realize its deferred tax assets except for certain loss and credit generated and carryforwards.
The Company is permanently reinvested with respect to certain foreign earnings. There is no unrecognized deferred tax liability associated with the repatriation of these foreign undistributed earnings.
Adoption of Recently Issued Accounting Pronouncement
The incremental disclosures required by ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which includes disaggregation of information in the rate reconciliation and income taxes paid, were adopted by the Company on a prospective basis for the year ending July 3, 2026.
Effective Tax Rate
Reconciliation of the U.S. federal statutory rate to the Company’s effective tax rate for fiscal year 2026 is as follows:
2026
in USD (millions)In percent
U.S. federal statutory income tax rate$2,733 21 %
State and local income taxes, net of federal income tax effect(1)
19 — 
Foreign tax effects
Malaysia
Tax holiday exempt(492)(4)
Other32 — 
Other Foreign Jurisdictions103 1 
Tax rate and law change(7)— 
Effect of cross-border tax law
Foreign-Derived Deduction-Eligible Income(725)(5)
Net Foreign Tested Income(2)
147 1 
Other 8 — 
Tax credits
Research and development tax credits(60)(1)
Change in valuation allowance(2)— 
Non-taxable or non-deductible items
Stock-based compensation(227)(2)
Other permanent differences(1)— 
Change in unrecognized tax benefits70 1 
Other adjustments(14)— 
Income tax expense$1,584 12 %
(1) State taxes in Arizona, Florida, Illinois and Pennsylvania make up the majority of the tax effect in fiscal year 2026.
(2) U.S. companies are subject to a lower tax rate on certain income earned by its foreign subsidiaries. This regime is referred to as the Net Controlled Foreign Corporation Tested Income.
Reconciliation of the U.S. federal statutory rate to the Company’s effective tax rate in 2025 and 2024 is as follows:
20252024
In percent
U.S. federal statutory rate21 %21 %
Tax rate differential on international incomes(1)(42)
Foreign withholding tax(1)(11)
Change in valuation allowance— (2)
Tax effect of U.S. foreign income inclusion(7)(1)
Tax effect of U.S. foreign derived intangible income1 2 
Tax effect of permanent differences— (2)
Tax effect of goodwill impairment(26)— 
Tax effect of intangible assets— 1 
Tax rate change— 1 
Unremitted earnings of certain non-U.S. entities(2)2 
Change in uncertain tax positions(1)(12)
Return to provision adjustment1 (1)
Foreign income tax credits4 5 
R&D tax credits1 3 
Federal audit settlements— 3 
Other(1)(1)
Effective income tax rate(11)%(34)%
Cash paid for income taxes, net of refunds received, by jurisdiction for the year ended July 3, 2026 is as follows:
2026
in millions
Federal$36 
State4 
Foreign
India18 
Singapore20 
Japan19 
Korea16 
China11 
UK11 
Other11 
Total146 
Tax Holidays and Carryforwards
A substantial portion of the Company’s manufacturing operations in Malaysia operate under various tax holidays and tax incentive programs, which will expire in whole or in part at various dates during fiscal years 2028 through 2031.
The net impact of these tax holidays and tax incentives was an increase to the Company’s net earnings by $492 million, or 3.18 per share, in 2026 and $82 million, or 0.57 per share, in 2025. The Company was at a loss in Malaysia during 2024. The tax incentives had no impact on the Company’s net earnings in 2024.
As of July 3, 2026 and June 27, 2025, the Company had $95 million and $38 million, respectively, of state tax credit carryforwards that do not expire.
As of July 3, 2026 and June 27, 2025, the Company had varying amounts of NOL carryforwards, totaling $0.3 billion, and $2.1 billion, respectively, that do not expire or, if not used, expire in various years beginning in 2028, depending on the country. The majority of the NOL carryforwards reside in Malaysia.
Uncertain Tax Positions
With the exception of certain unrecognized tax benefits that are directly associated with the tax position taken, unrecognized tax benefits are presented gross in the Consolidated Balance Sheets.
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits, excluding accrued interest and penalties for the year ended July 3, 2026:
202620252024
(in millions)
Unrecognized tax benefit, beginning$140 $47 $25 
Gross increases related to prior year tax positions31 6 10 
Gross increases related to current year tax positions168 17 15 
Gross decrease related to prior year tax positions(12)(1)(3)
Gross decrease related to lapse of statute of limitations(4)— — 
Gross increase related to transfer from Western Digital Corporation— 78 — 
Gross decrease related to settlement— (7)— 
Unrecognized tax benefit, ending$323 $140 $47 
As of July 3, 2026 and June 27, 2025, the liability for unrecognized tax benefits (excluding accrued interest and penalties) was $323 million and $140 million, respectively. Interest and penalties related to unrecognized tax benefits are recognized in liabilities recorded for uncertain tax positions and are recorded in the provision for income taxes. Accrued interest and penalties included in the Company’s liability related to unrecognized tax benefits as of July 3, 2026 and June 27, 2025 was $16 million and $11 million, respectively.
The Company files U.S. federal, U.S. state, and foreign tax returns. The Company is currently subject to, or could become subject to, tax authority examinations in various jurisdictions for previously filed returns dating back as early as 2009.
The Company believes that adequate provision has been made for any adjustments that may result from any other tax examinations. However, the outcome of such tax examinations cannot be predicted with certainty. If any issues addressed in the Company’s tax examinations are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs. Any significant change in the amount of the Company’s liability for unrecognized tax benefits would most likely result from additional information relating to the examination of the Company’s tax returns.