Rami Rahim: Okay. So I appreciate that clarification. So let me say a few things about the broader environment. We did mention that customers, IT professionals, CIOs are scrutinizing orders all up. I think that’s a generic statement that really applies across all verticals. Having said that, I feel very good about our enterprise business, about the enterprise demand environment itself in that there are still large strategic projects around digital transformation for which our solutions are very well suited for both in the AI enterprise client to cloud as well as in the data center. And I also feel very good about the fact that we are a very differentiated player in a massive opportunity with relatively modest share. So, the opportunity even in a challenged macro environment for us to see growth in this segment or in this vertical, I should say, is very good, which is why Ken just mentioned that we anticipate that we can grow revenue and orders in our enterprise business for the year.
And certainly, I believe beyond that as well. I will then just add to that, in the service provider space, 400-gig projects for core and edge upgrades are also still there. I’m actually feeling quite good about our service provider business for this year. You’re going to — I don’t think you should expect the same sort of revenue we saw in the Q1 time frame to repeat because that’s very much a timing of — a function of the timing of supply. But all in all, we’ve beaten our long-term model for the service provider’s vertical for the last two years in a row. And actually, based on current trends, expect to beat it again this year.
Paul Silverstein: All right. My follow-up question. I appreciate it’s hard enough forecasting margins in a good environment, I appreciate that much hard in this environment. But the question is, Ken, if you look beyond this year in terms of ever getting back to that 60-plus, 20-plus gross operating margin model. Any thoughts you can share? Presumably, things will improve over time. It will be a more hospitable environment. But any thoughts that you could share as to the longer term trajectory? And one quick clarification. Historically, you were kind enough to give this normalized order number where you made some adjustments. I might have missed — I didn’t see it in this shareholder letter. Did I just miss it?
Ken Miller: Yes. So normalized orders, we talked on the last call that really what we did to create normalized orders or adjusted orders was removed early ordering. Since there are no longer really early ordering happening, in fact, the opposite is happening is they’re consuming previously placed early orders, we are no longer providing orders just because we no longer have customers ordering ahead, right? Lead times are coming in, — so that phenomenon is no longer necessary. That’s why we stopped disclosing adjusted orders. It’s just not a phenomenon…
Paul Silverstein: I thought you made an adjustment also in the backward looking, but I apologize.
Ken Miller: No problem. On the margin perspective, we expect to expand operating margin greater than 100 basis points this year. That is not a one-year phenomenon. I expect to expand operating margin for years to come. There’s absolutely no reason why we won’t get back into the 20-plus operating margin situation in due course. It’s something we’re very focused on as we add leverage to this business as we continue to grow sustainably on the top line perspective, and actually growing expenses lower than revenue and expanding our operating margin leverage for years to come. Gross margin is a little more difficult to predict. I’ll just give you some of the levers. Clearly, volume will help, software will help but we obviously have the headwind of the mix, right, where we are going to be expanding at a faster rate, some of our lower-margin systems which will have a bit of a headwind to overall margin capability.
Last but not least, would be some of the normalization and transitory costs that should also give us a lift into the future. So without giving a number, I think there’s opportunity to expand gross margin, but the one I’m really focused on and feel very confident about is expanding operating margin.
Operator: Next question comes from David Vogt with UBS.
David Vogt: Just trying to maybe kind of parse out and Ken, maybe we can go back to the order comment. I know you’re not giving adjusted orders. But what I’m trying to figure out is if I kind of use your signposts from the first quarter of March of last year, just based on the backlog commentary in the release in your commentary, it would suggest sort of order growth rates maybe a little bit below that 30% number that you’re talking about in the release. Just any help there would be great. And then second, when you think about operating margin expansion, obviously, you feel more confident to be able to do at least 100 basis points. Is there anything that you see over the next couple of quarters that sort of limit your visibility? And I’m a little bit surprised that maybe given the strength in the gross margin, you didn’t take that up to something maybe a little bit more than at least 100 basis points. Thanks.
Ken Miller: Yes. So for the order growth it’s kind of difficult to provide more color. I mean I tried to provide — I did provide last year’s number of greater than 1.1, and we did decline this year by greater than 30%. So that’s really how the math works. I mean, one thing I will point out that I know some folks models don’t account for is our SaaS business. So our SaaS business shows up in bookings, but does not show up in backlog. It’s only a product backlog number. And since SaaS is a service revenue stream, it is missing from a lot of the model. So that might help you translate kind of your model versus our actual results. On the operating margin question, we haven’t really provided a guide or a target for the year.
We’re providing a floor, right, greater than 100 basis points. Yes, I did up the gross margin guide, but there’s still a plus or minus factor there. If we deliver 58% or gross margin, our current estimate is approximately 58%, give or take, that should translate to more than the minimum on the operating margin line of 100. So, we haven’t really provided an operating margin target, just more of a floor of greater than 100.
Operator: Next question comes from Samik Chatterjee with JP Morgan.
Samik Chatterjee: I guess on the commentary that you had relative to seeing a more seasonal increase in orders going forward, I just wanted to dive into that a bit. Is that consistent across the three customer verticals, particularly I think in relation to enterprise, I think there’s an impression here that things have deteriorated more recently, particularly given some of the challenges and more recently on the banking or financial services side. Have you seen any of that? Is there a more consistent sort of seasonal improvement across all the verticals? Maybe you can touch on that. And secondly, I think, Ken, for you, in terms of orders getting back to growth in Q4, just wanted to check that. I mean, on my math, you need about sort of a mid-teens improvement from the order levels from Q1 to get back to growth in Q4. I just wanted to check if we sort of are doing the math, right?
