Mike Berry: And to George’s point, Nehal, we’ve been calling that for several quarters, which is add that ARR number gets bigger, that dollar-based net retention percentage will come down. We like to call it the 120, 130, where we think it will land, but we have been calling that percentage to continue to decline as that number increases.
Nehal Chokshi: That you have. Okay. And then just finally, Mike, the PCS GM did come down both Q-on-Q and year-over-year. Why is that?
George Kurian: The PCS gross margin came down because of the revenue scale relative to the infrastructure that we have deployed. Note that the consumption business, some elements of those are based on our deployed systems, right, in the cloud provider environments. And when they have less scale, you see less utilization, you see less gross margin.
Mike Berry: It came down from 69.7% to 68.3%, so down slightly. And to George’s point, that’s largely due to scale. We continue to feel good, as I mentioned in my notes about the 75% to 80% as we drive that scale.
Nehal Chokshi: Thank you.
Operator: Our next question will come from Wamsi Mohan with Bank of America. Please go ahead.
Wamsi Mohan: Yes. Thank you. I appreciate the fiscal year guide. But George, you were talking earlier about IT budgets and some caution around that. I was wondering if you could share some color on what you’re hearing from customers more around calendar 2023 IT budgets? And what’s your view on how you expect the storage market to grow in 2023 and your growth relative to that? And I have a follow-up.
George Kurian: I think with regard to 2023, we’re being cautious we aren’t guiding next fiscal year, but we are being cautious about the start to calendar year 2023. We have seen typically in these macro situations that new budget outlays to start a calendar year probably take longer than typical. So, we’ve been cautious about the start of the new calendar year. With regard to the storage market overall, I think it’s going to be paced by new workload deployments. I think there will be customers that will be forced to upgrade systems because their existing systems are coming to either end of useful life or end of they’re just out of capacity or performance. But I think the majority will prioritize new workload deployments and/or system consolidation for cost and energy benefit use cases.
We continue to see — while the cloud migrations are slowing down a bit, we continue to see that as a long-term trend that customers are going to take on for a whole bunch of reasons. And so I think cloud will outpace on-prem in the broader market. And in the on-prem world, we see NAND helping flash be a bigger part of the mix going forward. Our capacity flash products had a good quarter, our hybrid flash products had a good quarter, they are typical about where customers are cost conscious.
Wamsi Mohan: Okay. That’s helpful, George. And just a follow-up on your last comment about the NAND market. Every few years, you see the significant dislocation in pricing and this one is quite severe. You guys noted the benefit that you will recognize in gross margin terms. But can you just remind us on how you’re thinking about the impact to revenues based on the NAND price decline? Are you expecting a deceleration in AFA revenues, or are you expecting elasticity of demand to offset that? Thank you.
George Kurian: Customers’ budget in dollars, the current macro environment has been spending less dollars, but they’ll probably shift the mix to AFAs, if there’s more value in the offering, right? So we see them budget in dollars, Wamsi.
Wamsi Mohan: Okay. But in aggregate terms, would you say that the customer budgets would be up or down like in full in aggregate, whether it’s cloud on-prem, all put together?
