Harlan Sur: Okay, Perfect. And then, yeah, from a geographical perspective, China headquarters shipment still about 20% of your sales through the October quarter of last year. This geography has experienced the most significant decline during this downturn. It’s down about 33% year-to-date up through Q3 of last year, your total business was down 13%, right? Is this geography continuing to contribute to the weakness stepping into this year, or is the weakness more U.S. and European-based?
Dave Pahl: Yes, I would say when you look regionally this quarter from a — just from a dollar standpoint you’ve got sequentially all the regions were down with the exception of the rest of Asia. So nothing unusual with China going on specifically there overall. So again, when we look at our business, I think most of that is explained by the end markets and certainly, we hadn’t seen a recovery inside of China that I think most of us were expecting.
Harlan Sur: Okay. Thank you, Dave.
Dave Pahl: Go to the next caller, please.
Operator: Our next question comes from the line of Joshua Buchalter with TD Cowen & Company. Please proceed with your question.
Joshua Buchalter: Hey, guys. Thanks for taking my question. I want to ask you about how you’re thinking about OpEx given the extended softness. Any thoughts on getting more defensive with OpEx? Does the weakness last longer than expected? Or you grew OpEx 8% in 2023. Is that sort of the right level that you think you need to be investing in the business for the long-term growth? Thank you.
Rafael Lizardi: Yes, you know, big picture. We have a disciplined process of allocating capital to R&D and SG&A to the best opportunities. And we’ve held a steady hand throughout a number of years, pre-pandemic, during the pandemic, post-pandemic, where we managed OpEx very well during that time and didn’t get ahead of our skis. So we will continue with that discipline process. Remember, of course, these investments, particularly industrial automotive, which is what we’re biased in, are investments. They’re very long-term in nature. You’re not going to — what you save now is going to would hurt your long-term revenue growth so we’re not going to do that so we’re going to maintain those investments for the long-term.
Dave Pahl: A follow-on Josh.
Joshua Buchalter: Yes, thank you. I guess I wanted to ask about your fixed cost leverage. I mean, you’ve been in the past, you’ve talked about I think 75% gross margin fall through on incremental revenue. Is that still the right metric we should be using given revenues a good amount lower and depreciation is larger? I’d just be curious to hear if anything in the mechanics of that math has changed. And basically when can the incremental 300 millimeter capacity start flowing through the gross margins and be margin accretive? Thank you.
Rafael Lizardi: Yes, so the math is still the same. The fault-through issue used is 70% to 75% that is still a reasonable starting point. You then have to adjust for depreciation, as you alluded to, and our depreciation, I gave you an update on that 90-days ago, but I’ll reinforce that in a second, but you have to adjust for that. And then there are always put some takes on any given quarter, like right now it’s underutilization, but at some point that goes the other way. Throughout this time, as you pointed out, we will continue to benefit increasingly from 300 millimeter, more 300 millimeter wafers, which have a cost advantage. So, let me go back to the appreciation just to make sure everybody has the right number. It’s the same as what I said 90 days ago. For 2024, expect $1.5 billion to $1.8 billion and for 2025, expect $2 billion to $2.5 billion.
Dave Pahl: Thank you, Josh. We’ll go to the next caller, please.
Operator: Our next question comes from the line of CJ Muse with Cantor Fitzgerald. Please proceed with your question.
CJ Muse: Good afternoon. Thank you for taking the question. I guess first question, your revenue outlook for March basically gets us back to kind of pre-COVID first-half 2020 levels, yet at the same time your inventory is roughly double. And so curious, how are you thinking about kind of normalized inventory over time? And also, how are you thinking about coming out of the trough, what kind of a gross margin recovery will look like given where your inventory levels are today?
Rafael Lizardi: So that’s a multi-part question in many angles to that. What I would tell you, high level, we’re very comfortable with our inventory level. Right now we’re just shy of $4 billion as I said earlier on the call. We have continued upward bias for at least one more quarter, probably a couple quarters at least, an upward bias on that. But that is good inventory for catalog parts that sell to many customers that last a long time. So I feel really good about that. But we’ll see how things play out on the other side of the cycle and depending on demand and different things. But I would expect to continue holding relatively high levels of inventory. We just in a different position than we were even three or four years ago in terms of how much of our revenue and our parts are in industrial automotive, in catalog type of parts that last a long time.
So our strategy is such that it makes sense to have that inventory. Our order fulfillment processes have also improved. We have ti.com and different tools that we can leverage to go direct to market. We have a much higher percent of our revenue now 35% is direct. So all those factors play into having more inventory as a real leverage point that we can use to serve our customers even better.
Dave Pahl: A follow-on CJ?
CJ Muse: Thanks, Dave. A quick follow-up to a prior question. I know you can’t share too much, but your application clearly in for the Chips Act. I guess we should hear results between now and the summer. I guess is there anything you can share on that front and perhaps how it’s kind of impacting your thoughts on the capacity you’re bringing online?
Rafael Lizardi: Yeah, no, unfortunately, no, there’s nothing we can share. It’s really up to the Department of Commerce, we sent our application and we’ll see where that goes. What I would say, just like I said before, is when we decided about a year ago to take our CapEx up from $3.5 billion per year to $5 billion per year, and this tremendous plan to build more fabs in the United States, we comprehended Chips grant in that decision. So that was part of our thinking there. But at this point, yes, that’s all we can share on that front.
Dave Pahl: All right. Thank you, CJ. And I think we’ve got time for one more caller, please.
Operator: Our last question comes from the line of Chris Caso with Wolfe Research. Please proceed with your question.
Chris Caso: Yes, thank you. Guys, I just did, just trying to understand a little bit about why the customers may have reacted as they did. Because we know your lead times have normalized well in advance of the rest of the industry. Do you think this is just simply a function of end markets took another leg down here? Do you think perhaps some of your customers were delaying their inventory adjustments until they saw lead times for the rest of the industry come down? Because we know that’s also some of your competitors lagged your lead time normalization. Perhaps that was a factor here?
