Joe Quatrochi: Okay, thank you.
Phil Gallagher: Thanks, Joe.
Operator: Thank you. Our next question is from Matt Sheerin with Stifel. Please proceed with your question.
Matt Sheerin: Yes. Thank you, and hello everyone. Phil, just another question regarding the inventory that you’re building and the supply chain engagements that you’re talking about for the December quarter. Is that mostly Asia business?
Ken Jacobson: I think, Matt, it depends – this is Ken. It depends on the engagement. Some of its global. A lot of its physically in Asia, but I wouldn’t characterize it as something predominantly Asia. I’d say it’s more global engagements in nature. Although a lot of the global production does happen in Asia, but some of its Americas-based, a little bit EMEA-based. But it’s – I think it’s across the board rather than something Asia-specific.
Phil Gallagher: I fair to say it’s more Americas and Asia than Europe, okay, but it’s not primarily – it’s not [indiscernible].
Matt Sheerin: Okay. That’s helpful. And so this is more of a fulfillment, so lower margin, but good returns. Is that how we think about that?
Ken Jacobson: Yes. And some of its maybe buffer stock, and some of it may be fast-turning. It’s kind of a mixed bag.
Phil Gallagher: But for sure, the returns are there, though, Matt. That’s your point. They are always modeled there.
Matt Sheerin: Yes. And then – and I think you said that inventories will remain elevated in the December quarter. Is that because you expect some of those supply engagements to carry over until March? Or are there other reasons why you wouldn’t start cutting inventory or your portfolio? I would imagine that some of your products with lead times in where you can prune where others you said there was elevated lead time. So I’m trying to figure out why you’re not – you’re talking about more significant cuts to your inventory when a lot of suppliers are basically blaming all the distributors for cutting orders, yet you don’t seem to be doing that.
Ken Jacobson: Yes. Hey Matt, I would say its net new inventory coming in specific for the supply chain engagements as they begin to ramp, and that would be offsetting anything we’re doing organically to get inventories down. So that’s kind of how we’re trying to signal it as there’s net new coming in, not, let’s say, normal course of business but specific to some supply chain engagements that’s been having a flattening effect of overall work we’re doing on inventory in the base business – in the core business.
Phil Gallagher: Yes. It’s complex, Matt. So your questions are right on. And I guess the net-net is we’re confident with the inventory levels. We’ll start to bring them down. But right now, the inventory is fresh, it’s good inventory, it’s not aging. To Ken’s point, the newer stuff is what we’re talking about that’s stopping it from coming down.
Matt Sheerin: Okay, okay. Thank you for that. And I appreciate that the visibility behind Q2 is difficult, but you did talk about this inventory correction taking at least a couple of more quarters. And traditionally, in your March quarter, you’re sequentially up in the Western markets, in North America and in Europe. In past cycles, that hasn’t happened because of some of the issues that you’re facing now. So the question is, how should we think about how the rest of the year plays out to the best that you can tell us?
Ken Jacobson: Yes. Matt, I guess what I’d say is I think we’ll still get a mix shift to the West. Now whether it will be normal seasonality or let’s say, normal pops, I still think that’s to be determined. We still feel confident above $6 billion and we’ll get a little bit of gross margin lift from mix shifts. That’s how I’m seeing. I think a lot of what Phil’s commentary on the mid-2024 is really about inventory levels, right? The inventory is stable. We’re not going to see the inventories really come down meaningfully through that time frame because there’s still plenty of work to do there.
