Satish Dhanasekaran: Yes, Mehdi, I think what you’ve probably seen public announcements from major fabs around pulling back of wafer capacity, so some of the investments associated with our parametric test systems, which typically feed the fabs have been pulled back, especially around legacy technologies and memory applications. So as that rebounds, you can expect that capacity to rebound. Again, this is an area where we have good customer visibility given long-standing relationships that we have had. But it’s also a tale of two words because the same customer base is focused with us relentlessly about the advanced node development, about new application areas such as silicon photonics which in today’s world translates to AI.
And we also have another business that we’ve talked about in the past around making interferometer systems for two nanometer sort of technologies. And there, there is no change in demand because we are working with customers on enabling this technology. So, yeah, there is a pullback in the near term. But again, I want to stress this is temporary and transient.
Mehdi Hosseini: I just want to understand would increase 3-nanometer tape-out next year have a positive impact for your semi-business?
Satish Dhanasekaran: I’ll have Mark Wallace take that.
Mark Wallace: Yeah. Hi, Mehdi. What I can say is that despite the pullback in the short-term, the engagement with our customers on advanced process technologies, including 3-nanometer, 4-nanometer, 2-nanometer have continued. And many of these customers are looking at a variety of aspects of their market as well as managing their financials. A couple of examples, one is we have a customer in the US that has delayed some of the fab build-out because of construction issues. So we expect that to — we will correct itself in the next couple of quarters. We have another customer, again, working on these advanced node sizes and technologies, who has locations in the US and in Asia, and they’re maintaining their total project plan and investment, but spreading the CapEx over several quarters.
And there’s a lot of those stories. So, it really feels to me like we are going through a phase of pullback. But the answer to your question is, yes, we expect this to positively impact our business in 2024.
Mehdi Hosseini: Thank you.
Operator: Our next question is from Aaron Rakers with Wells Fargo. Your line is now open.
Aaron Rakers: Yes. Thanks for taking the questions. And Neil, I apologize to go back to this. But I want to be clear, what I’m hearing from you guys is that, it sounds like Neil you believe that backlog coming out of this quarter is basically near normalized levels in your opinion. And I guess what I’m really asking is that if I look back over the past couple of years appreciating that there is some variables with COVID and everything else involved. But it looks like seasonally, you typically see a sequential increase in your order growth in fiscal 4Q. I guess, as I look at that, are you expecting sequential or how would you characterize seasonal growth in orders? Or maybe rather discussing on a book-to-bill basis, embedded in your expectation for the fiscal fourth quarter at this point? I apologize for the confusing question, but I’m just trying to understand how you’re seeing order growth and backlog.
Neil Dougherty: Yes. No, it’s a fair question. So first off, do we believe backlog has normalized, and I’d say the answer to that is largely, yes. We believe backlog has normalized at this point. With regard to incoming order rates and seasonality, you’re absolutely correct. We typically see a pretty sizable increase as we move from Q3 to Q4 at the end of our fiscal year and what I would say is, we do expect orders to be up sequentially from Q3 to Q4. But we expect a significantly smaller sequential increase than would be typical based on weakness of the funnel that materialized during the third quarter.
Aaron Rakers: That’s fair. So a book-to-bill improvement from this level is basically what you’re alluding to?
Neil Dougherty: Yes. I mean, I guess, I would think of it as with backlog having normalized, we would expect orders and revenue to start to converge.
Aaron Rakers: Okay. That’s helpful. And then I guess as a quick follow-up, just maybe the opportunity to ask you about the ESI acquisition. How do we think about that as far as the strategic positioning and what expectations or kind of targets we should be thinking about as far as that acquisition folding into the financial story as we move forward?
Satish Dhanasekaran: So let me take that, and Neil if you have anything to add, you could. First of all, I would say, it’s a great strategic fit, one we’re very excited about. I think you’ve heard me describe the system simulation and emulation opportunity as a near adjacency to the work that we do with customers, especially as we have focused the strategy on engaging with customers early and in their R&D workflows. So the addition of ESI really is a great fit there. Financially, it’s accretive to our gross margins, it will be when we close the transaction. And we also think it will be accretive to our [SOFR] (ph) percentage by at least two points at the company level. And from a cultural perspective, I think it’s very important as well.
