Question-and-Answer Session
Operator
We will now begin the question-and-answer session. (Operator Instructions) The first question is from Mr. Simon Schafer of Goldman Sachs. Please go ahead, sir.
Simon Schafer - Goldman Sachs
Yes. Thank you very much. My first question is related to the gross margin outlook. Just in light of your statement that you would expect your salvation rates to be high as 75%, it would appear that maybe the gross margin leverage that is coming through isn’t as pronounced as one may have expected and it seems to be the case -- or it seems to be the case for other companies in this space.
I understand that perhaps the inventory burn down issue is taking a little bit longer. But that utilization rate would be great if you could shed some more color as to when we would expect that to be coming up more. Is that just a function of cycle times than inventory burn down, or is there anything else at work? Thank you.
Carlo Bozotti
Well, I think Carlo is taking this. I think it’s very technical, and sure, Carlo’s covering it.
Carlo Ferro
Good morning, good afternoon, everybody. At the end, we’re really driving against the point after the prior quarter call. Year-end, the way that we are currently running to have is affecting those margins negatively in two respects. One is the technical cost of a news capacity. This is an impact of about six points in the second quarter, and will continue to be somehow visible as large as three points of gross margin in Q3 based on our current visibility. And the other one is real efficiencies that when running they have at half of their capacity exist given the inability when the machine runs of really using their move on the most effective way. And this is a substantial effect.
When we met in May at the end of this day, I guess I’ve shared with you about five points of negative impact, at this time was in the first two quarters. The one that we are experiencing in the second quarter is no different, even eventually a little bit higher. And these at the end fall on the inventory cycle, and based on that, the fall on the following quarter. So this is an effect that is still present in our third quarter gross margin current visibility.
At the end, from Q2 to Q3, we do see some opportunity of improving margin at mid-point of the guidance by about five points. And these five points reflect the initiative that has been significant in the re-structuring. Since I would remember that in early April the company phased out the operations in (inaudible) fab in Carrolton, and just sends the plant in the bank. So these positively affected manufacturing costs during Q2 that benefited the margin of Q3. But probably we are yet at a normal situation at full speed of the running defect.
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