Raji Gill: Yes, thank you, and congrats as well. Wanted to get a view on the trailing edge capacity. How do you see investments in trailing edge capacity going forward with future projects on 300 millimeter. There’s chatter that other major companies are increasing CapEx significantly. So just wanted to get a sense of the view of the industry on lagging edge capacity that’s obviously been the issue with supply constraints, and how do you think the industry is adjusting to that dynamic?
Ganesh Moorthy: From our perspective, we did that analysis. And in the process of doing the analysis, we had to validate which assumptions we were making, that were reasonable assumptions, which assumptions perhaps are changing over the next 3 to 5 years of time. And we don’t know about industry investments necessarily, but we do know that our partners and us in the communication that we have had, have a high confidence prep to being able to satisfy the 300 millimeter trailing edge capacity requirements that our business requires. And with our partners and us, we have concluded that our business is best met with the best overall results in partnership with them.
Raji Gill: Thank you, Ganesh. And for my follow-up, with respect to lead times, as the lead times come in, you did mention that you’re starting to see some order push outs, your goal is to kind of get to 26 weeks by the second half of the calendar year. I’m just wondering if you could elaborate a little bit further on customers and their backlog. As you — as they start to reduce long lead time orders as more supply comes online, do you anticipate more order volatility, or how do you manage that? Thanks.
Ganesh Moorthy: Long lead times are never a good thing for either the customer or for us. There’s more uncertainty the farther out in time you go. So providing shorter lead times and working towards getting it is in the best interest of our customer and what they need to plan for and for us and what we need to plan for. And we expect that the bookings and backlog will reflect that change in lead time out in time. Now we’re not there today. We’re expecting to get there in the second half of the year. And it will still take time, through much of this year that we have to get through the constraints. It also has an unknown, which is what happens in the back half of this year on the demand side of the equation. And if you remember over the last 2 years, the lead times have been driven not because we didn’t increase supply, it’s because demand increased faster than we could bring out supply every single quarter for about eight quarters.
And so we’re working hard to be able to get that supply line improvement to bring lead times into a more manageable situation to bring backlog into a more manageable timeframe. And then the demand side of the equation may or may not effect it farther as we go into the second half of the year.
Raji Gill: Thank you.
Ganesh Moorthy: You’re welcome.
Operator: Our next question comes from the line of Tore Svanberg with Stifel. Please proceed.
Tore Svanberg: Yes, thank you. I had a question on both internal and channel inventory. So it sounds like near-term you want to build even more internally to kind of manage it externally or manage the channel. I was just hoping you could give us some numbers on where you intend the targets to go. I mean, I know what your targets are for channel inventory. But perhaps for the next couple of quarters, how do you view the internal inventory days going versus those in the channel.
Ganesh Moorthy: So we would expect that our internal inventory is likely to go up from where it is. It will get to a point where it will reverse course, I don’t have a precise time for when it will. The channel inventory is really in the hands of the channel for them to decide at what level of inventory do they want to run consistent with their working capital, their customer support requirements and all of that. I don’t know, Eric, if you want to add more on that.
James Eric Bjornholt: Yes, so we specifically guided in our release today for inventory days ending March to be between 157 and 164 days. Beyond that, we really haven’t given any color. But we’ll continue to manage our manufacturing operations and our purchases from our suppliers to be in the right spot to support our customers.
Ganesh Moorthy: Now the way to think about the inventory is this is inventory of product that are very long lifetimes. There is no obsolescence risk on them. It is positioned well to respond to customers and their requirements. If there is a stronger up cycle in the second half of the year, it gets us in a running start to be able to go do that. So we don’t see the inventory levels that we are seeing today and predicting for this quarter has anywhere close to being an issue for us.
Tore Svanberg: Great, color. Thank you.
Ganesh Moorthy: Thank you.
Operator: Our next question comes again from the line of Toshiya Hari with Goldman Sachs. Please proceed.
Toshiya Hari: Thank you for the follow-up. Maybe one for Steve, just on kind of the philosophy or the approach toward the PSP, I personally was under the impression that you were pretty adamant about customers taking product at least business that, that was tied to PSP. It sounds like you’re being a lot more flexible with that, I guess what’s changed over the past couple of months. I completely agree with you. It’s a win-win, if you — I guess go for a soft landing, but curious what’s changed internally and around the philosophy there. Thank you.
Stephen Sanghi: Toshi, let me have Ganesh answer that.
Ganesh Moorthy: So the philosophy of PSP backlog being high quality backlog, something we would like to get and have on our books, hasn’t really changed. The non-cancelability of PSP backlog hasn’t really changed. What we have always said is that the non-cancelable part of it is not where we are willing to negotiate. It’s on the non-reschedulability or the ability to push it out that we are. And we are working to make sure that where we see customers who have inventory and other customers who don’t have product, being able to take and redeploy from one to the other, and that’s a common sense way of set — of helping two customers with one action that we would go do. On the other hand, where we see potential customers who need some help in terms of pushing inventory out quarter boundaries as the case might be, we’ll work with them.
These are long-term customer relationships that we want to have. What we’ve always wanted was responsibility from a customer placing PSP backlog on us to be able to honor the non-cancelability, because we make commitments based on that responsibility to our supply chain. And I think you got to have some reliability in the people in that chain who make and meet commitments on the non-cancelability.
Toshiya Hari: Makes sense. Thank you.
Ganesh Moorthy: Thank you.
Operator: The next question comes from the line of William Stein with Truist Securities. Please proceed.
