Christopher Danely: Sorry, I got cut off for a second. Anyway, so just a few clarifications on the silicon carbide business. Do you still expect to have one major customer this year that’s, say, 30%, 40% of revenue? And then have your pricing expectations for silicon carbide changed for this year versus, say, three months to six months ago?
Hassane El-Khoury: Let me cover the pricing, one, because it’s easier. Pricing has not changed as we’ve always discussed, our pricing is tied to the LTSAs, although we will discuss with customers on volume changes depending on ramps or end market, as I discussed earlier. Pricing is consistent. Therefore, I’m not seeing any of the pricing impact other than the efficiencies that we get in our — as we improve yields as we transfer technologies, et cetera. Those are very tied to technology advancements that actually enhance our gross margin. So that’s on that. As far as customer concentration, we will remain with a few handful of lead customers. That’s not going to be any different from 2023. However, as a percent, we’re going to see more diversification.
As we ramp more customers across the worldwide, both in Asia and North America, and you’re going to start seeing Europe ramp up in the second half of the year from design wins we’ve done over the last couple of years. So we will remain with a profile of having key customers. I won’t discuss the percentage of revenue for each, but it will just keep diversifying as we predicted in the Q3 call.
Christopher Danely: Great. Thanks, Hassane. And for my follow-up, can you just talk a little bit more about your trends and overall expectations for the big two end markets, automotive and industrial, which one would you expect to start to recover sooner? And do you think that either of them can get much worse from here? Maybe just give us a sense of your confidence in both the markets relative to that (Ph)?
Thad Trent: Or lack thereof?
Hassane El-Khoury: I’m laughing. Look, I can only manage and comment on what we see. And therefore, what we see is kind of that inventory digestion and softer end demand. Therefore, that’s what we’re managing to. I’ve been very consistent over the last — almost two quarters that we’re going to manage 2024 as there is no recovery per se. And then if there is one, we’ll just take advantage of it and it will become a tailwind across all financial metrics. Margin goes up with utilization, revenue goes up, etc. So that’s how we’re going to manage. Now what I will say, though, is both of these markets, auto and industrial, two of the largest markets that we have, — we’ve been — we saw the softness, I would say, even ahead of a lot of our peers.
As I mentioned, we talked about automotive softness in the Q3 quarter. We talked about industrial softness in Q4 ’22 quarter. So we’ve seen it. We’ve managed to it. We’ve done very well managing to it, and we’re going to keep managing to the signals we can control and we can see. And then when they start recovering, we’ll take advantage of it as well. But one thing for sure, we’re not sitting here, ignoring it, just keeping realization artificially high hoping for a recovery. And if it doesn’t come, then the correction is much harder, which you’ve seen with some of our peers. We’re taking a much more disciplined approach as far as how we address our markets.
Thad Trent: And Chris, to give you a little more color on the Q1 for auto and industrial. We expect both of those end markets to be down kind of high single digits quarter-on-quarter in Q1. So we’re not seeing a recovery of either one of them yet.
Christopher Danely: Great. Thanks, guys.
Operator: Our next question comes from the line of Toshiya Hari with Goldman Sachs.
Toshiya Hari: Hello. Can you hear me?
Hassane El-Khoury: Yeah.
Toshiya Hari: Sorry about that. Yeah, I had two as well. Thank you for taking the question. Hassane, in your prepared remarks, you talked about your automotive image sensor business. I think hitting or exceeding $1 billion in ’23. You also talked about design wins being up 50% year-over-year. How are you thinking that business specifically in ’24. And can you speak to the profitability of that business as you continue to in-source more than in the past?
Hassane El-Khoury: Yeah. Look, the business, given that the business is tied to auto and industrial, over 90% of our revenue in image sensor is auto and industrial. That has been a very active really transition over the last few years, moving our capacity to auto and industrial, where a lot of the growth has been away from the consumer and the web cams and all of that. So that transition is behind us. Therefore, what I’m seeing from a financial performance, the margin performance is much better than it’s ever been. It’s higher than the corporate average. So it is actually accretive. And profitability is in, I would say, around the corporate. As we maintain OpEx in that business and invest in innovation like the 8 megapixels and the Fab transfers.
As far as the mix change from outside to inside, that’s more of a longer term. We sampled our products out of East Fishkill, but until that ramps and becomes a meaningful percent of revenue, you’re not going to see an impact on margin from a mix change to an internal sourcing. But that will be part of our call it, outlook as we get to the 53% margin model for the company. That will be a contributor.
Toshiya Hari: That’s great. Thank you. And then as my follow-up, that’s kind of where I wanted to go, long-term gross margins maybe for Thad, so you’re reiterating the 53% medium to long term. In the past, you’ve talked about the fab divestitures contributing to gross margin expansion. You talked a little bit about EFK. I think SiC should normalize and you’ve got utilization rates, hopefully, marching higher over time. I guess my question is, in the 2027 model, the revenue assumption was somewhere in the $13 billion plus to maybe $14.5 billion range, do you need to get to those revenue levels to hit 53% gross margin or do you think you can hit those levels even at a significantly lower revenue level given the progress you’ve made on multiple fronts? Thank you.
Thad Trent: Yeah, Toshi. It’s Thad. Look, I don’t think the march to the 53% gross margin is revenue dependent. Clearly, we’ve got a tailwind as we crank up utilization as the market normalizes and recovers in the outer years. But we don’t look at it, given our current manufacturing footprint, we don’t look at that as the primary driver being revenue. You nailed it, right? It’s the utilization, it’s the EFK getting that cost under control. It’s the monetization of the divested Fabs that we divested in 2022. And then it’s the ramping of these new products that are accretive to gross margins. All of that will give us the tailwind that gets us there. Clearly, we’ve got to have some growth from here, but we don’t need to have the growth that you talked about. So we look at it much more as internally controlled, but what we can execute to versus a demand-driven, revenue-driven number.
Toshiya Hari: Thank you.
Operator: Our next question will come from the line of Gary Mobley with Wells Fargo.
Gary Mobley: Hi, guys. Can you hear me?
Thad Trent: Yeah.
