We don’t guide 2Q, but just to give you a sense there, when you look at 2Q, it’s probably best to compare that to the 4Q, which was a like 13 to 13-week comparison. And when you are looking at 4Q ‘23 versus 2Q ‘24, given some of the structural modest reductions we had made, we would expect OpEx in 2Q to be down a few percent from the 4Q operating levels, so I hope that helps.
Stacy Rasgon: That’s helpful. Thank you so much guys.
Michael Lucarelli: Thanks Stacy. I always appreciate your two-part and one-part question. With that, next question, please.
Operator: [Operator Instructions] Our next question comes from Chris Danely with Citi. Your line is open.
Chris Danely: Hey. Thanks. Just a question on industrial, historically this has been a pretty strong sector for you guys, but it seems like it’s – the revenue decline in industrial is worse than the overall company. Can you just talk about why that is and maybe broader speaking, are the bookings or the revenue falling more because the macro is worse than expected, or the inventory situation out there is just worse than you guys thought? And do you think you will be able to hold that 70% gross margin floor for the fiscal ‘24? Thanks.
Vincent Roche: Yes. Thanks Chris. So, yes look, we have come off a record year for ADI and for the industrial sector. But I would say in the second half of ‘23, we began to see momentum slow on the order side of things. And in the fourth quarter, it’s true to say that weakness in the industrial sector broadened and hit all the various market segments with one exception, the aerospace and defense area. And I think when we look into 2024, given the weaker macro backdrop, and we expect the inventory digestion to continue through the first half particularly at the broad market customers who are suffering most here. So, I think, as Jim said, when we talk about gross margins, the weaker industrial over the first half of the year, that weaker mix, if you like, will impact the gross margins.
And for the trough periods here, we are thinking kind of 68%, 69% as reasonable assumptions for gross margin in that period of time. So, it really is, at this point, it’s an adjustment of inventories at our customers and how fast we experience the recovery will determine on the macro. But again, I think it’s true to say, during the first half of this year, we do expect to get this overhang of inventory behind us and get back to a more normalized growth pattern in the second half of the year. Jim, do you want to take a comment?
Jim Mollica: Yes. Chris, I think just a couple of points there. Vince talked about at the trough revenue, gross margins in the 68% to 69% range, gross margins at 70% for the year, I think that was the first part of your question as well. A lot of that will depend upon when the demand comes back in terms of – so we don’t really guide for the year, but that’s probably dependent upon revenue coming back to a more normal level. Let me just add a few points, though. We are – utilization levels basically brought them down in 4Q, we are going to bring them down again in 1Q. You see the inventory reduction of $70 million in 4Q, which was a little bit better than I think we guided last quarter, you are going to expect that inventory to be reduced at a similar level in 1Q and again in 2Q.
And what we are also doing now is we are activating our hybrid manufacturing strategy. So, we are actually swinging wafers from external back in-house, which moderates the factory load, which gives a little bit of a cushion on that gross margin side as well. So, just a little bit more color as what you can expect for us in the second quarter here.
Chris Danely: Thanks a lot guys.
Michael Lucarelli: Thanks Jim. With that, next question.
Operator: [Operator Instructions] Our next question comes from Tore Svanberg with Stifel. Your line is open.
Tore Svanberg: Yes. Thank you and congratulations on the results in this tough environment. I had a question about CapEx. So, one of your competitors talk about this geopolitical dependable capacity that they are investing in. You are going showed the complete other the way, you are reducing CapEx a lot for this year. Help us understand a little bit what your partners are doing – your founder partners are doing for you to sort of feel comfortable that you don’t have to spend as much in CapEx going forward? Thank you.
Jim Mollica: Thanks Tore. Why don’t we take that in, so I will start.
Vincent Roche: I will sort of add some color.
Jim Mollica: Yes. So let me just – let me pause and take a step back on CapEx for a second. So, at our Investor Day, we outlined basically elevated CapEx in the high-single digit range for 2022 and 2023. And then long-term, that would actually trend back down to mid-single digits. As I have said, this past year, CapEx was about $1.2 billion on a gross basis, which is about 10% of sales, which was a bit higher basically due to the revenue fall off that we saw in the second half of the year. This year, as I have said, we are basically slowing our capacity expansion and our CapEx, given kind of the short-term demand that we are actually seeing there. So, from a CapEx viewpoint, we are going to expect that to drop by about $500 million in our FY ‘24.
