Operator: Our next question comes from David Vogt of UBS. David, your line is now open. Please go ahead.
David Vogt: Great. Thanks guys for taking my question. So two, if I may. So can you maybe just touch on the demand signals that you’re seeing out there, a little bit more robustly in terms of maybe what you’re hearing from customers versus the backlog signals that you’re hearing? How much of the weakness is macro related, do you think, versus some continued normalization of backlog? I know you mentioned net comp sounds like it’s back at normal historical levels with public as well. But I just want a little bit more color there. And then when you think about calendar 2024, and maybe go back to Sam’s point, it certainly sounds like some of your related companies in your ecosystem are talking a little bit more robustly about demand, particularly in, let’s say, PC clients. I’m just trying to get a sense for maybe what the disconnect is from a timing perspective, maybe a Windows 11 refresh perspective. Just any more color there would be incredibly helpful. Thank you.
Al Miralles: Yeah, sure. Good morning David, it’s Al. I’ll start. Overall, I’ll just break it down a bit by segment. So look, as Chris suggested in Q2 what we were seeing from customers might have suggested that with a bit more clarity in the economic environment that things would pick up. And again, we noted that we would have anticipated that would be more IT hardware and PC. That has not played out, and we have seen this really sentiment-driven environment has driven buying behavior. So on the commercial side, corporate and small business, we would say stable but not showing a pickup. With respect to our public business, first, they’ve executed exceptionally well, but I would say pretty much in line with expected seasonality.
And then maybe lastly, I would just note in the international markets, we anticipated that you would see some moderation on the demand side in Q3 and our expectations for Q4 I would say that’s worse than expected. And we would call it as maybe a few quarters behind what we’ve seen in the demand market in the US. So there are a couple of the puts and takes in terms of the demand environment, what we saw in Q3 as well as Q4. And then, David, just to your point on backlog, as Chris suggested in her prepared remarks, our backlog is nearing normalization. Maybe the lagging piece would be more networking, but we’re getting close to what we’d call normalization. So no significant impact as we sit here now.
Chris Leahy: On the PC side, the question you asked about a potential “discipline” and I’d say a couple of things. I mentioned earlier that we have not seen picking up in activity around client devices. And as we know, that’s the last place that our customers start to spend again once they’re feeling better about the business market. But what I would say is, we are certainly closer to the end of a downside than we are to the beginning. So that’s quite clear. The other point I would make is that consumer tends to react earlier to market changes than the commercial business. So when you see a bit of a lag in terms of what we are suggesting versus what you might see from OEMs, et cetera, Part of that is who is doing the buying. The second is the timing of the market in terms of the kind of flush of inventory into the channel from the OEMs and distributors and then us to the end market. So that will account for a quarter or two of differences.
Operator: Our next question comes from Amit Daryanani from Evercore ISI. Amit, your line is now open. Please go ahead.
Amit Daryanani: Good morning, everyone. I have two as well. You suppose to — Chris, there’s been some degree of chaos at the federal level from a budget perspective. It sounds like September quarter went relatively fine for you folks. But there’s a Spotify day extension that I believe, expires in a couple of weeks. How are you thinking about federal spending in the December quarter and just the with from this extended shutdown potentially?
Chris Leahy: Yeah. Amit, look, I guess I’d say it this way, we’ve been here so many times before. The team knows how to manage through both the uncertainty. And if we do have a shutdown, have to manage through that, we’re past the year-end, which is good. I would say that, projects that are in-flight already will stay in flight. There might be some projects that are in flight that might be on hold. I’d say that’s really we’re looking at 2024. But the good news is we have a team that has executed in and out of these — these environments, I guess, sadly, in some regards, but in these environments many, many times, and I have great confidence they’ll do a terrific job this time as well.
Amit Daryanani: Fair enough. And then if I could just maybe follow-up. If I think about the operating margin performance of the company in calendar based on the midpoint of your guys in December, it’s going to be up like, I don’t know, 80, 90 basis points year-over-year on the operating margin side. And there’s obviously a bunch of levers over here. Some of it is cyclical client devices not being well some of it is secular. But how do you think about what’s the durability of these operating margins as you go forward? And if you reflect on the tailwinds in calendar 2023, how would you say is cyclical that perhaps is not sustained into the out years? Thank you.
Al Miralles: Sure, Amit. Thanks for the question. So a couple of things I would note. I think if I kind of parse the pickup we’ve had in our operating margins, a few things. Number one is we benefited from — obviously, really strong gross profit margins up 200 basis points year-over-year. And that is a function of a few things, but I’d say most notably a mix of business. And so a lot of that gross profit margin pickup is dropping down into our operating margins. The other piece, Amit, would be really just our efforts to align our expenses with what we’re seeing in the business and demand vectors and that is our efforts Q1, Q2 along those lines certainly helped. We have kind of a targeted range, and I’ve talked about this before of high 54s into the 55 of expenses relative to GP, and that’s kind of our sweet spot in this environment.
That’s where we’re operating. Now, I’ll just say that is notwithstanding, we continue to invest behind our strategy, but at the same time, we have significant efforts to drive productivity, efficiency, kind of, managing our expenses commensurate with where we stand in. So they are the major components that are driving our operating margins. So Amit, I would just maybe just say that in terms of durability, you can expect we’re going to continue on the efficiency front while we invest the impacts or influence of gross margin. Certainly, the netted down growth is going to continue to help that in that regard. But as we mix more into transactional products and PC start to come back, you could have some dilution effect there. So we certainly have moved quickly on the operating margin.
Some of that ultimately could see giving back, but you’re going to see different geography in our income statement as it plays out.
Operator: Our next question comes from Matt Sheerin of Stifel. Matt, your line is now open. Please go ahead.
