Charles Liang: Yes. I mean, as of what I just shared, our utilization rate for U.S. and Taiwan capacity today only about 60%. So when we have a higher utilization rate, our overall cost will be lower, right? So that’s why when we grow revenue, our profitability will increase. And Malaysia, as you know, is a lower cost campus. So once we start production in Malaysia, our cost will be better and profit margin will be slightly improved.
Operator: Our next question comes from Janik Wing with Susquehanna Financial Group. Your line is open.
Mehdi Hosseini: Yes. It’s actually Mehdi Hosseini. Thanks for taking my question. David, your midpoint of the December quarter guide implies 57% year-over-year growth, but operating margin declining by about 100-basis-point. I understand utilization rate is in the 60% range, but as you bring up utilization rate, how should I think about the OpEx and the leverage from here on?
David Weigand: Yeah. So we expect that we will continue to get operating leverage, Mehdi. We were, I think, a little conservative in our guide for OpEx in Q2. So we — and as we were in Q1, and so we came in a little bit lower. We are doing everything we can to do that in Q2 as well. So back to your operating guide question. We came down a little bit on gross margin year-over-year, as you know, but we expect — as Charles mentioned, we expect some gross margin leverage, as well as operating margin leverage as we — as our operating expenses never increase at the rate that our revenues are.
Mehdi Hosseini: Got it. Thank you. And Charles, a big part of your cause is memory and other components. And everything we have heard from memory manufacturers that they are not going to sell at prices that were prevalent just a couple of months ago. So memory prices are going up. And how do you alleviate that inflationary trend to be able to expand margins?
Charles Liang: Thank you. I mean, basically we are able to pass-through our cost to customers. So for that portion, basically we are kind of okay. We won’t be impacted by that. At least it won’t be impacted too much.
Operator: Our next question comes from Jon Tanwanteng with CJS Securities. Your line is open.
Jon Tanwanteng: Hi. Thanks for taking the question, guys, and great quarter and a nice outlook. Just wanted a little more color on the gross margin guidance and outlook. I mean, I assume you are getting better margins and utilization and on your new facilities on the ramp. Are you simply planning to give all that back with the share gain initiatives and the hyperscale mix or is there some input cost component and kind of when should we expect the timeframe for gross margin leverage to really become apparent? Is it only with the new facilities or can that happen a little sooner than that?
David Weigand: Well, it’s a combination, Jon, of — as we ramp revenues up, we are going to get leverage on the gross margin because, as Charles mentioned earlier, we are going to get higher efficiency and factory throughput as we — which will lower costs as we put more through the factories. So we will get some benefit there. We will also get benefit as we transition more manufacturing over to Malaysia and Taiwan. And I think that — so that’s why right now we are, although, very competitive situation, we are maintaining our margin guidance for Q2.
Charles Liang: Yeah. I can add a little bit of some color. I mean, kind of our software business is growing. Our service, including on-site deployment, all those will help our gross margin, our value bridge. So at this moment, we should be on the right track, healthy direction.
Jon Tanwanteng: Got it. Okay. And then just a question on the, I think you said, you are building seven new buildings here in the U.S. I know you are expanding and looking for places to put facilities in North America. Would those all be margin accretive or neutral or negative, just given the higher costs here? How do we think about those facilities and their impact?
