Emily Yang: Yes, I think that’s a really challenging question, David. I think it’s really down to the actual customer and their experience, as well as their view, sometimes also involves their financial cash flow situation. So it is a little bit dynamic, right. So what we see, I think what Gary mentioned is, we start to see more urgent orders, which is really driven by probably not enough of the inventory buffer that they built into their formula, right. So because the customer base varies a lot, that also varies a lot as well, right. So that’s really where the challenge. But I think just like Gary mentioned, we focus more onto the quality of the products on the shelf, so we can actually pretty much quickly adjusting our support to the customers with this kind of very short lead time orders, right. So that’s really pretty much what we focus on and will continue to focus for the next few quarters as the market continue to evolve, right.
David Williams: Thanks so much. I appreciate the help.
Emily Yang: Any other questions?
Brett Whitmire: Any other questions? Hello?
David Williams: That was it for me.
Emily Yang: It just went silent.
Operator: Apologies, everyone. Our next question today comes from William Stein with Truist Securities. Please go ahead.
William Stein: Great. Thanks for taking my questions. Also, Gary, I want to offer my congratulations.
Gary Yu: Thank you so much, Bill.
William Stein: I’m hoping you can talk to the split of revenue that went direct versus to the channel in the quarter?
Emily Yang: Yes, so for the fourth quarter and our split by the channel is actually 65% distribution and 35% direct. This number usually varies a little from quarter-to-quarter depends on the customer demand and some of the order situation. I usually say rule of thumb is probably about two-thirds distribution, one-third the direct portion.
William Stein: Great. Thank you. Also, I wonder to what degree the inventory build helped gross margins in the quarter. Usually when – it relates to a question I’ll ask in the – concurrently with this, and that is utilization. Can you tell us what fab utilization was in the quarter? What you expected to be next quarter? And then also the dynamic that I expect occurred in the Q4, which is when you build inventory like that, normally it’s a boost to gross margin, if you can quantify that. Thank you.
Brett Whitmire: Well, I think what you saw will, in terms of our – we’ve talked about strategically putting availability in place both from kind of finished goods availability, but also from the availability as we procure about half of our wafers on the outside so that we can have flexibility in mix to build what we need. And so as you look at that and you look at utilization, and then you also look at typically in fourth quarter, we’re building in anticipation and preparing for Chinese New Year. And so when you look at the combination of that, what we saw from a utilization perspective was something that was pretty consistent. We continue to run below where we want to be and we believe that is something that’s going to help us as we go forward, as revenue starts to hopefully strengthen and we’re in a position to be able to drive more inside the factory.
So we didn’t really – obviously it is all related, but as we look at fourth quarter, it wasn’t something we drove utilization up in order to deliver those results.
William Stein: Okay. Thanks.
Operator: Thank you. And our next question today comes from Tristan Gerra with Baird. Please go ahead.
Tristan Gerra: Hi, good afternoon. So just going back on gross margin, what’s the impact of underutilization in terms of bps? And sorry if I missed, if you quantified what the utilization rates are currently? And then is there a way to break down how much of the underutilization is from the service agreements where I know you’re qualifying new products to fill capacity as opposed to just general weakness in demand?
Brett Whitmire: Well, what we’ve talked about, Tristan, was we talked about the fact that from an overall utilization perspective we ran pretty consistent from third to fourth quarter. We continue to run below where we want to be. In doing that, we have, I think successfully been able to get better availability in place to support short time ordering that we’re seeing. We’ve also been able to address getting – our hybrid manufacturing model service is about half of our wafers outside the company. So we put some more availability in place on that. That’s not something that really drives up our utilization. And we believe that from a wafer service contract perspective, we’ve pretty much absorbed the negative impacts in transition.
And we believe going forward that’s a kind of neutral to positive thing as we continue to qualify our technologies internal, we can bring loadings internal and we can help enable revenue growth. But in total we’re running below where we want to be. And we have been at that place for really all of this year and we continue to be there in anticipation for things to strengthen as Emily had kind of gone through and what we anticipate kind of going into 2024.
Gary Yu: Yes. And the one comment I would like to put in, Tristan, this is Gary. And when we’re visiting several key kind of customer, they kind of talked about the elicitation of internal wafer fab. That I think that’s really kind of think about it is like in the future growth they really want to make sure Diodes have this kind of capability can support and growth in the future. So I would say like we are still in the kind of under-utilization level as Brett mentioned about. But for the future, as long as we qualify our product and the process into our own internal fab and we should have the kind of capability to support more business to our customer.
