Christopher Rolland: Makes sense.
Operator: Our next question comes from the line of Chris Caso with Wolfe Research.
Chris Caso: The question is on the cash return program and the buybacks and understand that the program is really meant to be formulaic. But the question is, is there any flexibility within that program to be more opportunistic at times like these? And obviously, you guys are still generating a good amount of cash but taking advantage when the downturn in the stock is down, have you contemplated that?
Ganesh Moorthy: Let me get it kicked off and I think Steve might want to weigh in here as well. So the program is something that the Board looks at on a constant basis. And there is nothing that would prevent us from doing something which is opportunistic for the right reasons, if the Board believes that’s the right action for us. Steve, do you want to add to that?
Steve Sanghi: So while the main body of the program is formulaic, where we are increasing the cash return to shareholders by 500 basis points [ph] every quarter and increasing our dividend by about 7% or so every quarter and the remaining amount becomes the stock buyback, the program doesn’t prohibit us from taking advantage of the environment where start gets into a severe downdraft for any reason. We can certainly have the cash resources on our credit line and all that to the forward buy the stock from the following quarter and then buy less than the following quarter. So we didn’t stop us from doing that. We have not done that so far. I think stocks has been kind of reasonably constant in the range of between $70 and $90 but if there was to be a substantial opportunity at a lower stock price which was to emerge for any reason, then Microchip has the flexibility to do anything we wanted to do.
Ganesh Moorthy: And of course, we have the headroom and what’s the approved buyback. There’s over $2 billion of headroom available there and we have the headroom in our line of credit.
Chris Caso: Got it. That’s helpful. As a follow-up, I just want to return to gross margin and the utilization. And I guess asking perhaps some of the questions that have been answered in a different way. Is there a particular level of inventory that would make you uncomfortable that would cause you to reduce the utilization? And I guess part of this depends upon somewhat the duration of the downturn, how long the downturn should last?
Eric Bjornholt: I think that’s a key point to look at there because if you’re looking at your inventory on a backward-looking basis or current quarter type basis and what that drives but you have confidence that 2 quarters, 3 quarters, 4 quarters, 6 quarters, whatever out in time that the business is going to go back and exceed prior highs, you’re going to take a different action than if you think the business is in decline mode or in stagnant mode. So those are all the things that we need to evaluate when determining how we’re going to run our factories and what’s the right position for the inventory. And we’ve got our position today. And as I’ve said, we’ll continue to evaluate that based on the environment that we see in front of us.
Operator: And our next question comes from the line of Vijay Rakesh with Mizuho.
Vijay Rakesh: I was just wondering, is there like a target inventory level that you want to maintain? Or on the flip side of that is at what point do you start to [indiscernible] back utilization this?
Eric Bjornholt: So our target levels that we said at our Analyst and Investor Day back in November of 2021 was 130 to 150 days. We are obviously above those levels today and there’s reasons for that. And I think some of your question I responded to in response to the credit question. So we’re not uncomfortable with where the inventory is today, we’re going to watch it closely depending on the environment and then it’s going to be what the outlook is in terms of are we comfortable continuing to run the fabs at the levels that they’re running at today or if we need to do something different. Not at that point today where we’re going to do something different. Yes, inventory is above our target levels but I think we’re managing it appropriately and we’ll continue to do so.
Ganesh Moorthy: I would add that in steady state is where the 130 to 150 is where we want to be. If you look back at the last cycle, I think we were down like 108, 109 days and — that was what it was in the place where demand was so high was depleting our inventory. Today, we’re at 167, 10 days of that are really last time buys. So you take that out, we’re around 157. So we’re not dramatically outside of the steady-state range that we would need to be.
Vijay Rakesh: Got it. No, the reason I ask is because the revenues [indiscernible] are down, the DOI might spike — got it. And then as you look at the market conditions, can you talk to where the inventory levels are trending? And does that prompt — are you seeing any pushback on pricing in the supply chain as supply comes on or has demand conditions soften a bit, if you can give some color on that?
Ganesh Moorthy: So firstly, we don’t — at our distributors, we have view into the inventory we have. At our customers, we use their requests for pushouts and all that as a proxy for understanding it. But customers have many business units, many product lines and they could be and certain product lines wanting to push out and other ones, they want to pull in. So it’s all over the place. And there was a second part of your question.
Eric Bjornholt: Pricing. Wasn’t quite sure if that was a customer pricing or a supplier pricing? Is it supply chain pricing or are customer pricing that you’re asking about?
Vijay Rakesh: Your customer pricing in terms of — as the market conditions change, as the supply improves, if inventory levels go up, is that now becoming a part of the discussion?
Ganesh Moorthy: All the purchasing managers are going to ask for a lower price in an environment that is softer. But these are products where the price elasticity isn’t there where somehow if we put a lower price, we get more different this quarter or next quarter, etcetera. These are long design cycles. Prices have stepped 18, 24 or 36 [indiscernible] was at the point of designing and we will be competitive at the point where we do the design business. Business itself in the short term is not affected by the pricing.
