Finally, is the way we will invest. And the last point is quite important. We commented in our earnings that we are putting in place a flexible cost base. But in flexible, it just means that we will be very selective in the way we make the investment. And in an uncertain macro environment, our responsibility is to ensure that we prioritize for term high yield return investment versus longer-term investment. So that’s a key component. Obviously, we will have to offset some of the headwinds that could exist. Technically, you know that we have the benefit of the Fuji Xerox royalty, we still have some inflation costs there. But that’s the reason why back to the 3 main components that I mentioned to you, price, supply chain and investment. We are confident in our ability in 2023 to expand our operating margin.
Operator: And our next question comes from the line of Samik Chatterjee from JP Morgan.
Angela Jin: This is Angela Jin on for Samik Chatterjee. Congrats on a strong quarter. So a question about backlog. So I saw that backlog came down about $183 million quarter-on-quarter, and equipment sales are up $164 million quarter-on-quarter. So can you just walk us through the gap there? Like, is the implication here that you’re seeing an uptick in cancellations or equipment order rates are dropping? And if you continue at this rate, will you reach pre-pandemic levels back within a quarter? So how should we think about sort of the cadence of backlog into the first quarter of 2023.
Xavier Heiss: Yes. Angela, so the backlog here, I would say it’s a good story because you know this backlog was building up. We started to see a decrease of the backlog in quarter 3, and we were pleased to be able to get some of these backlogs reducing and to have the 43% decline — 49% — just 43%, sorry, of a decline in quarter 4. This is mainly related to the high profit equipment that we have, what we call A3 equipment. And this is related to supply chain conditions improving and also the logistics agility and logistics speeds coming back to a normal level there. So that was a good story. That was a good story because it helped the mix of products that we are selling, bringing it back to, I would say, more normalized mix.
Second point, it helped the overall gross margin improvement both on the equipment side, but also some of these products are driving good post-sales revenue and profit here. So that’s regarding Q4. When we look at the order patterns that we are seeing here, we still see quite a very strong demand still for the same mix of products. So our A3 product, Steve described some of the capability of this product, don’t look at them as printer only, they are essential for our customers to drive workflow and productivity that they need in this current hybrid new ways of working here. So when you look at what was the equipment growth versus the decline in backlog, you look at the inventory we have as well on the channels that we measure it, I mean the math works, I mean, we balance it on those growth that we can see on the equipment versus the backlog decline, was in line with what we were expecting and planning for.
Looking at next year now, what we are expecting is to flush this backlog during the first half of the year. And to give you a number, the normalized backlog — if you look at the backlog that we have today versus a normalized backlog, we are currently at 2.5x what is the normal backlog. So we’re expecting this to be cleaned or flushed in quarter 1 with some remaining impact in quarter 2. Assuming supply chain and manufacturing stay good for the rest of the year, you should be in a BAU mode for the second half of the year.
