Aaron Rakers: Thank you, David.
Operator: Our next question will come from Joe Moore with Morgan Stanley. Please go ahead.
Joe Moore : Thank you. I just wanted to make sure I understood the mechanics of the underutilization charge. Is that sort of the cost of just higher cost per bit because you’re running underutilized? Or are you — I mean it sounds like you’re pulling some of that forward in time, but maybe not all of it. Can you just talk about what exactly that charge will represent and how that’s going to play out this quarter and next?
Wissam Jabre: Yes. Sure, Joe. I should have clarified when I talked about the underutilization that we don’t necessarily have a similar approach to the accounting for underutilization as some of our peers. For us, the underutilization charges are taken as a period expense. And so, any portion of the factory that’s not being utilized is basically expensed within the quarter. And so, it does not flow through the inventory and back to the P&L, if that helps.
Joe Moore : Okay. It does. I guess, how are you guys thinking about the signals of like when that goes back to full utilization? I mean do you wait for pricing to stabilize? Or is there something you can see beforehand that will tell you and it’s time to kind of keep to move the fab back to full.
David Goeckeler: Yes. Well, we’re always talking to our customers, right? So, we have a very good sense of where they’re at and what the demand signals are going to be. I mean as we talked about, we expect volumes to increase going into our fiscal fourth quarter. So, as we get closer to that and we understand what that looks like we’ll make an incremental decision on when and how to ramp back up the fab.
Joe Moore: Great. Thank you very much.
Operator: And our next question will come from Tim Arcuri with UBS. Please go ahead.
Unidentified Analyst: This is Jason on for Tim from UBS. I have a couple of questions. So, my first question is on your — on the NAND segment. Sorry if I misunderstood, but I believe you said single-digit bit growth for NAND in calendar year ’23. So, I was just curious which end markets are driving this demand weakness this year. Also, I was just curious whether we should expect any potential risk for NAND inventory write-downs in March quarter or June quarter. Thank you.
Wissam Jabre: Yes. So, Jason, my comment was around the supply side. I would say, single digit, let’s call it, high single-digit percentage growth. I didn’t necessarily make any comments on the demand side. On the demand side, it’ll probably be in the low 20% range in calendar ’23 versus calendar ’22. As for the second part of your question, which is related to inventory. Look, we go through the process at the end of every quarter as part of our quarter close. We look at the various demand signals versus the inventory on hand and the costs, et cetera. And we’re comfortable with where we ended at the end of calendar Q4.
Unidentified Analyst: Got it. Thank you. And my second question is, apart from your comment on the utilization charges, do you guys also see any potential additional risk or purchase order cancellation fees for any type of pay agreements you have with your suppliers if it remains weak in the near term? Thank you.
Wissam Jabre: I mean we typically don’t forecast these things and we manage the business in a dynamic way. So, I don’t expect anything major there.
David Goeckeler: Yes. Again, going back to Wissam’s prior comment, that’s part of our normal quarterly close process. And if there were any adjustments that were needed to be made, we would have made them at that time. But of course, you got to remeasure it and take a look at it every quarter.
Operator: And our next question will come from Krish Sankar with Cowen and Company. Please go ahead.
Krish Sankar: Hi, thanks for taking my question. To first one, David, you mentioned nearline HDD could improve. I’m kind of curious how to think about pricing trends for nearline HDD in the March and June quarter? And also think about the nearline exabyte growth in the first half of this year in calendar ’23 overall. And then I had a follow-up.
David Goeckeler: Yes. I mean, I think the pricing environment has been pretty good throughout this whole cycle. I mean any time you’re seeing this kind of underutilization, you’re going to see a little bit of pressure on pricing, which is not surprising, I would say we’re seeing a little bit more. I mean I think as we look at exabyte growth is — I think it’s pretty clear to say it will be stronger in the second half than the first half. I mean we’re going to now ramp back off of this very low in calendar Q4, and we expect growth as we move throughout the calendar year. As we said, we’re anticipating modest revenue growth, maybe low to mid-single digits quarter-over-quarter here going into calendar Q1, our fiscal Q3, we expect margin improvement is, of course, the volume comes back and the underutilization charges drop, and we’ll see that continue as we go throughout the calendar year.
So — but we are coming off of very low levels. I think that exabyte growth in the full calendar year will probably be below 20%, something around that. But again, we got to see how it plays out. We got — we still got big customers going through inventory digestion, some are coming out of it. We’ll know more as we work our way through the calendar quarter. And we also have a very dynamic situation in China. The China market has been very subdued for quite a long time now. I would say there are some signs of things getting better. We’ll see after we get past the new year, how that progresses. But that could be that — depending on how that comes back, will have an impact as well, of course.
