We adapt to our supply chain, and for sure, on turning in January, we’ll have a better visibility and moving forward as well.
Operator: The next question comes from the line of Joshua Buchalter with TD Cowen. Please go ahead.
Joshua Buchalter: I wanted to ask about gross margins also. So, I think last quarter, you had called out mix start up costs and underutilization is driving the sequential decline. As we go from the third quarter to first quarter, is it all underutilization charges or mix and start up also playing a role here? And then, as we think about exiting the year, you should have inventory at your target, but the first quarter is seasonally down. And so, I’m wondering how would underutilization charges trend in the first quarter of the year under that dynamic where you’re at your inventory level but you’re also seasonally down? Thank you.
Jean-Marc Chery: No. As I was saying also before, yes, for sure, in Q4, we are impacted by some underutilization. You remember that we were preparing the year in the first half of 2023, let’s say, expecting a stronger second part of the year second half of the year. So that was the reason why we were creating some inventory in order to serve this expected demand that at this stage did not materialize, as you see from our guidance of the second half. So, this is the reason why we put under control our inventory. This is creating some unloading charges that we have in this second half of the year, impacting our gross margin. Bringing back to the level of days of inventory, as I was saying before, I would say, stand at normal level by year end.
As I said before, that will be ranging between 100 and max 110, but I think it will be closer to 100, 105 days of inventory. Moving on the next quarter in Q1 and in the first half, but a lot of will depend on how the order entry will materialize during quarter, especially for the industrial market because as you know, as was said, for the automotive, we have a quite clear visibility, whereas the visibility is less is on the industrial. But our expectation and still we will have some level of unloading in Q1 and probably also something in Q2. And the level of unloading in Q1 will be probably similar to the one that we have in this quarter.
Joshua Buchalter: Thank you for all that color. For my follow-up, I wanted to ask about silicon carbide. There is concerns given some slightly weaker commentary at your lead customer, that silicon carbide growth could slow. Could you talk about the diversification efforts that you are undergoing? And in particular, how is your visibility into substrate supply both externally and your internal vertical integration efforts going for next year? Thank you.
Jean-Marc Chery: For us next year, it will be a step rate consistent with our objective to deliver $2 billion in 2025. And so, we have the capacity installed. We have the supply chain secured. And we have a customer base and backlog consistent with this objective. And I will communicate, at the Q4 earnings end of January, the objective of silicon carbide revenue, we would have next year. But, be sure it would be a consistent step with the $2 billion objective of 2025.
Operator: The next question comes from the line of Sandeep Deshpande with JP Morgan. Please go ahead.
Sandeep Deshpande: I have two questions. Firstly, this is the first quarter that we are seeing since the whole COVID period that you are seeing a year-on-year decline in terms of your guidance, in the fourth quarter. How do you see this progressing? Clearly, you have seen this softness in the industrial space. First quarter is typically also a seasonally weak quarter for you. How do you see this progress on a quarter-to-quarter basis in the first and second quarter? Will you go back to growth in the first or second quarter of the year on a year-on-year basis? And then my second question is regarding the mix of the product into next year, et cetera, really. Now, you have lost some business in personal electronics and maybe that goes up a little as you said, but automotive will be a larger part of the suite.
Will the mix overall help the gross margin into next year? Or is it that the underutilization charges continue and so that the gross margin is more going to be driven by underutilization charges rather than product mix?
Jean-Marc Chery: Thank you, Sandeep for your question. So for next year, well, I repeat what we see. Again, for the visibility is very clear again on automotive and where we will grow next year. On the every quarter, we will grow year-on-year, I have to say. On guest customers per value is exactly the same. And I repeat, with our strategic accounts, so whatever are related to personal electronics, but also to communication equipment and where we have the all this important program. So, we have the full visibility and again, on personal electronics like-for-like, we should grow. Communication equipment and computer peripheral, now here, I have to say that next year would be a transition year, because we will shrink also step after step of our legacy activity.
Well, we want to be no more present. It is basically enterprise communication, but we will accelerate with our one cash customer program with the SpaceX Starlink and the other opportunity we won. Well, the important question is mass market distribution and industrial OEM. Well, you know this market is fragmented. Yes, Q4 is a sign that, again, I repeat, we discussed with customer. They are revisiting and assessing their end demand, because it is related to the overall economy. It is related also to the automotive. Of course, making the sales difference, it could trigger some inventory adjustment and then inventory adjustment. It’s difficult now to assess how long it would last. So this is what I can say. That’s the reason why I say very candidly that Q4 order intake for industry or mass market will be very key to understand the dynamics.
So this is what I can say at this moment.
Sandeep Deshpande: And with the question on the group?
Marco Cassis: Well, the mix, I think, somehow Jean-Marc was answering, giving us some color. Of course, let’s say, no doubt that, when we look at the industrial market for us is very accretive. So it means that depending on the way that this will evolve will of course being positive for our gross margin in respect to what is now in Q4. In respect to Personal Electronics, well, yes, actually, we have not lost anything here. Reality is a change of the architecture and which we are present, so it means that at the end, we have not any longer the optical module, but we have silicon inside. For us, it’s positive in term of gross margin mix. Let’s put it this way, not in the revenues, of course, because the ASP is different. But definitely in term of the gross margin, it’s positive.
Operator: Next question come from the line of Aleksander Peterc with Societe Generale. Please go ahead.
