Eric Bjornholt: So in terms of timing, some of that’s going to be based on what the distributors want to take in terms of inventory. And then obviously, what the end market consumption is going to be. So it’s hard to forecast. Our distributors are tasked with having the right level of inventory in place to support their customers and we will work with them to achieve that level. And just like customers, some distributors need inventory and some distributors are over inventory that are going to work through that and it takes some time. So don’t have a specific way to answer your question but I imagine over the next couple of quarters that distribution inventory will get more rightsized to whatever the distributors think is the best place for them to be.
Operator: The next question comes from the line of Timothy Arcuri with UBS.
Timothy Arcuri: [Indiscernible] made you a little different than your peers during the upturn was the PSP and your and CNRs. And the idea was that you don’t just let customers push that out and push that out. But it does sound like that’s actually what’s happening. So are you sort of being a little more proactive about maybe cleaning that out and forcing them to come back and place new orders? And I’m just kind of wondering about the discussions that you’re having with these customers that have been under these MCRs [ph].
Ganesh Moorthy: So this is not the first quarter in which we have been doing that. We have mentioned that at prior calls as well. When customers are trying to place orders further out in time, they do the best they can and that conditions change. We will have discussions with them to see what we can do to help and what they can do to help us in terms of what future business is and any business relationship that’s give and take. And of course, we have done a significant amount of push-outs to help them out.
Timothy Arcuri: Okay. And then Eric, can you give us an idea of inside of December, how much of the guidance depends on turns?
Eric Bjornholt: We do not break that out but it’s a small number.
Timothy Arcuri: Small number. Okay.
Eric Bjornholt: Yes, I would say that we still have more backlog on our books in total than what would be typical for us but lead times down.
Operator: And our next question comes from the line of Vivek Arya with Bank of America Securities.
Vivek Arya: I had one on sales and one on gross margins. On the sales side, I think Ganesh mentioned that the March quarter could decline again. And I’m wondering if there is a conceptual way to size it? So let’s say, if you assume that June and September have kind of been the peak of the cycle, you should be thinking, I don’t know, 25% peak to trough that kind of smart sales down mid-single digit. Is that a reasonable way to think about — just bigger picture, do you think 25% peak to trough is a reasonable expectation of decline in this cycle but what does history kind of tell us?
Ganesh Moorthy: Like the history is all over the place. And so it’s unclear for us to be able to give you — and especially when we have low visibility into the March quarter and we have a fair amount of turns to take in the March quarter itself. The business hasn’t gone away. The customers haven’t gone away. The designs haven’t gone away. So we know they’re all there. It’s now a matter of where is the macro telling our customers what their bills should be, where is their inventory at and where they will be building to as they go into the March and June quarters for themselves. But at 17.5% in the December quarter, I think this is probably one of the larger declines historically from Microchip than the first quarter of the global financial crisis. So you can see there’s a pretty big chunk that is taking place here in the December quarter.
Vivek Arya: Okay. On the gross margin side, I’m trying to get a sense of both the kind of the downside risk from here? And then whenever we get to back to kind of the revenue levels in the next cycle, will gross margins get back to prior levels? So on the downside, I think you’re guiding gross margins down about 350 basis points. That’s also below what we have seen in prior down cycles. Is there a way to think about what is the kind of the trough is potential level? I think, Eric, you mentioned you’re still keeping utilization if I recall. So what happens if you have to start cutting them? So what’s the downside risk? And then part B of that is, let’s say we come back to these revenue levels sometimes, right? Over the next several quarters. Will gross margins get back to 68%? Or will it be different? Because the 68% right plus/minus was achieved during a period of very strong industry pricing and shortages.
Eric Bjornholt: Yes. So there’s a lot in that question and I wish I had a crystal ball to answer it specifically. But the bottom line is, as we — as I said in my response before, we will adjust our operations based on the environment that we’re faced with. And with needing quite a bit of turns in the March quarter at this point in time, with short lead times which again is not unusual but not something that we faced over the last couple of years, there is some uncertainty. But we have confidence in our business longer term. And the products that we build in our factories sell for years and years and years. So sometimes the offset between taking utilization down and then building the product and taking an inventory reserve charge for a period of time, those things can somewhat offset each other.
So we’ll evaluate that based on what we’re facing when we get into March and beyond and adjust accordingly. But we fully expect our gross margins to stay strong. Yes, they are taking a drop this quarter but still exceptionally high gross margins. And I wouldn’t expect a huge drop from where they’re at. But again, that kind of depends on if the environment requires us to do something different. If there’s something we aren’t seeing at the moment, we’d evaluate that and share that with analysts and investors at that time. Ganesh, would you want to add anything at all of that?
Ganesh Moorthy: I would say if the revenue was back at the levels that we can a, I see no reason why our gross margin would be back to the levels that we are at.
Operator: And our next question comes from the line of Tore Svanberg with Stifel.
Tore Svanberg: I know this is a tricky one that we talk about over shipping and undershipping. Do you have a sense for what the true consumption is of your business at this point on a quarterly or annual basis?
Ganesh Moorthy: Hard question to come up with because our customer demand has also shifted over the last 6 months or so as they are trying to figure out where is the macro going and what is their real demand. And so I don’t know if there’s a clear number we could give you that says, this is what is consumption. But as we go through this correction, we believe we will be shipping under consumption but to what extent, I can’t tell you.
