Bren Higgins: Yeah. More in line with the long-term target model of 12% to 14% and closer to the high end of the target range. And that’s really being driven by, we talked about some of the improving utilization that we expect to see as we move through the year, which if you think about our customers, their businesses get better. They have more demand, they start to consume the capacity they have. They have sustainability in that. And then as their profitability improves, then they start to invest in new equipment. So we would expect to see that play through as we move through the year. But we also will start to benefit from the tools that we shipped in 2021 and 2022 as they move from warranty into contract. And so that should be a driver for service growth as we move into next year.
So will be back in line with the overall target model in terms of how we’re planning for the business next year. The great thing about service is this growth that happens pretty continuously. It does have a little bit of a dilutive effect on our overall margins, which is one of the factors in the ’24 gross margin color that I provided. So even if we would expect to see revenue increase a bit, I do think that you’ll see a little bit of pressure on margins. Now it tends to be based on the way we do the accounting accretive to operating margin. So it’s — at that level, it’s pretty positive, but it does have an effect on the puts and takes within gross margin.
Charles Shi: Thanks, Bren. Maybe another question, maybe a little bit longer term. I think in the past, you talked about particularly some of your leading edge customers reusing their capacity in the past and may put a little bit pressure a few cycles ago on your overall growth. Your largest customer, I think, last week, you talked about maybe converting some of the 5-nanometer to 3-nanometer. We don’t know whether they’re going to continue to do that. But any thoughts there and looking a little bit ahead, do you expect any sort of negative impact going forward? Thanks.
Richard Wallace: You’re right. I mean historically, customers have always tried to be reuse whatever they could. There’s a couple of factors that impacted going forward. One is, the technology that they’re going to need for 3 and then for 2 is upgraded from what they have at 5. And the second one is they still have volume at 5. So the question will be – historically, when this was the most pronounced was when there was a great fall off in an existing node going to a new node. So in our conversations with them and our modeling of it, we see it pretty consistent from what we’ve seen in the last few years, not as high as the reuse was several years ago. But that factor drives us to continuously provide more capability in the tool to give them incentive to go to the new technology or to upgrade the existing.
So there’s nothing specifically new about this upcoming next generation of new technology, but it is definitely something customers are always trying to optimize their footprint.
Operator: Thank you. Our next question will come from Timothy Arcuri with UBS.
Timothy Arcuri: Bren, I wanted to ask about book-to-bill. So it’s below one for the fifth quarter in a row. It’s up a little bit. It’s up to like 0.9. So you’re reaching some sort of like steady state. But it’s a much different dynamic of what’s sitting in RPO than what used to sit in backlog because you used to have four months to five months’ worth of backlog. And now if you assume half of the stuff is parked outside of 12 months and half is inside of 12 months, I mean it’s not, I guess, that different than it was before, but you still have this $5 billion plus it’s part beyond 12 months and that was never there before. So as we look pre-COVID and post-COVID, what changed? Why is there this $5 billion worth of bookings or RPOs just parked beyond 12 months? Because it isn’t like your lead times have gone out that far. And I understand that with those long lead times, but it has always been a long lead times. So what’s kind of changed for you?
Bren Higgins: Yeah. And I think the easiest way to think about that part of it is it’s related to customers giving orders that are tied to facilities that they’re planning greenfield projects. And so the schedules are driving the orders. And so it’s one of those where it is a lead time centric. It’s — the customer has a project that’s going to open in ’25, they want their tools when they have that scheduled planned opening and so they’ve given us orders. In a lot of cases, you have some China business where you’ve given us orders and deposits that are tied to those schedules. So that’s the biggest factor in the piece that’s out. And you’re right, it is a bit of a new phenomenon. I think that we started to see after the massive ramp that we saw from ’19 to ’22 or so.
So — and each quarter, it’s been pretty consistent, and we’ve been teeing up a certain amount of that backlog every quarter, but it’s been pretty consistent and it’s been roughly 50% or so. So in the quarter we just completed, if you noticed, if you look at the balance sheet, you’ll see the deferred systems revenue is actually a little bit higher, and that’s related to the dynamic I talked about earlier, where shipments were higher than revenue levels. And that drove down the RPO, but the book-to-bill relative to the revenue was actually positive. So — but I don’t think that changes the nature of your question in terms of the trend line. It was a little bit better, more — it’s kind of consistent with what we thought and a little bit positive in the December quarter.
