George Notter: Got it. That’s great. And then also, any sense for your lead times? I realize it can vary by product line and SKU. But maybe you have a sense for where lead times were generally back in the summer of last year versus currently, I’d be curious. Thanks a lot.
Ken Miller: Yes. So we’ve kind of talked generically that average lead times were kind of in the kind of 9 months range. Some products were actually 12 months or even slightly greater kind of back in the height of the lead time extension, which was about a year ago. Now, we’re seeing on average something less than 6 months, right? We’re seeing, I would say, kind of 4 to 6 months would be kind of a better average. So that’s basically 3-plus months or a full quarter where a customer that was buying consistently quarter in and quarter out, could literally skip a quarter and provide no bookings and still be fine with our new lead times coming in to the degree that they have.
Operator: Next question comes from Meta Marshall with Morgan Stanley.
Meta Marshall: Maybe first question for me somewhat builds on George’s question. Just on — if you can give a sense of how much of the portfolio is still constrained. I guess I was a little bit surprised that inventory was still a use of cash this quarter. So just when you would expect to kind of be out of an inventory build situation or just able to work down some of the inventory because you’re not constrained on other products?
Ken Miller: Yes. So, the inventory constraints are getting lessened. As I mentioned, on average, the amount of constraint is less. That’s why lead times are coming down, our lead times to our customers are coming down fairly materially. So we’re starting to be able to turn inventory quicker. But what you are seeing is the backlog of purchase orders, right? I’m sure you’ve been tracking our purchase order commitments. A year ago, they were north — almost $3 billion, $2.8 billion. They’ve come down quite a bit. They’re about $2.3 billion expected this quarter, but we’re still receiving those orders, right? So, we are going to see, I think, inventory plateau in the summer, probably Q2 or Q3. And then, you’ll start to see the outflows of inventory faster than the inflows of the previously committed purchase orders that we, in many cases, put on the books upwards of a year ago because the lead times to our component providers are over a year long.
So, you’re seeing that flow through the inventory.
Meta Marshall: Great. And maybe just as a follow-up question. You guys had a very sizable cloud win that you announced at least in Q1 of last year. Just trying to get a sense of how much of an additional headwind kind of maybe comping that customer’s initial order, has — or is that not worth calling out, it’s really this inventory across the board, across your cloud customers?
Rami Rahim: Well, all of the wins that we’ve cited in past quarters are meaningful, and they remain important, and they will help us even in the event of some slowdown or push-outs some projects. I mean having the win is still something that we’re very proud of and will help our cloud business. If not, as soon as we expected, maybe a little later, but it will still help. I think beyond that, I wouldn’t read too much into it.
Ken Miller: Yes. I think that’s really a bookings commentary, right, where you’re going to see some lumpiness at large cloud on a year ago. They might have had to book 12 months’ worth of demand a year ago because our lead times were what they were. Now they no longer need to book that level of demand. So that could result in some of this normalization we’ve been talking about on the bookings side. On the revenue side, it’s really about timing of supply. I mean you’re going to see ups and downs. You’ve seen in the past quarters, you’ll see it going forward. The revenue decline of 14% for cloud is not what I believe the new norm is going to be. It just is a factor of what we shipped in Q1, and I’m sure it will recover from there going forward.
Operator: The next question is from Mike Ng with Goldman Sachs.
Mike Ng: With plans to exit this year with an elevated backlog and orders to become positive exiting the year, I was just wondering if you could give us some directional expectation around revenue growth for 2024 or discuss some of the key factors you’re considering. Certainly appreciate that it’s early in the year. How much does that backlog burn this year, just make it more challenging to achieve growth for next? Thanks.
Rami Rahim: Let me start, and Ken, you probably want to jump in here as well. So I do think that we can grow revenue in 2024. We are not going to provide a number on this call, but certainly, as we get closer, we will provide. And I also do think that we can achieve good profitability in 2024. And the reason for my optimism would be, first, the Enterprise business is now our largest segment and our fastest growing. And I’ve already provided commentary on how bullish I am about Enterprise even in a weaker economic environment. The Cloud provider weakness, I believe, is temporary, and I am a big believer in the growth potential of Cloud in the mid- to long term. Order patterns are going to improve from where we were in Q1. I think we’ve hit a trough in Q1, and we should start to see better order patterns going forward, and still elevated backlog relative to historicals by the end of the year.
All of these factors lead me to believe that profitable revenue growth for ‘24 is absolutely possible, and we can do it.
Ken Miller: I mean I agree, we did raise the revenue guidance for this year to at least 9%, reflecting really the Q1 overachievement as well as the expectations embedded in Q2. We are comfortable with the second half estimates as they currently are for this year, and we encourage you to keep those estimates unchanged. But that does result in a raise for this year. But that doesn’t come at normalizing backlog completely. We still expect to exit the year at least twice what we would consider to be normal backlog levels, probably greater than double backlog levels. So, that’s something that will also lead into next year as well.
Operator: Up next, we have James Fish with Piper Sandler.
