Q1 2020 Earnings Call

Ladies and gentlemen, thank you for standing by this time, all participants are in listen only mode.

If you would like and I would like to welcome everyone to the lattice semiconductor first quarter fiscal years 2020 earnings release conference call.

Later, we will conduct a question and answer session.

At that time, if you have a question you will need to press the star one on your push a button phone.

A replay will be available approximately two hours after the call today.

A replay dial in number is four deals for 587.

Before zero six.

The conference I'd number is 8369 to five nine.

The replay will also be accessible on that website.

Got it sound like Dot com.

I would now like to try to call over to Rick Shane. Please go ahead.

Thank you operator, and good afternoon, everyone with me today, or Jim Anderson, dozens, president and CEO and chairman nuclear Medicine CFO.

We provided financial and business review of the first quarter of 2020, and the business outlook for the second quarter of 2020.

If you have nothing paint a copy of today's press release. It can be found that our company website, an investor relations section that month semi dotcom.

I would like to remind everyone that during our conference call today, we may make projections for other forward looking statements regarding future events for the future financial performance of the carbon.

We wish to caution you that such statements or predictions based on information currently available in an actual results may differ materially.

I refer you to documents the company files with you actually see including our 10-K's 10-Q's any case. These documents contain and identify important risk factors that could cause actual results to differ materially from those container projections or forward looking statements.

This call include and constitutes the company's official guidance for the second quarter of 20 Twond. If at any time. After this call we communicate any material changes to this guidance, we intend that such updates will be done using that public for such as a press release publicly announced conference call.

Some financial information that we present during the call will be provided on both the gap and in aren't getting.

I disclose in certain non-GAAP information management intends to provide investors with additional information to permit further analysis of the company's performance and underlying trends management uses non-GAAP measures to better assess operating performance and to establish operational goals for a stable periods. We provide reconciliations of these non-GAAP financial measure.

GAAP financial measures that can be found on Investor Relations section of our website that assembly Dotcom, Let me now turn the call over to Jim Anderson, President and CEO.

Thank you Rick and thank you everyone for joining us on our call today.

I'm pleased with the results we delivered in Q1 up 2020, given the dynamic environment around cobot 19.

We took action quickly allowed us to safeguard the health and wellbeing of our employees, which is a top priority.

I want to take the opportunity to thank all of our employees for how well they manage this situation.

I want to think the engineering team for staying focused on executing our roadmap our operations team for staying focused on supply chain management and our business team for continuing to make progress with our customers I could not be more proud with a lot of steam.

Let me cover a few key points from the first quarter 2020.

Relative to our Q1 guidance, we experienced a roughly 3% impact Q1 revenue due to colder 19 with the impacted demand concentrated in Asia, and primarily in or consumer segment.

However, we saw strong year over year revenue growth in both our communications and computing segment as well as our industrial and automotive segment.

Sure we continued to make progress on gross margin expansion.

With a non-GAAP gross margin increase of 120 basis points year over year as we continue to execute on or gross margin improvement strategy.

We also continued to drive improvements to profitability with a 39% year over year increase in our non-GAAP net income and.

And we ended the quarter with a healthy balance sheet, including a strong cash position.

Also despite many of our employees working from home over the past weeks, we continue to make steady progress on our key product road map milestones and continue to build customer momentum on the products that we launched last year.

You know provide an overview of our business by end market.

In the communications and computing market revenue was approximately flat sequentially and up 8% on a year over year basis.

In computing, our revenue grew sequentially and year over year as we continued to see adoption of our products used in both servers as well as plain computing platforms growth in servers was driven by both are higher attach rate ending S.P. versus the prior generation servers. We continue to work closely with our key server customers to bring great.

Your value to next generation platforms.

In the communications market, although revenue was down sequentially due to declines in older generation systems, we continue to benefit from Fiveg infrastructure deployment with both sequential and year over year growth in Fiveg revenue in Q1.

We continue to expect the deployment of Fiveg infrastructure to be a long term multiyear growth opportunity for let us.

Turning now to the industrial and automotive market revenue increased 5% sequentially in Q1 in 14% on a year over year basis.

Q1 gross in the industrial segment reflects increased demand for products used in a broad range of applications, including factory automation robotics and embedded vision, although automotive remains a small portion of this segment of this time, we believe it will be a long term growth factor as new customer programs ramp and demand in the automotive.

The market returns.

Turning now to the consumer market revenue declined 24% sequentially in Q1, and 32% year over year.

The decline reflects weakness due to cope with 19, particularly in the Asia geography, as well as he expected shifting the mix of revenue towards or other market segments overtime.

Consumer we remain focused on applications with consistent multiyear revenue streams and higher margins, where solutions are enabling customers to differentiate their products.

I'll now provide some highlights of our recent product road map execution.

As we discussed at our Nexus platform launch in December we're investing in a portfolio of higher level shock, where the lobster devices to be easily used adapted quickly and introduced to the market much faster.

First installment 10 or soccer solution portfolio was our award winning Sensei I software stack, which is focused on low power infringe processing at the edge of the network.

I'm very pleased that we launched our second installment in or software solution portfolio on time in Q1, which is our embedded vision stack called ambition.

Ambition is a complete hardware software solution that enables customers to accelerate and simplified the implementation of the added vision across our key markets.

The response has been very positive from both our customers and the industry as her ambition solution stack recently received best in show award at the 2020 embedded World exhibition.

We also remain firmly on track for the launch of the third installment in our software solutions portfolio, which is our security solution stack, which is planned for delivery to customers in second half of 2020.

With regard to our device right now when we launch for Nexus MPG platform. This past December we also lunch or first device based on the platform across Lincoln ex device.

At that time, we committed to releasing two additional nexus based devices and 2020.

I'm pleased to report that execution remains on track for both programs. We expect to launch are second to mixes faced device in Q2, and our third device is on track to launch in the second half of 2020.

The next platform, it's been Architected for power efficiency, which enables a significant power reduction for our customers across a broad range of applications.

We also offer significantly better performance compared to the competition applications that require video connectivity, such as AI and embedded vision.

We're very pleased with a broad adoption of our Nexus platform as the number both customer engagements and opportunities continues to build.

In summary, well covalently team creates some uncertainty in the near term business environment. We remain focused on our long term strategy. We continue to accelerate the cadence of new products and solutions that we're bringing to market and we continue to build momentum with customers across all market segments with our expanding product portfolio our team.

Team remains focused on executing our strategy.

I want to once again, thank our employees for their creativity dedication and continued execution.

I'll now turn the call over to our CFO sharing with her.

Thank you Jim.

First quarter revenue was 97.3 million down 2.9% sequentially from the fourth quarter and down about 1% year.

Year over year decline was primarily in the consumer segment and was offset by strong growth in both our communication and computing segment as well as in our industrial and automotive segment.

Gross margin on a GAAP basis with 59.1%.

Parents of 59.2% in the fourth quarter.

Up from 58.8% in a year ago first quarter.

Our non-GAAP gross margin expanded to 59.8%.

Parents to 59.6% and acquire corridor.

And with up from 58.6% in a year ago first quarter.

The 120 basis point of non-GAAP gross margin expansion year over year was driven primarily by execution on our pricing optimization strategy as well that's quite at cost reduction.

Q1, GAAP operating expenses were 47.8 million compared to 43.8 million in the fourth quarter and 45.2 million in Q1 2019.

On a non-GAAP basis operating expenses were 36.1 million compared to 35.3 million in the fourth quarter and 38 million in Q1 2019.

In Q1, R&D increased sequentially in 19.1 million as we continue to invest in our product road map.

As DNA decline sequentially to 17 million as we continue to drive a DNA spending closer to our target model.

Q1, GAAP earnings per basic and diluted share was six cents compared to 10 cents in Q4 2019.

And six cents per basic share and five cents per diluted share in Q1 2019.

Q1, non-GAAP earnings per basic and diluted share was 15 cents compared to 17 cents in Q4, and 11 cents a year ago quarter.

We continue to focus and execute on cash generation with approximately 21 million in cash from operations in Q1.

In addition, given the current environment, we pre Emptive lead you down $50 million on our revolver during the quarter to further solidify our cash position.

Our leverage ratio as defined in our credit agreement after the drawdown is 1.7.

Compared to a leverage ratio of 2.4, and a year ago corridor.

Our ending cash balance with approximately 177 million.

Let me now review our outlook for the second quarter.

Revenue for the second quarter of 2020 is expected to be between 95 million at 105 million.

Gross margin is expected to be 60% plus or minus 1% on a non-GAAP basis.

Total operating expenses for the second quarter are expected to be between 36 million and 37 million on a non-GAAP basis.

As we manage through cobot 19.

We believe that our long term growth drivers remain firmly intact.

Our focus on execution, our differentiated and innovative product portfolio and our solid balance sheet ensures that we are well position to capitalize on increasing customer and market opportunities.

Operator, we can now open the call for questions.

At this time, if you have a question you will need to press the star one on your push button. So.

Your first question if some Matt Ramsey from Cowen Your line is now open.

Thank you very much good afternoon, and considering all that's going on a congratulations on the result.

And I wanted to ask a couple of questions on by Division of the revenue that you guys reported in our talking about going forward.

Obviously, some pretty big movies and mobile in consumer down and also the industrial automotive business quite a bit higher than that at least I had thought about it coming into this call. So and he puts or takes and the supply chain that maybe artificially accelerated some sales and one division or restricted them and others and just maybe some commentary on how.

Those two divisions play out in the second quarter would be helpful. Thanks.

Sure. Thanks, Matt Yeah. So if you look at Q1 that we did see strong performance from our industrial and automotive segment I think it was 5% up sequentially, 14% and pump Uri year over year I will point out that actually over the last couple of years that segment has performed quite well for I've certainly relative.

The broader market performance and this is one of those segments that we expect to be a long term growth driver for the company. There's you know, particularly in the industrial segment. There's just there's a number of customer and a new customer revenue streams. Your design wins that continue to ramp would perform well one so we're quite pleased with progress and.

ER segment and again, we do view that was on a long term growth driver for the company now you know moving forward into Q2 kinda sequentially from Q1, two Q2 in the industrial Auto segment I would expect about segment to kind of be flat to slightly down sequentially, we would expect to start to.

To see some cobot 18 demand related impact to that segment in Q2.

On the consumer segment a into one our consumer segment was certainly impacted by corporate 19 consumer demand.

That was primarily local I used to the Asia geography, but it's pretty broad based across a customer consumer customers in Asia. So bad Yeah, you certainly saw softer demand in Q1 in consumer than we had originally anticipated I would you know I would expect that to continue on into Q2, I would expect a consumer to again be.

Sort of flat to slightly down a into Q2, and then our third segment Coms and computing.

You know from a sequential standpoint was flat year over year was 8% a year over year going into Q2, I would expect that segment so to be sequentially up we're seeing a quite strong demand in that segment.

Yeah, just a little additional color there is I think a cold that 19, a you know that's obviously good a lot of people working from home that's placed a different additional.

You know pressure on infrastructure, so we're seeing higher higher demand from the computing segment things like servers in cloud computing, and we'd expect a little bit higher demand from the communication segments as well so hopefully.

Matt hopefully that was any color you were looking for.

Thanks, Tim Tim that's great.

Sure a quick question for you hopefully, but maybe it's just the mix of revenue by division or something about the way that you guys have managed working capital, but dsos have gone up.

Quite a bit over the last three or four quarters and obviously the results have been strong if they don't want to nitpick, but if you can walk me through sort of what's going on there and just how do we expect that to is that a new normal or and the way that you're going to manage the working capital or is there something we should expect to change there going forward. Thank you.

Yeah. Thanks Bad for the question I'm Gonna filling in for Sherry and they do my best answer apparently her line dropped but hopefully we'll get her back soon but I'll do my best year. So on D.S.. So yeah, we did see a an uptick in idea so in Q1.

What a what's happening there is it has to do with where the demand ends up being serviced with them. The corridor. So a if you look at Q1 demand or February was quite weak or January was kind of normal February was quite weak ER versus historicals and even March was got off to a slow start.

But demand started to pick up in merchants or what happened is more of our demand was loaded in the back you know more last month through the quarter. Then what is than typical in prior quarters and so what that did is that a that has the effect of driving up our dsos since the the collections for those ship.

I don't see in the last one for the quarter end up being in the following corridor, which are little bit of that in Q4, as well where demand is loaded a little bit further back in the quarter than prior so well. Additionally, something we will work to get back down to more normal levels. We view the current level is elevated and.

We will work to get the or so back to more normal levels.

Oh I'm sure you back on.

Yeah, sorry about that I got dropped off okay I.

I did my best to cover for you. So thanks, okay. Thanks.

[laughter].

Operator next question.

Yes. Your next question is from Tristan Gerra from Baird. Your line is now open.

Hi, good afternoon.

So with the guidance in gross margin you about 200 basis points away from your target a choosy Oh, you don't get 10 target, which is a great achievement.

Do you have more language in terms of course margin expansion with existing product tenant mix to get to that your longer term Todd yet or do you need to ramp that's nexus and the next generation platform to to get there.

Yeah. Thanks Christian for the question I think it's a combination of both certainly you know it as you're aware in late 2018, we put in place a strategy to drive better pricing, we called it or pricing optimization strategy on existing products and we also put a strategy in place to drive.

A multiyear product cost reductions and so both of those strategies, we continue to execute on that and we will continue to execute on that moving forward with there's still room for more improvement on pricing optimization, even on the products that are already in production and there's certainly more room on product cost improvements. In fact, we have long term road map to drive product costs.

So we certainly expect to see gross margin expansion from products already in production, but also as you mentioned as we bring some of the new products online for instance, the products based on our Nexus platform. We do expect those new products to be accretive to the company's overall gross margin. So those.

We will help drive margin improvements as well and then we're certainly a you know very focused on our long term goal, which is to get a bunch of 62% gross margin. We've made steady progress towards that goal and we expect to continue to make progress.

Great.

You've mentioned Fiveg infrastructure at a time when.

Companies have been as targeting the past few quarters unit to kind of maintain revenue.

You know in that segment what percentage is it wafi should total tuck line right now is it no single digits.

And also if you could you remind us you know what why way was it the Senate flooding in last quarter and do you expect a way to go.

The next day coming quarter.

Yeah. Thanks, Tristan Ah, yes in terms of overall revenue, we don't breakout tied you specifically, but it's still a relatively small part of our overall revenue, but because we view it as a a good long term multiyear growth driver, it's something we watch very carefully so for instance in Q1.

Again, we saw sequential growth in Fiveg.

Wireless infrastructure related revenue, we saw year over year growth in Q1, Yeah, we expect a fiveg infrastructure revenue to be a growth driver over a multiyear period, not just for lattice, but for the industrial and so it's something we watch very closely and we believe we're we're well positioned if you'll recall from our Investor day.

Which was about a year ago, almost a year ago I'll be shared that in Fiveg systems, we enjoy a roughly 30% more content dollar content in a fiveg system that we did in sort of similar for GE systems satisfied you ramps, we expect to see a good growth from a from there.

Revenue line and then that's your question on walk away a yeah. Just as a reminder, we said in the past that in 2018 wildly accounted for roughly single digits overall revenue from flattish revenue in 2018, we saw that revenue decline in 2019, and we would expect while.

The revenue to decline again this year.

Great. Thank you.

Yeah.

Your next question is from Charlie Anderson.

Okay and company. Your line is now open.

Yeah. Thanks for taking my question I guess you answer my question, if you're sitting around a conference table six feet away, calling him I once all the way.

So so.

Yes, we are hearing it says a social social distances, we are following or [laughter]. Sorry go ahead excellent [laughter]. So Jim I Wonder if you can maybe just update us on channel inventory distributor inventory Howard people acting during this and then make versus normal is there any buffers safety stock.

Great. It's just any general comments there in that I've got a follow up.

Sure Thanks, Charlie or on channel inventory, you know as we we have very good visibility on our distributor inventory and where we ended Q1 was I would I would call. It is very healthy level or if we look at it just historically, what what is normal levels of inventory for our distributor.

We wish we ended rights in the middle of the range of what we view as normal inventory for our distributors and so we view it as healthy at this point unhealthy from two perspectives healthy from the standpoint of not being too much inventory, but also healthy from the standpoint to be able to schervish customer demand.

As well and so yes distributor inventory in good shape and you know we have not to date seen any signs of as you said buffering or safety stock, but it's something that we're watching very closely.

And we definitely keep a close eye on it so hopefully that show the color you were looking for on channel inventory.

No that's perfect and then my follow up you mentioned a cloud computing. We didn't give meeting was also pocket of strength, but I know others are seen that trend as well, maybe if you could just update us Jim roughly where Atlanta stands as far as fine computing as a market in.

What are some of the opportunities that using their eyes and in terms of the Oh designs that you can potentially pursue.

In that market. Thanks.

Yeah, I think Shirley yeah, certain client computing that a in addition to computing in the sugar segment, that's been a nice growth area for us as well a incline computing you know there's a couple areas that we see as good potential opportunity for us if you think about.

You know we've been talking about how our products are used for artificial intelligence for inference at the edge of the network for building intelligence into devices at the edge of the network well certainly client devices cloud computing devices, our edge devices and so we do see opportunity for our products to bring artificial intelligence capabilities to.

Ah client devices, and so that's one potential area of growth.

Similarly, we talk about our mock actually three d. product, which is RFP GE with special security processing and that is a that's used for platform root of trust a in server applications well, that's seen security concept could be applied to actually a variety of devices, including costs.

Turning to computing devices, but also networking devices et cetera. So we do see some opportunity for potential growth in providing a security or part for me to trust type should get really in client devices. So that's a couple places that we see for future growth in Mclean computing space.

Great. Thank you so much.

Thanks trying to.

Your next question if some Christopher Rolland from Susquehanna. Your line is now open.

Hey, guys. Congrats on the quarter just wanted to follow up on consumer and I know, it's hard to quantify and I certainly understand the Asian consumer dynamic there, but was part of the weakness you Guy shying away from lower margin business.

Its so you know how do you kind of quantify that and bigger picture how much more pruning of lower margin consumer you guys have to go what what kind of a headwind you think it might be for this year.

Yeah. It's a good question, Chris and so in addition to you know clearly in Q1, we saw it.

We saw impact.

To our consumer segment due to covert 19, and also consumers normally just seasonally down from Q4 to coupon Swede both of those plus as you mentioned, if you step back and look over a multiyear period. We had shared this back at our Investor day, a year ago, we are expecting or revenue to shift over time.

For a greater percentage of our revenue to come from our other market segments, industrial and automotive and communications and computing and for a smaller percentage over and over time to come from consumer what we're doing within the consumer segment is we're changing we would really transitioning.

The type of revenue and that type of design wins that we're winning within consumer short focused much more prosumer applications. So these are high end consumer applications. These type of applications, our applications, where our products can really help differentiate our customers systems and they have been a longer multi year.

Revenue streams, they on higher gross margins since we are executing that transition.

Schumer right now show, but we do you know consumer is an important segment for us. It's a it's just a segment where were you were in the middle that transition to longer revenue streams and higher margins.

Great and on the industrial side of things and I appreciate that new industrial programs are ramping.

But with industrial and auto that segment for others, there seems to be some more structural worries with the virus here.

Do you think these programs are gonna be enough to give you a material difference versus your peers.

Or is this more of a nearer term phenomenon for you do you think you can kind of grow through what could be a a downturn here and do you think that there any supply chain issues buying ahead. For example on supply chain worries that are boosting that in the near term. Thank you.

No interest she has sort of push on the industrial and automotive segment, maybe be helpful. For me to point out that the vast majority of revenue within industrial and automotive is industrial and so automotive still remains a relatively small part of our industrial auto segment now we do think that automotive this.

Longer term growth opportunity for the company. We have one you know several important design wins in the automotive segment that we expect to be ramping over the course of time and you know those design wins do ramp slower than automotive, but we do expect automotives to be a nice growth factor for the company overtime, but at this point in time.

Yes. It is a small portion of that that revenue segment now industrial which is the bulk of that revenue. If you look up over the last couple of years that Holler industrial auto segment has performed relative to market. We've actually that's quite strong performance for the last couple of years relative to market and a you know we it's.

Back to this segment to continue to be a a long term growth opportunity for us our products are just very well suited for a number of the secular trends that we're seeing a in industrial that I think will will be over a multiyear period, you know things like industrial automation increased use of robotics touchless.

Control, where they operated doesn't have to touched the machine works through voice command or or to hand gestures embedded vision. So these are the type of applications and other products and just really really well suited for low power smaller PG age that can do inferencing in these applications are well suited and so we're seeing nice.

Yes.

Nice design win traction within this segment and Oh, we expect it to be long term growth now in the short term no more tactically for instance, moving from Q1 to Q2.

Yeah, we would expect some some potential softness in this segment due to cold among teens impact on demand in the industrial segment. So moving into Q2, we would expect this segment to be flat to down a one or.

Most into two but but overall over the long term, we expected to be a growth area for us I get asked about a supply chain Oh, what we're saying I'm just I know right now.

Yeah, I was going to see we don't see any signs of bought I keep I don't know if your question was specific to industrial or just in general, but we haven't we haven't seen any signs of by had yet its something that we're watching very carefully for were very sensitive to that we watch very carefully.

What we ship into distributors and whats good get shipped out of other distributors, but today, we haven't seen any signs of by it.

Thanks, Jim and congrats.

Yeah. Thanks, Chris.

Again, ladies and gentlemen, if you have a question you want me to press the star one on your push buttons phone.

Your next question is spend Alexandra Vicki from William Blair. Your line is now open.

Hi, everyone. Congratulations on a on a great quarter in outlook in a tough environment.

Internally Nexis, Oh, sorry, just just done a on the Nexus platform I know, it's very early with the launched as having been in December but the time you talked about you know 65 customers 30 fives early access how do you sort of seen any of these early access.

Customers push out interest or or indicate any product delays at this point that are covert related or how do we sort of think of that even if revenues not really expected till 2021.

Yeah, I would say that it's a good question Alex in general.

No not just starting access platform, but some of the other products. So new products that we launched last year in general we're seeing very healthy levels of customer activity and just customer intensity on our design wins and in the design in programs that we're working with them on a you know today, we haven't seen any coated 19 impact.

In terms of customer programs or our first of all our lattice team I believe both the sales in our application engineering team have done just a great job continuing to support our customers. Despite covert 19, despite work from home and we continue see good healthy levels of activity and for things to and things are progressing well.

Nexus in particular, yeah. It when we launch Nexus in December we got 65 customers engaged that's certainly grown since then we're now over 100 customers engaged.

We continue to see very strong.

You know interest in the the platform a very strong design interest good design funnel I you know the platform is quite competitive it's the only a P.G.A.

Products that are on Fts July technology, which is a semiconductor can technology that offers very good power efficiency and combined with our own architectural enhancements were able to deliver up to 75, better power efficient, 75% better power efficiency versus our competition and so that's really compelling to our cut.

Member base and machine just very strong design traction. So we're quite pleased with the progress and obviously despite cobot 19 were very focused on making sure that we continue to be good progress with her customers across nexus and all or a smaller overburden products.

Great and then just one more to that extent, you've always talked about sort of broad customer adoption or interest across markets for an excess I'm, including robotics and industrial automation and communication as as the customer count has sort of grown its for and in terms of initially interest or.

Each end market could maybe like sort of lead the charge. It is anything standing out in particular.

No. We continue see really good broad based adoption across multiple markets on that that a value proposition that I mentioned earlier of 75% better power efficiency versus competitive devices or you know that's that's a tremendous advantage to customer.

And just about every market segment. Every every customer is faced with a you know power constraints at the system level and so that's sort of power efficiency as a big benefit to our customers regardless of their application I think if you would ask you know what which market segments would likely enter.

You know enter production most quickly now typically our consumer segment is the one that is fast. This in terms of time to revenue. So as our first nexus devices into production I would expect them to first the you know probably consumer related devices or devices for the computing segment those are typically.

Our segments that are passed us in terms of tied to revenue, but in terms of design win clonal, where she was good funnel and cost across all the market segment.

Great Great. That's very helpful. And then one last one if I can I know I know you touched already on gross margin and sort of the three levers you have to Paul this quarter with quite impressive from a product gross margin growth.

Ah perspective.

I'm in the face up down sequential licensing revenue, obviously some of that mix than per user per user per what you said pricing optimization and try to cost reduction, but I'm just curious as as you're sort of a year later year plus later from the analyst day, if he thought uncovered sort of additional shoots or levers to pull.

Within pricing optimization and cost reductions I think you've talked about nine initiatives in the past.

Just curious if that number sort of ground overtime.

Absolutely. So we continue to find areas to continue to improve pricing.

In pricing optimization, you know, we put that initial strategy in place at the end of 2018 and started executing in 2019, you saw great progress in gross margin in 2018, and those nine initiatives that we first put in place. Many of those initiatives are continuing into 2020, but we have added some additional.

Focus areas as well over time, and so we view a pricing optimization as an ongoing process and we don't believe we're kinda ever done with that there's always room for improvement and so we continue to be focus there and also product cost reductions you know at the end of 18, we did put.

In place a multi year road map a product cost reductions that were executing to we expect to execute to that 2020 and beyond all to help carry us to that goal of driving to a greater than 62% a gross margin, which is the business model target that we gave at our Investor day.

Last year.

The other thing that as I mentioned earlier that will.

Help improve margins as well as as we bring some of the new products online for instance, the Nexus products that you asked about we expect those products to be accretive to our overall corporate.

Gross margins should those should help drive gross margin expansion as well.

Great. That's it for me. Thank you very much guys.

Thanks, Alex Thank salad.

Your next question is from Richard Shannon Some great Craig Hallum. Your line is now open.

Well actually Missouri for taking my questions as well, Jim I guess, the first one in the industrial and automotive segments. A I'm curious what how did that segment end up in terms of revenues versus your original expectations. You gave us an early February and could you give us also what were what the relative trends were here first of which we.

Okay and rest of world specifically agent.

Yeah first of all on the first part of your question on relative to our original expectations I would say it it ended up being a little bit better than what we have expected pretty much in line with what we had expected maybe slightly better.

That that helped offset to you know a little bit of the you know the worse consumer results that are that we are or worse results in what we had expected and then Richard the second part of your question can you remind me was a geographic differences North America versus rest of world.

Age.

Yeah. Thank you so in a into one North America Europe performed pretty much as we had expected or they were kind of right on target. It. It was really Asia that was weaker softer than we had expected and again.

Particularly in the consumer segments and also mostly in the China, a geography, and so yeah, that's where the softness relative to our original guidance for Q1 was.

Okay. That's helpful. My follow up question isn't your Coms and computing segment I think you said <unk> to a prior question you expect that a sub segment to grow sequentially in the second quarter curious if both both the comps and computing parts are expected to grow and within comps or do you see the non fiveg part continuing to grow.

As well.

Yeah. So comes in computing overall, we expect.

Okay grow I think that's primarily we're expecting that primarily driven by compute.

What we're seeing as you know what's called the banking with people working from home that's been in lot of crusher on the infrastructure, we're certainly seeing very.

Strong orders from our server customers and our computing customers in general, which we think all helped drive a sequential growth.

Growth in that segment.

We we would expect Fiveg revenue to continue to be a strong into Q2, yeah. The the non fiveg revenue in our communications segments that we would expect they'll probably be flattish sequentially. So.

Hopefully that gives you a little bit more color in that segment.

That is very helpful. I think that's all my questions. Thanks, Thanks, again and congratulations on good results and talked about.

Thanks, Thanks, Richard I appreciate it.

Again, ladies and gentlemen, if you have a question you will need to press the star one on get push button following.

Your next question if some of it then ROI from benchmark. Your line is now open.

<unk>.

Hi, I cant. Thanks for let me ask a question I had a and congrats for for executing so well in the challenging environment I had a question on some earlier comments around China, I understand kind of the Huawei dynamics, but there are I think some new rules that the deal yes.

There is putting out there which potentially removed.

Some civilian exceptions I'm wondering if you had a chance to think about potential implications because it seems like they've called out SPG A's and appreciate shipments a amongst other tech a into China and some other countries. So any any early thoughts on that would be helpful. Thanks.

Yeah. Thanks for the so clearly that announcement was just made yesterday and you've only got about a day to digest the to assess what sort of impact it would have to lattice, but you know our initial read of about is that based on where our products are manufactured and then also.

Based on the current export coal control classifications fraud products.

We don't believe there would be an impact to the products that were currently shipping.

And so you know the other thing that I would add is that our understanding is that there's a 60 days feedback and common period.

For the industry to provide a over the next 60 days that would before this would potentially take effect until we don't believe this would have any impact to our Q2 business. Like you know of course, that's are really read will continue to assess the situation as it evolves and then I'd, probably just take the opportunity to reiterate of course, we comply with all.

Export restrictions today, and we would absolutely continue to do that.

Yeah, that's very helpful. Jim I appreciate that and yeah I understand it's early so.

I will say how that plays out just a quick follow up on some of the commentary around software.

It's great that you guys are continuing to execute on the planned for their products. Later. This year you know as you think about the success and the initial feedback around sensei I wondering if you're planning on additional software stacks beyond the two that that you mentioned today on the call and <unk>.

Are you getting customer feedback on these.

Software stacks I'm wondering if they're helping you define some of the.

IP that that's going to be included and then if that's that's helping kind of point your direction into into how you're thinking about that but that part of the business and product categories says if you think longer term. Thanks Jim.

Yes. Thank you had been a show certainly you know we're seeing good customer activity on sense AI that was the first installment in our software solution stack portfolio. We continue to see actually good traction across a number of different markets. In February just this past February we put in place.

The second installment that was our machine vision, a ambition embedded vision a shocker stag.

Again really good customer reception, but also a great reception from the industry. We won a best in show award from from one of the industry.

Industry exhibitions, and so that was good to see so that's two of the.

Chalker section or in our portfolio. The third soccer stack comes out in the second half of this year, but that remains on track for delivery to our customers in the back half of this year and that's for security. So basically I think about it as a security a hardware level security for.

For all sorts of edge applications, and so we'll launch that in the second half of this year and then we are contemplating additional software solution packages beyond that we haven't announced which ones beyond that but we are certainly working closely with our customers to understand what additional software solutions would be helpful. Beyond that this is a key part of.

Her in D. strategy of course, we're clearly we're investing in our hardware the hardware part of our road map and bringing new devices out bringing them out at a faster cadence, but the other big part of our R&D strategy is to really beef up and improve the shock or level solutions that we have should that we can.

Allow customers to adopter device is much more quickly bring them to market much more quickly. So this is definitely a key part of our strategy moving forward.

Good stuff thanks, Jim.

Thanks Rubin.

Again, ladies and gentlemen, if you have a question you will need to press the star one on your question buttons falling.

Your next question if some David Gillies from Steelhead Securities. Your line is now open.

Yeah. Thanks for squeezing me in very much appreciated I had just a couple of follow up question two topics that have already been discussed.

Yes first what.

You mentioned, the cobot impact I think in the first quarter. What do you think the impact to revenue would be in the second quarter and no maybe as a follow on to that if you could just talk about what you're hearing from your customer for the second half of your.

Okay.

Thanks, David So in Q2, you know are the our guidance really factors in what we think is the impact to took hold good or to our Ah demand acute in demand from coal to maintain if you look at the midpoint of our guidance that's really our best estimate based on all the data we have to to.

Data they'll look for revenue that's based on the billings and backlog that we have to date as well as the forecast for the remainder of the corridor for both our disties as well as our direct customers in terms of what they need the remainder of the corridor. So that midpoint is are you know our best estimate based on the data we have to date and then if you notice.

We did actually widened the range that we gave a this quarter versus prior quarters little bit wider range, plus or minus 5% and that's to account for a potential variability due to colder than 19 variability on either the downside or the upside off that mid point.

And then in terms of second half, it's still very difficult to gauge I think a I get asked water customers say I think it's very difficult for customers to gauge what to be the cold the banking impact to demand in the back half of this year I'm certainly, we're very close to our customers talking to them on a regular basis in there.

You know there or the customers, we do have the customer forecasts for second half of the year now we don't generally provide guidance that far out, but we're working very closely with their customers to make sure that renewed their demand for not just Q2, but for second half.

And yeah, I think it's just it's really tough to tell what sort of a impac over 19 will have a further out this year.

So I guess, that's it's safe to assume it because we haven't really changed or forecast for the second half because they just don't know.

[noise], we usually we get a pretty good forecasts out through Q3, new So for instance were seen billing in backlog now for our show just backlog for Q3, we have forecasts for a in particular for programs that are ramping.

For programs that are ramping in the back half of your EBITDA forecast. So Bob second half brand to ensure that we had the supply to meet those ramps so that would be the visibility that we have in the back half of year.

Okay, and then has your business or do you see signs of recovery from <unk> in your business in in Asia or in trying to specifically discuss those would seem to be the geographic regions. The most likely SOG demand impact first I'm just wondering if they're starting to get better at this point.

Yeah. Thanks, David we certainly site in China in particular, we certainly saw very slow demand through the end of February and into the beginning of March that started to pick up significantly at the end of March and we've seen that a strong demand in China or unusual in general I continue on.

Through the you know the beginning of the corridor and so yeah, we definitely saw a pickup in China demand kind of no I would say it started in a kind of mid part of March and into the second half of coverage.

Excellent funnel thing for me as I have you seen your what currently are your lead times and have they extended because of any sort of supply issues from your foundries and shipments or anything like that or any information are you concerned with this would be most helpful. Thank you.

Sure. We are working really closely with our suppliers to make sure that we meet all customer demand I would say that right. Now we are absolutely need all customer demand a working closely with our suppliers to make sure that that stays that stays the case, we are taking the opportunity in Q2.

To the probably build a little bit of lattice inventory there should be inventory internal let us on high demand products on high running products that we could potentially see a snap back or a surge in demand and so we'll probably be building a bit of inventory from Q1 to Q2 on those high demand programs and then we are also.

So.

Where where we have some long lead time ingredients for our products things like substrates, we are making sure that the order well in advance and a there were well covered for demand moving Hollywood. So certainly something we're watching very carefully and making sure that we continued to be a good job to meet or customer demand.

The lead times have not extended.

[noise], we've seen a lead times extend a little bit on some products, but we're working very careful with our suppliers to.

To keep lead times to keep lead times from extending them to make sure that we're meeting the demand for our customers.

Awesome. Thank you very much.

Thanks, David.

And there are no further questions at this time I will turn the call over to lattice see Allergan Anderson for closing comments.

Thank you operator, and thanks, everyone for joining us on the call today I want to take the opportunity again to think Gladys team and our partners for all of their professionalism and dedication and the current environment, we really appreciate it.

Despite some of the recent challenges we continue to make very steady progress.

And remain focused on executing to our strategy.

I appreciate your support and hope you and your family's remain healthy operator that concludes today's call.

And ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.

[noise].