Q1 2025 Lattice Semiconductor Corp Earnings Call

Greetings and welcome to the Lattice Semiconductor First Quarter 2025 Earning School. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference.

Speaker Change: 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, Senior Director of Investor Relations. Please go ahead.

Rick Muscha: Think operator and good afternoon everyone. With me today are Ford Tamer, Lattice C.O. and Lorenzo Flores, Lattice CFO .

Rick Muscha: We will provide a financial and business review of the first quarter of 2025 and the business outlook for the second quarter of 2025. If you have not obtained a copy of our earnings press release, it can be found at our company website in the investor relations section at latticesemi.com.

Rick Muscha: 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 of 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 a different materially.

Rick Muscha: We refer you to documents at the company files with the SEC, including our 10Ks, 10Qs and 8Ks. These documents contain and identify important risk factors that could cause the actual results to different materially from those containing our projections or forward-looking statements.

Rick Muscha: This call includes and constitutes the company's official guidance for the second quarter of 2025.

Rick Muscha: If at any time after this call we communicate any material changes to this guidance, we intend that such updates will be done using a public forum such as a press release or publicly announced conference call.

Rick Muscha: We 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.

Rick Muscha: For historical periods, we provide reconciliation of these non-GAAP financial measures to GAAP financial measures that can be found on the Investor Relations section of our website at LatticeSemiconductor Let me now turn the call over to our CEO , Fouad Tamer

Speaker Change: Thank you Rick, and thank you everyone for joining us on our call today.

Rick Muscha: This has been a period of historic volatility and uncertainty around the new terrorists as they affect the global economy and our industry.

Rick Muscha: In general, we're not seeing any matured impact from the new tariffs at this time, and we are highly aware of potential indirect impact.

As a result,

Rick Muscha: We, like others in the semiconductor industry, are actively monitoring the situation.

Rick Muscha: especially as it relates to potential impact to our second half outlook.

Rick Muscha: To that end would be highly proactive by continuing to focus on cost controls, increase operation efficiency, and above all else deliver value for our shareholders.

Rick Muscha: At the same time, we continue to aggressively execute our strategy, diligently deliver on our product roadmap and prioritize and support our customers' deployments.

Rick Muscha: We have also expanded our new design win rates on small and mid-range FPGAs at record levels.

For more information visit www.FEMA.gov

Rick Muscha: Let me now turn to Q1 Highlight, which Lorenzo would expand upon in his prepared remarks.

For more information, visit www.FEMA.gov

Rick Muscha: At a high level, we delivered revenue of 120.1 million dollars in line with our prior guidance.

Rick Muscha: Our non-gab cross-margin of 69% reflected the resilience of our business and the value of our product in the face of a challenging environment.

Rick Muscha: and our 33.4% adjusted EBITDA demonstrated the results of our financial discipline.

Rick Muscha: In the near term, we continue to shift below estimated true demand as we work closely with customers to ensure alignment with their evolving product needs.

Rick Muscha: as the broader industry navigates a dynamic micro-environment, where encouraged by the continued improvements in our bookings.

Rick Muscha: With respect to end-markets, communications and computing delivered its first year-on-year grow in two years. And industrial and automotive grew 6% sequentially, marking its first quarter of sequentially growth in six quarters.

Rick Muscha: The broad reach of our innovative and differentiated solutions is enabling us to expand our footprint in both general purpose and I optimize servers, as well as in industrial applications such as factory automation and robotics.

Designing with momentum remains at record levels.

Rick Muscha: Revenue from our new product continues to grow at a strong double digit pace, both sequentially and year on year.

Rick Muscha: I'm also pleased to report that we remain on track to hit our goal of heightens percentage of new product revenue for the four-year 2025.

Rick Muscha: Our customers continue to express enthusiasm for Lattice's differentiated low-power and small-sized solution for their mission critical applications.

Rick Muscha: Lattice is uniquely positioned to help enable the next wave of innovation across key verticals which we expect will be a powerful catalyst for our business.

Rick Muscha: In mid-March, we showcased our innovative solutions at Embedded World in Normburg, one of the industry's top industrial and automotive events.

Rick Muscha: Our exhibit featured compelling demonstrations of Lattice technology across a broad range of high growth applications including security

Far Edge AI, video and connectivity.

Rick Muscha: In addition, we had the full slate of very productive meetings with key customers and partners during which we reafforced our strategic relationships and aligned our roadmap.

Rick Muscha: These discussions further bid on our Python opportunities that we expect will translate into future design and revenue growth.

John Vinh, Srinivas Pajjuri,

Rick Muscha: We recently wrapped up our internal quarterly business reviews that showed continued momentum in our nexus and event product timidies.

Rick Muscha: We continue to take share in the small to mid range FPGA market segments.

Rick Muscha: We're also seeing revenue and design when growth in exciting areas like generative eye and data centers.

Robotics, Industrial

Incabinian Edas in Automore

Rick Muscha: ARVR in consumer and emerging security needs including post quantum cryptography.

For more information, visit www.fema.gov

Rick Muscha: All of this reinforces our strong belief that Lattice is well positioned, not just for a recovery, but for sustainable growth.

Rick Muscha: Overall, we have confidence. We are in the right market with a leadership product portfolio and more than 11,000 global customers in very attractive long-term growth markets.

Rick Muscha: Looking ahead, we continue to expect a U-shaped recovery long-term.

Rick Muscha: Our Q2 guidance reflects our expectation for steady growth in both revenue and profitability.

John Vinh, Srinivas Pajjuri,

Rick Muscha: Another positive indicator is that channel inventory is also continuing to decrease.

Rick Muscha: And as we discuss in my opening remarks, we remain cautious on the second half outlook aligned with the rest of the industry

Rick Muscha: This will be dependent on the continuing resolution of the terror situation and corresponding customer demand.

Rick Muscha: To wrap up, Q1 was a solid quarter, with results in line with expectations and strong execution across the board.

Rick Muscha: We remain focused on driving innovation and expanding our customer engagements.

Rick Muscha: The team at Lattice is confident, energized, and committed to our long-term strategy and excited by the many opportunities ahead.

Thank you again for your time and your continued support.

Rick Muscha: Let me now turn the call over to Lorenzo for a detailed review of our results. Lorenzo?

Lorenzo: Thank you for it and good afternoon everyone. While I was on our cue for call, this marks my first official call as Lattice's CFO , and I'm very happy to be here. We will begin with a brief overview of our first quarter 2025 financial performance followed by our second quarter outlook. Thank you very much.

Lorenzo: We delivered on expectations with revenue, gross margin and operating profit all in line with our outlook for the first quarter of 2025.

Lorenzo: For Q1 2025, we reported revenue of $120.1 million, reflecting a 2% increase compared to Q4 and a 15% decline compared to the year ago period.

Lorenzo: Our gross margin remained strong at 69% on a non-GAAP basis. Gross margin was up 690 basis points compared to Q4, but I want to remind you that Q4 included a liability for materials that impacted Gross margin by 600 basis points. [inaudible]

Lorenzo: This performance reflects the durability of our business model as we return to the gross margin levels we attain most of last year despite the lower revenue level.

Lorenzo: non-GAAP operating expense was $51.4 million, a 3% decrease compared to Q4, and a 6% decrease compared to the year ago period.

Lorenzo: This was in line with our guidance and reflects our diligent focus on operational efficiency.

Lorenzo: Our non-GAAP operating margin was 26.2% and our EVA DOM margin was 33.4%, which reflects both the durability of the business model and our continued focus on operational efficiency.

Lorenzo: These factors combine to deliver non-GAAP ETS of 22 cents in line with our guidance.

Lorenzo: Gapneck cash flow from operating activities for the first quarter of 2025 was $31.9 million, with a Gap operating cash flow margin of 26.5%.

Lorenzo: Three cash flow in Q1 was $23.3 million, with a 19.4% free cash flow margin.

Lorenzo: We are investing in CAPEX and support of engineering and operations projects. As we go through the year, our free cashflow margin is expected to improve despite increased CAPEX.

Lorenzo: Now I would like to turn to Capitol allocation. Our balance sheet remains strong. We are debt-free and have ready access to Capitol if we needed. We believe we are well positioned to navigate macro uncertainties and invest for future growth. [inaudible]

Lorenzo: The growth opportunities we will pursue, particularly in R&D and product innovation, target further strengthening of our leadership in small and mid-range FPGA markets.

Lorenzo: We believe this is the best way to maximize the ROI of our investments and maximize long-term shareholder value.

Lorenzo: Given our balance, sheet, strength, and our business model, returning capital to shareholders remains a key component of our capital allocation strategy.

Lorenzo: During the quarter, we repurchased approximately $25 million of common stock under our existing buyback program. The company has now repurchased a total of approximately 6.4 million shares reducing dilution by 4.6 percent.

Lorenzo: Last quarter's purchases were made in our open window before the recent market volatility and dislocation of our stock price.

Lorenzo: We have approximately $75 million remaining under the most recent board authorization and we will deploy it considering our opportunities to invest in growth and the market environment.

Lorenzo: As we move into our outlook for Q2, we realize that the macro environment and geopolitical situation particularly tariffs or top of mind. I'd like to spend some time describing the most relevant factors pertaining to the potential impact on Lattice before I provide our outlook.

Lorenzo: The first factor I would point out is that over the past couple of years, about 80% of our revenue came from outside the US.

Lorenzo: Our assessment is that this likely mitigates the potential direct impact of a tariff on our overall business.

Lorenzo: The second factor is the structure of our supply chain. We rely on foundries in Taiwan, Korea and Japan for wafers for our semiconductor products and we primarily rely on our assembly and test partners in Malaysia and Taiwan. Much of our product flow does not cross the U.S. border. [inaudible]

Lorenzo: That said, we think it is prudent to work with our customers and distribution partners to mitigate the logistical and economic disruption from potential tariff regimes.

Lorenzo: The takeaways that based on available information we expect the direct impact of tariffs on our business to be limited but we are highly aware of potential indirect impacts.

Lorenzo: As Ford described in his prepared remarks, we are, like others, actively monitoring the situation and preparing for multiple scenarios.

Now for guidance.

Lorenzo: For Q2 2025, we expect revenue to be in the range of $188.5 to $128.5 million.

Lorenzo: Gross Margin is expected to be 69% plus or minus 1% on a non-gab basis.

Lorenzo: Q2 total op-x is expected to be between $50.5 million and $52.5 million on a non-GAAP basis.

Lorenzo: Income tax rate for Q2 is expected to be between 5% and 6% on a non-GAAP basis.

Lorenzo: Net income for Q2 is expected to be between 22 and 26 cents per share on a non-GAAP basis.

Lorenzo: We will continue to drive the business when new designs and accelerate our design wins into production. Our previous actions have put us on solid ground with respect to cost structure.

Lorenzo: We are driving shareholder value by prioritizing investments in our product roadmap, revenue generation, and customer support.

Speaker Change: Operator, that concludes our formal remarks. We can now open the call for questions.

Speaker Change: 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 tone will indicate your monitor in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. If you would like to ask a question, please press star 2 on your telephone keypad.

First question, comes from Melissa Weathers, with Deutsche Bank, please go on.

Melissa Weathers: Hi there. Thank you for letting me ask a question. So I guess it seems like the U-shaped recovery that you guys have been talking about is playing out pretty much as expected, but you are flagging some caution on the macro on this call.

Speaker Change: Last quarter, I think you talked about 2025 revenues growing low single digits this year and I didn't hear any commentary on your prepared remarks so any update to that 2025 outlook, I know it's highly uncertain.

Speaker Change: Yeah, thank you, Melissa. We see no change at this point. We see three improving demand signals.

Speaker Change: including improved customer consumption, higher beginning backlog and a better book to build ratio that continues to be above one. So we continue to say steady as it is on 2025. We just

Speaker Change: have caution just because there could be sectoral tariffs that impact us and the rest of the Semiconductor industry and we're watching those.

Okay, great! [inaudible]

Speaker Change: Thank you. And then I guess on the different segments that you guys have, I was a bit surprised to see, I know it's nitpicky but a slight decline on the comms and computing side sequentially. So is there anything we should be...

Speaker Change: Thinking about between those two segments, a difference in growth rates for 2025, which one do you see growing faster, slower, are they both kind of in line with each other? Thank you.

Speaker Change: Yes, the comms and compute segment decline has been driven mainly by a client revenue decline related to all the platforms. Both our server and communication businesses have grown sequentially nicely for the past two quarters. Thank you very much.

Speaker Change: The compute segment has been driven by the strengths in our server segment, and the communication segment has been driven by the strengths of the online applications such as data center infrastructure.

Speaker Change: Nick Cards, Richard Security, Appliance and the writers. So we're very positive on that segment. The only drag you're seeing is that client decline. But other than that, the sober incomes are both very strong.

Perfect, thank you [inaudible]

Next question, Srinivas Pajjuri, with Raymond James. Please proceed.

Srini Pajori: Thank you, Ford on the tariff, I know you said the indirect impact.

Srini Pajori: is unclear at this point but as you look out to the second half maybe you can discuss some of the conversations that you've had with your customers, how they're kind of positioning.

Srini Pajori: and in terms of the end markets, which end market do you think you might see a larger impact versus a smaller impact?

Srini Pajori: Yes, thank you, Shrinivas. We continue to see the cloud to be very strong and we continue to have discussions with them on whether that's natural demand and we continue to get confirmation that it is. So all the discussion we've had was our cloud customers. Thank you very much.

Srini Pajori: Point to the fact that 2025 CAPEX is strong and they're actually signifying that 2026 would be an improvement over 2025 so that has a very positive on the server segment.

Srini Pajori: And as I said before, we continue to see strength in a online communication that's helping our communication segment. So on the comms and compute, we continue to be very positive.

Srini Pajori: on the industrial for the second quarter in the row, the PMI is about 50.

Srini Pajori: for the past four years, so we see this as a positive. Let's go.

Srini Pajori: Automotive has been flat, so you can see industrial has been up.

and so that's the positive.

and the discussion we're having with customers on.

Srini Pajori: The industrial side of the business point to the fact that we are seeing some improvements in those businesses. So we're cautiously optimistic there. So from the mental of the business we're very positive. David.

Srini Pajori: We don't control the tariff and the resulting situation and that's the only reason for our cautiousness but other than that the fundamental for our business that we can control our positive [inaudible]

Speaker Change: Great, that's very helpful. And then, in terms of your new products, you talked about design when momentum being very strong.

Speaker Change: Just curious, you know, when you kind of talk about double-digit growth year on year and sequentially in new products, is it more driven by the ASB strength of the new products, is it unit?

Speaker Change: And also, if you can talk about, you know, if the environment is having any impact on the design wins momentum it doesn't seem like it doesn't sound like it based on what you said but just want to hear your thoughts if you're seeing any impact on the new designs given the environment. Thank you.

Speaker Change: Yeah, we continue to see these tranks on your design based on our strategic position in the small and mid-range segments with our low power, small size.

Speaker Change: Security, Vision, AGI, type of attributes. So the strength is really driven by the differentiation in our product that we think is related to a dark texture choice that was made and this long lasting is sustainable. Thank you very much.

Speaker Change: As far as ASP versus units, it's a mix of units are recovering, at the same time you do get ASP improvements as we go from pre-nexus to nexus to avant, so we'll continue to see both of these trends

Thanks a lot.

Next question, Christopher Rolland with Susgujana, please go ahead.

Speaker Change: If you could update us on inventory in these segments and channel inventory levels versus target, I think that would be very useful for us as well.

Thank you.

Speaker Change: Chris, and you asked about Inventory, and then you injected channel inventories? The focus is on the channel inventory? Yeah, I mean I guess you guys are in the complete story.

Chris: Yeah, you're mostly channel anyway, but I was really talking about channel and if you were able to break that up into end markets like you did in your 10Q where you specifically addressed comms and industrial, that would be great.

Chris: in the different end markets that are in the channel. For one, we don't actually have perfect visibility, but the...

We see the channel in the third decline.

We are by design shipping under consumption.

Chris: We're bringing down that channel inventory. We had earlier provided commentary that we're trying to get back to more normal levels of inventory.

Chris: by the middle of the year, but I think at this point we're expecting it may take a couple of few quarters longer than that to do that, but we're going to continue to drive that down.

Speaker Change: And that was a channel inventory that you were talking about, so you don't think it will normalize, maybe your channel was internal.

Yep.

Speaker Change: That was channel. Internal inventory is a pretty good news story. It dropped.

Speaker Change: $8 million quarter, a really significant drop. And I want to point out that if you look at the days calculation, it may not look like that, but that's because we had a distortion in Q4 cost of sales for the map.

Speaker Change: Works a little strangely due to the liability for materials we recognized in Q4. But on a dollar-spaces, very good performance in reducing inventory and we continue to manage that aggressively.

Speaker Change: In general, we manage all the working capital pieces aggressively. Absolutely.

Excellent, and Lorenzo, just since I have you...

Speaker Change: You know, do you have any thoughts on how you might be different strategically or financially from your predecessor as CFO , even just at the margin? That would be great. Thank you.

Honestly, I'm not. [inaudible]

Speaker Change: I haven't thought about it from a perspective of being differential to my predecessor. I'll tell you...

that I approached this. [inaudible]

Speaker Change: This business, and here the business very fundamentally, and so what do we need to do to drive?

and others. Thank you. Thank you.

Speaker Change: of Shoulder Value Faster than the market. And we focus on the day-to-day execution across the board. We just talked about inventory as one of those who get full credit to our...

Speaker Change: Head of Operations for leading that. We're focusing on driving the products, new product launches through design running to revenue faster than ever before.

But the things that you step...

Speaker Change: Up from that execution that we look at, are there ways to accelerate?

Speaker Change: the growth of the products by investing wisely, maybe a little bit.

Moore, aggressively in the ways that we think about. Now,

Speaker Change: driving our revenue experience in this particular industry. I know the ecosystem can help a lot. I know that tuck-ins can be very advantageous to accelerating it and then working with Ford. Thank you very much.

Speaker Change: Overall, a big strategic picture view of what the opportunities are for Lattice, and I'm sure he can add on to that if he wants, but I don't think of myself differently, I just think of myself as the way I want to drug the business.

Fantastic, thank you.

Next question, David Williams with Benchmark Company, please go ahead Thank you very much.

Good afternoon, date 4, taking my question. Thank you again.

area of Springfield.

Sorry, can you hear me?

Speaker Change: Yeah, we can hear you now, go ahead, please. All right, my apologies. So, the server has been an area of strength, and you've talked about it for some time, especially in the server side. Just kind of curious how you're thinking about your penetration going forward in terms of content. And what areas do you think you may be more resilient, just kind of given this macro backdrop. Thank you. Thank you.

Yes, thank you, David. We.

Speaker Change: continue to find the opportunities and servers around AI, around security security.

around connectivity.

Speaker Change: We are going to continue to expand our design rooms and offerings along these three areas. We do see this as a durable trend moving forward.

Speaker Change: Great. And then you talk about the design wins being maintained that record pace. Is there a way to kind of a way to size the magnitude of those design wins? How should we thinking about that? Just as those come into market, it seems like that pipeline would be very strong over the next couple of years. Just trying to get a sense of what that could look like from what your existing design and pipeline looks like.

Speaker Change: David, the way to think about it is we do feel like the design wind pipeline that we have, the funnel number one which includes

Speaker Change: Opportunities as well as Design and Pipeline which is more focused on the one opportunities that have moved to win.

Speaker Change: They're both quite strong and so both from an opportunity point of view on the new product we've got actually pre-nexus product, nexus and of on product or three continue to do very well. Opportunities continue to grow, the conversion into design was continued to grow.

Speaker Change: and we are very confident that Fallon is going to result into the growth that we are expecting into 26 and to 27. And so the way we're thinking about it is, you know...

Speaker Change: The management of it that gives us confidence in the future and we're quite confident. We have not broken up. We've discussed many times. Should we? Thank you.

Speaker Change: Start opening up the dollar number, they're very significant dollar number, multiple times the revenue and we're confident that this is very strong and sustainable. Thank you very much.

Great. Thanks for the color.

Speaker Change: Once again, if you would like to ask a question, please press store 1 on your telephone keypad. Next question comes from Ruben Roy with Steeple, please go ahead.

Yes, thank you.

Lorenzo, I wanted to touch on the inventory again, please.

Speaker Change: and maybe if we could just, I think Ford said that the channel inventory came down during the quarter and you mentioned that it could take a few quarters longer to get to your target level which I believe is three months.

John Vinh, Srinivas Pajjuri,

We haven't disclosed that.

Speaker Change: Ruben, and we will say we're trying to get down to that target level, again originally as you pointed out, we're trying to get to that by the middle of the year. We think right now it's going to take us a couple more quarters and some of that relates to the uncertainty in the overall market. Let's go.

Speaker Change: But it's just a continual push of the programs we have with the channel and our commitment to undershifting true consumption that we'll get us there.

Speaker Change: Okay, thanks for that. I guess the follow-up Ford mentioned also that you're having a lot of discussions. I think it's most imagined teams are with customers and kind of trying to assess.

The situation which is changing, you know, pretty constantly.

Speaker Change: Have you been able to tell whether or not there have been orders that in any of your end markets there may be abnormal? You know, we've heard a little bit of upholens and that sort of activity. Are you seeing anything like that? Well, while you're either the channel or your customers are trying to...

You know, figure out how the tariff situation ends up. [inaudible]

Speaker Change: Yeah, I'll start in form, can fill in with the more color around customer specifics. So we're looking at the data, we're looking at the data hard.

on a very, you know, weekly basis and...

Speaker Change: talking to ourselves about what they see and asking these specific questions. We don't see any material changes in behaviors based on what we're seeing in our data, but I think the more qualitative color has come from Ford. [inaudible]

Speaker Change: We've had discussions as you expect with all of them and the results of these cloud companies have been already published.

Speaker Change: And you see from these results that actually some of them have grown, they're 2025.

Speaker Change: from last quarter guidance to this quarter guidance in 25. Some of them has actually started guiding to a moderate rise in 2026 capex.

Speaker Change: So publicly, I think the statement they've all made are positive and continue to...

going to solid cat-backs for 25 and increased. Thank you very much.

Speaker Change: Albert, maybe moderate into 26. So in addition to the discussion we've had with him that gives us a confidence this is true demand. Thank you very much.

That's helpful. Thank you for it.

Gary Mobley, with Loose Capital, please go ahead.

Gary Mobley: Hi guys, thanks so much for taking my question and it's a privilege to be on your earnings call for the first time. I want to ask about...

Gary Mobley: the achievement of the long-term gross margin target of low 70 percent. I would assume that's going to be largely dependent on next.

Gary Mobley: As we think about the contribution to product mix for the balance at the school year 25, what are the different considerations? Will you see more of a snap back and legacy products and thus that legacy mix will go away slower?

Gary Mobley: How about IP-related revenue in the fiscal year and then for a benchmark for long-term gross margins?

Gary Mobley: You know, looking at that design, you know, the design wins at your reference.

Gary Mobley: How much of it is comprised of newer products and as well the attach rate for software in those?

Thank you.

Speaker Change: Well, thank you. Gary for that question. We've been at this 70% gross margin now for

You know, about 10 quarters, right? So...

You know, and...

and especially in a...

Speaker Change: 2024, and Q1 25 of decreased demand is good to see that margin continue to hold itself showing the differentiation and sustainable value will bring the customer from our products.

Speaker Change: Our current model long-term costs were 70% and we're confident that we will achieve that. Yeah, I think

Speaker Change: There will be some benefit of scaling as revenue returns. That's just going to happen.

Speaker Change: but the mixed strengthens and what you see is the dynamic of continued cost reduction.

Speaker Change: across all of our product lines but in general the magnitude or the degree of cost reduction in new products happens faster than mature products. So we believe that will be advantages to our mix going forward as we grow the new products.

Gary Mobley: I heard your question. I think we've got to it, but if not, please follow up. And by the way, thank you for being on the call, Gary. Appreciate it.

Thank you.

Speaker Change: Yeah, this is my follow-up, I don't like to ask about the competitive environment for low-power smoke.

Speaker Change: Small-sized FPGA, I think there's been a lot more in the way from the two big players in the market about

Speaker Change: trying to supplement their growth by moving into this particular segment. And I think there's been some new architectures with some smaller lookup table counts and whatnot. So all things considered considering that one of the big competitors is transitioning to a private equity firm. How do you see the competitive landscape? Thank you.

in the small size and mobile FPGA market. [inaudible]

Thank you. Thank you.

Speaker Change: Gary, the fact that you're shrinking your look-up table doesn't change your fundamental architecture of a lot four versus a lot six. So, Zalynxal, there are still stock on that lot six architecture so nothing they can do to, unless they totally change and come to a lot four, which would welcome because that means that we follow us into that sector.

Speaker Change: So fundamentally we have a very different architecture on that small and medium size FPGA.

Speaker Change: which we are, for both about the Nexus, well below this currently.

Speaker Change: That's well within the envelope of a lot for architecture. I want currently the 500K again, well inside that envelope. So inside that million and under envelope, we feel very confident that our lot for architecture is going to have sustainable long term.

Speaker Change: and performance, all kinds of advantages. You don't want to have a human or a robot walk around with these heavy Xionic Senteri FPJs or same for a rack when you've got 100 of these things in the rack. I mean power matters, size matters and we feel good about what we are. [inaudible]

Thanks again.

Tristan Gerra, with theirs, please go ahead.

Tristan Guerra: Hi, good afternoon. When should we expect revenue from Nexus to start working over historically at least in high-end FPGA that's typically on the seventh year of a new FPGA product ramp, which for Nexus would be in 26. Are you seeing any signs of

Speaker Change: Slow down in growth and what's the confidence about new products of setting that, if that's the case. So would you expect an excess to continue ramping year over year beyond the next year?

Speaker Change: Yeah, no, thank you, Tristan, as you and I discuss what we meant.

I'm new to this PGA market, I'm learning. Thanks.

Speaker Change: It takes a long time to wrap, and Lorenzo reminds me from his earnings days. I'm going to Lorenzo first and answer the question next, but

Speaker Change: Yes, the FPGA does take a long time because we introduced the first product and you've got to introduce the next ones and mature the tools, mature the IP. So the good news on this longevity is very long. So most of our customers designed for 2030 year life.

Speaker Change: and a partner, a supply partner on both the FAB and OSAT are very focused on providing that longevity that some of the competitors I don't think would be able to sit in and provide.

Speaker Change: So, we're very positive on where that round becomes, it accelerates, Nexus accelerates in 2026, about accelerates in 2027 [inaudible]

Speaker Change: and that's what's going to create the next year and then the after that growth and then these things are going to stay around for 23 years. Thank you.

Lorenzo: Now with that, let me turn it over to Lorenzo because Lorenzo has an extent

Lorenzo: One, nine years, Lorenzo, maybe, 11 years, sorry. And when he first showed up, he said, I sound like the prior CEO of Zinix, who's a good friend of mine, but please go ahead, Lorenzo.

Lorenzo: He's the thing that Ford talked about in terms of the design, time frame, and the product ramp. That's all consistent with the behavior of the industry. The other. The other.

Lorenzo: Aspect of the product family approach is, as time goes on, we introduce more variants.

It accelerates the growth.

from any new product that you launched.

Lorenzo: So that's just a systematic expansion of the footprint of the new products through time. I think, as I said earlier, what we're looking for ways to do is to help for overcome this.

Lorenzo: Anxiety has of the time to market is apply approaches where we are focused on helping our customers bring their...

Lorenzo: products to market faster, providing more complete solutions, broader sets of IP, and design help so that they accelerate their time to revenue, and that is also the benefit of...

Lorenzo: increasing the intimacy we have with our customers and providing more opportunities to deploy the next generation of products as they come up.

Okay, that's very useful. And then for my...

Second question.

Lorenzo: It's really not a question just for lettuce, but also some of the products given up how long some products have been staying in inventories, notably at the steas. Is there any potential for inventory of solutions at distributors, notably in the industrial and market? Yes.

specifically for your product.

Lorenzo: And then tied to, you know, this and you have somewhat reserved the outlook for the second hat which obviously we've heard this, you know, from other companies as well.

Speaker Change: Are you rethinking your growth strategy in terms of acquisitions and could you be more more inquisitive and what areas would be strategic for you?

Speaker Change: I'll take the first part of the question on inventory, and I think it's appropriate for Ford to take the second.

Speaker Change: The On-R Inventory, both in-house and in the channel, the nature of FPGAs and our products and their applications is that it's very long left.

and we...

Speaker Change: What we see, some occasional instances of obstacle incidents, we generally don't see anything significant and we're not expecting anything significant. Again.

Speaker Change: Obviously our guide shows continued strengthen in margin so that obviously is not impacted in any way by this product write downs or inventory write offs. So...

Speaker Change: Generally comfortable, I think it is something we manage like every other part of our business on an ongoing basis and continue to move the inventory because that's better for us. So that's the inventory pictures of four days. Thank you.

Speaker Change: Temenay, Outlooks and Thoughts. Yeah, on M&A we, number one, are very focused on our organic growth and making sure that we deliver on what the investments, the return investments for the investment we've made.

in our next event. As Lorenzo just pointed out that...

P.J. has a... [inaudible]

Speaker Change: a set of tools and IP around them that would help customers go to market faster and as well as potentially strategic

Speaker Change: Sockets that sit around us and so we over in long term could potentially be more acquisitive.

No. No.

We get paid to look at both organic and organic.

Speaker Change: But we also got paid to make sure that we don't overpay for any of these assets so we'll continue to grow both organically and inorganically keeping in mind that the investments we make have to return good value for our shareholders. Thank you very much.

Great, thank you very much.

Next question, Quinn Bolton, Needham and Company, please go ahead.

Speaker Change: Thank you guys for taking my question. I guess I want to start with just-

Speaker Change: flowing to China, just wondering first if you could walk us through any potential tariff impact.

Speaker Change: on that China business, and then a second question since China is now almost half of Revenue

Speaker Change: Can you give us a sense of how much of that actually stays in China, so China for China revenue, and within that China for China, are you seeing any increase in competition or pricing pressure from local Chinese FPGA vendors? Thank you.

Speaker Change: and the rest of us. Thank you. Thank you. Thank you. Thank you.

Speaker Change: Let me take the latter half and maybe Lorenzo can add on the former. The percent of revenue that is consumed in China is far lower than what it is.

Shipped through China, and...

Speaker Change: The Shifty China also include Hong Kong, so when you look at the number that we reported, thank you.

Speaker Change: It includes on a ship to both Hong Kong and China mainland, and then the percent that on the China mainland that stays in China is much smaller than what we report as ship to.

We haven't broken up in the past. So.

So, we...

Speaker Change: We probably not going to break it up, Quinn. As far as competition with the local Chinese vendors, they've been very strong in communications and compute. So if you look at the business. [inaudible]

Speaker Change: Of not just Lattice, but probably some of our peers, US peers. A few years ago, this was a business that was probably dominated by some of the communication companies.

Speaker Change: You know, the Huawei and Telecom and the ZTE Fiber Home, etc., HBC, and today that business is dominated by automotive and industrial, so we've shifted.

Speaker Change: from totally from one sector to the other. The news on the lattice business in China as we've actually increased compared to what we believe the other two large US guys that have decreased. [inaudible]

Speaker Change: So they've decreased significantly, we've increased slightly. So the revenue grows from the Chinese.

Speaker Change: companies that are native companies in China have they've grown at the expense of the other two guys, the other two big guys, we and our expense obviously in in comes, but there's definitely going to be a mix in China where some sectors are not open to us and some sectors still are and

Speaker Change: The fact that we've grown our business in China slightly shows the differentiation of our products in power, size, cost, effectiveness and solutions.

Speaker Change: and so on the first part of your question, when is the rest I can understand it? The

Speaker Change: The way we look at the current tariff regimes depends on where the, if you're thinking about China, it depends on where the country of origin is determined to be, are...

Speaker Change: products are the fabs are Japan, Taiwan, Korea, and our OSATs are assembly test vendors are Taiwan and Malaysia primarily so that

Speaker Change: would say our current reads that inbound tariffs to China aren't applicable in any of the abnormal ones aren't applicable.

You know, where they end up?

Speaker Change: Going out of China is an estimate. I mean, really, it's hard to get very precise on that.

Speaker Change: But if you then look at maybe the follow-on of your questions coming back to the US as everybody knows we're right now viewing

Speaker Change: It is currently, as Ford said earlier, there could be sectoral tariffs coming. What we're doing is looking at ways to mitigate the impact, the economic impact of that on Lattice and our customers. We have some ways of doing that, but frankly, we're still trying to...

Speaker Change: Pindown what the rules would be around any paraphrasing and implement solutions based on that.

Thunderstead, thank you very much.

Speaker Change: Next question, Joshua Buchalter, with T.D. Cowell, please go ahead [inaudible]

Speaker Change: Hey guys, thank you for taking my question. I wanted to ask about the new product growth. So I think if you sort of land it where you're guiding new products this year would grow around like low to mid 20% range.

Speaker Change: I know it's far out, but as we look into 2026, given you'll have nexus to an event layering in, and the ASBs that commands, I mean should we expect new product growth to accelerate coming out of this year or? Yeah, we're, um,

Speaker Change: Or, you know, is it off of a higher base number, so it should be sort of in line or thank you.

What?

Thank you.

Speaker Change: Josh, for your question, yes, we should expect this to accelerate. So what we had discussed in the past is the new part growth being in the mid teens and 24, going to the high teens and 25, going to the mid 20s, percent and 26. So as you see, it is accelerating and expected to continue to accelerate. Right.

Speaker Change: Okay, thank you, and on that topic, I just wanted a quick clarification. I think in response to a prior question, you mentioned a vaunt layering in more meaningfully in 2027. I thought on some of your prior comments, you mentioned that being, you know, impacting revenue more so in 2026. Yeah, can you help clarify maybe the help with how much you would expect to contribute next year? Thank you.

Speaker Change: Yeah, it's back to this FPGA layering question which is it takes an FPGA some time for the new product variance to start layering in. So we're seeing a impact of a bond. We've released a couple of variants of a bond that are making an impact on 25.

Speaker Change: and there's more variants that are being released that would then later in in 26 and 27. And thing was next is...

and many more. Thank you. Bye bye.

Speaker Change: It just takes a few years for these various variants to go to market. These are longer.

Qualification in this industrial automotive applications.

Okay, thank you [inaudible]

Blaine Curtis, which efforts, please go ahead.

Speaker Change: Hi, Ezra Weiner on for Blan, thanks for taking my questions. Just a two-parter one would be you talked about inventory kind of take a little bit longer to come down, but you reiterated the year. So just kind of want to get a little bit of color on what...

Speaker Change: gives you that confidence and the re-acceleration, the back half despite inventory kind of take a little bit longer. And then part B to that question is, what are the moving pieces for the full year guidance and for the quarter from a segment basis? Let's go to the next question.

Speaker Change: Yeah, so I mean look what gives us the confidence is the three improving demand signals and the reason we're keeping 25 where it currently is again the same three demand signals which is we continue to see improved customer consumption.

Speaker Change: in the night of a better market. So, Bruce and the Combs compute, we've discussed the server signals being better, with cloud NEI. We discussed the Combs being better, with the

Speaker Change: In industrial tomorrow, if we did discuss industrial getting better was improved PMI. So I think we've been very clear on res driving this better customer consumptions across server, comms and industrial.

Speaker Change: We're also pretty open on automotive being flat and clients is the one weakness that is hurting us, right? But we don't see this as a key sector for us actually, so we're not as worried about their client business. [inaudible]

Speaker Change: So number one, improved customer consumption. Number two, we're starting every quarter now with a improved beginning background.

Speaker Change: Number three, we continue to see improvements in booking, resulting in much higher booked to Berlin, the booked to Berlin continue to grow and continue to be above one for quite a few weeks.

Speaker Change: So you put the feet together, there's no reason for us to change 25

Speaker Change: But it would be foolish to not say, look, there could be some risk given the whole task situation around us and there's a lot of anxiety in the end user. And so we, we, we. And so we, we, we, we, we,

Speaker Change: who will be remessed not to say, look, there are some caution and we're not alone, eyes and everybody else in our sector, right?

Garrett, thank you.

Duksan Jang, Jewish Bank of America, please go ahead

Speaker Change: Hi, thank you for taking my question. Just to follow up on this last question, and I don't mean to put you on this spot, but last call, you also soft guided 2026.

to be up kind of back to your... [inaudible]

Speaker Change: 15 to 20% growth rate. Should we also expect that to remain in place just given the demand

You guys, yes, Hello?

Yeah, can you hear us?

Yes, yes.

Speaker Change: Yeah, sorry, I'm not sure what just happened, but glad you're still on. If you go back, what Ford has been saying is, you know, from a fundamental basis, from the fundamental perspective, we don't...

Speaker Change: see what our customers are telling us, what our design wind progression is telling us and what the actual customer deployments are looking like. [inaudible]

Speaker Change: We don't see any fundamental change in the outlook we have. That said...

Speaker Change: We know very well how macro factors can impact the semiconductor industry and how macro factors can specifically impact the FPGA business. I've been through a couple of different cycles. [inaudible]

Speaker Change: We want to make sure that we are communicating where our fundamental position comes from, product strength, design strength, execution, but some of the outcomes aren't in our control.

Speaker Change: and so that, you know, if there is something macro that happens negatively impacts everybody, we'll feel it too.

Speaker Change: That makes sense, so that's the answer for 2025 and 26 as well and beyond. We're not ignorant of the environment, we're focusing on what we can see and influence directly. Thank you very much.

Speaker Change: Yep, that makes sense. Then as a follow-up, I want to ask about gross margins.

Speaker Change: Is there any way to quantify the impact of new product to margins?

Speaker Change: So 15% exiting 2024 when I think you said high teens this year and then mid-20s next year. So we have the mix, but how should we think about?

Speaker Change: The impact margins or any qualitative color would be awful as well. Thank you so much.

Speaker Change: I think what we had said last time is there's a nice ASP increase from pre-nexus to nexus and there's another nice ASP increase.

Speaker Change: from Nexus to Avant, and lineways where the ASPs for our peers would be for this sort of sort of a sort of PGA going to the sort of high end of the sort of PGA going to the mid range of PGA.

Speaker Change: We're not giving ESP guidance on these broad calls, but I think there is an understanding in the market of what the ESP increase would be and it'd be very significant from one to the other.

Richardson, thank you so much for that.

Speaker Change: We have time for one last question. Kevin Garigan with Lowe's and Blast Security, please proceed.

Kevin Garrigan: Yeah, hi all, thanks for squeezing me in. For just a clarification, are you seeing industrial growing across the board or is the end market growing in certain pockets while there may still be declining? [inaudible]

Douglas Walton, Industry Fund,

Kevin Garrigan: So the question is, do we see segments of industrial growing versus others? Is that the question? Yes.

Yeah, just wondering if you're saying. [inaudible]

Kevin Garrigan: You know, all basically kind of segments in the industrial growing or some growing others may still be declining. I don't think we've gone to that level of detail at this point.

Kevin Garrigan: We definitely are seeing some of the segments that are going faster.

Kevin Garrigan: We did discuss the data center, but we do have other segments like aerospace defense and medical that seem to be also growing faster.

Kevin Garrigan: It's just a very broad segment for us, so there'll be ups and downs in it, just as a matter of course through time.

Thank you. Bye.

Speaker Change: Okay, great. Thank you for that. And then just, you know, staying on industrial. Can you just give us some puts and takes on how big your opportunity is in AI there as things continue to go to more inference related workloads?

Yeah, I think in the past we have...

Speaker Change: discussed the opportunity for us to be a companion AI chip and in the data center cloud applications, we are always a companion AI chip so we don't really do AI in our chips. We were more a supporting function to these big training or influencing AI chips in server and AI applications.

Speaker Change: On the industrial and some piece of equipment where the only processing element is RPGA, we obviously have a chance to play a bigger role because we are the main processing element.

Speaker Change: and FPGA is a very good as a pilot crossing engine for performance.

Accurate, High Performance, so we have a lot of attributes. Thank you very much.

Industrial type of monitoring type of applications.

Speaker Change: to run some of these tiny eye models on our PJs directly.

In a lot of cases these are...

Speaker Change: Still, if there is a bigger PGA, let's say somewhere in the automotive or in the enterprise controller for industrial, we still have a preprocessing element, if you wish, that feeds some of this preprocessing AI data to the main AI, interesting or training chip.

So...

Speaker Change: There's definitely a role for us to play an investor that's bigger than the role we'd have to play in Data Center and Cloud. Did I answer the question?

Yes, it did. I appreciate that color. Thanks, Warden.

Fouad Tamer: I would like to turn the floor over to the floor, Tamer, for closing remarks [inaudible]

Fouad Tamer: Thank you, operator. Thank you, everyone, for joining us on today's call and for your continued support. We remain focused on execution, working closely with our customers to drive innovation, and expanding market opportunities as we bid on our series with the level of new developments. [inaudible]

Fouad Tamer: I look forward to sharing the company's progress with you in the coming quarters, operator that concludes today's call.

Fouad Tamer: Thank you. This concludes today's teleconference. You may disconnect your lives at this time and thank you for your part and goodbye.