Art Chadwick: Yes. Well, first of all, I think your numbers are correct. You have to remember that the payment that we’re making both the fixed payment and the earn-out payment are being paid over a number of years. So that obviously impacts kind of the present value of the deal. But we can grow this to a $100 million a year business in a number of years. And grow beyond that, put a reasonable multiple on that revenue and a multiple – we should be able to run this at our target operating margin of 30%. That drives a lot more value than the $268 million that we’ll end up paying them, if we pay out the full earn-out.
Tore Svanberg: Sounds, good. Thanks Again.
Rajesh Vashist: Thanks, Tore.
Operator: Please standby for our next question. Our next question comes from the line of Chris Caso of Wolfe Research. Your line is now open.
Chris Caso: Yes. Thank you. Good evening. I guess, just a question on gross margins and how we should look at them, going into next year. What are the steps? And what’s the visibility on getting the gross margins back, to more normalized levels as the market starts to come back?
Art Chadwick: Sure. Well, we’ve talked about this before. At a very high level, as our revenue increases, our fixed manufacturing overhead becomes a lower percentage of the cost of sales, and so that improves margins. My simple example is, if we can double revenue from the current run rate that, improves margins by about five percentage points, because our overhead is running about 10 points of margin. So that is, one way that our margins will improve again. It’s also one reason why our margins are down from where they were a year ago. And the other is mix. The middle of this year, if you recall, our comms and enterprise customers had way more inventory than they needed. Our sales in that segment were down dramatically. And that mix should improve over time.
If you recall, a year and change ago, that segment was almost a third of our business. And over time, if we get it back up, to a third of our business that helps blended margins substantially. So right now, we think that margins will move back up into the 60s next year, probably low 60s earlier in the year, and increased sequentially through the course of the year. So, that’s how I see it right now.
Chris Caso: Okay. That’s helpful. I guess my next question is, it’s on China, both kind of shorter term and more broadly also, and there’s been a lot of talk about incremental weakness in China, because of the economic conditions there. To what extent is that contributing to what you’re seeing here? And then longer term in China, maybe you could talk about the opportunity, because obviously geopolitical tension right now that at least the – desire to in-source more product. Obviously, there’s no men’s timing sources within China right now. But does the geopolitical situation impact, your opportunities in China going forward?
Rajesh Vashist: In general, our China business is a robust, meaningful part of our revenue. Much of it comes from industrial and from automotive. So, we are not subject to the same restrictions that we see in comms, with some of the bigger guys in China nor, are we in the consumer segment in any meaningful way. So, we think that the China business will continue to grow, even though some of the macro conditions continue to be somewhat choppy as we see in the headlines. I think our China business next year grows, over our China business this year. Simply, if I look at the design win and the design win rate. There is some – we don’t do any production in China. So, we don’t have any restrictions when it comes to the so-called China free requirements.
So, we’re good there. Some of the people are talking about Taiwan free. So to some extent, we have to pay attention to that. But in general, we think that China continues, to be an important part of our revenue source and business source, and we support it with a lot of success.
