Q4 2020 Lattice Semiconductor Corp Earnings Call
Ladies and gentlemen, and thank for standing by for lattice Semiconductor's fourth quarter, 'twenty and 'twenty financial results call. At this time, all participants are in a listen only mode.
Later, we will conduct a question and answer session and that's fine. If you have a question you will need to press star one on your push button and book.
A replay will be available approximately two hours after the call today.
The replay dial in number esports you will 45373 406, the countryside day number is four five cheat and nine four and five seven and we.
And we'll also be accessible medicines website and triple W. L. S. P C dot com.
And I would like to turn the call Albertsons or we can reshape Madison conductors director of Investor Relations. Please go ahead.
Thank you operator, and good afternoon, everyone with me today are Jim Anderson, and lattices, President and CEO and Sherri Luther lattice and CFO, we will provide the financial and business review of the fourth quarter of 2020, and the business outlook for the first quarter of 2021.
If you have not obtained a copy of our earnings press release. It can be found at our company website and the Investor Relations section Atlanta semi dotcom.
I would like to remind everyone that during our conference call today, we may make projections or other forward looking statements regarding future events or the future financial performance of the company.
We wish to caution you that such statements are predictions based on information that is currently available and actual results may differ materially.
We refer you to the documents that the company files with the SEC, including our 10 Ks 10, Qs and eight case. These documents contain and identify important risk factors that could cause the actual results to differ materially from those contained in our projections or forward looking statements.
This call includes and constitutes the company's official guidance for the first quarter of 'twenty 'twenty one.
And any time after this call we communicate any material changes to this guidance, we attend that such updates will be done using a public forum such as a press release or publicly announced conference call.
Some financial information that we present during the call will be provided on both a GAAP and a non-GAAP basis by disclosing certain non-GAAP information management and it tends 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 stalker historical periods, we've provided reconciliations of these non-GAAP financial measures to GAAP financial measures that can be found and the investor Relations section of our website Atlanta semi dot com.
Before we get started I'd like to let everyone know that we will be hosting a virtual investor day in may.
We would be sharing more details over the coming months and hope you can all join us.
Let me now I'll turn the call over to Jim Anderson, our CEO.
Thank you Rick and thank you everyone for joining us on our call today and.
Want to start by thanking the lattice team and as well as our partners and customers for their strong support and execution in 'twenty and 'twenty I'm pleased with the progress that we made last year and I'm, even more excited about the opportunities ahead of us in 'twenty and 'twenty one.
Let me now cover a few highlights from 'twenty and 'twenty.
We grew revenue double digits year over year, and our two largest segments of communications and computing and industrial and automotive.
Standard non-GAAP gross margin by 170 basis points year over year closing Q4 at 61, 6% as we continue to execute on our strategy and pricing optimization and product cost reduction.
We expanded profitability with non-GAAP net income, increasing 20% and year over year.
On our hardware roadmap our team executed on time and launched two new products based on and excess platform.
We also launched three new software products focused on embedded vision applications platform security and embedded system design.
Let me now and provide an overview of our business by end market for 2020.
And the communications and computing market revenue increased 12% year over year, which is the second consecutive year of double digit revenue growth from this segment the.
The increase was driven by growth and servers client computing and <unk> infrastructure.
And servers growth was driven by expansion in both attach rates and asp's year over year and.
Client computing growth is driven by the ramp of new client computing platforms, including a new platform ramp that began production in Q4 and <unk>.
<unk> infrastructure, we saw a strong growth year over year, reflecting a higher content and <unk> versus <unk>.
We continue to see communications and computing as a long term growth driver given its multiple growth vectors.
Turning now to the industrial and automotive market revenue increased 11% year over year. Despite some end market softness due to the global pandemic.
Our business grew across a number of applications, such as industrial automation and safety and robotics, where lattice solutions provide significant competitive advantages for our customers as the need for industrial and automotive electronics continues to increase the latest product portfolio is well positioned for long term growth.
Turning now to consumer revenue declined 40% in 'twenty and 'twenty due to weaker demand caused by the global pandemic as well as you expected mix shift and our business we.
We saw and this segment stabilize towards the end of the year with a sequential revenue increase from Q3 to Q4. The quality of this revenue stream has improved over the last two years is from targeted higher value multi generational and designs that better leverage our FPGA portfolio.
I'll now provide some highlights from our recent product roadmap execution.
I'm very pleased with our team's execution in 'twenty and 'twenty, when we launch and excess FPGA platform and December of 2019, we committed to releasing two additional nexus based products in 'twenty and 'twenty. Both products were launched on time as promised to our customers in June we launched service index, which is focused on general purpose FPGA.
And in December we launched Mark and ask our second generation security FPGA.
We continue to be pleased with the broad market adoption of our Nexus platform across all of our market segments and I look forward to sharing more information at our upcoming Investor day about additional new products on our road map.
Another key element of our R&D strategy is to develop a broader portfolio of software solutions to make it fast and easy for our customers to design our products into their systems and get to market quickly. During 2020, we significantly strengthened our software portfolio and the first half of the year, we launched envision our embedded vision and soft.
First day, and as well as Atlantis propel our embedded system design environment and and the second half we launched century, our platform security software stack.
In summary, I'm very pleased with the progress we made in 2020, we significantly strengthened our product portfolio as we accelerated the cadence of new products and continued to execute towards our long term financial model and our two largest market segments grew double digits year over year, and we expanded our net income by 20% and.
And as we began 2021 customer engagements across all our markets are extremely strong and our team is energized and focused on executing our strategy for sustained revenue growth and increased profitability.
I'll now turn the call over to our CFO share into this year.
Thank you Jim we are pleased with our full year 2020 results and a challenging environment and delivered significant profit expansion.
And to strengthen our balance sheet and ended the year and a net cash position for the first time and six years.
And I'll provide a summary of our results.
Fourth quarter revenue was $107 2 million up 4% sequentially from the third quarter and up six 9% year over year revs.
Revenue growth came primarily from our two largest segments communications and computing and industrial and automotive.
Tumor market segment grew sequentially in Q4 that was down year over year and IC revenue was lower.
Full year, 'twenty and 'twenty revenue was $408 1 million up 1% from 2019.
Revenue growth from industrial and automotive as well as communications and computing was offset by lower revenue and consumer and Nike.
Gross margin on a GAAP basis was flat at 65% and Q4 compared to the prior quarter, but was up 130 basis points compared to the year ago quarter.
Our non-GAAP gross margin increased 10 basis points to 61, 6% and Q4 compared to the prior quarter and was up 200 basis points compared to the year ago quarter.
For the full year 2020 gross margin on a GAAP basis expanded to 61%.
110 basis points from 2019.
Our non-GAAP gross margin for the full year 2020 was 61% up 170 basis points from 2019 and <unk>.
Gross margin improvement in 'twenty and 'twenty, one as a result of our margin improvement strategy, primarily pricing optimization and product cost reductions.
Q4, GAAP operating expenses were $47 5 million compared to $49 5 million and the prior quarter and $43 8 million and the year ago quarter.
On a non-GAAP basis operating expenses were $37 5 million compared to 36 million and the prior quarter and $35 3 million and the year ago quarter.
For the full year 2020, GAAP operating expenses increased from $179 4.002 million 19 to $192 9.002 million 20.
On a non-GAAP basis operating expenses for the full year 'twenty and 'twenty remained relatively flat versus 2019 at $146 2 million as we increased spending in R&D and decrease spending and SG&A.
Specifically as we continue to invest and our product portfolio expansion R&D increased to 19, 2% of revenue and 2020 from 18, 1% of revenue and 2019 at the same time, we reduced SG&A grew 16, 6% of revenue and 2020 from $17 five per.
For the full year 2019.
Q4, GAAP earnings per basic share was <unk> 12 cents and 11 cents per diluted share compared to <unk> and the prior quarter and 10 cents and the year ago quarter.
Q4, non-GAAP earnings per basic share was <unk> 20, and 19 cents per diluted share, which was flat compared to the prior quarter and increased from 17 and the year ago quarter.
For the full year 2020, GAAP EPS of <unk> 35 per basic share and 34 cents per diluted share increased from the full year 2019, and 33 cents per basic share and 32 cents per diluted share.
On a non-GAAP basis EPS for the full year 2020 of <unk> 72 per basic share and 69 cents per diluted share increased from the full year 2019, and 62 cents per basic share and 59 per diluted share.
Driving cash flow generation continues to be a key focus area for the company for the full year 2020, we generated $92 million and cash from operations. We also repurchased approximately 400000 shares or $15 million and stock under our stock buyback program exiting.
The year with $182 million in cash and continuing our net cash positive position.
Let me now review our outlook for the first quarter.
Revenue for the first quarter of 'twenty, and 'twenty is expected to be between $106 million and $114 million.
Gross margin is expected to be 61, 5% plus or minus 1% and a non-GAAP basis.
Total operating expenses for the first quarter are expected to be between 38 million and $39 million on a non-GAAP basis.
As we begin 2021, we are focused on accelerating revenue growth and expanding profitability as we build additional value for lattice and our shareholders.
Greater we can now open the call for questions.
Ladies and gentlemen, as a reminder, if you have a question at this time. Please press Star then the number one and your telephone keypad again that is star one on your telephone keypad.
Pause for just a moment took a pause and roster.
Our first question is from hands most Smith from Rosenblatt Securities. Your line is open.
Thank you congratulations guys and good execution and a couple of questions.
The theme of this earning season and.
Supply constrained how is that impacting your business and.
And I have a follow on thank you.
Thanks, John and thanks for the question John.
And supply I think our supply chain team has done a pretty good job to make sure that our customers are being supported in terms of their demand certainly there's tightness and the supply chain for the semiconductor industry overall, but in terms of lattice specifically I think we're in a pretty good position right. Now there were a couple of things that we did proactive.
Lee number of quarters ago to put us in a good position with respect to supply. The first thing I'd point out is if you recall back in Q2 of last year. We said, we were going to start to build inventory strategically to make sure that we had.
And plenty of supply and plenty of inventory to support our customers' natural demand.
And then also any upside that they might see and so we.
So in Q2, we built inventory we did build inventory again in Q3, and Q4 and we built inventory specifically on high running cards, where there's significant volume and no no risk of obsolescence and and then I want to make sure I point out that that's flattish internal inventory and.
And that's not a channel or distributor inventories and I'm, referring to shield laddish internal inventory and so I think that's put us in a really good spot in terms of supporting our customer demand.
Moving forward and then the second thing that we did and this was really back in 2019, as we began working really closely with our strategic suppliers as we changed and improved our supply chain strategy working really closely with those suppliers to make sure we were giving them long term multiyear outlooks on our demand.
Expectations, and working with and proactively to plan out.
<unk> over a multiyear period, including not just nominal capacity, but the potential too.
Drive upside capacity as well and so I think those kind of two proactive actions that we took put us in a pretty good spot with respect to supply to our customers.
And then Hans you said, you're on a per law and as well yeah.
And I did and I'm curious.
You guys grew.
By having that consumer part of the business. So from a net PGA perspective can you give us perspective as to why how are you guys growing and zile.
Xilinx and Intel down per hour programmable, a business where and.
The decline in 2020.
Yeah. Thanks Hans.
We're actually quite pleased with our results, particularly in our two largest market segment and such comms <unk> compute and industrial auto which right. You know in Q4 accounted for roughly 85% of our revenue overall and we really view those as long term growth areas for the company, but if you look at it.
2021st and Comms and computing.
And we grew 12% year over year for full year actually in Q4 of Comms and computing grew 20% year over year in terms of just Q4 and so we're just we're seeing the number of lattice specific growth drivers within that segment, we've talked about servers and the past we've seen an expansion and our server attach rate or the number of chips.
Lattice chips that are being shipped per server as well as increasing the ESP is for the parts that go into servers as we brought more content more capability to servers and we've also seen a number.
New client computing platforms that began production last year and that will ramp into full production. This year and also to the full benefit of.
Or we'll see the benefit of a full year's worth of production and then <unk> infrastructure was a good year over year growth driver for us last year, as well and again that falls within our comps and compute segment, and then and industrial and auto and despite the weak end.
And Mark with respect to.
And the pandemic quite.
Quite pleased with again, the performance and industrial and auto 11% growth year over year.
If you look at just Q4, 16% growth year over year, and really what's driving that is new platforms.
And with our customers around.
Industrial automation and robotics industrial safety. So yeah, certainly the consumer segment was pretty weak for us last year.
Due to the pandemic as well as and expected mix shift mix shift and our business, but we're quite pleased with our execution on comms and computing and industrial auto and we expect those to be growth drivers moving forward as well.
Great. Thank you congratulations.
I think hunter.
Your next question is from Alessandra Vecchi from William Blair.
Congratulations from me as well on that and that amazing quarter and not in a challenging environment.
To that extent just to dig a little deeper maybe and the industrial and automotive segment in particular.
And you can you help us understand how.
And maybe some initial revenue from.
The Nexus cross link and that could.
And can be there to to that strength or <unk>.
Thinking about and.
Nexus platform.
And being more broad based applications.
Yes, Thanks, Alex actually good question so.
If you recall in December of 2019.
And when we first we launched our first Texas based product and that was cross link and acts and at that time, we had kind of set the expectation that we'd like to see first production shipments within about a year, which would have been the end of 2020 and thats exactly what we saw and we saw initial production shipments of that first Texas based products.
Late last year, and now we expect that product to continue to ramp and full.
Full production through this year and into following years and so we expect cross link and X to be a contributor to growth. This year that that initial production shipment of nexis platforms or Nexus products is really important milestone for us because it kind of March.
And the beginning of the Nexus revenue ramp the other product that we launched last year.
And the Nexus family and mid last year with service and <unk> and that's our general purpose FPGA based on the Nexus technology, and we would expect that to start to contribute to production revenue later this year and the back half of this year and so yes. Its good to see that initial nexus platform ramp happening.
And it ramps the nexus products are applicable to really all of our market segments over time and should we expect that to be a good contributor to growth moving forward.
And then maybe just an extension to that and in terms of the gross margin and you.
<unk> had really nice if I'm doing the back of the envelope math correctly, a really nice improvement and our product gross margin front and on the total gross margin basis at 61, six now youre getting close to that 62 plus.
And I'm sure that'll be a topic for the May analyst day.
Can you can you help us understand what additional impact as these excess products start to gain traction and how.
And how much that could further and less.
The gross margin from from these levels and and just generally how we should think about gross margin and especially as industrial and comms continues.
Getting traction.
Yes, certainly so.
The business model targets that we put out there for our gross margin to be over 62%. That's the target that we put out for ourselves in may of 2019, our last Investor day, and I think we've made really good steady progress against that goal. Most recent quarter at 61, 6% gross margin.
And what's driven the growth margin progress to date is mostly around pricing optimization and product cost reductions we have put in place a strategy of pricing optimization, and our strategy and product cost reductions and began executing that and early 19, and that's continued through last year and we expect to continue those strat.
<unk> moving forward. So those will continue to contribute to gross margin expansion, but you're exactly right. The other.
Health net will get on the gross margin is our new products are designed to be accretive to the to the overall corporate margin. So as we've ramped new products. The intention is over time that those would help drive gross margin expansion as well and yeah and are either upcoming investor day and in May we will.
Talk more about.
Gross margin and expectations moving forward.
Perfect. Thank you so much with that I'll pass it onto the next person.
Thanks, Alex.
The next question is from Matt Ramsay from Covid.
Thank you very much good afternoon.
Jim I wanted to ask a quick question about the consumer business and despite all of the Covid operational challenges you guys grew.
<unk> grew revenue as a company and and the two main segments of the business grew and the double well into the double digits and and.
Grew 20% and the fourth quarter and you had this huge consumer headwind and you mentioned in your script.
The quality and visibility around some of those consumer revenues being much improved so if you could talk a little bit about your visibility and that segment going forward just as a basis for overall growth of the company are we up flat down looking into maybe the next 12 months as you see it today. Thanks.
Yeah. Thanks, Matt if you look at 2020, certainly and consumer was a headwind for us in 'twenty and 'twenty that was a combination of and market lower end market demand due to the pandemic, but also unexpected mix shift and our business, but we did start to see a nice stabilization of that business and at the end of the year.
Consumer revenue was up sequentially from Q3 to Q4, and then one of the things that I mentioned in the prepared remarks, which you.
Mentioned is the underlying quality of that revenue stream has improved significantly over the last one to two years and what's happened is we've been transitioning and the consumer revenue.
<unk> revenue stream.
From a more what I would call more volatile short term revenue streams to a much more reliable multiyear revenue streams. So things like pro Schumer applications High end audio systems are high and audio devices, which typically have multiyear lifetimes typically carry higher gross margins and our price.
And much more predictable revenue stream, so our consumer revenue started to stabilize and the back half we're expecting it to be much more stable moving forward and we'll probably give more color.
At the Investor Day, and me on expectations for the consumer segment moving forward.
But also industrial automation, and industrial and auto and comms and compute but we still see communications and computing and industrial and auto is the primary growth drivers for us moving forward. Although we don't we don't see consumer providing the same headwind and it has in the past and so and we will give a little bit more color at that.
Investor Day and me.
No great.
Really helpful. I appreciate it I guess.
And then next question I had is for Sherry Opex bumped up a little bit with which I guess, you would expect given the investments you're making to launch the nexus products.
Any thoughts about maybe this is an analyst day question as well, but any thoughts as to how you would expect opex to try and going forward.
And takes of.
Does the pandemic and if people start traveling again and you were launching new products, but a lot of the development cost of what Youre launching now and we're already and the run rate I would imagine so any thoughts there would be helpful. Thank you.
Yeah sure Matt. Thanks for the question. So our Q4 Opex did come in higher as we expected and.
And for the reasons that you mentioned day that we continue to invest and our business that we are and in growth mode. So we are specifically investing in R&D and our product roadmap.
Our Q4 Opex, though it did come in at 35 per cent of our revenue, which is at our target model.
And 2020 Opex I'll, just now came in and dollars came in flat versus 2019, while at the same time, we increased our R&D spend by about seven 5%.
And reduced SG&A by $4 four per cent so.
And really more just as they continue and more are example of how we continued to execute towards our long term model of 35% Opex.
And as you can see and our guide.
We are guiding to a higher opex and that's because we are in and growth but again.
As we continue to invest and our product portfolio roadmap going forward, we put out laid out at our analyst day in 2019 that our R&D target is 20% of revenue. So we continue to work towards that goal and while at the same time trying to keep our opex at the 35% target level and so that's how you can think about it at least in and over the next.
<unk> guide and certainly at our analyst stable and unable and get more color than that.
Thanks very much.
Thanks, Matt.
Your next question is from Kristen and Guillermo from Baird.
Hi, good afternoon.
Was wondering if you could elaborate a little bit from the Q1.
And whether you debt.
We see strong.
Is that.
Server or computing design wins that are ramping.
And I know you've mentioned Nexus and I was trying to see what the primary driver would it be for the upside and also when would you expect nexus to have a material impact.
Positive impact on gross margin beyond the other sectors that you've mentioned such as pricing and cost.
Yeah. Thanks.
Q revenue a little bit of.
What we're seeing by end market and.
Speaking on a sequential basis from Q4 to Q1.
Certainly if you look at the midpoint of our guide for Q1.
Sequentially from Q4, and where we're expecting to see sequential growth is again and communications and computing as.
And as revenue.
Our revenue growth from servers, but also from those new client computing platforms that we mentioned so we mentioned that.
Another new platform started shipping in Q4 of last year. So we'll see benefit from 19 Q1, So that'll help drive some sequential growth and the comms and computing segment and then we are expecting to see some sequential growth and industrial and automotive as well again some of those new platforms that are growing with our.
<unk> and things like industrial automation and robotics, we expect to benefit from in Q1 as well, we expect consumer to be sequentially roughly flat sequentially and then.
IP revenue the smallest component of our revenue, we expect that decline to have a modest and a small decline sequentially from Q4 to Q1 and then.
And then on the second part of your question on Nexus and its gross margin impact.
And I would I would expect gross margin impact from Nexus to be a little further out and I wouldn't expect a significant impact from Nexus and gross margin this year, but maybe and follow on years and 'twenty two and 'twenty three.
I would expect most of our gross margin improvement that we would drive for target. This year to be focused on continued pricing optimization improvements as well as continued product cost reductions.
Great. Thanks for the color and then from a follow up.
I'm just wondering if the total wins hack is driving interest for your security chips into data center, which Keith head.
Success.
What's the potential timing.
Security related server refreshes and also Ken that chip to be added to existing system or does it require to be proud of people and your server.
Yeah. Thanks, Good question, certainly what I would say is across.
Gosh virtually all of our customers our customers across all market segments, we're seeing definitely a lot of interest and security and our security solutions.
Our customers are concerned about making sure that all of their systems are fully secure all the way from the software level down to the fundamental hardware level and so the products that we brought to market now like Marc excellent three D or FPGA with special security processing technology are a great way to make sure that our customers are.
Securing their hardware platform at the fundamental hardware and firmware level and then.
And also the century software stack that we brought out last year, which pairs with that chip.
To provide a full solution stack again, she and a lot of good customer engagement and momentum so certainly customer concern around security and the security of their systems is helping drive customer engagement and our product roadmap around and around security and then.
The interest and the second part of your question was around.
And you had kind of a second part of the of the question Yeah.
Try to look at the potential timing or.
New design wins going to be for.
And for those chips, notably for the Magic, So treaty link to new server refreshes or Kenneth Cole.
Okay.
Thank you, yes sure.
So those are primarily targeted new server deployments.
Yes.
Generally customers don't do a lot of retrofitting of existing servers that are already been deployed we don't see a lot of retrofitting and so we would expect.
And the opportunity of those trips being retrofitted into existing and service is pretty small.
And so most of the I would say the vast majority of growth will come from new deployments. So we would and that's really what we've been focused on with our customers and in terms of the revenue and tiny.
<unk>, our first LPG, we've got security technology that store.
<unk> production in Q3 of last year, the production and increased in Q4, it ramped nicely in Q4, and we would expect that to continue to ramp this year and it would be one of the growth drivers. This year, because we will see a full year's benefit of that product.
And revenue.
This year and 'twenty one.
That's very useful and thank you very much.
Yes, thanks for the question.
Your next question is from Mark <unk> from Jefferies. Your line is open.
Hi, Thanks for taking my question.
And my question and the software side.
And then.
Thank you good folks and a lot on and investing in software and.
And last question is I'm trying to understand.
What is it getting you that you didn't have before to what extend is the software that you're investing and.
And then.
Lattice into new markets versus.
Effectively fiscal and the better job and and lock and your customers into.
The existing markets as well.
And what was used before with your customers do before before you develop the software stacks.
Yeah, Thanks, Mark so the software stacks.
Which let me step back and just explained and so we've been investing and higher level software solution stacks and.
It's really all around making it very very easy for our customers to design our products into their system and get to market quickly. So they can use the the solutions to access kind of prebuilt ready to go software.
Software libraries tools and reference platforms to get to market quickly and we've launched three to date. We first one was our sense AI artificial intelligence software stack second was our envision embedded vision software stack and the third was our century, which shawcor Sac, which was focused on security solutions and.
Before I would characterize it in terms of the customer.
And two types of customers customers that are very familiar with that Ppas and then customers that are kind of new J P. G and H for customers that are already very familiar with FPGA is this just you know and.
And I already familiar with our products our competitors' products just makes it really easy to.
To get their system design and quickly to switch from a competitor's product to our product very quickly and get to market and then the other category of customer and this is.
Very interesting to us is customers that typically have a used FPGA and their designs and the past and these are for instance customers that have historically used microcontrollers for example, and we find that the software solution stack makes it much easier for a customer that's used and microcontroller and the past the switchover to RF.
PGA and again get to market quickly and of course once that software is integrated into their system that makes us very sticky in terms of future generation systems as well.
And where we're seeing some of the advantages versus for instance, microcontroller solutions is particularly and artificial intelligence applications. If youre doing inference at the edge of the network and and Iot or industrial Iot application.
And for its applications AI applications are inherently parallel and they just run better and an FPGA because the FPGA can be.
Designed or can be programmed to be a parallel path parallel data processor.
And can significantly outperform a microcontroller and can be reprogrammed as the artificial intelligence algorithms change over time and so.
So again that software solution stack, just makes it really easy for our customers.
EBIT microcontroller customers to get out that FPGA benefit really quick and again and get to market quickly.
Great. That's helpful. That's very helpful. Thanks for that color and then.
And that kind of leads me to the follow up.
I don't know if it was 10 or 15 or 20 years ago, you'd think about that.
And that Pega company, having like a glue logic kind of a product and.
It would be altera, and xilinx or lattice and and it seems like.
You are moving up the value chain, so to speak and and.
Adding a higher level of value and if I think about your security solutions and maybe to answer. The last question is part of that.
And it seems like it's not like a.
And how that standard kind of a solution and it seems like you have a.
And all of its application specific solution, but whats the right way to think about.
The markets that you're prosecuting right now as the competitive environment that you're prosecuting right. Now is it seems like it's more than that pega. So as it is microcontrollers is that does that kind of what you get.
Effectively the right way to think about your market opportunity is what we're microcontrollers are right now.
And if you could help us.
Give us some framework to think about that that'd be helpful. Thanks.
Yeah. Thanks, Mark, we're certainly competing against our traditional competitors and AFP.
<unk> space and against our traditional competitors, we think we've got a great roadmap, particularly and that.
Power efficient small sized FPGA is that we produce but yeah. We are now competing against people beyond the FPGA space and as well and I do think that's part of part of that is because we're targeting and not just being a component supplier or as you called it a glue logic supplier, but really.
Being a critical architectural element of the solution that we're going into with our customers. We're trying to help our customers solve the architectural challenges.
And product competitiveness challenges that they're seeing and their business and that's really what our products both hardware and software are more and more tuned for moving forward.
Great example of that you mentioned security. That's a great example, right of security platform level security firm, where security and very important to customers and that's very important to our server customers, but really customers across multiple different markets and so that's why we've developed we've taken one of our well known Fpga's and added two and security technology as well as the <unk>.
Software on top of it to help customers solve that.
That problem artificial intelligence is another great example.
Customers across all of our market segments are trying to figure out how do I add more intelligence to my system, how do I add more decision, making capability and FPGA as are just a natural fit and in particular, our low power very power optimized FPGA as are a great fit for doing AI processing at the edge of the network.
And so again with our soccer solution package, we're trying to provide not just glue logic, but some of the critical architectural elements of our customers' systems and so yeah, I would say that that's broadening our applicable city across the market, which is helping us to compete against a wider.
<unk>.
Competitors that we've competed against in the past and Microcontrollers is one example, but also a SSP as well and so but for us it's really around focusing on our customer and making sure. We're solving some of the big challenges that face and moving forward.
Very helpful. Thank you.
Thanks Mark.
Your next question is from Christopher Rolland from Susquehanna. Your line is open.
Hi, there I also want to Echo my congrats on the quarter.
Industrial and auto that was most of the upside for us for our model I believe auto small for you guys.
I would assume it's mostly industrial there but.
Perhaps pulse.
If that's not right, but if you could speak to what's driving it a little bit more specifically there is and industrial automation is that vision as it grew law Jack.
Or is it in fact order and any more color and that would be great. Thanks.
Yeah. Thanks, Chris I think you and I think youre, referring to the Q4. The most recent quarter results rate, where we saw quite a bit of strength, yes, quite a bit of strength and industrial auto. So we signed up sequentially in Q4 up.
8% and up year over year by 16% and so very good performance in that segment that is.
Definitely that's driven by industrial or automotive segment is still a relatively small percentage of our industrial auto.
Segment, and now we do see automotive electronics as a good long term growth opportunity for the company because of our products fit well into a number of different and automotive applications like Adas and infotainment systems and we've got a very healthy design win pipeline, but the near term the recent.
Revenue performance was really driven by industrial and what we're seeing and industrial is.
And I'd say a couple of things first of all we did see just some end market.
So the end market strength and and general towards the end of the year should we benefited from that but more.
And more of the growth was driven by one of them called lattice specific growth drivers and that is specific customer platforms, new customer platforms that are ramping and an example ill give a I guess a couple of different examples is one is in.
In industrial robotics, we're seeing a very.
Gary.
And I would say a quickening pace of.
Adoption of industrial robotics, and automation and I.
And I would say prior to the pandemic.
And we were already seeing a tremendous amount of interest from our industrial customers on industrial automation and robotics and safety applications, but I would say with the experience of COVID-19, and the pandemic and that is really driven our industrial customers to adopt.
Industrial automation and robotics and industrial safety much quicker than maybe they had originally anticipated and we are well positioned with a number of new platforms or products are really well positioned there.
In industrial automation robotics, but also industrial safety applications, where our devices can be used to monitor for instance, a workspace that handful of humans and robots and the same workspace and make sure that the robot.
And the robot and human or at safe distances and if if it.
Our system sees any potential safety lapses, it'll shut down the equipment things like that and so those are some of the applications that we're excited about both current applications and applications moving forward and yes, we will give some additional color at that Investor day, and the about where we see some of the growth moving forward.
And that segment, but.
Yes, we are quite pleased with the performance in Q4.
Yeah.
Great and then perhaps a follow up per Sherry Sherry I don't know if he could force rank or just give us a rough idea of the kind of sequential movement for the segments into March.
In terms of the color on our expected markets is that what you're asking for Chris exactly the sequential movement, yeah, Yeah. So strike yeah sure.
So from a comp and compute markets thinking or expecting that to be up.
From Q4, industrial and automotive are expecting that to be up as well consumer we're expecting that to stabilize more trend from Q4, and then IP, we're expecting that to be down forever and you recall, we've talked about our normal range of IP is between $3 million to $5 million.
And then expecting that to come down slightly over time. So that's how you can think about the next quarter.
Thanks, So much share I appreciate it and thank you Sir.
Thanks, Chris.
Your next question is from Derek Soderberg from called Securities. Your line is open.
Hi, good afternoon, and thanks for taking my questions I want to start with new products.
The goal there was starting to increase your FPGA market share at existing accounts.
It sounds like there is a wider range of competitors now, but I guess as it relates to the more traditional competitors now that youre, starting to see new products ramp and as you've had roadmap discussions with those customers can you describe how that and market share dynamic is playing out I guess, maybe relative to <unk>.
Expectations.
Yes, Thanks, Derik I would say, it's the customer engagement is very positive and a lot of customer and momentum right now I think customers see exactly what we see and the landscape is when you look at the FPGA landscape are two traditional competitors, Intel PSG, which formerly altera.
And xilinx are focused on making very large very high power complex FPGA is for primarily for data center computing applications and we're really focused at the other end of the spectrum, we're making.
Small very power efficient and very easy to use FPGA is from a lot of software content on top.
That can be used across from just a really wide range of applications number of those applications and I talked about.
Earlier today, and so when we sit with our customers our customers see.
And a very fresh and innovative expanding portfolio of products from us and they don't see that from anyone else and the industry and so I think our customers are really excited about the roadmap, they see and front of and front of them from us.
Investing in the segments and and the types of.
Solutions and products that they are that there that are important to them and they're excited about and I think the other thing that they see as they just see you know look over the last say 18 months. If you just look at the number of products that we brought out over the last 18 months. It's about three times the number of products that we're bringing out and say three to four.
Three years ago, so they see.
Allowed us investing and the roadmap building out the product portfolio and trying to solve their problems and I think that's definitely helping drive share gain and we believe we gained share last year, and we're certainly targeting and continuing to gain share and the market segment that we share moving forward and I think the the customer momentum.
And Tom and engagement is definitely there and we're really excited about it.
Great and then as my follow up.
I wanted to ask Sheri on buybacks. So this is the first time, you're buying back shares with you know.
And what this team spent $15 million.
I guess I'm just wondering what are your plans looking forward for additional buybacks or use of cash. Thanks.
Yes, sure. Thanks, and thanks for the question Derik, So from a capital allocation perspective, our stock buybacks are certainly one of the elements of that and as you mentioned, we did execute and I'm not.
It's a $50 million and us.
Sales in Q4 back and.
That was under a and authorized buyback program that expired in February so.
And we don't currently have that and approve buyback and right now and think it will continue to be and element of our capital allocation strategy that will look at it.
As we move forward and the other elements of our capital allocation strategy and quick deleveraging our balance sheet.
And you to look at that our leverage ratio came in at $1 four for the quarter and.
You may recall earlier in 2020, we accelerated some of our mandatory debt payments. So that we can block and the lowest interest rate tier on our debt and we.
Continued to be at that lowest interest rate tier so that again will continue to evaluate and accordingly basis, but felt pretty comfortable that that we're at the lowest level as far as the interest rate goes on that and.
And and really the top priority from a capital allocation perspective is really investing and our product Roadmaps and will continue to do that.
Is that you know its been evidenced by our three times cadence and Christina and our product launches. So we will continue to lag to prioritize that from a capital allocation perspective.
Great. Thanks.
Thank you.
Your next question is from Richard Shannon from Craig Hallum and your line is open.
Well, thanks, guys for taking my question.
And Jimmy had a couple of questions earlier regarding AI that I wanted to ask and I kind of follow on and ask a slightly different angle here.
Yeah.
Allowed us even before your before your tenure was starting to focus and that area I think mostly from a hardware perspective, and then you've added.
The the sense AI application stack, because I got the name right I think a couple of years ago.
I guess my two kind of a two part question here is how do we think about the success you've had and AI applications. So far any way you can characterize or even quantify how much that is contributing to sales. Thus far where you could go and then and then to the degree to which your software stack is enable that and love to hear some characterization of how that's gone.
Yeah. Thanks, Richard Yeah, I would say I would put it in kind of two <unk>.
And two bucket is.
First of all.
The fact that we're we're bringing.
And artificial intelligence inference processing capability, both in terms of the hardware, but also the software solution is definitely a door opener for us customers. So customers that maybe we haven't engaged with and the past that's definitely a great way to open the door and to begin to do business with them we have customers across.
I would say every single market that we serve that again are looking and and how to how do I add more intelligence more capability more decision, making to my systems and so for a customer that we haven't had in the past, it's a great way to initiate that customer relationship and to begin to work with them on.
And integrating lattice solutions into their systems and then even for customers that maybe we've had for many years and it's really been and opportunity for us to expand the share of wallet traits and expand our share of their spend versus other semiconductors, whether that's our.
And expanding our share versus other FPGA competitors, where we're able to offer a better solution and more power efficient higher performance better software or some of the other component suppliers that I mentioned earlier. So I think it's it's both a way to help us expand into new customers, but also a way to expand.
And share of wallet with existing customers.
Okay fair enough that's helpful.
And I saw one question here was and your clients.
Client platforms wins youre, starting to have some success for within computing.
I guess, a two part question and that one the first one is.
Where do you see the share potentially or it sounds like you would characterize from I guess you characterized this as a start you know low and starting point of share where can that go over time and then are these are these wins are they at corporate average gross margins or with high volume P. C things like I guess I could I could see them being lower than average, but maybe you can characterize that as well.
That would be great.
Yeah, Thanks, Richard shut and the first part of your question. The thing that we love about the client computing market is look it's a huge tam.
It's.
And I don't know if he can't remember the exact numbers for this past year, but it's somewhere in the 250 million unit.
And more number of units and client computing and so for us that's a tremendously big Tam.
And significantly bigger for instance, the server market, which we've had a lot of great success and progress and the server market and so our objective is really to grow within the client computing space, where we can provide a lot of different grade capabilities and our client computing platform and just a few examples as we were talking about artificial intelligence.
Just a few minutes ago, we can provide that artificial intelligence can.
Capability and our client computing platform, we can detect for instance, human presence surrounds that claimed computing platform. We can detect how many people are looking at a client competing screen. For example, and another example would be we can provide security technology that makes it ensure that that platform secure.
We can also provide signal aggregation and integration capability. So a lot of different ways and we can provide value and our client computing platform and a huge Tam and so we look at it as a great opportunity for the company moving forward as a <unk>.
Sure.
Did see a number of new client computing platforms begin production and.
And this past year and will benefit from a full year's revenue of those platforms. This year and into the coming years and as you can imagine we've got more things that we're working on with our client computing customers in terms of gross margins I would say that client computing is just part of our overall.
Communications and computing segment, we don't break out the sub segments of that but in general communications and computing runs.
Here are you know and the neighborhood of our corporate average and we would expect client computing to continue to operating towards the around our corporate average although.
And computing gross margins had been improving along with our corporate average over time.
Okay fair enough. Thank you guys.
Thanks Richard.
Thank you.
I'm showing no further question at this time I would like to turn the call over back to the CEO and Mr. Jim Anderson.
Yes, Thank you operator, and thanks, everybody for joining us on the call today, we feel good about the progress that we made in 2020, both in terms of the financial progress as well as the progress that we made on both the hardware and software Roadmaps.
And as we've talked about today, we have very strong customer momentum and we're really excited about the path in front of us and we of course remain very focused on continuing to execute on both the business strategy as well as our product roadmap and we look forward to share more details at our investor and analyst day in May and operator that concludes today's.
Paul.
This concludes today's conference call. Thank you for your participation and have a wonderful day.
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