Patrick Lo: You’re right, with the China reopening is certainly would help, now even though our manufacturing and most of our components have already moved out of China, there is still few key components that no other countries would be either capable or willing to do. One obvious one is the power supply, because the dual power supplies, you have to wind all those dual transformers that not many people want to do outside of China. And that is the most sticking point of supply to our switches, especially for ProAV related switches. And we think with the reopening of China that will really help, unfortunately, the freight line especially air freight coming out of China has not really increased much and we depend on those to fly those components to our factories in Vietnam, in Thailand, and in Indonesia.
We do expect things will get back to normal, probably in the second half of this year. So we don’t have to worry about it. We will have unfettered supply of our ProAV switches in the second half of this year, that’s what we are looking forward to. But in the first half, we still have to deal with that situation unfortunately.
Bryan Murray: Jake, if I may just to add more near term focus there. We do expect a slight improvement in Q2 as Patrick said the improvement really happen in the back half, but it will build through the year. And so from a Q2 standpoint, I think there’s two factors that the SMB supply will improve slightly. And I think we’re expecting at this point the level of destocking with our retail partners will start to mute. I think those two things will drive non-carrier revenues excluding service provider to something like 5% to 10% sequential increase in Q2. Again the destocking will further drop-off in the second half of the year and service router side will likely stay — Q2 will stay around the $25 million mark. But we do still think the full-year will land about $140 million.
Jake Nordson: Perfect, thank you.
Operator: Your next question comes from the line of Jared Jungjohann with Cowen. Your line is now open.
Jared Jungjohann: Hi, Patrick and Bryan, this is Jared on for Paul, thanks for taking my question.
Patrick Lo: Sure.
Jared Jungjohann: I was just curious if you could walk us through some of the puts and takes for gross margin in 4Q ’22 specifically about 300 bps to 200 bps decline.
Bryan Murray: From a sequential standpoint, I think there are really three factors. I think one be the strengthening U.S. dollar relative to Q3. It was probably net 60 basis point to 70 basis point range. We’re also – as you see in our inventory levels, we’re sitting on about six months of inventory. So a lot of that has been CHP inventory. So we’re working through that, if you can imagine, six months ago we weren’t kind of near the peak of freight costs coming in. So we’re dealing with that burden as well. We do think that we’re turning the corner on that and should be at a much more optimized level as we go into the second half of 2023. So those are the primary drivers.
Jared Jungjohann: Thank you very much. And then I just have one follow-up. Relative to the guidance you provided at your Analyst Day on quarterly topline movement. Your new guidance for Q1 is a little bit lower than that and I’m curious if you could provide maybe an update on the service provider revenue.
Bryan Murray: Sure, sure. I think the biggest difference between what we said at Analyst Day in the Q1 guide that we gave right now is the service provider revenue level. You may recall the comments back in December, we expected $140 million in service provider for the year. At that point in time, we thought it would be a little bit more linear, but given our ability to execute and bring in supply in Q4, at this point we think it’s going to be a little bit on the lower side in the first half of the year about $25 million a quarter for the first half. Still reaching its full potential of $140 million for the full year. It’s just the timing impact. So that’s probably the primary difference from the December discussion.
Jared Jungjohann: Perfect. Appreciate all the color. Thank you very much.
Operator: There are no further questions at this time. Patrick, I turn the call back over to you.
Patrick Lo: Great, thank you. Thanks everyone for joining us today. In 2022, we laid the foundation with our innovative best-in-class portfolio of products and services to propel NETGEAR towards a long-term profitable growth. Although the CHP channel inventory reduction will continue into 2023, our highly differentiated Orbi 8 or 9 and soon Orbi 10 Mesh systems and our 5G mobile hotspots M6 and M6 Pro continue to outperform the market. And give us the confidence in our long-term high margin growth transitory. On the SMB side, we are the market leader of the ProAV market transition and we’ll continue to make inroads in expanding our presence in the market, while simultaneously open up adjacent ones like the TV broadcast and production industry, as well as the integrated high end fully automated homes segment. I look forward to sharing, an update on our progress on all of these fronts at our next earnings call. Look forward to talking to you all in April. Thank you.
Operator: This concludes today’s conference. Thank you for attending. You may now disconnect.
