Jacob Suen: I would like to, tell not one, although I do not want to make that as guidance. But in general what we see, and we actually have a technology product for them to do trial run, that will be the plan that we hope that in 2024, we can see material revenue contribution from the numerous products we’re launching this quarter.
Scott Searle: Very helpful. And lastly, if I could, just to follow up on the next-gen HPUE product. There’s a lot of excitement around the initial launch of the first product through AT&T, but it was a difficult process, I think, being controlled through one carrier. What’s different this time around as you start to move into the next-generation solution, either across carriers, geographies or otherwise, that gives you a little bit more diversity and opportunity for better success than you had been controlled through AT&T and FirstNet? Thanks.
Jacob Suen: Yeah. Great question, Scott. Yes, we were — I have to admit that we were disappointed about the adaptation rate due to the total — overall the total offering, right? And the things we learn is that, it’s important to be service provider agnostic. I cannot stress more about the fact that it’s just difficult to be tied to a particular service provider. And that’s what we learned. We’re also understanding some of the sensitivity to performance versus costs, when people appreciate some of the performance benefit, they also help to really evaluate the cost factor. So we are taking all of that into the next-generation product that is going to be a product that is going to be heading that the sweet spot of a steak. And certainly, we also made a number of improvements on how we’re going to launch the product.
We also learned that working very closely with viable installers that are critical to the success of the deployment, right? Because to get it right the first time, it’s critical. And when I say get it right the first time I’m talking about installing the device properly. It’s — so all of that are the lessons we learned. And again, going back to the demand, all of this is that, we see a clear demand. We see a clear market that if we have the right product at the right price point, there’s absolute demand for us to take advantage of. And with our unique design, it’s something that we have the IP on. It’s a really — especially with the newer product, we’re actually adding other features potentially into it. I think that’s going to really help support the rollout of this next-generation product, okay?
Scott Searle: Great. Thanks. I’ll get back in the queue.
Operator: Our next question comes from the line of Anthony Stoss with Craig-Hallum. Please proceed with your question.
Anthony Stoss: Hey, Jacob. Hey, Michael. Jacob, I wanted to focus on a comment you made on the weakness on the consumer WiFi side. Did you say your carrier customers want to skip WiFi 6 and now they’re waiting for WiFi 7? Also, can you give us a sense of what you expect that business to be this year? Is it going to be down year-over-year or how do you view it for the full year?
Jacob Suen: Hey, Anthony. Yeah. So I’ll speak a little bit and then would love for Michael to chime in as well. And a lot of the things, I think I’m going to caution that it’s more about — the forecast we’re seeing is soft. But some of the reasoning, we still want to spend more time to dive into it. But clearly, we also know that every two years, the carriers, they’re transitioning into a technology. And typically, it lasts about three to four years. And in this case, due to the pandemic due to some of the supply shortage issue, the rollout of the WiFi 6 was delayed. And now in the next cycle, which is the WiFi 7 or even WiFi 6E, it’s already here. So how are they going to smooth that transition? That’s what we’re also monitor closely.
I think that the things within our control, I always talk to the team is that, let’s do the things within our control. And the things within our control is actually that, we have not lost any SKU to our competition. And then it’s more of a diminished, a lower issue by the carrier, which we monitor closely. As well as this year, I think that, given some of the softness on the demand, we already got, but we want to be cautious, especially with the first half of the year.
Michael Elbaz: And Tony, just to echo what Jacob mentioned, this is Michael. Yes, we don’t have a whole lot of visibility currently. The feedback that we’re getting from our partners, from our customers, even service providers is that, there is a lot to be sorted out from a demand standpoint, but we do expect some recovery in the second half of the year. As to the overall full year guidance, it is just too early to talk about that right now.
Anthony Stoss: Got it. And then, I guess, a similar question and maybe you’ve already kind of already answered it. The IoT group has done phenomenally well by our math, close to 30% growth in calendar 2022 year-over-year. Clearly, you’re expecting that to grow again year-over-year. The rest of the business, though, seems like it’s going to be down pretty — a large amount year-over-year. What can you do to try to offset some of the cost in that legacy business that’s been weak right now?
Jacob Suen: Yeah. I think that we also expect the automotive market that we’re going to see some growth as well. I think the consumer — so look, we have a lot of better control on the automotive in the enterprise market, right? That’s where we actually have our own product. And that’s why we transition from a component company to a system company that we have a lot more control with our own destiny, if you want to call it. Consumer is more about winning SKUs and just hoping the rollout is going to come, right, versus the automotive and the enterprise IoT, we’re actually selling our own product most of the time. And we feel strongly that we’re going to be able to grow the IoT and the automotive business in this coming year or this year, 2023.
Anthony Stoss: And then my last question for Michael on the gross margin side of things. The purchase price variance, do you think you guys have your arms around on the gross margin, kind of, we call it, 39%, do you think it will remain at that level for the rest of the year or is there anything else that you could see that would have a negative impact?
Michael Elbaz: So thank you, Tony. That’s a very good question actually because it really speaks to the PPV item, it really speaks to the broader inventory management and also the gross margin improvement objectives that we have. And just to clarify on the PPVs, those are material costs that we are purchasing basically since the beginning of 2021, and those are basically applied to specific products and being released at time of shipment. And at this point, we have had quite a bit of a large increase in demand and shipments in the Q4 quarter for specific products that really carried quite a bit of PPVs, which was a bit of a surprise to us, but the silver lining is that, we are too much done with all the PPVs on our inventory.
This was one of the drivers of the inventory decrease. Our inventory decreased by 55%, $5 million. $1 million of that was at HPUE inventory reserve. The rest was really the laser focus on inventory management. And so, once we have now our inventory down to that level, we can take advantage of redriving gross margin improvement that will result into some in noticeable improvements in the second half of the year. So this is still being worked on. Right now, to your point, 39% is where we are guiding Q1. It’s been a run rate or even a normalized number for the Q4 quarter. We expect to see the same level in Q2, but some improvements taking place. And that improvement is coming from the leverage of the CM or contract manufacturing model. Even with the demand softness that we’re seeing right now, there’s quite a bit of activity going on among the CMs, specifically the regional CMs, which are looking to capture a higher share and therefore, are becoming a whole lot more compared to from a cost and quality standpoint.
So those are the advantages and the opportunities that we’re going to be looking at and leveraging throughout the year.
Anthony Stoss: Thanks, Michael, and good job on the cash management, by the way.
