Krish Sankar: Got it. Very helpful. And then as a follow-up, just kind of curious, you mentioned the cloud inventory digestion. And you also mentioned that for HDD in March, the cloud business stabilized. So curious on the NAND side or even HDD side, when do you expect this digestion to bottom? And then when you think things start improving from a demand standpoint or maybe your own inventory standpoint. Thank you.
David Goeckeler: Yes. That’s a very difficult question given how dynamic the market is. I mean I think we’re coming off of a very strong quarter of bit growth, 20% sequential bit growth in our FQ2 was a good result. Obviously, it’s a very challenging pricing environment. Going into our fiscal third quarter, we see a drop in both bits and pricing. So that’s a pretty significant impact on the business. And then current forecast is going into our fiscal Q4, we see the volume pick back up. So that’s a little bit a little bit of how we see the dynamics. The pricing environment will change as supply and demand come more into balance. And we’re doing everything we can to manage our supply situation, demand balance so that we keep our inventory situation under control, very important in this kind of cycle.
And we’ll continue to be very dynamic of how we manage it. It literally changes week over week. And again, one of the things I’m very happy about what we’ve built in the organization over the last several years is a tremendous amount of agility in the organization to react. It’s important that we react faster than the market is moving. Otherwise, we just get carried along with the market. And I think we’re doing a good job with that to get the best result we can out of a difficult market and prepare ourselves from a technology and portfolio position that when things get more in balance and we get to the inevitable upturn that we’re very, very well positioned, and we feel good about that from Flash technology. I talked about BiCS8. Again, we’ll talk more about that throughout the quarter.
I think you’re going to be impressed about the innovation that’s in that. I certainly was and also about where we’re at in the product portfolio.
Operator: And our next question will come from Wamsi Mohan with Bank of America. Please go ahead.
Wamsi Mohan: Thank you. If I could just follow up on your comment on underutilization charges will be minimal in HDDs in fiscal 4Q. What’s giving you the confidence there that this inventory digestion and particularly in the high cap price will largely be done? I know you’re coming off low levels, but it also seems like some of the broader cloud customers are starting to tick down as well in terms of their own demand. So, any color you can share on what you’re seeing in the market that’s giving you the confidence that those underutilization charges will go away in HDDs by fiscal 4Q. And I have a follow-up.
Wissam Jabre: Well, let me start with the answer, Wamsi. When we look at our inventory exiting the fourth quarter, our inventory appears to be in a better position than our peers. And so obviously, when we consider the utilization and where the demand is and the improvement in demand over time on the HDD side, that’s really what drove my comment. And so, based on what we see today, this is how we anticipate things to unfold.
Wamsi Mohan: Ok, thanks Wissam. And Dave, you noted in your prepared remarks a lot of different things that you’re doing all the things that are kind of under your control, right, negotiating covenants, cutting costs, lowering CapEx, OpEx. And despite all of these, you are sort of doing these converts. So maybe you can just talk about why this incremental liquidity is needed as your view on the market changed materially or your share assumptions changed materially? Or is this more of a strategic investment and just optionality? Just — maybe any color you can share around that would be helpful.
David Goeckeler: Yes. It’s a number of things. So first of all, it is to give us the flexibility to manage through the depths of the downturn. It’s important that we look at — we have a blend of different kind of financing, both debt and equity. We can’t just take all debt. We’ve got to watch our debt to equity our EBITDA to debt ratios and make sure we manage it all as one package. And I think so that’s part of it. A big part of it is kind of facilitating the execution of our strategic review. These. You’ll see in the 8-Ks that are filed. These agreements are very complicated and they’re very well thought through to give us the ability to execute a range of outcomes and make sure that we can be in a good position as we move to that stage of the process of not putting a time line on that, but these are set up in a way that give us a lot of optionality and flexibility to facilitate that outcome.
And then third thing it brings additional capability to our company. Reed Raymond is a very sophisticated technology investor that will join our Board. Elliott will have the right to join our Board under an amended letter agreement with them when they clear some issues at their choice. So, it brings a lot of capability to us as well. So, we feel good about people investing in the business about the opportunity to do this, and it puts us in a very strong position to continue to execute the business, invest in innovation as well as set ourselves up for the next phase of our strategic review.
Operator: Our next question will come from Shannon Cross with Credit Suisse. Please go ahead.
Shannon Cross: Thank you very much. I have a follow-up to the last question and then an additional question. I just want to — should we assume that you’re not going to initially draw down the term loan that you have and that’s kind of an insurance policy? And how should we — I’m just trying to figure out interest expense on that. And then I have a follow-up.
Wissam Jabre: Yes, Shannon. So, the one thing to keep in mind is the — we still have the IRS settlement payment that’s expected to be in the fourth quarter. And so, when the time comes for that, we will make a decision based on what’s the most efficient way to pay. If we don’t need to draw down on our new facility, then we won’t do that because obviously, the additional investment also gives us flexibility and optionality from a liquidity perspective.
Shannon Cross: Okay. Thanks. And then I’m curious, what changes are you looking at to get down to OpEx at about $600 million a quarter just as you look across your cost basis? Thank you.
Wissam Jabre: Yes. So, when you look at where we ended the December quarter, we were down versus also the September quarter, which was also down versus the previous quarter. So, in other words, from the beginning of the fiscal year until now, we’ve taken down approximately $100 million. And we guided to be $600 million to $620 million. We continue to take similar actions going through the typical focusing on exiting or reducing all sorts of discretionary expenses. But more importantly, we’re basically focusing on maintaining the critical R&D investments so that we continue to invest in our technology and drive the long-term growth. So more of a similar type of actions as we’ve taken so far. And that should get us close to the $600 million and below that by the end of the fourth quarter.
Operator: Our next question will come from Tom O’Malley with Barclays. Please go ahead.
Thomas O’Malley: Hi guys. Thanks for taking my question. My question is on the preferred equity convert. We’ve seen different companies handle them from a dilution perspective where sometimes even out of the money, you’ll see them come into the non-GAAP share count. Can you just talk about what you’re expecting from dilution there and how you’re handling that and the guidance given I really don’t see shares getting moved around at all? Thank you.
Wissam Jabre: So, Tom, maybe I’ll start with the latter part of your question. as we’re guiding for a share loss for this quarter, including the dilution of the preferred — the convert would be anti-dilutive. And so that’s why you don’t see them reflected in the share count. However, as we swing to a profit, I would expect us to include them as part of our fully diluted share count. So, they’ll have some limited dilution impact.
Thomas O’Malley: Helpful. And then just on the recovery side into the fourth quarter on some of the bit shipments or the can you just — are you just thinking that it will inflect higher? Or are you expecting a material step-up because you outperformed your peers in the December quarter with the growth you saw there. You’re obviously expecting a step down in March. But just talk about the cadence. Is it an extreme step down in March with a small step up? Any kind of color on how you’re looking at that forecast given you’re giving some color there.
