William Stein: Great. Thanks for taking my question. You noted that OpEx is tracking below your long-term target right now. And I’m hoping you can help us understand where or maybe give us some expectations as to where that should trend through the year and then longer term, should we expect this percentage to increase?
James Eric Bjornholt: Yes, so we would expect that over time that percentage will increase to — be within our long-term model range, which we shared with the street last November, November 2021 at our Analyst Day. And so we’re well below that today. We’ve had a couple of fantastic growth years, and it’s been difficult to keep up with the span, and particularly hiring people. And we’re seeing some of that free up today. So, we are still continuing to hire and add people to our teams to make sure we are supporting the long-term growth of the business with having the people and processes and systems in place to drive that. So you should expect over time that it will gradually inch its way up, but it’s not something that happens overnight.
You’ve been seeing that we’ve been investing significantly in increased operating expense dollars over many quarters now and just that haven’t been able to keep up with the rate of revenue growth. And actually in the current quarter, the midpoint of our guidance is actually just slightly higher in percentage terms than what we achieved last quarter. I think it’s 20.7% this quarter versus 20.65%. Again, it’s the net, but we are continuing to invest and making progress on the hiring front.
Ganesh Moorthy: Will lead the way I think about it philosophically also is that the OpEx investments we make are also critical investments that drive future gross margin improvements, future innovation for delivering to our customers. And the whole growth and profitability of the company is dependent on making good operating investment — operating expense investments. And so that’s why it’s important to keep the investments consistent with where growth is, but for long-term growth and profitability.
William Stein: Great. Thank you.
Ganesh Moorthy: Thanks, Will.
Operator: Our next question comes from the line of Ambrish Srivastava with BMO Capital Markets. Please proceed.
Ambrish Srivastava: Hi. Thank you very much. I’ll speak for myself, Ganesh. And Steve, you guys have proven me wrong. I thought, okay, it’d be. We have never seen this kind of “soft landing”. So two quarters in a row, you have shown and you’re given guidance beyond the quarter. So kudos to you for that. But I just wanted to drill in a little bit into a point you made Ganesh. You said that the lead times coming down to 26 weeks, and you made some comments on the PSP as well. It sort of make sure I understood, what are your assumptions for the second half demand that is kind of baked into your comments as you can get lead times after 26 weeks in the back half.
Ganesh Moorthy: We’re not getting into specific guidance on second half growth and where it’s going to be. I think we’re judging based on what are we doing to be able to continue to improve the supply lines, both our own as well as what we’re doing with our partners. We are judging where we expect demand to be out in time, but we don’t have any certainty around it. And those are — it’s a multivariable equation, that if you project out under certain circumstances, certain assumptions that you make that we can in the second half of the year begin to get closer to that 26 week lead time. We could be wrong. The demand could come back roaring in the second half that we’re not thinking about as it did in ’21 — 2020 and 2021. But under a reasonable set of expectations that we are internally modeling but we’re not externally communicating, we think that’s what we can get to.
And we think that’s where we need to get to, to kind of run this business on a consistent basis and have it as a strong way in which our customers and us together can plan for business.
Stephen Sanghi: Let me add to that a bit. Let me add a bit to the answer. As you have seen, many of our competitors and others in the semiconductor industry actually go down sequentially for the last couple of quarters, and most of them are guiding down for the March quarter. We have been growing every quarter. And Ganesh mentioned that earlier, has to do with our end market mix, focus on mega trends, focus on total system solutions, and we’ve been gaining share. So not having gone down all this time, and still guiding growth in March as well as June quarter. When you get to the second half, it’s quite possible that others are saying second half demand will pick up again, that we get the wind on the back in the second half while never had gone down in the last two quarters and the forward looking couple of quarters.
So that’s the thesis of soft landing where we just didn’t go down so far, and we pick up wind again in the second half. So looking at the that way, how we are differentiating ourselves.
Ganesh Moorthy: And by the way, you can go back in 2020 and look at the fourth quarter performance in 2020 and you will see that we had barely a ripple in the first half and strong growth in the second half.
Ambrish Srivastava: Right. Thank you, guys. Appreciate it.
Operator: Our next question comes from the line of Harlan Sur with JPMorgan. Please proceed.
Harlan Sur: Good afternoon. Thanks for taking my question. On the commentary on higher inventory levels driven by some of the supply and demand dislocations in China due to the easing of the zero-COVID policy, it looks like you guys are proactively helping customers here by pushing out shipments, maybe decreasing your sell-in into the channels in that region. Does this imply that within your March quarter guidance, that China region revenues will be down sequentially? And just given that China is through the first waves of COVID here this quarter, are you starting to see some signs of demand improvement?
Ganesh Moorthy: So while we don’t break out guidance by end market, in the March quarter, China — Greater China has always had a decline. There are 7 to 10 days of holidays for Chinese New Year. And we don’t expect this year is any different. What we are cautiously optimistic is that with the worst of COVID behind in the December and January time frame, that post Chinese New Year, which is right about now, China will come back and have a more constructive approach to where their economy and therefore, our business will go as well. I can’t give you that as an absolute it’s going to go happen. And so we are modeling for a normal China quarter this quarter and something more could happen depending on how business comes back post-Chinese New Year.
Harlan Sur: Thanks, Ganesh.
Stephen Sanghi: In vast number of cases, majority of the cases when we help the customer in China or distributor to not get the product because they had inventory, we had so much other demand for that product in U.S. or Europe, and other customers because we’re still carrying huge amount of unsupported backlog. So in most cases, where we accommodated a customer, we ship that product to somebody else.
Harlan Sur: Thanks, Steve. Thanks, Ganesh.
