Vijay Rakesh : Hi, Dave, and Gianluca. Great quarter and a good control on the inventory side. Just a quick question on how you see broad inventories in the channel. Like if you look at China and U.S. enterprise hyperscale, any thoughts on where inventories are broadly?
Dave Mosley: Yes. I think we said that we — from our vantage point, the inventories at hyperscalers generally went down or the right directions, and we were encouraged by it. I mean, obviously, we’d like to see it faster because we’d like to ramp our factories back up quicker. I think it would help us. And then, of course, our owned inventory, what we were able to do by not putting anything out, especially the legacy capacity points, I’ll say, in the nearline space, we’re not putting anything else out into the market that’s encouraging as well. I think from a distribution weeks on hand, it’s high, but not super high historically. And you all know that depending on how you’re measuring it 4 weeks or 13 weeks, it could be it’s really based on a baseline.
And I think that, that baseline now has become this macroeconomic reality. I do think that as we started to see some kind of macroeconomic recovery in certain geos, Europe, Asia and so on. The absolute value of the inventory is not super high. And so it’s not a whole lot of weeks on hand. And I think there, again, we could react to that. So I’m not super worried about the inventory there.
Vijay Rakesh : Great. And you mentioned HAMR ramping here. Good to see that. A exit the year, any thoughts on what that mix would be of your mass capacity at nearline of revenues or units?
Dave Mosley: Yes. We haven’t really talked about it. I think this year, it will probably still be relatively low. And then the faster we can get the yields in scrap and all the costs that we can control down on the heads and media then the faster will be accelerating. I think that will happen in calendar year ’24 and calendar year ’25 will just continue to accelerate. The highest capacity points will be addressed, but also these midrange capacity points. And how successful we are with all that stuff we’ll determine how broadly we can penetrate all those different individual market.
Operator: And our next question will come from Ananda Barua with Loop Capital.
Ananda Baruah : Two quick ones, if I could. Just going back to Aaron’s question, Dave and Gianluca on the utilization. So Dave, you said you’re 30% below peak your gross margins are actually down 30% from that same peak. Is that a coincidence because pricing has been stable? Or is it really sort of that simple? And then I guess the ramp back up kind of higher cap drives sort of takes up more capacity. And so is it really as simple as on sort of the ramp back up sort of the same indexing on capacity ship, is like a little bit more of a slope up, just given the mix? And I have a quick follow-up after that.
Gianluca Romano : Well, I would say, for sure, the majority of the gross margin decline is coming from the underutilization charges, so the lower level of production that we have. Last quarter, we were discussing it a bit about some price pressure in the low-capacity drive. But we have seen a little bit in the quarter of December. But in general, especially considering that we see a fairly strong down cycle. We are — in terms of pricing stability, we see this as a positive. And we expect as soon as we are back into the same level of production and same level of revenue we had a year ago, we think our gross margin will be at the same level or even better.
Ananda Baruah : Gianluca, is it — can we kind of model the gross margin more or less calibrated with where we see capacity increases to be going forward?
Gianluca Romano : I would say capacity mix, of course.
Ananda Baruah : Okay. Cool. And then just a real quick follow-up. $300 million OpEx through the June quarter, how do you want us to think about modeling out past that, the puts and takes?
Gianluca Romano : But we are staring to discuss about the next fiscal year, but I would say part of the lower OpEx is coming from variable compensation that is very low in the current fiscal year. So you will have to think about adding some cost for variable compensation in the fiscal ’24.
Dave Mosley: Yes. I think Ananda, we reacted, obviously, very early on some of this when we saw it. And I think we’re going to be asking the same kinds of questions throughout the course of this year, what’s the new trajectory, the new normal, if you can. When some of the normal demand cycle comes back, where is the world from an economics perspective and we’ll address factory footprint and things like that when those times come.
Operator: And our next question will come from Wamsi Mohan with Bank of America.
Wamsi Mohan : I apologize jumping across calls if this has already been answered. But I’m wondering if you could talk a little bit about the trajectory that you see in exabyte growth. It’s kind of been a little bit all over the place given so many moving pieces with both demand slowdown as well as inventory and if you could maybe calibrate for calendar ’23, that would be great?
Dave Mosley: Yes. It depends also, if you where you reset to. I think we’ve taken a big step down, of course, and then we could talk way back on the 30% growth. I don’t — I think it’s a little too early to tell that. But we do think that by the fact that we’re putting out 24 terabytes and 30 terabytes and so on and so forth, that’s going to help the exabyte growth substantially. I think a couple of years ago, we were at 80-some percent from nearline drive. So that was reflective of not only high great value proposition from 1 capacity point to another, say, maybe 25% bump in capacity point, but also the fact that a lot of people are investing at the time. I do think that the demand side for data is still there. There’s AI, machine learning, a lot of new applications coming.
I think we’re going through something that’s fairly temporary where people are just getting their legs underneath them and then they’ll figure out what their investment profiles are. And our job is to go put a better value proposition from an exabyte perspective out there in front of them to kind of incentivize that. So we do think the back half of this year gets better from an exabyte perspective. I don’t — maybe a little early to tell exactly what the number is.
