But we’re not assuming that in our guidance right now.
Thomas O’Malley : Helpful. And then, just on the gross margin side, as you see a normalization of your percent sales to kind of just to interact with direct coming back a bit down. How much do you have baked in for that normalization in the June quarter? And how quickly do you see that happening? Obviously, it’s a tougher thing to kind of understand it’s a lot of different customers. But just in your base case assumption, we’re kind of at the midpoint of your margin guidance which is something like 80 BPS? What do you think that split looks like?
Matt Johnson : Yeah, it’s tough to call, because part of that includes the call in the market, which is not good business. So I think, the way to think about it is, we have been absolute in our commitment to our gross margin model, as well as our total model for the company going through the peak end of trough of this cycle. We didn’t increase our gross margin targets in the peak and we’re not decreasing our gross margin targets in the trough. And what we’ve said is, as we go through each quarter, as revenue increases, gross margins will increase. That’s what we’ve seen in Q1. That’s what we’re sharing that we expect to continue in Q2. And we expect simply said, as revenue increases, gross margins will continue to increase back to those levels that we all know and love.
So that’s an easy way to think about it. It’s also worth mentioning that as the revenue goes up, the component of the fixed cost absorption goes down. So we’re seeing that. And right now the predominant factor is the mix. And that’s what we shared in the script and that’s what we’re looking at right now. So, easy way to think about it each quarter as that revenue increases, you’ll see that gross margin increase with it.
Thomas O’Malley : Thanks, Matt.
Operator: Thank you. One moment for our next question. And our next question comes from the line of Quinn Bolton from Needham and Company. Your question, please.
Quinn Bolton: Okay. Hey guys. Thanks for taking my question. Just want to follow-up first on that that mix issue for gross margin. You kind of said that the mix shift is more to direct here in the near term. And it sort of feels like you’re implying that that’s a gross margin headwind. Just wanted to confirm that the disti sales to carry higher margin than direct sales and not sure if you will, but I’ll ask if you could quantify, how much of an impact is that channel mix having on near term gross margins? And then I’ve got a second follow-up question.
Matt Johnson : So, Quinn, this is Matt. Quick answer is, generally, you do see channel or distribution gross margins was higher than direct. But that’s fairly typical. And for us, what we’ve also said is, mix is now the major driver, predominant driver of the gross margin being at the levels it is versus where that it shouldn’t will be. So those are the two, I think answers to your question or hopefully helpful.
Quinn Bolton: Got it. Yeah, I know that helps. And then I guess, I know you guys obviously aren’t guiding on the current quarter, but given that you’ve stated that that consumption level of $160 million or higher I guess, kind of looked out to the second half of the year. The streets got revenue close to $190 million in September, $220 million plus in December. That’s significantly higher than that consumption level. And so I guess, these aren’t your numbers, but what has to happen for the business to get back to kind of where the street is looking in the second half of the year do you think consumption can increase at that rapid of a pace? Is it really the three growth drivers that you’d talked about the smart metering, glucose monitoring, the electronic shelf labeling that gets you there? Or just any sort of thoughts on sort of that second half?
Matt Johnson : Sorry, Quinn. Can you just say the key question is what are the drivers for the…?
Quinn Bolton: Yeah, I mean, I just, obviously, you’ve kind of stated this consumption number of $160 million and I know that that’s a kind of a floor not necessarily where you think consumption is, but the street numbers for the second half have revenue in September up at like $190 million and $220 million. And I know these aren’t your numbers, but I guess, to the extent the company were to hit that kind of revenue in the second half. What has to – what’s drives that? Is it, do you think consumption can get up to that kind of level in the second half? Is it driven by some of these new product opportunities that are ramping this year? I mean, just what’s – how would you get there in the second half given that $160 million consumption number you’ve discussed?
Matt Johnson : Got it. Got it. Okay. So, yeah, a couple things. I mean, obviously, the first starting point is and you all know this, we don’t guide beyond the current quarter. But I can definitely talk about some dynamics that might be helpful towards that end. And just a reminder on that $160 million number, that was to give people context around kind of what we – as we were going through our OpEx reductions last year, that was kind of a rough estimate of a breakeven point. And obviously, our point was you do your reductions around something that you believed was indicative or better of our consumption. You wouldn’t make OpEx reductions on what you thought your go forward steady state was if you’re losing money there. So that’s important.
But to your question, so easy way to think about it is, if you oversimplify the three major buckets, we have the destocking phenomena where there’s excess inventory at customers. You have design wins ramping in end-markets. Right now, the bulk of what we’re seeing in Q1 to Q2 is really destocking. There’s some ramps in there. But it’s not the primary driver. So, as we’ve said, even at $140 million, that’s not indicative of consumption. So there’s still a ways to go which is encouraging and we see that destocking continuing. There’s two other factors there, which are the design wins, which I just shared earlier that we do see good design win progress and ramps this year on some pretty major trends and areas including CGMs, electronic shelf labels, metering, where strong positions and those are ramping.
