Thomas Caulfield: Okay. Okay.
Niels Anderskouv : Okay. Yes, so, you’re correct. I mean, you saw that announcements, from comment about earlier and, we starting to seeing day inventory being burning off and getting to more normalized levels. So we do expect isn’t indeed to have to turn you know this year as we move forward. So, Dave you want to add anything.
David Reeder : Yeah. Okay, let me point to the earlier commentary here, the real key is Q1 inventory. It continued in that level and we start to get to normalized levels. We have really good position there, maybe, even a stronger position than we ever had. And in premier tier handsets and now that the there is two set handsets, one 5G capability. I think it positions us, well that what we holpe the inevitable returns this month over.
Thomas Caulfield: Yeah we are very, very pleased with our design wins in both the premier and the tier 2.
Joseph Moore : Great. Thank you for that. And then, yeah, with regards to follow-up. On the CapEx I know I realized $700 million is a is a relatively low number, but can you talk about where that money’s going? I assume utilization is low enough. You know, what is it that you need to spend money on from here?
David Reeder : Yeah, I think when you look at the CapEx for 2024 specifically and as you know we’ve been on a journey to grow our total capacity from about two million wafers, at the beginning of ‘21 to about three million wafers will be essentially at the end of this year. And the 700 really $700 million really represents kind of the final completion in terms of tooling that needs to be purchased, as well as facilities that need to be added to satisfy some of those longer term agreements that you’ve seen us continue to add to the portfolio. So, by spending this amount, it’ll get us to that three million wafers. It’ll also give us some incremental flexibility as we think about migrating some additional capabilities into our US manufacturing centers.
Thomas Caulfield: Yeah, recall that capability on current trading features that we can get back fungibility of capacity across our fab network, as well as some R&D investments that we need to create new, new features. So, there is a certain level of CapEx in our business, that’s about sustainability of our business
John Hollister: Yeah, Joe, this is John. I’ll just add as far as the shape of the CapEx in ‘24 to expect that to be similar for what we saw in 2023bit stronger in the first half and second half on CapEx spend.
Joseph Moore : Great. Thank you.
Operator: One moment for our next question. Our next question comes from Chris Caso with Wolfe Research. Your line is open.
Chris Caso: Yeah, thank you. Good morning. I guess, the first question is, on gross margins and obviously a lot of moving parts as we go through the year and dependent – will be dependent on the pace of that recovery. But if you could give us some color on, what the puts and takes are as we look at gross margins as we go through the year? And you did mention that you believe that Q1 would be the revenue bottom. Do you believe that holds for gross margin as well?
John Hollister : Yeah, Chris, this is John. Similar to the prior comments, is gross margin is very much influenced by factory utilization. There are other factors that work clearly with mix, as well as some of the customer agreement payments and so on. But as the business can recover and begin to post stronger growth numbers, we would expect some improvement in gross margin along with that the rate case that will have to see as clearly the weak demand environment at the inventory drawdown creates our important variables to that as well.
John Hollister : Do you have a follow-up to that?
Chris Caso: Thank you.
Thomas Caulfield: Sure. And then, with regard to kind of where things go from here as the recovery progresses? I mean, you talked about, you’ll have capacity of three million wafers by the end of the year. That’s up, you know, kind of 35% or so from what you shipped last year, can you speak to what you expect in terms of cash flow and the investment that’s been made, how you monetize that going forward and, with some of the new agreements that you’re going to sign to make use of that capacity do you expect the terms and the pricing of those new agreements that load up that other load up the rest of the capacity. Is the impact on that and GlobalFoundary is going to be the same as what we’ve seen during the last cycle. Yeah, Chris, this is John again.
I’m very encouraged by the progress the company is made in its free cash flow performance. We had the third consecutive quarter of growth and free cash flow in the fourth quarter of the strong, number $450 million plus generated in the fourth quarter. And as we continue to progress through 2024, we see the opportunity to build upon that and generate free cash flow in the neighborhood of two to three times, the annual total for about 4 ‘2023. So the short answer is yes, we think we’re very well positioned to – the past company with the strong free cash flow generation.
Thomas Caulfield: Yeah, let me, let me take a longer term view by going back to what we talked about in a our road show couple years ago. We talked about getting our business to scale roughly $10 million, where we could then spend 20% of revenue on CapEx, grow our business, the capacity at the same time have sustainable free cash flow. When we start to think about this three million wafers we are converging quickly on our long-term model where we think is a bubble invest for growth and drive free cash flow. Now, it becomes not a question of if it’s a great pace through demand to fill in, take advantage of it.
David Reeder : One final comment to kind of build on that to address two points that you raised One, like for like pricing, we continue to see is very stable. We see everyone in the market as being very rational number one and then two, from a monetization perspective, we look at the investments that we’ve made. We look at the flexibility that we are building into all of our manufacturing facilities and resiliency that we’re building into those manufacturing facilities and we’re quite encouraged by what the outlook looked like for us in the future when demand [Indiscernible]
Sam Franklin: Kevin, we will take one more question.
Operator: Sure thing. Our last question comes from Krish Sankar with TD Cowen. Your line is open.
Krish Sankar: Yeah, hi, thanks for taking my question and thanks a lot, Dave, and welcome, John. First question I had was I don’t know if Tom or Dave, did you spike about how to think about calendar ‘24 volume in AFPs relative to calendar 23.
John Hollister : Yeah. So know, we didn’t specifically talk about pricing for calendar year 2024 versus ’23. But I think you can probably infer from our commentary and that on a like for like basis that we expect pricing to be very similar, essentially, the same and so movements that you’ll see in ASPs will primarily be driven by the product mix shifting either from one end market to another or from one customer to another. In terms of volume, obviously on a sequential basis, as well as the year of year basis. We’re guiding down for the first quarter. And so, when you think about volume 4 2024, it’s really the rate pace of the recovery, as we continue to draw down inventory. And again, we did mention and I think you’ve seen it from our customers the reporting has been done there is that they have made some progress on inventory reduction.
We’re anticipating that they will continue to make progress to reduce some of that inventory here in the first quarter. And so, really the volume will be dependent upon the rate and pace of the return of growth as that inventory comes down.
Krish Sankar: Got it. Got it. Very really helpful David. And then a big picture of questions for Tom. When you look at during the pandemic, the global electronics demand is about a long-term friends. You are talking about a cyclical recovery could be below 12, or do you think you are going to have cyclical recovery that you have seen in the past that you see a sharp snapback.
David Reeder: Okay, I’ve been around this industry for a long time. What I see is it’s a little bit of a black box and black boxes. It’s a response equally to the stimulation. So if you go really down this industry over-over, correct. So what happened, if you found ourselves with excess inventory? And then everybody brought them into very down, they’re not. So I think we’re going to say now is, the recovery is going to be proportional to how quickly, things went down in our industry because in certain end markets, we’ve seen people, the end customers, the OEMs taking are place quite low and so everybody who predicts the future has a great chance of being wrong. Is it booked back and see our industry has always been predictable and that if it’s the steep decline it becomes equal and opposite reaction when it comes back. So let’s see. You can hold me to that when at the next call.
Krish Sankar: Thanks a lot Tom.
Operator: Ladies and gents this does conclude the Q&A portion of today’s conference. I’d like to turn the call back over to Sam for any closing remarks.
Sam Franklin: Thanks, Kevin. Thanks everyone for joining today. And apologies we can get to everyone in the call. We’ll look forward to seeing many of you at the upcoming conference circuit. Thank you.
Operator: ladies and gentlemen, this does conclude today’s presentation. You may now disconnect and have a wonderful day.
