Q4 2023 Lattice Semiconductor Corp Earnings Call
Operator: Greetings and welcome to the Lattice Semiconductor fourth quarter 2023 earnings call. At this time, all participants are in a listen-only mode.
Greetings and welcome to the lattice semiconductor fourth quarter 2023 earnings call.
At this time all participants are in a listen only mode.
Operator: A brief 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Rick Muscha, Vice President of Investor Relations. Thank you. You may begin.
A brief question and answer session will follow follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Rick Boucher Vice President of Investor Relations. Thank you you may begin. Thank you operator, and good afternoon, everyone. With me today are Jim Anderson latitudes, President and CEO and Sherri Luther <unk> CFO will provide a financial and business review of the fourth quarter.
Rick Muscha: Thank you, operator, and good afternoon everyone. With me today are Jim Anderson, Lattice's President and CEO, and Sherri Luther, Lattice's Chief Financial Officer. They will provide a financial and business review of the fourth quarter of 2023 and the business outlook for the first quarter of 2024. If you have not obtained a copy of our earnings press release, it can be found on our company website in the Investor Relations section at latticesemi.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. We wish to caution you that such statements are predictions based on information that is currently available and that actually results in different material. We refer you to the documents that the company files with the SEC, including our 10-Ks, 10-Qs, and 8-Qs. 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.
2023, and the business outlook for the first quarter of 2024.
Rick Boucher: You have not obtained a copy of our earnings press release. It can be found at our company website in the Investor Relations section at Madison semi Dot com.
Rick Boucher: 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.
Rick Boucher: We refer you to the documents the company files with the FTC, including our 10-K's 10-Q's and 8-K's.
Rick Boucher: Documents contain and identify important risk factors that could.
Rick Boucher: Cause the actual results to differ materially from those contained in our projections or forward looking statements.
Rick Muscha: This call includes and constitutes the company's official guidance for the first quarter of 2024. If at any time after this call we communicate any material changes to this guidance, we intend that such updates will be done in 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.
This call includes and constitutes the company's official guidance for the first quarter of 2024, if at any time. After this call we communicate any material changes to this guidance, we intend that such that dates will be done using a public forum such as a press release or publicly announced conference call.
Rick Boucher: 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.
James Anderson: 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 have provided reconciliations of these non-GAAP financial measures to GAAP financial measures that can be found on the investor relations section of our website at latticesemi.com. We now turn the call over to Jim Anderson, our CEO. Thank you, Rick, and thank you, everyone, for joining us on our call. 2023 was another strong year for Lattice as we expanded our product portfolio and delivered record financial results. Annual revenue grew by 12%, marking the third consecutive year of double-digit growth, full-year non-GAAP gross margin increased 130 basis points to a record 70.4%, and we delivered 15% year-over-year growth in non-GAAP revenue.
Rick Boucher: 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.
Rick Boucher: <unk> Dot com.
Rick Boucher: Let me now I'll turn the call over to Jim Anderson, our CEO.
James Anderson: Thank you Rick and thank you everyone for joining us on our call. Today 2023 was another strong year for lattice as we expanded our product portfolio and delivered record financial results annual revenue grew by 12%, marking the third consecutive year of double digit growth.
James Anderson: Full year non-GAAP gross margin increased 130 basis points to a record, 74% and we delivered 15% year over year growth in non-GAAP EPS. We also continued our rapid product portfolio expansion with the launch of multiple new hardware and software solutions, including two new device families based on R&D.
James Anderson: We also continued our rapid product portfolio expansion with the launch of multiple new hardware and software solutions, including two new device families based on our new Avant mid-range FPGA. While I'm pleased with the full year revenue growth for 2023, our progress in Q4 of 2023 was impacted by the cyclic correction affecting the broader semiconductor industry. In the industrial and automotive market, although revenue grew 11% year-over-year in Q4, revenue declined 9% sequentially as demand softened across the Sun market as customers reduced their inventory levels. In the communications and computing market, revenue declined by 14% sequentially in Q4 as growth in data-centered computing was offset by weaker demand for wired and wireless telecommunications driven by lower wireless infrastructure.
James Anderson: You are buying to midrange FPGA platform.
James Anderson: While I'm pleased with our full year revenue growth for 2023, our progress in Q4, and 2023 was impacted by the cyclic fraction attacking the broader semiconductor industry.
James Anderson: In the industrial and automotive market, although revenues grew 11% year over year in Q4 revenue declined 9% sequentially as demand softened across this end market as customers reduced their inventory levels in the communications and computing market revenue declined by 14% sequentially in Q4 as growth in <unk>.
Data Center computing was offset by weaker demand in wired and wireless telecommunications, there's nobody more wireless infrastructure deployments.
James Anderson: Looking forward, we expect Q1 'twenty for revenues to be sequentially down from Q4 of 23, driven by softer end customer demand across our end markets as customers rebalanced their inventory levels. At this point, we expect revenue in the second half of 2024 can be higher than the first half of 'twenty car driven by improving end market conditions.
James Anderson: Looking forward, we expect Q1'24 revenue to be sequentially down from Q4'24, driven by softer end customer demand across our end markets as end customers rebalance their inventory levels. At this point, we expect revenue in the second half of 2024 to be higher than the first half of 2024, driven by improving end-market conditions as end-customer inventory levels normalize, as well as Mu, Lattice Nexus, and Avant products Turning now to our product portfolio. In our small FPGA portfolio, we now have seven Nexus device families launched, five in production and ramping with customers, and two families entering production later.
James Anderson: As of end customer inventory levels normalize as well as new last in excess in the bond product ramps.
James Anderson: Turning now to our product portfolio in our smaller P. J a portfolio. We now have seven access device families launched the five in production and ramping with customers and two families entering production later this year.
James Anderson: We are very pleased with the strong revenue growth of Nexus in 2023, as it was a major contributor to the overall company. We also achieved a record level of design wins with Nexus in 2020, and our Nexus pipeline of opportunities continues to grow. Nexus revenue and design growth in 23 was primarily due to a combination of displacing competitors as well as the adoption of Nexus, a new Greenfield application. Regarding our mid-range FPGA portfolio, at the Lattice Developers Conference in December, we launched two new device families based on our new Avante. We now have three Avante device families in the hands of our customers.
We are very pleased with the strong revenue growth in excess in 2023 and it was a major contributor to the overall company growth. We also achieved a record level of design wins with an excess in 2023, and our Nexus pipeline of opportunities continues to grow Nexus revenue and design win growth in 'twenty three was primarily due to a combination.
James Anderson: And displacing competitor devices as well as the adoption of Nexus new Greenfield applications.
James Anderson: Turning to our midrange at P. J a portfolio at the Atlantis developers conference in December we launched two new device families based on our pipeline.
James Anderson: Pipeline, we now have three of our employees families in the hands of our customers with the first device families you're buying them generating initial revenue at the end of 2023 as planned.
James Anderson: With the first device family, the Avant E, generating initial revenue at the end of 2023, Avant Initial revenue is driven by numerous applications such as communication gateways, industrial engine controls, LiDAR applications, and more. We expect the Avanti series to sell throughout the course of this year with a more significant contribution in the second half of this year and continued growth in the following. We expect initial revenue from the newly launched Avant G and X series before the end of this. Our three advanced device families provide a market-leading lineup of solutions for customers in the mid-range FPGAs. As a reminder, 90% of the target customers for Avant are already customers of Lattice today, and Avant leverages the same software that customers use today. Given the competitive differentiation and use of adoption of a, the overall pipeline of avant-garde design opportunities continues to grow and significantly exceeds the pipeline of access at the same relative pace. We have also refreshed four of our key software solutions.
James Anderson: International revenue was driven by numerous applications such as communication gateways industrial engine controls lidar applications and more.
James Anderson: We expect the E series to ramp throughout the course of this year with a more significant contribution in the second half of this year and continued growth in the following years we.
James Anderson: We expect initial revenue from the newly launched <unk> and X hearings before the end of this year.
James Anderson: Our three of our device families provide a market leading lineup of solutions for customers in the mid range FPGA market.
James Anderson: As a reminder, 90% of the target customers for our market are already customers of flattish today and a bond leverages the same software that customers use today on access.
James Anderson: Given the competitive differentiation in the use of adoption by the overall pipeline of Banca opportunities continues to grow significantly exceeds the pipeline access at the same relative point in time.
James Anderson: They also refreshed core of our two new software solution stacks, we continued to see strong shopper adoption at an attach rate of over 50%. We continue to expand the capabilities and performance of our software portfolio to enhance the customer experience and to make it easy for them to adopt that as products get to market quickly.
James Anderson: We continue to see strong software adoption at an attach rate of over 50%. We continue to expand the capabilities and performance of our software portfolio to enhance the customer design and to make it easy for them to adopt Lattice products and get to market. Our most widely adopted solution stack to date has been our Sense AI stack, which supports a variety of AI applications. One of the frequent questions we've gotten from investors over the past months has been around the overall Lattice AI-related opportunity. So I'd like to provide some additional color on that. Lattice hardware and software solutions can be used in a wide variety of AI-related applications.
James Anderson: Most widely adopted solution stack today, and it's been our sense of out of the stack, which supports a variety of AI applications.
James Anderson: One of the frequent questions we've gotten from investors over the past months, it's been around the overall balance sheet, how are you related opportunity.
James Anderson: To provide some additional color on that topic flattish hardware and software solutions can be used in a wide variety of beihai related applications for.
James Anderson: For example in AI optimized servers in the data center, where the system is running gender today I workloads. For example, lattice devices are used in the control management and security.
James Anderson: For example, in AI-optimized servers in the data center where the system is running generative AI workloads, Lattice devices are used in the control, management, and security of AI computing. Another example is AI-enabled PCs, where Lattice solutions are used to run the AI inference algorithm that provides features such as user presence and gaze detection in PC systems like the Lenovo. A third example is AI-enabled automotive ADAS, where a lot of solutions are used to aggregate and pre-process sensor data that are used for AI processing. We recently announced that Lattice solutions are being used in the ADAS systems of MONSTA crossover SQL. There are many other examples as well.
James Anderson: Computing system. Another example is in AI and eat on Pcs, where a lot of solutions are used to fund. The AI inference algorithms that provides features such as you use your presence and gaze detection and P. C systems like the Lenovo Thinkpad.
James Anderson: A third example is AI enabled the automotive Adas systems Relator solutions are used to aggregate and pre process sensor data.
James Anderson: Used for AI processing, we recently announced a lot of solutions are being used in the Adas systems of Monster crossover Suvs. There are many other examples as well.
James Anderson: When we look across all the AI applications across our end markets. We estimate that wireless revenue in 2023 included about 100 million related revenue.
James Anderson: Specter AI related revenue to more than double over the next few years based on the growing pipeline of aggravated design wins.
James Anderson: When we look across all the AI applications across our end markets, we estimate that Lattice revenue in 2023 will include about $100 million of AI-related revenue. We expect our AI-related revenue to more than double over the next few years based on the growing pipeline of AI-related products. In summary, I'm pleased with the strong progress in 2023 as we achieve record revenue and gross margin and continue to execute on the biggest product expansion in our history. While the industry moves through a temporary correction cycle, and we experience some short-term cyclic headwinds in our end markets, we continue to be well positioned for I'll now turn the call over to our CFO, Sherri. Thank you, Jim.
James Anderson: In summary, I'm pleased with the strong progress in 2020 three as we achieved record revenue and gross margin and continued to execute on the biggest product expansion in our company's history.
James Anderson: While the industry moves to a temporary collection cycle and we experienced some short term cyclical headwinds in our end markets, we continue to be well positioned for growth over the mid and long term we.
James Anderson: We have the strongest product portfolio in our history and continue to rapidly expand our product lines and accelerating customer momentum.
James Anderson: Now I'll turn the call over to our CFO Sherri Luther.
Sherri Luther: Thank you Dan we are pleased with our full year 2023 results, we drove double digit revenue growth for the third consecutive year.
Sherri Luther: Gross margin expansion and strong profitability.
Sherri Luther: We generated a record level of cash from operations expanded free cash flow margin.
Sherri Luther: Increase the cash returned to shareholders through share buybacks and completely paid down our outstanding debt balance.
Speaker Change: Let me now provide a summary of our results.
Speaker Change: Fourth quarter revenue was 176 million down 11% sequentially from the third quarter and down 3% year over year.
Speaker Change: End market demand softened and customers reduced their inventory.
Sherri Luther: We are pleased with our full year 2023 results. We drove double-digit revenue growth for the third consecutive year, continued gross margin expansion, and strong profitability. We generated a record level of cash flow, expanded free cash flow margins, increased the cash return to shareholders through share buybacks, and completely paid down our outstanding debt balance. Let me now provide a summary of our results. Fourth quarter revenue was $170.6 million, down 11% sequentially from the third quarter and down 3% year-over-year, as end-market demand softened and end-customers reduced their end-use.
Speaker Change: Full year 2023 revenue was $737 2 million up 12% from 2022.
Speaker Change: Growth for the full year 2023 was driven by double digit revenue growth in our industrial and automotive end market, representing the fourth consecutive year of double digit growth in this end market.
Speaker Change: Our Q4, non-GAAP gross margin declined 20 basis points to 74% compared to the prior quarter due to mix and was up 40 basis points compared to the year ago quarter.
Speaker Change: Our non-GAAP gross margin for the full year 2023 was 74% up 130 basis points from 2022.
Speaker Change: Q4, non-GAAP operating expenses were $55 5 million compared to $58 2 million in the prior quarter and $52 5 million in the year ago quarter.
Sherri Luther: Full year 2023 revenue was $737.2 million, up 12% from 2022. Revenue growth for the full year 2023 was driven by double-digit revenue growth in our industrial and automotive end market, representing the fourth consecutive year of double-digit growth in this end market. Our Q4 non-gap growth margin declined 20 basis points to 70.4% compared to the prior quarter due to May and was up 40 basis points compared to the year ago. Our non-gap gross margin for the full year 2023 was 70.4%, up 130 basis points from 2022. Q4 non-GAAP operating expenses were $55.5 million, compared to $58.2 million in the prior quarter and $52.5 million in the year-ago quarter.
Speaker Change: The sequential decline in operating expenses was driven by the timing of certain R&D programs as well as the prudent and disciplined management of our SG&A expenses.
Speaker Change: non-GAAP operating expenses for the full year 2023 increased to $225 7 million from 201 million, primarily driven by increased investment in our long term product roadmap as well as in customer support.
Speaker Change: Our Q4, non-GAAP operating margin decreased 240 basis points to 37, 8% compared to the prior quarter.
Speaker Change: It was down 230 basis points compared to the year ago quarter.
Speaker Change: Our non-GAAP operating margin for the full year 2023 was a record 39, 8% up 120 basis points from 2022.
Speaker Change: We continue to balance operating margin growth with a disciplined approach to investing in our long term growth of the company.
Speaker Change: Q4, non-GAAP earnings per diluted share was 45 cents compared to 49 cents a year ago quarter.
Speaker Change: non-GAAP diluted earnings per share for the full year 2023, with $2 and one times compared to $1 75 for the full year 2022.
Speaker Change: This represents 15% year over year growth.
Speaker Change: I would now like to provide an update related to our taxes in Q4 due to our consistent and continued profitability, we released our valuation allowance totaling $57 million.
Sherri Luther: The sequential decline in operating expenses was driven by the timing of certain R&D programs, as well as the prudent and disciplined management of our SG&As. Non-GAAP operating expenses for the full year 2023 increased to $225.7 million from $201 million, primarily driven by increased investment in our long-term product roadmap as well as in customer. Our Q4 non-GAAP operating margin decreased 240 basis points to 37.8% compared to the prior Our non-GAAP operating margin for the full year 2023 was a record 39.8 percent, up 120 basis points from 2022. We continue to balance operating margin growth with a disciplined approach to investing in the long-term growth of the company. Q4 non-DAP earnings per diluted share were $0.45, compared to $0.49 a year ago. Non-GAAP diluted earnings per share for the full year 2023 were $2.01, compared to $1.75 for the full year 2022.
Speaker Change: Which had a GAAP EPS impact of 41 cents.
Speaker Change: This is reflected as a tax benefit in our GAAP income statement.
Speaker Change: As a result of the release of the valuation allowance, we are expecting our 2024 effective tax rate to be in the range of them.
Speaker Change: Mid to high single digits.
Demonstrating our continued focus on cash flow, we generated a record 271 billion in cash from operations in 2023.
Speaker Change: This represents an increase of 13% compared to the cash generated from operations in 2022.
Speaker Change: Free cash flow margin increased to a record 34% in 2023.
Speaker Change: In Q4, we repurchased approximately 900000 shares or $50 million of stock.
Speaker Change: Making Q4, our 13th consecutive quarter of executing share buybacks.
Speaker Change: Over that period, we have repurchased approximately four 8 million shares, thereby reducing dilution by three 4%.
Speaker Change: Our board recently approved a $250 million share authorization, we will prioritize investing in the organic growth of our business, but intend to continue returning capital to our shareholders through share repurchases.
Speaker Change: Let me now review our outlook for the first quarter.
Speaker Change: You took a cyclic correction and demand headwinds that we are seeing across all of our end markets.
Speaker Change: Revenue for the first quarter of 'twenty 'twenty four is expected to sequentially decline to between 130 million and $150 million.
Speaker Change: Gross margin is expected to be 69% plus or minus 1% on a non-GAAP basis due to lower absorption as well as a less favorable mix from our end markets.
Total operating expenses for the first quarter are expected to be between 54 million and 56 million on a non-GAAP basis.
Speaker Change: Which is roughly in line with Q4 23 at the midpoint.
Sherri Luther: This represents 15% year-over-year. I would now like to provide an update related to our taxes. In Q4, due to our consistent and continued profitability, we released our valuation allowance totaling $57 million, which had a gap EPS impact of 41. This is reflected as a tax benefit in our Gap Income State.
We are taking a cautious and prudent approach to near term opex, while still enabling long term growth and expansion of our product portfolio.
They're all I'm very pleased with the continued financial progress we made in 2023 across many key metrics.
Speaker Change: As we enter 2024, we are experiencing near term cyclical softness in our end markets, including customers rebalancing of their inventory levels.
Sherri Luther: As a result of the release of the valuation allowance, we are expecting our 2024 affected tax rate to be in the range of the mid to high single digits. Demonstrating our continued focus on cash flow, we generated a record $270 billion in cash from operations in 2020. This represents an increase of 13% compared to the cash generated from operations in 2022; free cash flow margin increased to a record 34% in 2020. In Q4, we repurchased approximately 900,000 shares, or $50 million of stock, making Q4 our 13th consecutive quarter of executing share-buy-buy. Over that period, we have repurchased approximately 4.8 million shares, thereby reducing dilution by 3.4%.
Speaker Change: However, we continue to believe we are well positioned for long term growth.
Speaker Change: Operator that concludes my formal comments, we can now open the call for questions.
Speaker Change: Thank you we will now be conducting a question and answer session. If he would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: A confirmation tone will indicate that your line is in the question queue and.
Speaker Change: And you May press star two if he would like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: One moment, please pull for questions.
Speaker Change: Thank you.
Speaker Change: Our first question comes from the line of Quinn Bolton with Needham. Please proceed with your question.
Quinn Bolton: Hi, Thanks for taking my question I guess, Jim as you look out at 2024, I'm sure visibility, it's pretty low but two questions.
Sherri Luther: Our board recently approved a $250 million share opportunity. We will prioritize investing in the organic growth of our business but intend to continue returning capital to our shareholders through share repayments. Let me now review our outlook for the first... Due to the cyclic correction and demand headwinds that we are seeing across all of our end markets, revenue for the first quarter of 2024 is expected to sequentially decline to between $130 million and $150 million. Growth margin is expected to be 69%, plus or minus 1%, on a non-GAAP basis due to lower absorption, as well as a less favorable mix from our end line. Total operating expenses for the first quarter are expected to be between $54 million and $56 million on a non-GAAP basis, which is roughly in line with Q4-23 at the midterm.
Quinn Bolton: You've guided to $1 40 at the midpoint for the March quarter do you have any sense based on backlog current order patterns, whether you would expect June to be sort of flattish up or down and then you expressed confidence that the revenue in the second half of the year would be better than the first half.
Quinn Bolton: What's what's that based on is that just your best guess as to when inventories digested is it based on design win traction and the ramp up on you know what gives you confidence in that second half being better than the first half. Thank you.
Yeah. Thanks Quinn.
Speaker Change: So first of all on I think you are quiet. Your first question is around Q2 at this point you know relative to Q1, we would expect Q2 to be roughly in line with Q1 now historically, we've seen Q2 be stronger than Q1. So there is some potential there.
Q2 would come in a little higher than Q1, but at this point, we see it a Q2 roughly in line with Q1 and some of the you know.
Sherri Luther: We are taking a cautious and prudent approach to near-term OPEX while still enabling the long-term growth and expansion of our product portfolio. Overall, I'm very pleased with the continued financial progress we made in 2023 across many key metrics. As we enter 2024, we are experiencing near-term cyclical softness in our end markets, including customers' rebalancing of their inventory levels. However, we continue to believe we are well-positioned for long-term growth. Operator, that concludes my formal comments.
The headwinds that we're seeing in Q1, we expect to continue into the second quarter as well.
Speaker Change: On the second half of the year Yeah. At this point, we do expect the second half to be stronger than the first half that's really based on two things. The first one would be the.
The inventory digestion and rebalancing that were seen by our end customers in Canada. The first quarter of this year, which we expect continue into the second quarter of this year.
Operator: We can now open the call for questions. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation film will indicate that your line is in the question queue, and you may press star 2 if you would like to remove your question. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button.
Speaker Change: We expect that to dissipate ah that affect that kind of disappeared through the rest of the year and to be less of a factor in the in the second half of the year. So that's that's part of the second half being stronger than the other is is as you mentioned, it's it's essentially new product ramps.
Speaker Change: We've got a number of new products ramping throughout this year and they contribute more to the second half than they do to the first half a couple of examples of that is on Nexus.
Operator: One moment, please, while we pull for questions. Thank you. Our first question comes from the line of Quinn Bolton with Needham.
Speaker Change: Launched seven AR.
Quinn Bolton: Please proceed with your question. Hi, thanks for taking my question. I guess, Jim, as you look out at 2024, I'm sure visibility's pretty low, but two questions.
Speaker Change: Device families based on Nexus five of those device families are already in production, but the there's two more that go into production. This year one of those goes into production in Q2 and the other goes into production in Q3, and so we expect those to benefit us in terms of revenue in the second half and then also I find Ah we achieved our first <unk>.
James Anderson: You've guided to the 140th midpoint for the March quarter. Do you have any sense, based on backlog and current order patterns, whether you would expect June to be sort of flattish, up or down? And then you expressed confidence that revenue in the second half of the year would be better than in the first half. What's that based on? Is that just your best guess as to when inventory is digested? Is it based on design, wind traction, or the ramp of Avant?
Speaker Change: Revenue from the advanced platform.
Speaker Change: End of this past year, we expect <unk> to ramp throughout this year and into next year and the contribution from our bond is is more significant in the second half than the first half. So yeah, it's a combination of that.
James Anderson: What gives you confidence in that second half being better than the first half? Thank you. Yeah, thanks, Quinn. So, first of all, I think your first question is about Q2. At this point, you know, relative to Q1, we would expect Q2 to be roughly in line with Q1. However, historically, we've seen Q2 be stronger than Q1. So there's some potential that Q2 would come in a little higher than Q1. But at this point, we see it, Q2, roughly in line with Q1. Some of the, you know, the headwinds that we're seeing in Q1 we expect to continue into the second quarter as well. As for the second half of the year, yeah, at this point, we do expect the second half to be stronger than the first half. That's really based on two things.
Speaker Change: Dissipation of the inventory effects at our end customer with a combined with new product ramps from wireless.
Speaker Change: Perfect and then just a follow up question you guys have kept the DST had inventory levels pretty tight so I imagine most of this inventory digestion, you're seeing is coming from me and customers, but how where are you with with DST.
Speaker Change: The channel is that still pretty lean in and do you see an opportunity potentially to you.
Speaker Change: Restock the Disney's in in the second half or are you going to keep that just the inventory pretty tight given the uncertain environment. Thank you.
James Anderson: The first one would be the inventory digestion and rebalancing that we're seeing by our end customers in kind of the first quarter of this year, which we expect to continue into the second quarter of this year. We expect that to dissipate, that effect to kind of dissipate through the rest of the year and to be less of a factor in the second half of the year. So that's part of the second half being stronger.
Speaker Change: Yeah. Thanks, Quinn, yeah, the inventory digestion I was referring to as end customer inventory digestion and rebalancing and so yeah. If we look at the Disney.
Speaker Change: The amount of inventory held in the Disney Channel, if we kind of look at where it ended.
In 2023, I wouldn't characterize it as very much back to pre pandemic levels kind of back to normal pre pandemic levels and our goal would be to keep it that those normal pre pandemic levels.
James Anderson: The other is, as you mentioned, essentially new product ramps. You know, we've got a number of new products ramping throughout this year, and they contribute more to the second half than they do to the first half. A couple examples of that are on Nexus; we've launched seven device families based on Nexus.
Speaker Change: Alright, thank you.
Speaker Change: Yeah.
Hans Most: Thank you. Our next question comes from the line of Hans Most men with Rosenblatt Securities. Please proceed with your question.
Hans Most: Hey, Jim Thanks for the color on that.
James Anderson: Five of those device families are already in production, but there are two more that will go into production this year. One of those goes into production in Q2, and the other goes into production in Q3. And so we expect those to benefit us in terms of revenue in the second half. And then also, we achieved our first revenue from the Avant platform at the end of this past year. We expect Avant to ramp throughout this year and into next year, and the contribution from Avant will be more significant in the second half than the first half. So, yeah, it's a combination of that, the dissipation of the inventory effects that our end customers have combined with new product ramps from last year. Perfect.
Hans Most: The AI part of the business.
Hans Most: That question asked a lot.
Hans Most: Can you give us some puts and takes on how to look at this opportunity going forward I suspect that the 100 million last year was driven by the.
Hans Most: The accelerated server.
Hans Most: Alex maybe a desk, but what about the industrial markets.
Hans Most: Go to more insurance related workloads.
Hans Most: And so on.
Yeah.
Yeah, Thanks, Johnson and actually maybe before I talk about the go forward, maybe I'll, just give a little bit more context and color.
Johnson: Around a little bit of the history of this as well so hence you'll remember that problem back in our 2019 Investor day and that was the first Investor day that we did this new management team actually AI workloads and the ability of Lantus to help with a I was one of the things we flagged back in 2019.
James Anderson: And just a follow-up question, you guys have kept the DISD inventory levels pretty tight, so I imagine most of this inventory digestion you're seeing is coming from the end customers, but how, you know, where are you with the DISD channels? Is that still pretty lean, and do you see an opportunity, potentially, to restock the DISDs in the second half? Are you going to keep that DISD inventory pretty tight given the uncertain environment? Thank you.
Johnson: As a potential growth area and so even back then about five years ago, we were making organic investments to enable.
Johnson: Customers to use lattice devices and AI applications. In fact, one of the the first solution stacks, we developed a sense AI, which was around inference at the edge of the network.
And for <unk> and then we introduced another solution cheaper solution stack called M vision, which was around computer vision.
James Anderson: Yeah, thanks, Quinn. Yeah, the inventory digestion I was referring to is end customer inventory digestion and rebalancing. And so, yeah, if we look at the DISTI, the amount of inventory held in the DISTI channel, if we're going to look at where it ended in 2023, I would characterize it as very much back to pre-pandemic levels, kind of back to normal pre-pandemic levels. And our goal would be to keep it at those normal pre-pandemic levels. Thank you. Yep. Thank you.
Johnson: Processing and all of that was to help enable customers to design lattice products into India applications. We also made organic or inorganic investments in this area as well a little over two years ago, We acquired a small software company called mirror metrics, which was focused on our computer vision.
Johnson: In.
Johnson: Basically AI processing at the edge, where our computer vision technology and they came with an existing revenue stream and we've certainly been focused since since we acquired them on ROE in the revenue synergy between the software that they bring they brought as well as the lattice devices and so there's been a number of investments we've been making over the past.
Hans Mosesman: Our next question comes from the line of Hans Mosesman with Rosenblatt Securities. Please proceed with your question. Thanks. Hey, Jim, thanks for the color on the AI part of the business. I get that question asked a lot.
James Anderson: Can you give us some thoughts on how to look at this opportunity going forward? I suspect that the $100 million last year was driven by, you know, the accelerated server type products, maybe ADAS. But what about the industrial markets as things go to more inference-related workloads there and so on? Yeah, thanks, Hans. And actually, maybe before I talk about the goal forward, maybe I'll just give a little bit more context and color around, you know, a little bit of the history of this as well.
Johnson: Years, and so yeah, when we look forward.
Johnson: We see a number of different applications, where lattice can continue to grow and participate one is as you mentioned and I mentioned in my prepared remarks in AI optimized servers in the data center, we have a very good position in the control management and security of those type of servers and generally we have a higher.
Johnson: And equal to our higher level of dollars of content per sure, Brian and AI optimized server than a traditional general purpose server. Another application is an AI enabled Pcs, where lattice devices already used today and doing AI tasks on on Pcs, such as Lenovo Thinkpad.
James Anderson: So, Hans, you'll remember that back in our 2019 Investor Day, that was the first Investor Day that we did as a new management team. Actually, AI workloads and the ability of Lattice to help with AI were one of the things we flagged back in 2019 as a potential growth area. And so, even back then, about five years ago, we were making organic investments to enable customers to use Lattice devices in AI applications. In fact, one of the first solution stacks we developed was SenseAI, which was around inference at the edge of the network, AI inference.
Johnson: I also mentioned in the prepared March he does but.
Johnson: There's lots of different industrial applications industrial robotics, industrial automation and in particular computer vision.
Johnson: Processing and technology is really important and those type of applications and so that's a place where we see a great synergy from the acquisition. We made a couple of years ago and computer vision software technology used with lattice devices to the gain.
More lattice position and growth in industrial applications. So it's really a number of different applications that we see in yeah and as I said in my prepared remarks, we expect the the AI related revenue across all of our applications to roughly double over the next few years and frankly, when we look across all of our end markets.
James Anderson: And then we introduced another software solution stack called mVision, which was around computer vision, processing, and all that was to help enable customers to design lattice products into AI applications. We also made organic or inorganic investments in this area as well. A little over two years ago, we acquired a small software company called Mirrormetrics, which was focused on computer vision, basically AI processing at the edge for computer vision technology, and they came with an existing revenue stream. And we've certainly been focused since we acquired them on growing the revenue synergy between the software that they brought as well as the lattice devices. And so there's been a number of investments we've been making over the past years. And so, yeah, when we look forward, we see a number of different applications where Lattice can continue to grow and participate.
Johnson: That is the fastest growing usage case your application model across all of our end markets as AI related growth.
Speaker Change: That's very helpful. Jim Thanks, a lot.
Speaker Change: Thanks.
Speaker Change: Our next question comes from the line of Matt Ramsay with TD Cowen. Please proceed with your question.
Matthew D. Ramsay: Oh good afternoon, guys. Thank you very much for taking my question.
Matthew D. Ramsay: I wanted to it's really helpful that you gave us a little preview Jim.
Matthew D. Ramsay: The June quarter, just as you see it now as well so if we're going to be around these revenue levels for a little bit as you ensure that the customer inventory levels gets sold through and digested.
Speaker Change: I Wonder if you could give us a little bit of an estimate as to I mean, you guys going back to the analyst day, you talked about.
Sort of.
Speaker Change: Mid to high teens growth for the company on a long term basis and and the product Roadmaps are all there to support that I'm trying to get an understanding of what you guys. Do you like sell through is sort of a revenue level and in the first quarter in the second quarter that represent like true end demand for the product so at all.
Speaker Change: $140 million a quarter any sense as to how much inventory, you're actually burning through with the customers and sort of what a steady state and consumption for lattices business looks like at this point.
James Anderson: One is, as mentioned, and I mentioned in my prepared remarks, in AI-optimized servers in the data center, we have a very good position in the control management and security of those types of servers. And generally, we have an equal to or higher level of dollars of content per server on an AI-optimized server than a traditional general purpose server. Another application is in AI-enabled PCs, where lattice devices are already used today for doing AI tasks on PCs such as Lenovo ThinkPads.
Speaker Change: Yes, Thanks, Matt.
Speaker Change: It's a tough question to answer because while we have really good visibility on inventory.
Speaker Change: It's in the channel with our distributors, we have over 10000 end customers and so we just don't have perfect visibility of the inventory levels of across all of those customers and so it's hard to judge that but we believe that then at that $1 40, a level that was the midpoint of our guide we believe.
Speaker Change: That's below the natural consumption and usage of our end customers and and the difference is the the inventory that they're drawing down and so we're not we're not sure exactly how much that is but we do believe we're shipping in below the natural concern.
James Anderson: I also mentioned in the prepared remarks ADAS, but there are lots of different industrial applications, industrial robotics, industrial automation, and, in particular, computer vision processing and technology are really important in those types of applications. And so that's a place where we see, you know, great synergy from the acquisition we made a couple of years ago of computer vision software technology used with lattice devices to gain, you know, more lattice position and growth in industrial applications. So there are really a number of different applications that we see. And yeah, and as I said, my preferred remarks, we expect AI-related revenue across all of our applications to roughly double over the next few years. And frankly, when we look across all of our end markets, That is, the fastest growing usage case or application model across all of our end markets is AI-related growth. Very helpful, Jim. Thanks a lot.
Speaker Change: And we believe that'll continue into Q2 as well.
Speaker Change: And but that that that that inventory effect that we're seeing in the that's dampening demand in the first half of the year, we believe that dissipates into the second half of the year and we get back to more normal levels of consumption from our customers.
Speaker Change: Got it.
Speaker Change: That makes sense just a couple quick things and follow up I guess to that question one.
Speaker Change: First one is if you look at the first quarter.
Speaker Change: If you've kind of ex out the under shipment relative to inventory burn do you feel like that the end markets are back to some level of normal seasonality or are they sort of end consumption well below where you would think normal seasonal behaviors are for your business and I guess the second follow up is for Sherry the but.
This the percentage of revenue was a bit different than it's been in the past is is this a strategic change or is this just the sort of how much inventory or how much sell in happened direct versus 50 was kind of dictated by who was burning through inventory at what rate I'm just trying to think of.
James Anderson: Thanks, Hans. Our next question comes from the line of Matt Ramsay with TD Cowan. Please proceed with your question. Good afternoon, guys. It's a really useful day, just as you see it now as well. We're going to be around these revenue levels for a little bit. Rue and Digest.
Speaker Change: Theres anything strategic changing there that's your just your strategy or not thanks.
Speaker Change: Yeah Mad men and the first part of your question on Q4 to Q1 decline that we're forecasting yes, youre definitely part of that is normal seasonality typically Q1 is a seasonally lower quarter, but.
Matthew D. Ramsay: I wonder if you could give us a little bit of an estimate, I mean you guys, going back to the analyst that I talked about, on a long-term basis. The product roadmaps are all there to support that. I'm trying to get a sense of what you guys feel like selling through is sort of a revenue level in the second quarter. Demand for the product at $140 million a quarter. Any sense as to how much inventory you're actually burning through with the customers? Steady State, or Lattice Semiconductor Corp. Thank you.
Speaker Change: The forecast that we're giving for Q1 is beyond normal normal seasonality and that.
Speaker Change: Beyond normal seasonality is really two factors, it's the inventory digestion and rebalancing that I was talking about as well as.
Customers are seeing lower demand from their business as well so it's they're seeing lower demand and they're also drawing down inventory at the same time. So that Q1 is a combination of those three things normal seasonality lower customer demand and then them drawing down their inventory levels as well.
James Anderson: Yeah, thanks, Matt. It's a tough question to answer, because while we have really good visibility on inventory in the channel with our distributors, you know, we have over 10,000 end customers. And so we just don't have perfect visibility of the inventory levels across all of those customers. And so it's hard to judge that.
Speaker Change: Okay.
Speaker Change: Yeah, and then Matt on the second part of your question in terms of just the percentage.
There's just.
Matthew D. Ramsay: The direct percentage of revenue when.
Matthew D. Ramsay: When you when you look at 'twenty three the full year 2023, and you compare that to 2022 very similar and so you don't see a whole lot of difference there.
James Anderson: But we believe that at that 140 level, that was the midpoint of our guide, we believe that's below the natural consumption and usage of our end customers. And, and, and the difference is the inventory that they're drying down. And so we're not, we're not sure exactly how much that is, but we do believe we're shipping in below the natural consumption.
Matthew D. Ramsay: For the full year versus the full year you know.
Matthew D. Ramsay: On a quarterly basis, you can see and I expect to see fluctuations in that percentage of revenue, but I really wouldn't read anymore into that it just you know sort of typical in the range of what we have seen historically, even if you look back to 2022.
Thanks to you both I appreciate it.
Speaker Change: Thanks, Matt.
Speaker Change: Yeah.
Speaker Change: Our next question comes from the line of Melissa Weathers with Deutsche Bank. Please proceed with your question.
Melissa Weathers: Hi, guys. Thanks for letting me ask a question. So for my first question I wanted to touch base on your communications and compute segment, specifically on the compute side I think we're hearing some mixed signals on over our overall demand for non AI servers in 'twenty 'twenty four and some people are talking about March being down.
James Anderson: And we believe that'll continue into Q2 as well. But that, that, that inventory effect that we're seeing in the that's dampening demand in the first half of the year, we believe that dissipates into the second half of the year, and we get back to more normal levels of consumption. A couple quick names, follow-up.
Speaker Change: Seasonally so I know you guys have higher content in the next generation surveys. This year. So how should we think about the level of growth that we should be looking for in 2024, what would the second half.
James Anderson: Thank you for that question; look at the first quarter, x out the undershipment, if you like. End markets are back to some level of normal seasonality, or they are sort of..., well below where they are, and I guess the second follow-up is for Sherri: percentage of revenue is different than it's been in the past. So, how much inventory or how much sell-in happened, and D. T. Reck The Bulletproof Executive 2013, dictated by who was burning it at what rate.
Speaker Change: It looked like in computing for you guys.
Speaker Change: Oh, yeah. Thanks Felicia.
Speaker Change: Not really provided guidance at that level of granularity, but we did see but a little bit of additional color that might be helpful. We didn't see within communications and computing in Q4, although it was sequentially down as I mentioned in the prepared remarks, we did see computing go up sequentially from Q3 to Q4.
Speaker Change: It was communications that drove that overall segment down sequentially.
James Anderson: The Bulletproof Executive 2013, Strategy. Yeah, Matt, on the first part of your question on the Q4 to Q1 decline that we're forecasting, yeah, definitely part of that is normal seasonality. Typically, Q1 is a seasonally lower quarter, but the forecast that we're giving for Q1 is beyond normal seasonality, and that beyond normal seasonality is really two factors.
Speaker Change: Yeah, one of the benefits that we'll see in 2024 mm.
Speaker Change: Is that the new generation of servers.
Speaker Change: Is that the new generation of servers.
Speaker Change: It's a ramping now.
Speaker Change: We have a significantly higher level of dollars of content per server on a new generation that we did in the prior generation. It's about 50, 50% more dollars of content per server. So even if the units remained exactly flat on a year over year basis, we would expect to still see growth in.
Sherri Luther: It's the inventory digestion and rebalancing that I was talking about, as well as, you know, our customers are seeing lower demand from their businesses as well. So it's, they're seeing lower demand, and they're also drawing down inventory at the same time. So that Q1 is a combination of those three things, normal seasonality, lower customer demand, and then them drawing down their inventory levels as well. Yeah, and then Matt, on the second part of your question, in terms of the DISTI percentage versus the direct percentage of revenue, when you look at 23, the full year 2023, and you compare that to 2022, it's very similar. So you don't see a whole lot of difference there, you know, for the full year versus the full year. But on a quarterly basis, you can see, you know, expect to see fluctuations in that percentage of revenue. But I really wouldn't read any more into that.
Speaker Change: In the server datacenter server segment because of that higher level of content. So as the new generation of servers becomes a higher percentage of the overall server shipments throughout this year as it ramps, that's certainly a benefit to us throughout the year.
Speaker Change: Great. Thanks, I guess for my follow up I wanted to follow up on your developers conference that you had in December.
Speaker Change: Can you talk either anecdotally or qualitatively about that event and the kind of customer engagement that it brought on what was the interest levels and did it drive enthusiasm towards the line just let me take aways from that event that you guys were not sure. Thank you.
Speaker Change: Yeah. Thanks, Melissa actually thanks for asking we were really excited about the developers conference that was actually lattices first developers conference we had ever done and I was really pleased with the results. We had over 5000 registrations are we had 35 different sessions.
Speaker Change: We had 40 different technology demonstrations as well not just latest demonstrations, but demonstrations from a lot of our partners. We had great keynotes from our customers and partners like BMW matter and in video as well.
Sherri Luther: It's just, you know, sort of typical in the range of what we have seen historically, even if you look back to 2022. Thanks Matt. Our next question comes from the line of Melissa Weathers with Deutsche Bank. Please proceed with your question.
Speaker Change: Actually the best part of the conference from my perspective was not just the partner and the customer activity that are generated but we also launched.
Melissa Weathers: Thanks for letting me ask a question. So for my first question, I wanted to touch base on your communications and compute segment, specifically on the compute side. I think we're hearing some mixed signals on overall demand for non-AI servers in 2024. Some people are talking about March being down seasonally.
Speaker Change: The two newest device families based on our bond platform for mid range at P. G. H, so that must be buying G and the acts and so we exited last year with three different upon device families in the hands of customers. The E. The G and the acts and and generated initial revenue from our bond before the end of that.
Speaker Change: Last year as well and so what's really exciting about that is that's the beginning of the avant our revenue ramp.
James Anderson: So I know you guys have higher content in the next generation servers this year. So how should we think about the level of growth that we should be looking for in 2024? What would the second half look like in computing for you guys? Yeah, thanks, Melissa.
Speaker Change: And you know as as you might recall, a bond doubles, our addressable market. It creates a entirely new revenue stream for the company, it's additive to the existing revenue streams. It doesn't cannibalize the existing small FPGA revenue streams in any way and so that was one of the best parts of the developers conference is the launching of G.
James Anderson: You know, we don't really provide guidance at that level of granularity, but, you know, we did see some little bit of additional color that might be helpful. We did see within communications and computing in Q4, although it was sequentially down, as I mentioned in the prepared remarks, we did see computing go up sequentially from Q3 to Q4. It was communications that drove that overall segment down sequentially.
Speaker Change: And ex versions of our bonds, which we believe will start to generate revenue before the end of.
Speaker Change: This year and there was certainly a lot of customer excitement and activity around that but yes. Overall, we view the event as a as a tremendous success and we expect to do another developers conference later this year.
Great. Thank you.
Our next question comes from the line of Tristan <unk> with Baird. Please proceed with your question.
James Anderson: And yeah, one of the benefits that we'll see in 2024 is that the new generation of servers that's ramping now has a significantly higher level of dollars of content per server on that new generation than we did in the prior generation. That's about 50% more dollars of content per server. So even if the units remained, you know, exactly flat on a year-to-year basis, we would expect to still see growth in the server data center server segment because of that higher level of dollars. So as that new generation of servers becomes a higher percentage of the overall server shipments throughout this year as it ramps up, that's certainly a benefit to us throughout. Great, thanks.
Tristan: Hi, good afternoon.
Looking at your gross margin guidance.
Tristan: 69% is the first sequential decline since Q4, 19, obviously still very healthy level.
Tristan: What is driving the decline is it more mix related.
Tristan: But it shouldnt be because communication would it be cold tends to be a lower margin, so oh and industrial seems to be security resilience. So is there some other component mix today.
Tristan: I'm not seeing that is impacting gross margin and how much of this could be pricing related.
Yeah.
Speaker Change: Yeah. Thanks, Justin for the question so.
Melissa Weathers: Um, I guess for my follow-up, I wanted to follow up on your developers' conference that you had in December. Can you talk either anecdotally or qualitatively about that event and the kind of customer engagement that it brought on? What were the interest levels, and did it drive enthusiasm among the volunteers?
Speaker Change: From a gross margin perspective, a couple of things. Let me say first is that you know for 'twenty. Two 'twenty three are our full year gross margin at 74% another record year for us. So we're really pleased with those results Q4, you know that that the sequential decline, we mentioned that that was a little bit due to mix.
Speaker Change: The 2020 basis point decline and then more specifically to your question the 69% at the midpoint. It's two things. It's it makes them a majority of it is mix and then the rest of it is is a little bit from lower absorption. So when we talk about mix industrial and automotive you know that's typically our highest highest gross margin segment.
James Anderson: Any takeaways from that event that you guys wanna share? Thank you. Yeah, thanks, Melissa. Actually, thanks for asking.
James Anderson: We were really excited about the Developers Conference. That was actually Lattice's first conference we had ever done, and I was really pleased with the results. We had over 5,000 registrations. We had 35 different sessions.
Speaker Change: So you know when we see softness there certainly we see that impact in gross margin.
Speaker Change: So it but we're seeing it you know you know in terms of the softness in industrial and automotive and communications all of that softness in Q1 that Jim mentioned being offset a little bit by the compute side of things. So industrial and automotive are you know would have the higher gross margin and that's where you'd see the impact of mix coming down sequentially in Q1.
James Anderson: We had 40 different technology demonstrations. Those were not just Lattice demonstrations but demonstrations from a lot of our partners. We had great keynotes from our customers and partners like BMW Meta and NVIDIA as well. Actually, the best part of the conference, from my perspective, was not just the partner and the customer activity that it generated, but we also launched the two newest device families based on our Avant platform for mid-range FPGAs, and that were the Avant G and the X. We exited last year with three different Avant device families in the hands of customers, the E, the G, and the X, and generated initial revenue from Avant before the end of last year as well.
The other thing just to complete that thought on gross margin is that you know when you look back.
Speaker Change: Like going into our 60 year of gross margin expansion strategy. So since that time, we've increased our gross margin by almost about 1400 basis points and so you know gross margin continues to be an area of focus for us.
Speaker Change: We will continue to focus on that to our long term target model that we put out last year at the low seventies.
Speaker Change: Interest and I think you also asked about pricing very end of your question, maybe I'll take that piece of your question I would describe our pricing is quite durable you know as Sherry mentioned, we've had a gross margin improvement strategy in place since 2019 part of that's been pricing optimization and over those.
James Anderson: What's really exciting about that is that it's the beginning of the Avant revenue ramp. As you might recall, Avant doubles our addressable market. It creates an entirely new revenue stream for the company. It's additive to the existing revenue streams. It doesn't cannibalize the existing small FPGA revenue streams in any way.
Speaker Change: Last five years, our pricing optimization.
Speaker Change: Through multiple different types of market conditions, our pricing has remained quite durable and in fact, our R. S piece have continued to go up each year as we've introduced a wider range of products and especially products with more capabilities.
James Anderson: That was one of the best parts of the Developers Conference was the launch of the G and X versions of Avant, which we believe will start to generate revenue before the end of this year. There was certainly a lot of customer excitement and activity around that, but yeah, overall, we viewed the event as a tremendous success, and we expect to do another Developers Conference later this year. Great, thank you. Our next question comes from the line of Tristan Gerra with Baird. Please proceed with your question. Hi, good afternoon.
Ability more capacity more software content.
And as more of our product mix goes towards those higher capacity capability devices that is naturally pulled up our asp's overtime and we expect that trend to continue, especially when you think about now we're at the beginning of the avant a defined revenue ramp win with a bond asps.
Tristan Gerra: Looking at your gross margin guidance, 69% is the first sequential decline since Q4'19, obviously still a very healthy level. What is driving the decline? Is it more mix-related?
Speaker Change: Being 10 to 20 times higher than the Nexus and pre Nexus asp's.
Speaker Change: As a bond mixes into the revenue base, you would expect asps to continue.
Sherri Luther: But it shouldn't be because communication, as I would recall, tends to be lower margin, or industrial seems to be still fairly resilient. So is there some other component of the mix that I am not seeing that is impacting gross margin, and how much of this could be pricing-related? Yeah, thanks, Tristan, for the question. So from a gross margin perspective, a couple things. Let me say first that, you know, for 2023, our full-year gross margin is at 70.4%, another record year for us. So we're really pleased with those results. For Q4, you know, that sequential decline we mentioned that that was a little bit due to mix, the 20 basis point decline. And so then, more specifically, to your question, the 69% at the midpoint, it's two things: it's mixed; the majority of it is mixed, and then the rest of it is a little bit from lower absorption.
Speaker Change: To grow over the coming years.
Speaker Change: Thanks, that's very useful and then for my follow up I wanted to go back to the revenue break down.
Speaker Change: I would have expected industrial revenue to hold out there.
Speaker Change: It did get hit with it but still at a run rate, that's well higher than a year ago and its communication that came down a lot. So the question is is industrial the last leg to come down and we haven't really seen that yet.
Speaker Change: And if you could remind us the percentage of communication as a percentage as a percent of.
Speaker Change: Industry.
Speaker Change: Medication and computing.
Speaker Change: And then also in computing.
Speaker Change: You showed some seasonality in Q1 of last year sequentially. So how much of computing is actually driven by data center densification away or more Gpus equate more wood of trust security chips versus the weakness your server units.
Sherri Luther: So when we talk about mix, industrial and automotive, you know, that's typically our highest gross margin segment. And so, you know, when we see softness there, certainly, we see that impact on gross margin. And so, but we're seeing it, you know, in terms of the softness in Q1 that Jim mentioned, being offset a little bit by the compute side of things. So industrial and automotive would have the higher gross margin, and that's where you'd see the impact in mix coming down sequentially in Q1. The other thing just to complete the thought on gross margin is that, you know, when you look back, it's about like we are going into our sixth year of our gross margin expansion strategy.
Speaker Change: Which also would have.
Speaker Change: Any impact so if you could help us put all of this together, but also.
Speaker Change: What should we expect with industrial I know you give us a hint for Q2 in the second half of this year, but wanted to understand better the moving pieces within the top line.
Speaker Change: Yeah, Thanks, Chris and I think that was at least three different questions. So I'm going to do my best to answer it.
Speaker Change: So on the on the first one on industrial and idle Yeah. We did see some sequential decline from Q3 to Q4 I think it was about 9% sequential decline in industrial auto we expect to see a deeper decline in that from a Q4 to Q1 and so.
Sherri Luther: So since that time, we've increased our gross margin by almost about 1400 basis points. And so, you know, gross margin continues to be an area of focus for us. And we'll continue to focus on that in the long term target model that we put out last year in the low 70s. You know, Tristan, I think you also asked about pricing at the very end of your question. Maybe I'll take that piece of your question. I would describe our pricing as quite competitive.
Speaker Change: And that that has been later that decline has been later than what we originally saw in the communications and computing space. We started to see that decline really in the first half of last year in industrial and automotive we started to see those markets impacted really towards the end of Q3 of last year into Q4.
Speaker Change: And we expect industrial and automotive to be down from Q4 to Q1 and and so that's that's also part of why you know earlier why share. He said that's part of the mix changes of industrial and automotive our highest margin segment declines more than kind of the rest of the segments. It's a it's a negative impact on our gross.
James Anderson: You know, as Sherri mentioned, we've had a gross margin improvement strategy in place since 2019. Part of that has been pricing optimization. And over those last five years of pricing optimization, through multiple different types of market conditions, our pricing has remained quite durable.
Speaker Change: Margins now on the on the second part of your question on comps and in compute I think you were asking what portion is communications versus compute we don't break those out separately, but just qualitatively compute is the bigger component of that segment compute has grown significantly.
James Anderson: And in fact, our ASPs have continued to go up each year as we've introduced a wider range of products, and especially products with, you know, more capability, more capacity, more software content. And as more of our product mix goes towards those higher capacity, high capability devices, that has naturally pulled up our ASPs over time. And we expect that trend to continue, especially when you think about how now we're at the beginning of the Avant revenue ramp. And with Avant ASPs being 10 to 20 times higher than the Nexus and pre-Nexus ASPs, you know, as Avant mixes into the revenue base, we would expect ASPs to continue and grow over the coming years. Thanks, that's very useful.
Speaker Change: Over the past over the past years and as the bigger component, So and and then in terms of I think the third part was just a little bit of your question was just a little bit more about computing. What we're seeing is and are there and what I would say is if you put it.
Speaker Change: Units aside I'm on a funny on an apples to apples basis on that new generation of servers, we have higher content. So we would expect to see growth based on the higher levels of content that we have on that new generation as that new generation becomes a greater percentage of the server shipments, but certainly any changes in the.
Tristan Gerra: And then for my follow-up, I wanted to go back to the revenue breakdown. I would have expected industrial revenue to roll over, but it did a little bit, but still at a run rate that's well higher than a year ago.
Speaker Change: And market overall server unit shipments those would affect us as well, but we would benefit at the same time from that higher dollars of content per server I hope that answered the third part of your question as well.
Tristan Gerra: And it's communication that has come down a lot. So the question is, is industry the last leg to come down? And we haven't really seen that yet.
Tristan Gerra: And if you could remind us, the percentage of communication as a percent of the industry of communication and computing, and then also in computing, showed some seasonality, with Q1 of last year sequentially. So how much computing is actually driven by data center densification, where more GPUs equate more road-of-trust security chips versus the weakness in server units? Which also will have an impact. So if you could help us put all of this together, but also,
Speaker Change: That's very useful thank you very much.
Speaker Change: Thanks Kristen.
Speaker Change: Our next question comes from the line of Christopher Rolland with Ah Sachi. Please proceed with your question.
Christopher Adam Jackson Rolland: Hey, guys. Thanks for the question.
Christopher Adam Jackson Rolland: I'm a bit surprised actually that you guys didn't mention your win.
Christopher Adam Jackson Rolland: In a high profile V. R. A R headset and I'd love to know if possible what the OEM might be using that for.
Tristan Gerra: What should we expect with industrial aid? Give us a hint for Q2 in the second half of this year, but we'll need to understand better the moving pieces within the top. Yeah, thanks, Tristan. I think that were at least three different questions.
Christopher Adam Jackson Rolland: They appear to be using in the ice 40 versus a nexis.
Christopher Adam Jackson Rolland: Was this purely a price decision or or was there anything else that went into that.
Christopher Adam Jackson Rolland: And is this a beachhead for you know headway into more of their products are or even outside of that OEM do you guys get more excited about consumer again. After this one thanks.
James Anderson: So I'm going to do my best to answer those. On the first one about industrial and auto, yeah, we did see some sequential decline from Q3 to Q4. I think it was about 9% sequential decline in industrial auto.
Speaker Change: Yeah. Thanks, Chris.
That particular customer is a very long and very good customer of lattices, but that customer is also very sensitive about.
James Anderson: We expect to see a deeper decline than that from Q4 to Q1. And so, yeah, and that decline has been later than what we originally saw in the communications and computing space. We started to see that decline really in the first half of last year.
Speaker Change: US discussing anything.
Speaker Change: Anything related to them, so I wont discuss that that particular topic.
Speaker Change: Okay, just how about consumer in general does this get you more excited about consumer.
James Anderson: And industrial and automotive, we started to see those markets impacted really towards the end of Q3 of last year and into Q4. And we expect industrial and automotive to be down from Q4 to Q1. And so that's also part of why, you know, earlier why Sherri said that it's part of the mixed changes in industrial and automotive, our highest margin segment declines more than the rest of the segments. It has a negative impact on our gross margins. Now on the second part of your question on comms and compute, I think you're asking what portion is communications versus compute. We don't break those out separately, but just qualitatively, compute is the bigger component of that segment.
Speaker Change: Yeah, there's certainly in consumer there are many different places where lattice devices can be used gosh in all sorts of and all sorts of AI enabled consumer devices in all sorts of sensor enabled devices right and in the car.
Speaker Change: [noise] tumor segment, you're seeing more and more computer vision.
Speaker Change: <unk> century technology added to consumer devices, and obviously more AI related processing and in all of those types of applications.
Speaker Change: And all of those applications Atlantis has a really great ability to play in those type of applications for a couple of reasons first of all our.
Speaker Change: Our devices are incredibly power efficient rate and in almost all of those devices power efficiency is really important whether they are battery powered or whether they are connected to power power efficiency is important second is.
James Anderson: You know, computing has grown significantly over the past years and is the bigger component. And then in terms of, I think the third part was just a little bit of your question was just a little bit more about computing, what we're seeing is there. And what I would say is that if you put units aside on an apples-to-apples basis on a new generation of servers, we have higher content. So we would expect to see growth based on the higher levels of content that we have on that new generation as that new generation becomes a greater percentage of server shipments. But certainly, any changes in the end market's overall server unit shipments would affect us as well. But we would benefit at the same time from that higher dollar content. I hope that answered the third part of your question as well. Yeah, that's very useful. Thank you very much.
Speaker Change: These devices get changed on a very frequent basis right. They may get changed every year. They may get changed even more frequently than that with upgraded features et cetera.
Speaker Change: <unk> are a great solution for being able to change and add new features on a rapid basis and then the third is that same software that we've been developing for other applications. That's definitely relevant in the consumer segment as well it's the yeah.
The the ability to use the for instance, Sandy I software stack to design lattice devices into inference algorithms. The computer vision software stack in a number of the other shoppers accent. We've developed that helps those consumer customers get to market quickly and design line of solutions and now all that said, we're always excited about.
Speaker Change: That we still believe that the big long term growth areas for lattice are the industrial and automotive segment and the communications and computing, but we do participate in the consumer segment, where we believe we can bring some unique value to our customers.
Christopher Adam Jackson Rolland: Thanks, Tristan. Our next question comes from the line of Christopher Rolland with SIG. Please proceed with your question. Hey guys, thanks for the question. I'm a bit surprised, actually, that you guys didn't mention your win in a high-profile VR AR headset. And I'd love to know, if possible, what the OEM might be using that for. They appear to be using an ICE 40 versus a Nexus.
Speaker Change: Great and perhaps the second question.
Speaker Change: Uh Huh, how do you think about your revenues versus you know altera and Xilinx Microsemi are do you believe you can outgrow them.
Speaker Change: Clearly because you have a new product rolling on.
James Anderson: Was this purely a price decision, or was there anything else that went into that? And is this a beachhead for, you know, headway into more of their products or even outside of that OEM? Do you guys get more excited about consumers again after this one? Yeah, thanks, Chris. That particular customer is a very long and very good customer of Lattice's, but that customer is also very sensitive about us discussing anything related to them. So I won't discuss that particular topic.
Speaker Change: And about that new product do you think that could be a 10% revenue at or for you. This year.
Speaker Change: And in terms of overall topline is 15% to 20%, which is your long term growth target is that still reasonable.
Speaker Change: You know considering the setback thank you.
Speaker Change: Yeah. Thanks, Chris So first of all on an avant.
Speaker Change: Or in general across both small FPGA in mid range. Yeah. We believe we can continue to gain share in those markets I'm in in small FPGA. We began we believe we've gained share over the past years and in midrange at P. J. We're just at the very beginning of that revenue stream, but that is.
James Anderson: Okay, just how about consumers in general? Does this get you more excited about consumers? Yeah, there's certainly, in consumers, there are many different places where lattice devices can be used, gosh, in all sorts of AI-enabled consumer devices, in all sorts of sensor-enabled devices, right?
<unk> us penetrating into a segment that we haven't been in the in the past it's completely additive revenue and we certainly believe that we can grow up on revenue and gain share in that segment look 90% of the target customers for our voluntary are already customers of lattice today and the software that they would use to program in Nevada device R. R.
James Anderson: In the consumer segment, you're seeing more and more computer vision, sensory technology added to consumer devices, and obviously more AI-related processing. And in all those types of applications, in all those types of applications, Lattice has a really great ability to play in those types of applications for a couple reasons. First of all, our devices are incredibly power-efficient, right? And in almost all those devices, power efficiency is really important; whether they're battery-powered or whether they're connected to the grid, power efficiency is important.
Speaker Change: Using that today Nexus devices. For example, so these are existing customers using software that they're already familiar with just adding another product line from lantus to their portfolio. So we certainly believe we can grow in the mid range space.
Speaker Change: Then on the last part of your question around the long term growth.
Speaker Change: Targets, Yes, we are still targeting and committed to those targets that we shared at the last Investor day. Those are we believe the right long term growth targets for the company. If you look over the last four years from 2019, which was our first full year.
James Anderson: Second, you know, those devices get changed on a very frequent basis, right? They may get changed every year, they may get changed even more frequently than that with upgraded features, etc. FPGAs are a great solution for being able to change and add new features on a rapid basis.
Speaker Change: The new management team to the end of last year. The average CAGR over that time period for the company was a mid teens about I think it's about 16% growth over that period and that was growth only in the small FPGA segment of the market and so I think we've demonstrated an ability to grow revenue consistent.
James Anderson: And then the third is, you know, that same software that we've been developing for other applications that's definitely relevant in the consumer segment as well. It's, you know, the ability to use the, for instance, SEMAI software stack to design lattice devices into inference algorithms, the computer vision software stack, and a number of the other software stacks that we've developed that helps those consumer customers get to market quickly. And design lattice solutions in.
Speaker Change: And the smaller D. J, a part of the market, we still have headroom in terms of the size of that market and the total Sam of that market to continue to grow. So we believe over the long term. We can still continue to grow in that small FPGA portion of the market and then in addition, adding on top of that now growth in midrange.
Christopher Adam Jackson Rolland: Now, all that said, we're always excited about that. We still believe that the big long-term growth areas for Lattice are the industrial and automotive segments and the communications and computing segments. But we do participate in the consumer segment where we believe we can bring some unique value. And perhaps a second question. How do you think about your revenues versus, you know, Altera, Xilinx, Microsemi? Do you believe you can outgrow them, particularly because you have a new product rolling out?
Where where the revenue is completely additive and where we're doubling our addressable market. So we believe that helps us.
To drive greater growth in the future and so yeah. The.
Speaker Change: We're certainly continue to target those those investments or those goals that we put out at our last investors day.
Speaker Change: Will we ever get an update like a number for avant and if so when when do you think we might get.
Speaker Change: Get that number.
Speaker Change: Yeah, it's possible in the in the future is.
James Anderson: and about that new product, do you think that could be a 10% revenue adder for you this year? And in terms of the overall top line, which is 15 to 20 percent, which is your long-term growth target, is that still reasonable, you know, considering this setback? Thank you. Yeah, thanks, Chris.
Speaker Change: Find ramps to begin to be a bigger portion of our revenue at some point, we would we would provide more color on that right remember we're at the very beginning of the avant ramp we we had a you know.
James Anderson: So first of all, on a bond, you know, or in general, across both small FPGAs and mid-range, yeah, we believe we can continue to gain share in those markets. In small FPGAs, we believe we've gained share over the past years. And in mid-range FPGA, we're just at the very beginning of that revenue stream, but that is us penetrating into a segment that we haven't been in the past. It's a completely additive revenue.
Little bit of a bond revenue before the end of last year now that was on schedule. In fact, there was a little bit on the early end of what we had projected.
Speaker Change: But as of on ramps through this year into next year and becomes a more significant portion yeah. We may provide more color on the quantity of it at some point.
Speaker Change: Thanks, Jim.
James Anderson: Thanks, Chris.
Our next question comes from the line of Blake Friedman with Bank of America. Please proceed with your question.
James Anderson: And we certainly believe that we can grow Avant revenue and gain share in that segment. Look, 90% of the target customers for Avant are already customers of Lattice today. And the software that they would use to program an Avant device, they're already using that today on Nexus devices, for example.
Blake Friedman: Hi, Thanks for taking my question I wanted to circle back to Ivan as well I believe at the at your Analyst day, you've mentioned that with an objective of a bond generating about 15% to 20% of total company revenue in three to four years and I know you're not quantifying quantifying anything today, but I guess is that still have a long term objective is to have about contribute.
James Anderson: So these are existing customers using software that they're already familiar with, just adding another product line from Lattice to their portfolio. So we certainly believe we can grow in the mid-range space. And then on the last part of your question around the long-term growth targets, yeah, we are still targeting and committed to those targets that we shared at the last Investor Day. Those are, we believe, the right long-term growth targets for the company. If you look over the last four years from 2019, which was our first full year as the new management team, to the end of last year, the average CAGR over that time period for the company was mid-teens.
That much to the model long term.
Speaker Change: Yes, that's still our objective Blake yes.
Blake Friedman: Great. Thank you and then maybe a little bit more near term are you Oh. Thank you for outlining some of the drivers for the second half of the year to drive our revenue pick up I guess, what gives you more of the confidence that given your customers are still working through inventory that by the towards the end of the June quarter. The.
James Anderson: I think that's about 16% growth over that period, and that was growth only in the small FPGA segment of the market. And so I think we've demonstrated the ability to grow revenue consistently in the small FPGA part of the market. But we still have headroom in terms of the size of that market and the total SAM of that market to continue to grow. So we believe over the long term, we can still continue to grow in that small FPGA portion of the market. And then, in addition, adding on top of that growth in the mid-range, where the revenue is completely additive, and where we're doubling our addressable market. So we believe that helps us drive greater growth in the future. And so yeah, we'll certainly continue to target those investments or those goals that we put out at our last Investors Day. Will we ever get an update, like a number for Avant, and if so, when do you think we might get that number?
Speaker Change: Inventories should be picture should be relatively clear on those those second half catalyst can help drive growth just any more details on that would be helpful.
Speaker Change: Yeah, that's based on like that's based on the customer forecast that we have the backlog that our customers have placed for instance for the second half of the year and what customers have shared with us in terms of their own plans to.
Speaker Change: The drawdown in inventory levels and our own internal analysis. So based on that as I said, we think that the the inventory rebalancing and digestion.
Speaker Change: You know, it's certainly an effect in the first half, but anticipate through the rest of this year and that's one factor that leaves us at this point to believe that the second half is stronger but the other factor is all of those product ramps that we talked about earlier in the call. Now look you know business conditions can change macroeconomic.
James Anderson: Yeah, it's possible in the future as Avant ramps up to begin to be a bigger portion of our revenue, at some point, we would provide more color on that, right? Remember, we're at the very beginning of the Avant ramp. We had a little bit of Avant revenue before the end of last year. Now, that was on schedule. In fact, it was a little bit on the early end of what we had projected.
Speaker Change: <unk> can change that's what we're seeing at this point that's what we expect at this point and so we want to provide you know color at least qualitative color on how we see the year unfolding, but that's obviously subject subject to change if if macroeconomic conditions are where end market business conditions change.
Speaker Change: Thank you.
Okay.
Our next question comes from the line of David Williams with Benchmark. Please proceed with your question.
James Anderson: But as Avant ramps through this year into next year and becomes a more significant portion, we may provide more color on the quantity of it at some point. Thanks, Jim. Thanks, Chris.
David Duley: Hey, good afternoon, and thanks for taking my question.
David Duley: First I wanted to see if maybe there was anything geographically that you noticed this quarter in terms of weakness or softness among the different categories or segments, and maybe just kind of how you're feeling about that heading into the first quarter.
Operator: Our next question comes from the line of Blake Freedman with Bank of America. Please proceed with your question. Thanks for taking my question. I wanted to circle back to Avant as well.
Speaker Change: Yeah. Thanks, David So from a Geo perspective, just kind of how some of the softness of the more recent softness that we've seen has evolved as you know, especially in the industrial auto segment, which is the segment that slowed down most recently for US you know the initial weakness that we saw towards the end of Q3 of <unk>.
Blake Freedman: I believe at your analyst day, you mentioned that with an objective of Avant generating about 15 to 20% of total company revenue in three to four years. And I know you're not quantifying anything today, but I guess is that still the long-term objective to have Avant contribute that much to the model long term? Yeah, that's still our objective, Blake. Yes. Great. Thank you. And then maybe a little bit more in the near term.
Speaker Change: Last year that was really primarily in Asia and in particular in in China. In Q4 of last year, we saw that extend not just into Asia, but extend into Europe as well. So we saw weakness in European industrial is in Q4.
As well as European Communications customers now.
Speaker Change: Now North America through the really the Americas through the end of our last year held up and we actually saw a sequential increase in America's revenue from Q3 to Q4, but going into the current quarter Q1, we would expand our Asia Europe to be down again sequentially and we now expect.
James Anderson: Thank you for outlining some of the drivers for the second half of the year to drive revenue pickup. I guess what gives you more confidence that given your customers are still working through inventory, that by the end of the June quarter, the inventory should be, the picture should be relatively clear, and those second half catalysts can help drive growth. Just any more details on there would be helpful.
Speaker Change: Americas to be to be down as well as we're starting to see softer demand from some of our North America based industrial and automotive customers as well.
James Anderson: Yeah, that's based on, like, the customer forecasts that we have the backlog that our customers have placed, for instance, for the second half of the year, and what customers have shared with us in terms of their own plans to draw down inventory levels and our own internal analysis. So based on that, as I said, we think that the inventory rebalancing and digestion is certainly an effect in the first half but dissipates through the rest of this year. And that's one factor that leads us at this point to believe that the second half is stronger.
Speaker Change: Okay.
Speaker Change: Thanks, and then maybe just on the automotive side, if we think about where your euro bond platform can play how do you think about that total addressable market in automotive specifically over the next few years and maybe talk about any of the design win traction or early stage design activity youre seeing around the auto for Bonnie. Thank you.
Yeah, Thanks, David So.
Speaker Change: First of all we believe that you know auto electronics represents a great growth area for the company over the long term, we believe where we're underexposed to that area. That's one of the fastest areas of growth that we've seen over the past years for Atlantis solutions are even ahead of a bond.
Speaker Change: And we are we believe avant is a really well positioned in automotive electronics. We believe we will see adoption of Avanti and Adas infotainment systems around a wide variety of applications will be able to talk more about that as we you know as we move through the avant a ramp but.
James Anderson: But the other factor is all of those product ramps that we talked about earlier in the call. Now look, you know, business conditions can change, macroeconomic conditions can change, that's what we're seeing at this point, that's what we expect at this point, and so we want to provide, you know, color, at least qualitative color on how we see the year unfolding, but that's obviously subject to change if macroeconomic conditions or end market business conditions change. Thank you. Our next question comes from the line of David Williams with Benchmark.
Speaker Change: We certainly see many applications in the automotive electronics space and I think we highlighted some of those potential usages at that most recent Devon developers conference in December So I would say stay tuned we expect to hear more about avanti in the automotive segment.
Speaker Change: Thank you.
Speaker Change: As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Our next question will come from the line of screening for jewelry with Raymond James. Please proceed with your question.
David Duley: Please proceed with my question. Hey, good afternoon, and thanks for taking my question. First, I wanted to see if maybe there was anything geographic, like Man, Weakness, or Softening, and maybe just kind of how you're. Yeah, thanks, David.
Thank you Hi, Jim a couple of questions first one on your distillate inventory I think you said, it's back to pre pandemic levels, obviously the Sam.
James Anderson: So from a geopolitical perspective, just kind of how some of the softness, the more recent softness that we've seen has evolved, especially in the industrial auto segment, which is the segment that slowed down most recently for us. The initial weakness that we saw towards the end of Q3 of last year, that was really primarily in Asia and, in particular, in China, in Q4 of last year, we saw that extend not just into Asia So we saw weakness in European industrials in Q4, as well as in European communications customers. Now, North America through the really Americas through the end of last year held up, and we actually saw a sequential increase in America's revenue from Q3 to Q4.
James Anderson: Thing is bigger than pre pandemic.
James Anderson: No time periods and then on top of that you have many new products that are ramping so I'm just curious as to when you think you'll start to kind of increase the disdain inventory as we go through the next few quarters.
Speaker Change: Yeah. Thanks for the question and just to clarify when I say back to pre pandemic levels I mean on a relative basis for instance, a weeks of inventory perspective. So you know that that accounts for the growth in the business that we've seen since pre pandemic, so yeah on or on a relative basis, it's back to the to the same.
Speaker Change: <unk> levels as we were pre pandemic and our goal moving forward then is to keep inventory levels that are Disney is stable right. Ultimately what we're trying to do is if we've got a healthy level and a normal level of inventory at our distributors. What we're trying to do is match the sales into our distributors.
James Anderson: But going into the current quarter, Q1, we would expect Asia, Europe to be down again, sequentially, and we now expect America's to be to be down as well as we're starting to see softer demand from some of our North America based industrial and automotive customers as well. And maybe just on the automotive side, if we think about where you're a platform, play, how do you think about that total addressable market? for the next few years.
Speaker Change: With the sales that our distributors are selling out to our end customers. That's our that's our goal on a quarter to quarter basis.
Speaker Change: Got it got it and then Jim on the avant our new product ramping up given the environment on one hand, I think in a lot of excitement about AI et cetera, but on the other hand, the macro especially in industrial is not that great. So I'm just curious if that's having any impact either positive or negative on the design activity itself.
James Anderson: Stage Design: Yeah, thanks, David. So first of all, we believe that, you know, auto electronics represents a great growth area for the company over the long term. We believe we're underexposed to that area.
James Anderson: That's one of the fastest areas of growth that we've seen over the past years for lattice solutions, even ahead of Avant. And we believe that Avant is really well positioned in automotive electronics. We believe we'll see adoption of Avant in ADAS, infotainment systems, around a wide variety of applications. We'll be able to, you know, talk more about that as we, you know, move through the Avant ramp. But we certainly see many applications in the automotive electronics space.
Speaker Change: You know given what's going on out there.
James Anderson: Yeah. It's a good question and we really haven't seen has seen it have a impact on the design win activity.
James Anderson: And just a couple of qualitative data points as you know last year in totality for the company, we had a record level of design wins last year and significant growth in our design win opportunity pipeline from 22 to 23 and that was across all products.
James Anderson: And I think we highlighted some of those potential usages at that most recent developer conference in December. So I would say, you know, stay tuned, expect to hear more about Avant in the automotive segment. Thank you. As a reminder, if you would like to ask a question, please press star 1 on your telephone. Our next question will come from the line of Srini Pajjuri with Raymond James. Please proceed with your question. Thank you. Hi Jim, I have a couple of questions. First one on your DISTI inventory. I think you said it's back to pre-pandemic levels. Obviously, the SAM, I'm guessing, is bigger than pre-pandemic time periods.
James Anderson: Ex Nexus pre Nexus and the bond no I had actually last year, given the team a pretty aggressive goal on advanced design wins and.
The team actually exceeded their their design win goal for last year on a bond, which I was quite pleased with and I want to take the opportunity to thank the lattice teams for their great work on driving the avant design win goals last year and you know I would say overall the other thing that we look at with a avanti is.
Srinivas Reddy Pajjuri: And then on top of that, you have many new products that are ramping up. So I'm just curious as to when you think you'll start to kind of increase the DISTI inventory as we go through the next... Yeah, thanks for the question. And just to clarify, when I say back to pre-pandemic levels, I mean, on a relative basis, for instance, a weeks' worth of inventory perspective.
James Anderson: Just how is it tracking relative to nexus at the same relative point in time, and if I look at the total lantus or the total avant design opportunity pipeline for our bonds at the end of last year relative to the same or compared to the same relative point in time for next us it's significantly exceeds the.
James Anderson: So, you know, that accounts for the growth in business that we've seen since pre-pandemic. So yeah, on a relative basis, it's back to the same levels as we were before the pandemic. And our goal moving forward, then, is to keep inventory levels at our distribution centers stable, right? Ultimately, what we're trying to do is if we've got a healthy level and a normal level of inventory at our distributors, what we're trying to do is match the sales into our distributors with the sales that our distributors are selling out to our end customers. That's our goal on a quarter to quarter base. Got it, got it. And then, Jim, on the Avant new product ramp, given the environment, on the one hand, I think there's a lot of excitement about AI, et cetera, but on the other hand, the macro, especially in industrial, is not that great. So I'm just curious if that's having any impact, either positive or negative, on the design activity itself, given what's going on. Yeah, it's a good question, and we really haven't seen it have an impact on DesignWin activities.
James Anderson: Nexis opportunity pipeline, which again, we just view as another really positive indicator of the future health of the bond and the Maine Governor of the rate and pace of the growth of a bond in this ramping phase is really the customer's own timelines in terms of their ability to you know once we put them.
James Anderson: <unk> in the hands of the customers their ability to design that into the system to do their qualifications to do their system level software and get to market and clearly we we provide software to make that as easy as possible for our customers, but actually the you know.
James Anderson: Customer rate and pace as the primary gate to that the bonds that.
James Anderson: And then a bond tramp.
Speaker Change: Got it thanks, Tim.
Speaker Change: Thank you.
Speaker Change: There are no further questions at this time and I'd like to turn the floor back over to CEO, Jim Anderson for closing comments.
James Anderson: Yeah. Thank you operator, and thanks again for everyone for joining us on today's call I'm very pleased with our strong results in 2023, and I actually want to take the opportunity to thank the lattice team for the great execution in 2023, and as we look forward into 'twenty 'twenty four and beyond you know clearly.
James Anderson: And just a couple, you know, qualitative data points is, you know, last year in totality for the company, we had a record level of DesignWins last year and significant growth in our DesignWin opportunity pipeline from 22 to 23. And that was across all products, Nexus, PreNexus, and Avant. Now, I had actually given the team a pretty aggressive goal on Avant DesignWins last year, and the team actually exceeded their DesignWin goal for last year on Avant, which I was quite pleased with. And I want to take the opportunity to thank the Lattice teams for their great work on driving the Avant DesignWin goals last year. And, you know, overall, the other thing that we look at with Avant is, you know, just how is it tracking relative to Nexus at the same point in time?
James Anderson: We're navigating some near term macro headwinds, but we continue to be very well positioned for long term growth with the strongest product portfolio, we've ever had in the company's history, and a rapidly expanding product portfolio as well.
Speaker Change: That concludes today's call.
Speaker Change: Thank you you may now disconnect your lines at this time, thank you for your participation.
Speaker Change: Bye.
Speaker Change: Yeah.
Speaker Change: Okay.
Yeah.
James Anderson: And if I look at the total Lattice or the total Avant design opportunity pipeline for Avant at the end of last year, relative to the same or compared to the same relative point in time for Nexus, it significantly exceeds the Nexus opportunity pipeline, which, again, we just view as another really positive indicator of the future health of Avant. And the main governor of the rate and pace of the growth of Avant in this ramping phase is really the customers' own timelines in terms of their ability to, you know, once we put the product in the hands of the customers, their ability to design that into the system, to do their qualifications, to do their system level software, and get to market. And, you know, clearly, we provide software to make that as easy as possible for our customers. But actually, the customer rate and pace is the primary gate to that Avant ramp. Got it.
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Operator: There are no further questions at this time, and I'd like to turn the floor back over to CEO Jim Anderson for closing. Yeah, thank you, Operator. And thanks again to everyone for joining us on today's call. I'm very pleased with our strong results in 2023. And I actually want to take the opportunity to thank the Lattice team for the great execution in 2023. And as we look forward into 2024 and beyond, you know, clearly, we're navigating some near-term macro headwinds, but we continue to be very well positioned for long-term growth with the strongest product portfolio we've ever had in the company's history and a rapidly expanding product portfolio.
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James Anderson: Operator, that concludes today's webinar. Thank you. You may now disconnect your lines at this time.
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Operator: Thank you for your participation. Goodbye. The Ultimate Parody Site!... The Ultimate Parody Site!
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