Operator: Please standby for our next question. Our next question comes from Harlan Sur with JPMorgan. Your line is now open.
Harlan Sur: Yes, good morning and congratulations on the solid execution. Your manufacturing lead times are quite long where do you guys have to start wafers about quarter ahead of target shipments? So I believe the team has pretty good visibility already into Q2. You gave us the puts and takes in the various segments, which is consistent right with your customers’ demand profile. So if you put it all together, does the team still think a trough in total revenues this quarter or first half of the year is the most likely scenario? And does the team still believe that they can grow revenues this calendar year?
Dave Reeder: Yes. Good morning, Harlan. Maybe I’ll start that one, Tom. And then if you have anything to on — you can build at the end. And look, we do believe that first half is the trough. From a revenue perspective, we think it’s most likely first quarter, but certainly from a first half perspective, we believe that, that is the bottom. Based upon what our customers are telling us based upon our LTAs and based upon I think what you all are seeing broadly in the industry most of the industry is currently forecasting a recovery in the second half of this year. We’ve mentioned previously and we still stick with that guidance that we believe ASPs will be up modestly on a year-over-year basis. So really if you’re looking at growth for the year, it’s really predicated upon that volume and it’s predicated upon a second half recovery, which right now is what we’re currently expecting. Tom, is there anything you’d add to that?
Tom Caulfield: No, I would just reinforce that we’re — not smarter than everybody else. What our customers are telling us what we’re seeing in the industry and that’s worth winning.
Harlan Sur: Great. Thank you for that. And obviously, it’s a tough and uncertain environment. But for the things that the team can control, right, process development, innovation, stronger customer engagements, manufacturing optimization. Is there a strategy in place to try and emerge from this downturn in a much stronger position and try to accelerate the move to or exceed your 40% gross margin target?
Dave Reeder: There is Harlan. We outlined, I would like to thank, a pretty comprehensive bridge both during the IPO Roadshow, as well as Capital Markets Day, that bridge to how we get to our long-term financial model, which includes 40% gross margin. I would actually say that kind of like to-date, we’ve been ahead of that model, slightly ahead of that model where we expect it to be. We feel like we’ve made great progress and strides against it. We feel like we still have line of sight to achieve that model. To be able to achieve that model, we’ve been adding capacity, right? So in 2020, we said we had about 2 million wafers of capacity, 2021 we built that up to about 2.4 million wafers, in 2022 about 2.6 million wafers of capacity.
On the CapEx that we’re deploying this year, we’ll have about 2.8 million wafers of capacity and still on track even with reduced CapEx still on track. To more than 3 million wafers of capacity in 2024. So as the industry works its way through a little bit of macroeconomic uncertainty and a little bit of inventory burn here in the first-half of the year. We start to get that utilization and absorption up. We feel like we’re on a very good path towards those gross margin numbers that we’ve outlined in some pretty clear detail.
Harlan Sur: Well, perfect. Thank you.
Operator: Please standby for our next question. Our next question comes from Vivek Arya with Bank of America. Your line is now open.
Vivek Arya: Thanks for taking my question. First one on gross margins, so the Q1 outlook 28% about 150 basis points above their expectations? Or I was wondering, Dave, if you could give us some of the puts and takes? And from what you’re describing, seems Q2 revenue could be kind of at least flattish? And then if that is a scenario, then can gross margins continue to go up? Or is there anything on the utilization side or anything else that we should keep in mind to think of a gross margin trajectory for this year?
Dave Reeder: Sure. Good morning, Vivek. I think when you think about gross margin, you obviously think about two big elements. One is ASP, which as we mentioned, we believe €˜23 will have modest ASP growth over 2022. And then the second element is really what you touched upon, which is utilization. So in the fourth quarter, utilization was in the mid-90s. For first quarter, we believe utilization is going to be, call it, the mid-ish-80s to perhaps the high-80s from a utilization perspective. And we previously talked about how every — about every 5 points utilization was about 2 points of gross margin from a mathematical perspective, that’s without necessarily taking a lot of actions. So I think sequentially what you’re seeing is you’re seeing us move from about 30% gross margin in the fourth quarter moving to a midpoint in the first quarter of about 28%.
And so what you’re seeing from us is you’re seeing us actually make progress towards that gross margin bridge, but obviously it’s being offset a little bit based upon the utilization. So as utilizations improve throughout the year and as we mentioned, we think first half is the bottom, then we believe that, that will be the driver for increased gross margin will be that utilization figure in that absorption. Did you have a follow-up?
Vivek Arya: Yes, thanks. Second question is just in the premium smartphone segment, what’s your view of how much of your customers’ component inventory is in the premium smartphone segment. Do you think Q1 is where it kind of clears out? Or do you think there could be a little bit that persists into Q2 and then there is a seasonal back half assumption? Just curious, if specifically in the premium smartphone segment, do you think we get to a supply demand balance exiting Q1? Or it could take until Q2 for that to happen?
Dave Reeder: I think if you were to maybe be a little bit more granular and look at it perhaps a bit on a monthly basis, we think some of that inventory starts to get cleared out towards the end of first quarter, so call it in the March period and maybe it rolls over a little bit into the second quarter, maybe April, perhaps even May, specifically for the high -end of smartphones. So ultimately, it depends on what’s the sellout or the sell through demand, but we do believe that, that inventory starts to clear out of the channel in a more meaningful way towards the end of the first quarter and perhaps rolling over into the second quarter.
Vivek Arya: Thank you.
