We also expect the higher level of low margin tool sales will impact growth margin by approximately 100 basis points. We expect to continue to manage non-GAAP operating expenses within the range of $13 million to $14 million per quarter. As we look ahead to fiscal 2024, as time mentioned, we expected another year of strong revenue growth outperforming the overall industry driven by a significant increase in customer funded tool investments and continued solid growth in core ATS activities, which we expect will partially offset by a lower level of wafer services business. While we expect tool sales will decline sequentially in Q1 ‘24, we believe customer funded tool investments could increase significantly in Q2 2024 and beyond. This strong level of customer funded CapEx will drive an increased mix of tool revenues and modulate our typical ATS margin flowthrough performance, which has well exceeded 50% since last year.
At the same time, after Q1 of 2024, approximately $3.7 million of quarterly depreciation from purchase accounting will phase out of our cost of revenue reducing our total depreciation expense by about half. This will be a significant tailwind to our gross margin performance, which will help to offset the headwind of a greater mix of tools sales in 2024. We also expect to turn the corner to positive non-GAAP EPS in 2024, and look forward to discussing our success on this key milestone in future calls. There’s no doubt that our CapEx light model is unique and bring some complexities to modeling our forward-looking financial performance. However, it’s important to come away from today’s call with an understanding of all the significant benefits of customer funded tool investment.
For example, we anticipate over 80% of our planned capacity expansion in 2024 will be funded by our customers. This means that we expect our quarterly depreciation will remain at these very low, approximately $3.5 million levels as revenues grow, compared to typical semiconductor foundry depreciation levels of around 15% to 20% of revenues. For us, we expect to see depreciation shrink to less than 5% of our revenues, which is one of the reasons we believe we can be so confident in our long-term margin target of 40%. With that we can transition the call to Q&A.
Operator: [Operator Instructions] We’ll go first to Krish Sankar at TD Cowen.
Unidentified Analyst: Hi. Thanks for taking my questions. This is Steven calling on behalf of Chris. Just my first question on circuit picture on the ATS business. Thomas, if you could, I guess, just given some of the commentary about 2024, along with the customer tool revenues, just wondering like, some of the underlying ATS revenue growth, I understand that you guys expected to potentially outperform the broader market, but should we be expecting a moderation in that growth? Because customers are essentially focusing more on moving their R&D design activities towards commercial production in 2025? Or is there additional layering on the new ATS programs? And also in terms of tool revenues, is that driven more by commercial customers? Or is it primarily largely government-related type projects?
Thomas Sonderman : Yeah, thanks for the questions. And I appreciate you joining the call. So just to start with ATS, we still feel like there’s a lot of opportunity with our ATS business. We talked about solid growth going into the next year, that’s after 50% growth this past year. That will be a combination of continued program expansion, as well as new programs. If you recall our funnel, we have new programs always entering the business and then we have other programs that are moving through the business as they move into volume production. So what we’re seeing really is, all of those factors combine to create again a opportunity for us to continue to grow ATS. And then we combine with the tool investment, a significant tool investment really position us to continue to have above industry growth, while at the same time putting new capabilities, new capacity into the fab that we believe will continue to pay dividends, not just for the customers.
And the majority of the tools that we’re talking about are coming through DoD and aerospace, and defense programs, but they can be used for other commercial customers, as well. So, they’re not exclusive and when we put them in the fab with many of them are with the expectation that they will serve the broader business.
Unidentified Analyst: Okay. That’s very helpful, Tom necessary. And my follow-up just wanted to ask about the wafer services business. So I know you guys mentioned industrial and automotive exposure being primarily drivers of the trend here. Just for clarification, at least, I guess for the top two or three customers in wafer services, are the products that that you manufacture with them, are they are typically like tool first products where you’re wanted to increase suppliers or are they single sourced products from you? Thank you.
Thomas Sonderman : Yeah. So it’s a little bit of a combination. So, if you look at, I’ll call them legacy products from the old Cypress business that now Infineon has, there’s kind of a combination of single sourced products and dual, and even multiple sourced products within that customer. And then we have another customer Parade, who is a also legacy, and this is all using our S130 technology on what we call a PSAC platform, a program below system on a chip. So these are legacy products. We do have other products that go into both the A&D space and the biospace that complement those legacy products. So these are science are definitely in the industrial and automotive, which of the legacy Cypress products.
Unidentified Analyst: Great. Thanks for your time and a nice job and strong execution.
Thomas Sonderman : Thank you.
Operator: Moving next to Quinn Bolton at Needham & Company.
Nick Doyle: Hey guys. This is Nick Doyle on for Quinn. Can you just talk again about the wafer services? And I guess inventory burning related decline? I guess, how long do you expect the inventory digestion to last? We talked about, I think that it would be weak in the first quarter also. And is that you need demand to come back? Or is that a really an inventory problem? Thanks.
Thomas Sonderman : Yeah. I mean, if you look at the end-customers, the automotive and industrial sectors are now beginning to feel the effects of the correction that’s been going on for multiple quarters. And of course, given our concentration in that space, we are now seeing those effects as well. How and when those particular programs will come back is going to be dependent on the macro environment that we’re in. Obviously, there’s been inventory burn going on. There’s been inventory builds going on, we believe, as well. Our goal is really to transition away from these legacy products move programs out of ATS into wafer services, prepare for the ramps that are coming in 2025. And really leverage the significant tool investment that’s going to occur next year to position us for the second half of the decade and do this in a way where we can supplement some of the weakness that is happening across the industry and is affecting our wafer services business.
