Q2 2022 Lattice Semiconductor Corp Earnings Call
Greetings and welcome to the lattice semiconductor second quarter 2022 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded.
I'll now turn the conference over to your host Rick Boucher you may begin.
Okay.
Thank you operator, and good afternoon, everyone with me today are Jim Anderson, <unk>, President and CEO and Sherri Luther <unk> CFO .
We will provide a financial and business review of the second quarter of 2022, and the business outlook for the third quarter of 2022.
If you have not obtained a copy of our earnings press release. It can be found at our company website in the Investor Relations section Atlanta semi dot com.
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.
Wish to caution you that such statements are predictions based on information that is currently available and that actual results may differ materially.
Refer you to the documents that the company files with the SEC, including our 10, Ks 10, Qs and eight Ks. 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 third quarter of 2022, if any time. After this call we communicate any material changes to this guidance, we intend that such updates will be done using a public forum such as a press release or publicly announced conference call.
We will refer primarily to non-GAAP financial measures. During this call by disclosing certain non-GAAP information management intends to provide investors with additional information to permit further analysis of the company's performance and underlying trends.
For historical periods, we provided reconciliations of these non-GAAP financial measures to GAAP financial measures that can be found on the Investor Relations section of our website Atlanta semi dot com.
Let me now turn the call over to Jim Anderson, our CEO .
Thank you Rick and thank you everyone for joining us on our call today we.
We delivered strong results in Q2 with record quarterly revenue, which grew 28% year over year and non-GAAP net income growth of 68% year over year growth continues to be led by our largest end markets of communications and computing and industrial and automotive our growth in the strategic markets fueled by growing demand.
For our rapidly expanding product portfolio and continued strong customer momentum.
Let me touch on a few additional highlights from Q2.
In addition to the strong revenue growth, we expanded non-GAAP gross margin by 700 basis points year over year to a record 69, 1%. We achieved record non-GAAP operating profit of 38, 1%, which was an increase of 900 basis points year over year.
And we further expanded our product portfolio with the launches of our Mark Exel, five Nx device and our latest five G O ran solution stack.
Let me now provide an overview of our business by end market.
In the communications and computing market revenue increased 13% sequentially and 35% on a year over year basis, we're on track to deliver our fourth consecutive year of double digit growth for this segment in datacenter our dollars of content per server continues to increase due to our growing attach rate, which is now well over one <unk>.
<unk> and increasing Asps.
In client computing, where we have a large greenfield growth opportunity new customer systems began production in Q2, including the new platforms that were announced with Lenovo and LG over the past quarter.
Lastly in <unk> infrastructure, we're benefiting from ongoing global deployments with strong revenue growth, both sequentially and year over year.
Turning now to the industrial and automotive market revenue increased 7% sequentially and was up 30% on a year over year basis revenue growth was driven by new customer platforms, where lattice either displace competitors or brought new functionality and capabilities to the system.
<unk> market, leading power efficiency in combination with the software content that we provide has been a key driver for customers adopting lattice products.
We continue to be very excited about the growing customer opportunities for lattice products in the industrial and automotive segment.
Turning now to consumer revenue declined 17% sequentially and was down 1% year over year, reflecting macroeconomic softness in the consumer electronics end market because consumer represents less than 10% of our overall revenue the consumer demand softness was more than offset by growth in our other core strategic market.
Yes.
I'll now provide some product roadmap highlights.
We introduced Mark <unk>, the fifth device family built on our latest Nexus platform.
This device family enhances system monitoring and control and multiple applications across our strategic markets with class, leading power efficiency and reliability. Overall, we continue to be pleased with the broad adoption of our <unk> platform across all our market segments. We're also pleased with the revenue ramp of our Nexus products, which we expect to continue to ramp over.
Couple of years.
In addition to the continued portfolio expansion of Nexus. We're excited this year to be further expanding our product portfolio with the launch of our latest bond platform.
Avant will have five X the capacity of Nexus, which will double our addressable market and will allow us to address mid range FPGA applications customer engagement and momentum is very healthy and continues to grow and we believe avant will create an important new revenue stream for lattice when it ramps into production.
Execution remains on track for a launch in the second half of this year and as we previously mentioned, we expect to hold the public launch event for our bond customers and partners in Q4 of this year.
Turning now to our software strategy as we've discussed over the past few years, we've been increasing investment in our software portfolio. These investments are focused on making it easy for customers to adopt latest products and get to market quickly during the quarter. We launched the latest five G. O ran solution stack, which is the fifth software.
<unk> stack and our portfolio of software solutions.
<unk> G O ran solution stack provides customers with the ability to secure data and accelerate network functions over half of our new Silicon design wins are now enabled by at least one of our five software solution stacks, which increases the value that we're delivering to our customers and the long term stickiness of our products.
In summary, we believe ladder is well positioned in the right strategic growth markets with a rapidly expanding product portfolio and accelerating customer momentum we're.
We're pleased with our first half results and we expect to have a strong second half as well I'll now turn the call over to our CFO Sherri Luther.
Thank you Jim we are pleased with our strong financial results in Q2, as we continued to deliver double digit revenue growth significant gross margin expansion and record profitability.
We generated strong free cash flow, while investing in our long term product roadmap.
Also return cash to our shareholders through share buybacks, let me now provide a summary of our results.
Second quarter revenue was a record $161 4 million up 7% sequentially from the first quarter and up 28% year over year.
Revenue grew double digits year over year, and our communications and computing and industrial and automotive market segments with strong sequential growth as well.
Revenue from our consumer market segment was down sequentially and year over year, reflecting macroeconomic weakness in the consumer electronics market.
Our non-GAAP gross margin increased 140 basis points to a record 69, 1% in Q2 compared to the prior quarter and was up 700 basis point compared to the year ago quarter.
Both the sequential and year over year increases in gross margin continued to be driven by strong execution of our gross margin expansion strategy, which we began to execute in early 2019.
non-GAAP operating expenses were $49 9 million compared to $47 2 million in the prior quarter and $41 5 million in the year ago quarter.
Both R&D and SG&A expenses increased sequentially as we continue to invest in our long term growth of our business.
However, both declined sequentially as a percentage of revenue.
Our non-GAAP operating margin increased 180 basis points to a record 38, 1% in Q2 compared to the prior quarter and was up 900 basis points compared to the year ago quarter.
We continued to benefit from the gross margin expansion strategy that we began executing at the beginning of 2019.
Q2, non-GAAP earnings per diluted share was 42 cents compared to 25 cents in the year ago quarter, which represents a 68% year over year crowd.
Driving strong cash flow generation continues to be a key focus area for the company and through the first half of 2022 we have driven a 31% year over year increase in operating cash flow.
We ended the quarter with $118 million in cash after repurchasing approximately 735000 shares or $35 million of stock under our existing buyback program.
Q2 was our seventh consecutive quarter of executing share buybacks.
Let me now review our outlook for the third quarter.
Revenue for the third quarter of 2022 is expected to be between $161 million and $171 million.
Gross margin is expected to be 69% plus or minus 1% on a non-GAAP basis.
Total operating expenses for the third quarter are expected to be between 50 million and $52 million on a non-GAAP basis.
In closing we are pleased with our strong first half results and expect a strong second half of the year.
We remain focused on driving sustained revenue growth and profit expansion through the strength and differentiation of our leadership product roadmap.
Operator, we can now open the call for questions.
Thank you and at this time, we will be conducting a question and answer session.
If you'd like to ask a question. Please press star one on your telephone keypad and confirmation tone will indicate your line is in the question queue.
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Our first question comes from the line of Mark.
These with Jefferies. Please proceed with your question.
I'm sorry, our first question comes from the line of Hans Moses Man.
Securities. Please proceed with your question.
Oh I'm sorry are you there.
Sorry about that.
I was muted, but congratulations to Jim and the team for their great execution on what you've done over the past several years, it's just that.
Very impressive.
Sides execution to the strategy in terms of gross margins in terms of new products and software stacks.
What is driving this this.
This strength are in the midst of that and are pretty tough.
Environment.
Yeah. Thanks for the question, we were quite pleased with the growth that we saw in first half of this year overall, but in Q2 as well.
And both from a both from a market standpoint, and from a product standpoint from a market standpoint, you know growth is really being driven by our big strategic market segments, which are communications and computing and industrial and automotive. If you look at Q2 in comms and compute we grew 35% year over year, we're really pleased.
With that growth continued expansion in for instance servers for the data center, where we continue to see expansion of our attach rate now well over one acts of Asp's.
A nice growth in <unk> wireless infrastructure as well in Q2 and Pcs.
<unk> client computing continues to remain a large greenfield growth opportunity for us in that market. I'm also really pleased with the results in industrial and automotive we had quite a crowd a strong Q1 in industrial and automotive, but followed that in Q2 with a 30% year over year growth.
We continue to see good strong growth in new design wins in things like industrial automation robotics, automotive electronics, where writer displacing competitors or bringing some new capabilities to customers. So quite pleased with growth in that market. We did see some softness in our smallest market, which is consumer electronics, we saw a little bit of.
End market softness there but.
Consumer represents.
In Q2 about 8% of our revenues so 90% of our revenue is in those other growth strategic segments that I talked about and then from a product perspective. We're you know we're pleased with the Nexus ramp we have a lot of new product cycles that are happening right now.
Nexus, we launched our fifth.
New Nexus device in Q2, we now have four of the five are in production and our fifth device, which we just launched novel enter production next year should we have a kind of a layering effect of new products as they ramp into revenue in <unk> and next as we expect to continue to ramp over the course of multiple years. So good good growth.
In both from a market standpoint, but also from a product standpoint, you know we are certainly cognizant of the macro economic climate and you know we're cautious around some of the recessionary pressures that exist out there certainly monitoring demand signals.
You know very closely but we're you know we're very bullish on the lattice specific growth drivers that we have whether that's the market growth drivers I just talked about are the new product cycle. So again I'm pleased with our first half results and we are looking forward to a strong second half as well.
Hey, Jim.
Very quickly what.
I am just I am sorry, all of that and that's what's great execution, but maybe.
How much of the the momentum is coming from just taking share from your traditional F. P. G. A small players small FPGA players <unk>, taking share from non traditional competitors like microcontrollers.
Yeah. Thanks, it's a combination of both of those are we certainly are gaining share versus our traditional FPGA.
Competitors, where certainly we can definitely see that we're taking share there and the small FPGA space, but we are also converting a microcontroller sockets. We're gonna FPGA is as well. So it's really a combination of all those two as well as there are cases, where we're bringing just brand new functionality and.
That hasn't existed in platforms before you know for instance in the the Lenovo platform that we had announced earlier this year that is completely new functionality that didn't really exist in our platform before so its really a combination of all those factors I think it's interesting when I look at the growth that's been.
And that we've been driving for instance in the first half of this year and you look at well what is the source of that growth vast majority of that growth is driven by new revenue streams that we've created just within the last say 12 to 18 months. So that means new are new platforms that existing customers are expanding our footprint at existing customers.
Or bringing on new customers to the latest family so.
We are quite pleased with the freshness of that revenue growth in terms of where at the beginning of new revenue growth cycles that should last for multiple years.
Great very helpful. Congrats.
Thanks.
Our next question now comes from the line of Mark <unk> with Jefferies. Please proceed with your question.
Hi, Thanks for taking my question I had a question for Sherry and then one for Jim If I may.
Sherry on the gross margins.
You talked about the programs that have been driving the expansion.
As you look into next quarter.
You have higher revenues, but you're you're expecting flattish gross margins could you just review kind of what the what the puts and takes are and then maybe at a at a higher level.
Youre above.
I guess you have an open ended gross margin kind of.
Target operating target longer term.
At some point you know after you hit so many quarters in a row above your target do you kind of think about reassessing that and I had a follow up for Jim If I may thank you.
I think back to the question. So we're really pleased with the results of our gross margin for Q2 at 69, 1%. That's another record for us and representing 140 basis point sequential improvement and 700 basis points year over year and you may recall that we've been executing.
Executing on our gross margin expansion strategy now for four years as we laid it out in 2019 and the elements of that as we described at our pricing optimization.
And a higher gross margin from our newer products are really driving some of that sequential as well as year over year increase.
Since the end of 2018, we've actually driven an increase in gross margin of 1200, nearly 200 basis points. So we're really pleased with that progress.
And gross margin expansion continues to be a focus area for the company.
And when you look at them. You know you mentioned are our gross margin target and kind of how we're thinking about that and it's really just continuing to focus on gross margin.
We've been doing it now for four years, and we will continue to focus on that to drive profitability for the company.
Yeah.
Fair enough and a follow up for Jim If I may.
Have you had you had mentioned to the previous question that you're aware of that you know the macro pressures, but they they they don't seem to be manifesting in your business and you know it seems to me a lot on a lot of these earnings calls for other semiconductor companies.
You here it seems like a lot of people talk about you know what is the concern out there but companies continue to do seem to be reporting really nice results with you know with the odd exception here and there so I'm wondering.
Jimmy This is this like the the the most well anticipated.
Downturn that hasnt happened, yet and in your kind of career as.
As a as a executive in the semiconductor industry and does it does it change how you.
We'll manage the risk in your in your business in terms of managing our operations or even giving if I gave them, giving guidance. If I look over the last six quarters, you kind of hit the top end of your guidance if not slightly above the top end over the last six quarters in the previous couple of years, you're seem to be right in the middle says it seems like Theres a lot.
Bit.
More of a cautionary angle.
Are you now, perhaps there's a you know as a risk.
Out of respect for what macro pressure so it might be if you could just share your thoughts on that I think that'd be helpful. Thank you.
Yeah, certainly thanks Meyer.
Yeah, I think that when we look at the macro economy, and we look at it you know potential inflationary pressures recessionary pressures, especially as we go into next year. Yeah. We we just want to be cognizant of that macro claim that as we're thinking about the business moving forward.
And just cautionary or a cautious about about those potential influences on the business and so that's something that isn't in front of our mind, we're watching our demand signals very very carefully of course, we always watch that carefully but.
We're being very careful about monitoring all demand signals, but with that said with that sort of cautionary backdrop. We are quite we feel quite strongly and quite good about the latter specific growth drivers that we have that are sort of unique to ladder, whether those are some of the mark.
Specific growth drivers that I talked about a little earlier, whether that's growth in servers, where we still believe we have opportunity to expand our attach rates are ESP is whether that's growth in new greenfield areas like P C or the great growth that we've seen in things like industrial automation robotics and automotive electronics.
We see a lot of opportunity in the different markets and then we're simply going through new product cycles as well if you look at it allowed US. We're now just at the beginning of the Nexus ramp we're only in the second full year of revenue from next as we see multiple years of growth in the Nexus product line and then we have.
Avant, which will launch in the second half of this year as well as our bond interest production in future years.
Here's that creates an entirely new revenue stream for the company. So I would say, we're cautionary on the macro climate, but bullish on the latter specific growth drivers that we see in front of us.
Really helpful. Thank you Tim.
Thanks Mark.
Our next question comes from the line.
Andrew Ritchie with William Blair. Please proceed with your question.
Yeah.
I Echo the congratulations on the strong results in a tough environment.
Jim if we could maybe delve a little bit deeper into some of the greenfield opportunities.
And what's been driving the content gains there I mean, you mentioned P C, which you've been talking about for the last few quarters.
Had some really nice announcements this quarter with with LG is while it is.
Two sockets in England Nobel and then similarly with.
Sure. It is if he if he didn't just talk a little bit again about the games are against the Microcontrollers, how we should be thinking about ramps into the back half and next year and then also how we should be thinking about those greenfield opportunities there, but as a percentage of revenue I'm told all as we look out a couple of years.
Going forward.
Yeah. Thanks, Alex.
So you mentioned, both automotive and Pcs, maybe I'll touch on both of those let me start with automotive.
Emotive electronics, we just see as a great long term growth area for the company.
No doubt the you know the.
Average electronic content per auto will continue to.
To rise moving forward.
We're certainly participating in that our products are just a great fit for automotive electronics the flexibility the software content that we provide the power efficiency is just a number of different places, whether it's Adas infotainment systems, where our latest products are getting designed in we have a robust design.
Wind pipeline and our automotive revenue continues to grow very well and again grew very strong in Q2 as well and so we're quite pleased with that and we look.
Forward.
Good long term growth in that segment. So that's one area because thats a relevant automotive electronics is a relatively small portion of our revenue today, but we expect to be a good growth contributor over time now that's one area that we see as a relative greenfield opportunity for us given the potential growth opportunity there over.
Time, and then in the PC market.
Our revenue there today is relatively small, but if you look at the PC market overall, that's a very large system Tam and theres a lot of new capabilities and features that we can bring to it you see that add a tremendous amount of value to the end user experience and so we've now announced a couple of different systems with Lenovo.
<unk> that are now in production Thinkpad system, which we announced at the beginning of the year, We recently announced a chromebook system, we announced a new system with LG as well and so this just represents a tremendous amount of large unit system Tam and great Greenfield growth area.
For us overtime and so these will continue to we expect grow and contribute to not just growth in the second half of this year as I said, we expect to have a second strong second half relative to first.
We expect that to continue to grow in the coming years as well.
Great. That's really helpful and then not to harp on gross margin, but if I if I back out.
The pure gross margin royalty revenue over the last couple of quarters from a product standpoint.
Underlying gross margin has been tremendously strong and as we've alluded to them how do we sort of how do we think about the structural.
Gross margin a few years out you're starting to approach them.
Links levels, our friends from before they got acquired by a M D.
It seems like an achievable level and then and then similarly.
If we do go into a downturn, even given your secular drivers. It seems to me like your gross margin should be relatively robust even at these elevated levels is that a fair.
Fair statement.
Yeah, we believe theres good durability in our gross margin just based on kind of the drivers underneath and as we look forward as well.
As Sheri mentioned in her comment earlier, so first of all just as a reminder, we began our gross margin expansion strategy at the beginning of 2019. So we're in our fourth year of executing on that gross margin expansion strategy that had three different elements in it that had pricing optimization product cost.
<unk> improvement and then mix improvement in the business over time, we're pleased at the progress we've made over the past years certainly share he's pleased I know that and so I'm a.
You know it continues to be a focus area for us moving forward and we do see continued opportunity in gross margin one of the one of the areas that Sheri alluded to was new product ramps are our new products are designed to be accretive to the overall company margin.
And so we see that is beneficial to the company moving forward, whether its nexus ramping or a bond in the future.
And then also I would say that another thing.
The thing that we've seen in the business over the last six to 12 months is.
Where we're seeing a high attach rate of our software solutions to our new hardware design wins. So if you look at design wins for Atlanta Silicon and over the last say 12 months are the majority of those design wins have a software attach meaning they are enabled in some way by <unk>.
One of our five software solution stacks and generally when we are attached software to our silicon in the solution sale, we see higher asps and that too and so that's another upward upward or tailwind on our gross margin. So we do see additional opportunity moving forward and endure.
Ability in the gross margin.
That was extremely helpful. Thank you so much I'll jump back into queue.
Thanks, Alex.
Our next question comes from the line of Matt Ramsay.
Please proceed with your question.
Oh, yes. Thank you very much good afternoon.
Jim I think it's.
I don't know kind of consensus that one of the areas and digital economies, where we still see a pretty wide supply demand gap is an FPGA and I.
Obviously with some of the things happening in the PC market in the smartphone market some of those supply demand gaps in other parts of the industry is starting to close a bit but I wonder if you might give a few comments just on the FPGA market in general and how you feel supply is relative to demand out there and has that gap started to shrink at all in your markets are still pretty.
Consistently wide thanks.
Thanks, Matt.
Mostly just comment on our business and what I would say is that I feel like we've done a good job of supporting our customers.
Certainly the you know the supply chain the overall semiconductor supply chain remains.
Remains tight I think it will continue to remain tight through the end of this year into next year, but we are seeing some signs of improvement.
We have recently over the last quarter or two seen some incremental supply from our suppliers.
Mental capacity beyond what they've committed to us for this year. So we see that as a as a positive sign.
For the second half of this year and into next year, we do feel like relative to some of our competitors. We've done a good job supporting our customers and I think our customers recognize that and I think that's helped accelerate in some cases transitions from our competitors towards lattice and so that has been helpful.
Not that we're immune to the supply chain crisis at all certainly were you know were affected by this will play the same supply chain tightness, but I think overall, we've done a good job navigating that in supporting our customers.
You know overall and so you know, but we do see some some good signs of improvement over there like I said over the last couple of quarters, and we expect to supply to continue to improve into next year.
Thanks for that Jim just as a follow up question for you maybe you could talk to us a little bit about opex growth I know I have conversations with some of your peer companies about inflationary costs on wages obviously.
Jim just mentioned in his comments the supply chain remains tight and you guys aren't immune so I'll just investments youre, making hiring wages just how should we think about opex sort of trending or just kind of staying within the band that you're in as a percentage of revenue. Thanks.
Yeah.
Yeah. Thanks, Matt So when we look at our Opex.
<unk> grew at 20% year over year, and where that came from was a majority in R&D. So we're investing a 24% growth year over year in R&D and our product roadmap for the long term growth of our company and so you've seen that we've been doing that for some time now and we definitely have a bias for investing and we want to.
Do it in a very controlled and disciplined way, but investing for the long term growth of our company has seen our product launches our fifth device as long as that finds the Oran solution.
And stopped that we announced in Q2.
Our bond coming out it did in the second half as Jim mentioned, so we continue to invest in our product roadmap. That's our that's one of our top priorities and then when you. When you look at them. You know you mentioned inflation some of that's a little bit you know hard to kind of separate out, but we are continuing to hire I think you'd see in a lot of our.
Then social profiles all of that you see there is lots of hiring going on in R&D and again, that's that's to continue to make sure that we've got you know that that's the right focus and developing the right products that we have so you can continue to see that bias truck, we're investing within SG&A as well you see that there is a sequential increase there and that's what we're investing in our customer.
Our support and our demand creation, that's very important as well. So we are continuing to invest in the company.
Thank you very much to you both and congrats on the results.
Yeah.
Thank you once again.
Our next question comes from the line of Chris Rolland with <unk>. Please proceed with your question.
Hey, guys I Echo the congrats.
And Oh I guess my question is and I get this from investors quite a bit people would love to know what kind of products, where legacy products I as a percentage of sales and you know what are the.
As a percentage of sales or the products that have been launched under your management tenure is there is there any rough kind of idea of what the split might be at this point.
Yeah. Thanks for the question, Chris So we don't break out product line specific revenue, but what we can say is we kind of think about it as an excess products and preen excess products and what we can say is both both categories have continued to grow.
No.
You would expect now that an excess products to continue to ramp and grow those products are new as we've mentioned we've launched five products for the fiber in production the fifth which we just launched will go into production next year and you can expect us to continue to launch additional nexus products moving forward and are those.
Alex will ramp over the course of multiple years, but even the pre nexus products we've.
We've seen very good growth in the pre Nexus products, new design wins, new applications that those are getting designed into a we believe that our software solution stacks in particular have been very helpful. In getting our pre nexus products designed into new applications that we may not have been able to support in the past.
And so we're seeing growth in both of those areas and frankly, we want both pre nexus and excess products to continue to grow and then.
Moving a little further out.
We launched a bond in the second half of this year and bring that into production in future quarters that will add an additional revenue stream that is completely additive to the company because it's in a different parts of the FPGA market that we don't address today it addresses.
Mid range FPGA application, so our bonds will double our addressable market create a new revenue stream for the company.
Out in time, and so and so we feel good about the.
The growth of kind of all of those categories moving forward.
Great. Thank you, Jim and then either Jim or Sheri.
Looking out maybe next quarter or even beyond I don't know if you could force rank the segments for us in terms of growth or just some broad strokes you know between the three segments, but even breaking it down into comms versus compute or.
Something like that and I guess also do we get a bounce back in consumer or or do you think those trends continue as well.
Yeah, Thanks, Chris I'll get a little bit of color on the on the Q3. So if you look at the midpoint of our guide for Q3 relative to Q2.
You know, we're guiding sequentially up in Q3, we do expect growth in sequential growth in communications and computing and industrial and automotive and consumer we expect consumer to be roughly flat from Q2 to Q3, we are a little bit more cautious about that segment given the you know kind of broader Ryder.
Consumer electronics softener softness at the industry has seen but we do expect again sequential growth in our in our large strategic market segments of comms <unk> compute industrial auto.
Perfect. Thanks, and congrats again guys.
Thanks, Chris.
And just as a reminder, if anyone has any questions you May press star one on your telephone keypad to join the question and execute.
Our next question comes from the line of Tristan <unk> with Baird. Please proceed with your question.
Hi, Good afternoon. My first question is about our backlog and pricing. So you mentioned your expectation for the market to remain tight.
At the end of this year and put us next year.
How far is your backlog extending currently and how does that compare you know earlier this year and also are.
Are you able to still provide the same type of price optimization over the next let's say couple of quarters.
You've done in the past as we start seeing you know lead times coming down a bit for some products.
In January you were seeing.
Staples.
Sundays, but not rising every quarter like we saw last year. So any commentary you may have.
Not so much.
Which you mentioned are basically going to be skewed creative but on your existing product you know what's your ability to continue on the path, it's a higher pricing.
Yeah.
Yeah. Thanks, Kristen so on the first part of your question around backlog and I think you were asking backlog now versus I think you said earlier this year.
I would say that our backlog has remained pretty stable in a in sort of total backlog that we've had earlier this year versus versus now you know obviously, we haven't been servicing the backlog, but at the same time.
Our new bookings have been healthy we continue to see healthy levels of bookings and so.
Yes stable levels of backlog and healthy booking levels is what I would what I would say and then on.
On pricing over the next couple of quarters I think.
If you look back you remember we started our pricing optimization strategy back in 2019. So we're in our fourth year of that so we've gained pretty good understanding in a pretty good system of how we do our pricing optimization I do think there's beyond just new product ramps there continues.
As to the opportunities.
To optimize pricing in our business kind of irrespective of.
The rest of the market I think there continues to be areas, where we can better optimize pricing and really that's about.
Making sure that our products are priced correctly for the value that they are bringing to our customers in the end markets and maybe to tie in one of the comments that I made earlier is you know even on existing products, let's call them preen excess products, when we're able to attach.
Software to those products, where we're not just selling the hardware device, but we're we're selling along with that the software portfolio solution, whether that's since AI or that's our newest <unk> solution stack or any of the other three software stacks and our portfolio of five that's it that's us.
Bringing more value to our customers.
Ringing more of the solution and so when we bring more of the solution that is valuable to our customers. That's something that we tend to get paid a higher ASP for and so that's another area, where we can continue to optimize asp's is by just bringing more value.
Through our software and of course that that also that software has the other nice side effect of.
It helps our customers convert designs away from our competitors towards ladder smart quickly it helps them get to market more quickly and then it also creates we believe long term stickiness for.
For our products moving forward as well and so for a variety of reasons.
That software strategy is an important part of the value that we create for our customers moving forward.
That's great and then my second question, which I guess is related to what you just mentioned.
Talk about stickiness.
Stickiness you're seeing.
For example.
Now really successful servers for quite some time with you with a trustee chip.
And I know there is.
<unk> out there with <unk> solutions.
It looks like you continue to gain some good traction is that a function of performance and also do you expect your ramping P C.
For more than just a couple of years as such.
Concerned about those design wins, eventually reverting to a normal speed DSL.
Okay.
Yes, I think your first you're asking about servers and then secondly, PC is still in servers. So let me start there yeah. We're just really pleased with the growth that we've been able to drive in servers that go into data centers, where those or hyperscale data centers or traditional enterprise data centers.
I'm really pleased with the growth we've driven over the past years, it's again a combination of.
We've driven attach rates higher which is.
Effectively us finding new places with our customers for Atlantis devices to get designed into server systems and our attach rate is now well over onex, which means on average a server ships with more than one lantus piece of silicon.
In terms of global server shipments, we do can see continued opportunity for more sockets that are more capability. The Atlantis can bring to servers in the future and then.
Of course, we've continued with each new generation bring just more capability more functionality, which has helped us.
Continue to improve asp's overtime, and the combination of attach rates in Asp's has driven a very nice healthy growth in our dollars of content per server and <unk>.
Continue to focus on growing that further moving forward and we do believe that that's that that is a sticky position because it's not just the hardware that we provide the chip that we provide but in many cases, we're providing layers of software underneath that as well.
And then in Pcs very similar is that it's not just the chip that we're providing but until layers of software on top of that.
So for instance in those.
New platforms that we've announced with Lenovo for instance earlier this year.
Not just the chip that we're providing but theres layers of software underneath there and are above the chip that.
That support the full solution stack and so I think that's part of the stickiness that we create on our multi generational basis, and then frankly the flexibility that our FPGA is provide is a big value to our customers, whether your server customer, a PC or an industrial or automotive customer.
The flexibility of an FPGA is a big benefit in their system design, because they know that theyre going to need to add new features new system capabilities over time, and the ability to add that by just simply reprogramming, the FPGA versus having to do a whole new hardware design or a new ASIC design.
That's a big benefit that's a big time to market benefit that's a big strategic flexibility benefit and so for a number of our customers across our markets the flexibility and power efficiency of our FPGA is one of the main reasons that did they get designed in the systems initially and remain designed over and designed in over them.
LT generational basis.
Great that's very useful thanks, so much for taking the time on that question.
Thanks Joseph.
Our next question comes from the line of David Williams with Benchmark. Please proceed with your question.
Hey, good afternoon, and congrats on the success and the wins here.
First question I guess was is really about the Lenovo design win that seems to be moving down.
Maybe migrating from what we would have thought to be kind of the enterprise segment into the chrome books and in the lower tier segments. So it just kind of curious how you see that and what that opportunity looks like if you think out maybe two to three years.
Yeah. Thanks, David.
We didn't see initial adoption of our designs in.
More of the enterprise class.
Systems like the Lenovo Thinkpad.
Also announced as you said the Lenovo Chromebook, we really see opportunity for our devices to be used in in all sorts of Pcs, whether those are enterprise or more consumer oriented Pcs again for us. It's a it's a large greenfield growth opportunity roughly $300 million.
Systems, a year and Pcs and we believe that the capabilities and features that really the end user experience that we're able to bring to the PC is certainly relevant in the enterprise context, but also relevant in consumer context as well. There's many features that we can bring that are important to our consumer.
There's a tremendous usage model that we bring where we can say help save a significant amount of battery power.
And that's that's helpful to both enterprise users as well as consumer so we really see the whole the whole PC segment as potential Tam.
Tam over time, and so whether it's whether it's a chromebook system more thinkpad system, where we're happy to add content to those systems and to ramp those over time. So we see it as just a good long term greenfield growth area.
Great. Thanks for the color.
And then just kind of thinking about the data center you talked about the server attach rates strong just curious if youre seeing anything specific within the data center in terms of demand or any changes and maybe customer behavior there.
Yeah, Thanks, David and data center, we continue to see very very strong demand from our datacenter server customers.
You know again most of our growth remember is it's not so much driven by the end market growth itself the growth in the datacenter. Our gross growth is much more driven by the dollars of content that we've seen increase seen in each new generation, So which is of course driven by our increasing attach.
Trade in Asp's, that's been a much bigger factor in our growth, but we continue to see.
Very strong.
Very strong demand from our server customers and then the other thing that I would note is just a reminder, that our solutions are CPU agnostic. So and this is actually really important to our customers our server customers really value. The fact that the lattice hardware and software solutions that we provide are agnostic to the <unk>.
CPU of flavors, so whether that's on X 86 processor that comes from Intel or AMD or potentially an arm processor as well we support all flavors of Cpus. We're in production of course across all of those are.
Both arm as well as X 86 processors and so to the extent that there is share shift that happens among the CPU vendors.
Buffered from that share shift because we're supporting our customers across multiple CPU flavors and platforms.
Thank you.
And again as a reminder, if anyone has any questions you May press star one on your telephone keypad to join the queue.
And our last question comes from the line of Richard Shannon with Craig Hallum. Please proceed with your question.
Hi, Jim and Sheri. Thanks for taking my questions I guess I got just two of them first one.
Jim You mentioned half of your current hardware designs have software attached to them.
Obviously, they're going to roll out over a couple of years after the wind here, but it kind of helps us think about the contribution of software to your overall revenue stream that you haven't really quantified in the past and even maybe you can help us with that today and so my question on that topic is.
Of these designs, where you have software attached how do we think about the amount of content at or the software has to it any way you can quantify or arrange it I mean is this just 5% of that hardware or twenty-five are somewhere in the middle just kind of my my personal guesses, but anyway, you can characterize that for us.
Yeah. Thanks Richard.
We haven't given a specific number. The reason is is it can depend a lot on the application. What we are seeing is where we get our software attach there generally is a higher ASP now that he that that additional ESP Ken.
Can can be a significant range, depending on the type of applications some applications.
The value of that software content is valued very significantly and it's a significant ASP uplift in some other applications. It may be less but on average we're definitely seen an ASP uplift when we get our software attach and then on the first part of your question you're absolutely right that those I was talking in terms of new.
New design wins over the last 12 months as those new design wins now transition into revenue.
They they layer in over the coming years, and those new design wins with the software attach and the higher asps are beneficial to us over time. So it's another way of saying it is as we look to the revenue growth the new revenue growth moves.
Moving forward the majority of that new revenue growth is enabled by software attach which generally has a higher ASP moving forward.
Okay.
Fair enough. My second question was following up on an earlier went around Nexus and the contribution there and haven't given us any any way to think about the contribution from <unk> versus <unk>, but is there a point in time or a percentage of revenues above which you'll start disclosing that because I think that I agree that would be very helpful for people to think about.
I'm, assuming it's a fairly low percentage today, but is there a point, where you would commit to providing that sort of a number. So we can start to do those splits.
Yeah, well look to potentially sharing that in the future just as a reminder is nexus is still early in its ramp rate. We are in just our second year of the full year of revenues for 2022 will be the second year of our full year revenue from Nexus.
We expect the Nexus product lines to ramp over multiple years and to continue to grow as a percentage of revenue over multiple years.
And so breaking that out separately, maybe something that we do in the future, we'll take that into consideration.
Okay, perfect that'd be great and that's all the questions for me. Thank you.
Thanks Richard.
And we have reached the end of the question and answer session I'll now turn the call back over to CEO , Jim Anderson for closing remarks.
Alright, operator, and thanks, everybody for joining us on the call today. So overall I'm quite pleased with the execution that we saw from the company in the first half of this year.
I'm very pleased with our strong financial results that we delivered in the first half and we do expect the company to have a strong second half of the year as well and of course, we will always look forward to giving you further updates on our next earnings call. So operator, thank you and that concludes today's call.
And this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Yeah.
Yeah.
Yeah.
Yeah.
Okay.