Neil Dougherty: Yes. Hi, Thanks, Samik. Yes, so as you think about orders, obviously, through the first quarters of this year, we’ve been able to run revenues at a level that was materially higher than the incoming order rate as we work through some of the backlog that we built up over the COVID period of time and then the supply-chain disruptions of the last 12 to 18 months. And as we look-forward, we’ve seen this degradation in the demand environment this quarter that is going to put some pressure on orders as we move into Q4 and likely into Q1. And so, our ability to continue to drive revenue based on backlog is becoming incrementally challenging, right? We’ve burnt about $300 million — burnt through about $300 million of backlog so far this year, that’s the rate at which revenues have outpaced orders.
And then I talk about this change in mix towards longer-dated system, so it is a small portion of our business, which we haven’t talked about much because it’s been consistently less than 5% where we’re working on larger-scale strategic programs that are delivered over an extended period of time to our customers. And we view it as very positive that our customers are continuing to invest in those kinds of projects, that portion of our business was roughly 2% of orders through three quarters last year, it’s about 8% of orders through three quarters this year. And what that essentially means is an addition to the $300 million we — a backlog we burnt, we’ve taken another $200 million of short-dated backlog and turned it into long-dated backlog.
And so, as you think about our guidance for Q4, it’s essentially built on the scheduled backlog that we have set to deliver into the — into next quarter, and our own view of orders for the coming quarter and our ability to turn a portion of those orders into revenue within Q4.
Satish Dhanasekaran: Yes. Samik, I think just to add to what Neil said, this $200 million that Neil referenced roughly, these are high-quality customers making long-range commitments, further validating our strategy with them. And these are — you can think of them as large aerospace defense companies that are looking towards — looking to us to provide more comprehensive solutions and systems. And in the automotive application, especially with regard to EV and AV, we’re offering total solutions, including power management and software for workflow automation and all of those take time for us to complete those projects in tandem with their bring-ups of their gigafactory. So they’re highly coordinated, highly strategic to the customers. And I view this as giving us a further penetration with new applications supporting our long-term growth rate.
Samik Chatterjee: Got it. Thank you. Thanks for taking my questions.
Satish Dhanasekaran: Thank you, Samik.
Operator: Our next question is from Mehdi Hosseini with SIG. Your line is now open.
Mehdi Hosseini: Yes. Thanks for taking my question. And two for me. Just as a follow-up to your commentary to the prior question. I just wanted to get a better understanding, especially in terms of backlog normalization, it’s good to hear of strategic orders longer-term and the inherent business is also driven by some of the R&D projects. And in that context, should we assume that backlog normalization is into full gear? And then your backlog could remain in a level that would start with a two-zip code? And I’m not asking for order guide, but I just want to better understand how you see the post-COVID normalization of backlog is trending against some of the pluses and minuses in various parts of the business. And I have a follow-up.
Neil Dougherty: Yeah, Mehdi, I think that’s largely correct, right. I’ve talked over the past year about the fact that we felt like we had built — excuse me $400 million to $500 million what I call abnormal backlog. And as I just stated, we burnt through $300 million of that through three quarters of this year and then we’ve essentially converted another $200 million of essentially short-dated turns backlog into backlog for these long-dated programs. So I view that we’ve materially worked through that abnormal backlog at this point and I don’t think it’s unrealistic to assume that in this environment our kind of normalized backlog level will have a two handle on it.
Satish Dhanasekaran: I also thank Mehdi to the point I think you’re alluding to is software and services, we continue to be stronger even in this environment for us, again reflecting the strength of our customer relationships. And so the deferred balance is also a factor that is elevated that leads to the two zip-code calculation you have.
Mehdi Hosseini: Okay, great. And my follow-up has to do with the semi-mix. I think you mentioned that the semi-bookings or new orders were weak in the quarter. Is that due to the delayed ramp of tape-outs for 3 nanometers? And if that’s the case, should we assume a rebound in semi-related orders as we start with the new fiscal year, fiscal year 2024?
