Harsh Kumar : I guess it’s been a while since you guys have seen a revenue decline on a sequential basis. There’s a lot of things going on in the marketplace, the strike, the China economy, you talked about a European. I guess, Hassane, I’d be curious if you could give us a sense of magnitude. You don’t have to give us numbers, obviously, but just some color on what are some of the bigger factors and what are some of the smaller factors? And I do have one more.
Hassane El-Khoury: Sure. I mean at a high level, it’s end demand, if you think about it, and end demand is driven by — you can call it two things. One is the financial, which is the higher interest rates that have been with us, and now they’re taking a toll on end demand. But also, in all honesty, the uncertainty, the macro uncertainty that as consumers, people are starting to feel. Between these two, we look at it and we look at the inventory levels across the board. We look at inventory levels internally that we have. And we’ve — you’ve always seen us operating with a very proactive approach. So our decisions and our outlook is driven by that cautious outlook on what we can control, which is our execution. That talks about taking our utilization down because we don’t want to bridge it by keep building inventory.
You’ve seen us take down a lot more on the channel, which sets us up very nicely should that turn the other way. So all of these are proactive decisions that we have taken in the short term but set us up much better in the long run.
Harsh Kumar : Got it. So it sounds like it’s pretty broad. And then I did miss — I think Ross asked earlier about silicon carbide. It was one customer-driven. I did miss that in the commentary. Could you just confirm if it’s mostly one customer-driven? Are you seeing kind of broad-based weakness — in answer to my earlier question, is that broad-based weakness also prevalent in EVs overall with other guys? And is this also tied to your European commentary, the EV side and the European other one, the same problem?
Hassane El-Khoury: Look, I think from an automotive, I would say it’s a broader stroke as far as the inventory comment I made specifically with Tier 1s in Europe. As far as the EV, yes, it is a single customer. I wouldn’t say it is broad as far as in this immediate quarter. But we still expect it to grow in Q4. So it is not a — I don’t want to paint it as any decline or any issue in demand for EVs. EV demand is going to grow. It’s going to grow in the fourth quarter, and it’s going to grow in 2024. It just didn’t grow as much as we expected it to. And that’s demand-driven. Whether it’s short-term demand or anything different, we’ll have to wait until we get closer to ’24.
Thad Trent : Just to be clear. On the silicon carbide, the expectation of being over $800 million, the impact there is one customer. It’s the recent demand softness at one customer.
Operator: [Operator Instructions] Our next question comes from Gary Mobley with Wells Fargo Securities.
Gary Mobley : Hassane, I want to pin you down on your market forecast for silicon carbide for next year to really get an insight into what your expectations are. I know you cited in your footnotes of your presentation today, a lot of Yole forecast, and Yole is forecasting roughly 43% growth in silicon carbide for next year. So are you expecting to grow your silicon carbide revenue 80% next year? Is that the proper read here?
Hassane El-Khoury: Well, it depends on what the Yole is. But yes, we are expecting a 2x market.
Gary Mobley : Okay. And with respect to distribution inventory, you’ve been running your distribution inventory below the long-term targets purposefully, I read here. What are the triggers and dashboard metrics that you’re looking at before you start to take up that distribution inventory back up to a normal level? Is it just as simple as seeing better sell-through?
Hassane El-Khoury: It’s more — yes, it’s seeing sell-through in the mix that we are expecting. So we have — look, there’s no one KPI. Thad and I look at about 30 pages of KPIs that try to triangulate the health of the business and the sell-through because what we don’t want is shipping into the distribution because we — there’s demand or there’s backlog, but the sell-through happens at a different mix. So you end up with what we call sludge in the channel. We’ve been managing this very, very tightly. We have a very robust process that gets us and has maintained very tight control over the distribution inventory. And like Thad said, last quarter, in Q3, we actually reduced the dollars and the weeks, putting ourselves up very nicely for a Q4 mix shift or even getting ready for 2024. So all of these KPIs are what lead us to making these decisions. So we’re going to look at our metrics and make the decision as we see it.
Thad Trent : Yes. I would add that we’ve been managing that inventory in the 7- to 8-week range for several quarters now. I think we’re going to stay in that range just given the uncertainty until we see the strong sell-through. But we’re cautiously optimistic on that as we think about it. But I think for the foreseeable future, you’re going to see us in that 7- to 8-week, you’re not going to see us bouncing back up to historical levels the company ran at several years ago.
Operator: [Operator Instructions] Our next question comes from Joshua Buchalter with TD Cowen.
Joshua Buchalter : I wanted to follow up on one of Gary’s. So I totally understand the near-term dynamic where your customer concentrated in ramping silicon carbide. But I’m a bit surprised to see the ’24 guidance pegged to market growth, given I think the overwhelming consensus is that silicon carbide is going to be constrained for at least for the near term. Can you walk through how much, I guess, of your silicon carbide revenue in ’24 is really program-specific? And how fungible supply is if there is changes in mix across your end customers?
Hassane El-Khoury: Sure. So it is all — I guess all of our ’24 by now. For the ’24, we have visibility on exactly what program, what voltage, what volume and what mix we need. As far as the inventory, Thad talks about ramping strategic inventory for silicon carbide, we stage inventory primarily in, I would say, in two spots. One is blank wafers or substrate, wafer substrate, which is fully fungible across any customer, any platform with any volume. And as we get closer, we stage inventory at Epi, which is when we, I guess, partitioned with the voltage levels of the product. So this is where we maintain inventory to give us full flexibility should the shift change. Because we’ve always said, when we would have one or two platforms at a customer, if one vehicle sells better than the other, the customer would want to shift while still using onsemi.
So we give that flexibility to be able to shift on between platforms at a similar OEM or between OEMs. So the best place to keep that inventory is blank wafers and/or Epi.
Joshua Buchalter : So is it safe to assume that SiC’s going to remain constrained through ’24?
Hassane El-Khoury: Yes, I believe so. It will be from our…
