Mehdi Hosseini: So, Charles, I just want to understand, would the mix of revenue from OEM and large data center decline again in the March quarter?
Charles Liang: Yes. I would say. Yes.
Mehdi Hosseini: And then, I also want to understand how you see the ramp of these three different CPUs. You have always — you’ve historically been a close partner of Intel, AMD and NVIDIA. How long in advance do you actually procure those components in advance of building the boxes? How much of the inventory commitment or working capital commitment do you have to make before the actual high volume manufacturing takes place?
Charles Liang: Indeed we have a very close partnership with all of our vendors. So, in this area, I believe we are similar to the industry standard or slightly better. David, you may
David Weigand: Yes. Many things have improved recently, as you know, on the supply chain side. So, we used to procure further in advance. And so one of the reasons our inventories have come down, one of the reasons our cash flows have been — have increased. And by the way, we had net income the last two quarters of $360 million, we had free cash flow of $454 million. And so, again, the reason for that is we had to invest less money in inventory. So, our ability to produce products is faster now, because we can buy later in the cycle. But to your point on the timing, some of it’s going to be dependent on when in the quarter our customers are taking the bulk of their products. So, if we have early quarter shipments versus late quarter shipments, that can affect the timing of our inventory and accounts payable.
Mehdi Hosseini: And then one last question for me on the balance sheet, especially with the Malaysia facility coming on line, are you still targeting, like a $45 million of CapEx for fiscal year €˜23, or more or less?
David Weigand: Yes, so, fair question. So, we’re going to add in — for Q3, we’re adding a $4 million of CapEx for Malaysia, and we’ll add $9 million in our Q4, for Malaysia. So that’ll be $13 million for our fiscal second half. And then, this is going to be an investment over a couple — over several years. And so, we’ll make another $13 million in the first half of fiscal €˜24. So, that’s not — that’s given you a little more insight on that investment.
Mehdi Hosseini: Should I assume that just the maintenance CapEx out to the Malaysia is what, $8 million to $10 million a quarter?
David Weigand: Yes, that’s correct. So, your question, yes, you can maintain the 45 and just add in the figures that I just gave you.
Operator: Our final question comes from the Nehal Chokshi with Northland Capital Markets.
Nehal Chokshi: Great, thanks. I get to leadoff and cleanup, awesome. So, relative to seasonal patterns, and excluding the 21.9% customer from the September quarter, how did the business actually perform in the December quarter then?
David Weigand: So, the December quarter was an outstanding quarter on in every respect. And so from free cash flow, inventory, all the metrics were strong, cash position. So, as you mentioned, customer — no customer concentration. And so, we feel we had a really good — a really great quarter.
Nehal Chokshi: I mean, my interpretation here is that the core business excluding that 120%-plus customer from the September quarter was up more than seasonal. Is that a correct interpretation?
David Weigand: Well, we always have customers that will take — when we have design wins, Nehal, we’ll always — from quarter-to-quarter, we’ll always have shipments — large shipments to customers. Sometimes it’s according — sometimes they change their forecast, and we ship a little bit more in one quarter than another. So, we can’t control that always. But as we said, as the supply chain has improved, that was — that dynamic was felt a lot harder during the supply chain crunch. Now that we’ve returned to a better supply chain, therefore, that’s why we feel we’ll return to more normal seasonality. But that can always be altered by a new design win that we get in one quarter or over two quarters.
Charles Liang: Yes. Basically, in €˜22, we had some larger accounts, but in fiscal year €˜23, now we are adding more larger accounts. So we are growing in more largely accounts and more midsize accounts, and also B2B, B2C. So, indeed, our customer mix is becoming much more diversified, much more healthier, and for sure the volume will be bigger. That’s why we extend to Malaysia for really lower cost operation and campus.
Nehal Chokshi: Presumably, just diversification with the larger customers is coming on the higher margin plug and play rack-scale products. Is that correct?
Charles Liang: We hope so. So anyway, that’s — we feel we still have a lot of room to add more customers. And once we have a higher capacity in USA, Taiwan, Malaysia, our plan is to add a lot of more customers.
Nehal Chokshi: And then, is there a particular vertical that you guys are seeing the pushups from that — that you were talking about for the quarter?
Charles Liang: Data center. Right.
Nehal Chokshi: The Push-outs were not in data — large data center?
David Weigand: Well, he was saying that they were in large data center, but so
Charles Liang: In the large data centers?
David Weigand: Yes.
Charles Liang: Okay. All right. Very good. And then for the March quarter, you’re guiding to an 18% Q-over-Q decline in revenue. There’s clearly obviously some seasonality with March quarter. Then there might be, I guess, ongoing push outs from the large data center customers and then there’s also a macro element. Are these the three major elements that are driving the 18% Q-over-Q decline? And then could you potentially help parse out what are rank order of these three drivers here?
David Weigand: So Nehal, if you look back pre-COVID, our typical Q3 decline was 12%. Okay. So, that was during the time of normal seasonal patterns. During COVID, there was a different dynamic of course, because our supply was scarce. But we think as we return to normalized supply that we will have this kind of seasonality.
Nehal Chokshi: Okay. And then, as far as the potential runoff of the large customer versus macro, any input as far as what’s the driver there, as far as the above the 12% typical Q-over-Q decline?
David Weigand: Well, we’re engaging with new customers all the time. And so, we’re not looking to be declining, and in fact, just the opposite. So, while we will have some seasonality as in a stable supply chain, we still have our growth plans that are intact and that we remain confident in.
Nehal Chokshi: And then my last question here is, did I hear correctly that there’s a new buyback that was implemented, something about $200 million buyback? Can you just clarify that?
David Weigand: No, that’s the existing, already approved buyback.
