Chris Caso: Okay. Fair enough. One of the things you’ve also said in prior downturns is typically, you’ve seen three down quarters before you achieve a bottom, you’re at that now, although September quarter was obviously a much smaller magnitude than now. Given where we are right now, do you think that still holds? And perhaps you could characterize this downturn against some of the prior ones that you’ve been through?
Ganesh Moorthy: Well, there’s nothing typical about this downturn. And I don’t think that is a good comparison to history. You could say in magnitude, it is on the order of what we’ve seen in the global financial crisis. I think we were down 36% or so at that point in time. We have very limited visibility in today’s market conditions. And so it’s difficult to say where exactly this is and as I mentioned, we believe we are significantly under shipping to end demand, but we’re unable to provide any kind of forecast or guidance beyond this quarter.
Chris Caso: Fair enough. Thank you.
Ganesh Moorthy: You’re welcome.
Operator: Thank you. Our next question comes from the line of Christopher Rolland with SIG. Please proceed with your question.
Christopher Rolland: Hi guys. Thanks for the question. So around cycle times and lead times, we have found that some of your products, particularly through distribution, they have lead times that are even below your cycle times. I’m assuming your cycle times are something like four weeks or six weeks, something like that. I guess my question is, how long would you expect this dynamic to last? I think this is – if you do have big inventory corrections like we’re going through, you see that phenomenon occasionally, but how long might this last? And when are you expecting lead times to maybe again, obviously, we have some – an inventory dynamic we’re going through here. But maybe talk about that lead times versus cycle times and when you think that those might actually rise again.
Ganesh Moorthy: Chris, let me just define two terms and then we’ll walk through it. So cycle time is the time it takes from when you begin with raw material and get to finished goods. That cycle time for semiconductors, depending on which product and what process can be anywhere from three to five months, sometimes longer, depending on the specialty. So that’s the typical production cycle time. We have always been able to manage lead times, which we define as from a when a customer places an order on us, when can we ship the product to them to be a lot shorter than that. And historically pre-pandemic. That was four to eight weeks was not an unusual number for 80%, 90% of our line items. Where we have come back to is where those lead-times are on average where a customer places an order they can get in less than eight weeks.
And in some cases, if we have it in finished goods, they can get it much sooner than that as well. So, I don’t have a good view of when do lead-times go back out. And I’m not sure that’s a good thing. I think we have to, obviously, work to manage the supply and demand consistent with where demand is going. But for years, we ran in that four to eight weeks as a reasonably stable lead-time outside of any major increases or decreases in demand in the marketplace. And right now, we think we’re going to be at low lead-times for quite some time. We have inventory that is high, and we’ll be growing into the March quarter. And we’re going to position that inventory to be able to take advantage of orders that come in with short cycles because visibility is low, and we need to be able to position and take that as quickly as it comes in.
So all of our systems are geared towards having shorter lead-times and being able to take orders of the – that are placed with short lead-times, as quickly as we can.
Eric Bjornholt: Maybe just one thing. I think, Chris, maybe what you were getting at is when we have product that is staged in die bank, so it’s through the wafer fab that, in many cases, we can turn that through assembly and test in the four to six weeks that you’re talking about. And so if that’s the case, if it’s in die bank, that would be the case. But we’ve got finished goods today. we’re staging the products that are high runners and die bank or lead-times are quite short across the board.
Christopher Rolland: Yes. Thank you very much guys. There were some good stuff there. Eric, while I have you gross margin, just for kind of simplicity sake, my model is roughly like 300 basis points below for next quarter where I was previously I don’t know if you can kind of walk us through that, what’s mix versus underutilization versus inventory write-down? It sounds like pricing is not an issue here like-for-like, but would love to know how those kind of various things contribute.
Eric Bjornholt: Yes. So, I would say the biggest change quarter-to-quarter is going to be in the factory utilization, and that’s a combination of the continued attrition and lower production rates on a steady-state weekly basis, and then we’re having these two weeks shutdown on top of that. And what we’re having time off and some of our back-end factories too, which is larger than the previous quarter. So, all those things impacted, I’d say, the inventory reserve piece is a part of it, but we had relatively significant charges last quarter on that, and I wouldn’t expect those to be significantly more this quarter. They’ll probably be larger, but the biggest piece is going to be what we’re doing on utilization.
Christopher Rolland: Excellent. Thanks guys.
Operator: Thank you. Our next question comes from the line of Gary Mobley with Wells Fargo. Please proceed with your question.
Gary Mobley: Hi guys. Good afternoon and thanks for taking my question. Looking at the March quarter guidance, that’s basically a peak to trough in revenue terms of more than 40%, all within the same fiscal year. So clearly, the rate of the decay has been extreme. And I’m calling on your experience here, given that you’ve all been through a lot of cycles in the past and you hinted to in your prepared remarks, maybe some overcorrection on your customer’s part in terms of inventory depletion. So calling on your experience, how would you say the slope of the recovery may look given your lead times? Is it a gradual one? Or are we going to see just sharper rebound as we saw in terms of this correction?
Eric Bjornholt: So I’ll start and Ganesh or Steve can add to this. I think it is unknown at this point in time, right? We have limited backlog visibility as we look out in time, which you’re asking about beyond this quarter, lead times are really short and customers are sitting on a certain level of inventory beyond what they think is necessary for their business today. So until we start getting short-term orders at our lead times and we see that backlog start to build. It’s hard for us to really imagine what it’s going to do. As Ganesh said before, clearly in this quarter with our revenue guidance, we are shipping below what the end consumption for our products are, and we think that’s relatively material. But giving you any guidance in terms of what the slope of the recovery is, I think, it’s hard for us to do at this point.
Ganesh Moorthy: I think the recovery has many components to it, right? One is just if you assume business is flat and as the inventory drains, people will, at some point, just have to order enough to get back to flat consumption. Then there is also what does the macro do and what happens in actual consumption over time. And that depends on many things, where is GDP at, what our interest rate is doing, et cetera. And I think those are all variables, which you can’t, at least we’re not able to plug in and say, this is out the next three, four quarters, the shape of the recovery will look. And we don’t have the visibility and backlog to give us any insight into that today.
