Q2 2025 Lattice Semiconductor Corp Earnings Call

Greetings, and welcome to the Lattice Semiconductor second quarter 2025 earnings call.

At this time, all participants are in a listen-only mode.

A question and answer session will follow the formal presentation.

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I would now like to turn the conference over to your host. Rick mushe lattice semiconductors vice president of investor relations, you may begin.

Thank you, operator. And good afternoon, everyone. With me today are Fouad Tamer, President and CEO, and Lorenzo Flores, CFO. We will provide a financial and business review of the second quarter of 2025 and the business outlook for the third 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 lattice.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 of the future financial performance of the company.

We wish to caution you that such statements are predictions based on information that is currently available, and actual results may differ materially.

We refer you to the documents that the company files with the SEC, including our 10ks 10 q's, and 8 case these documents contain and identify important risk factors that could cause the actual results to different materials from those containing our projections or forward looking statements.

this call includes and constitutes the company's official guidance for the third quarter of 2025

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 a publicly announced conference call.

And it tends to provide investors with additional information to permit further analysis of the company's performance and underlying trends for historical periods. We provide reconciliations of these non-GAAP financial measures to GAAP financial measures that can be found on the Investor Relations section of our website at Lattice Semiconductor.

Let me now turn the call over to our CEO, Fouad Tamer.

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

Let me begin by saying that Q2 was a solid quarter for Lattice, with results in line with expectations.

We continue to execute our long-term strategy.

Leverage, our competitive position.

And expand our growth opportunities.

We continue to see the adoption for Latisse products. Increasing across our core markets demonstrated by our record level of design wins and expanded opportunities with our partners.

At a high level.

We delivered Q2 revenue of 124 million.

Up 3%, over to 1 and flat with the year ago. Period.

Our non-gaap gross margin remained, strong at 69.3% and our adjusted ibitta expanded to 34.1%.

We achieved these impressive results in an uncertain Market.

Underscoring our continued discipline, execution, and strengths of our differentiated product portfolio.

We exited Q2 with increased optimism about the market environment versus q1.

Our confidence is based on several factors.

Communications and compute demand remains strong with normalized inventory.

And continued growth expected through the second half and Beyond.

Industrial and Automotive continues to perform as expected.

We believe we've passed the bottom.

With Channel inventory, 11 is decreasing.

As we continue to recognize revenue on their channel, point of sales, outflows.

We remain on track to be as normalized inventory 11 by year end as we previously indicated.

We expect the companionship opportunity will become an increasingly significant growth driver for us.

We are seeing impact for growth opportunities. From major design, links alongside AI accelerators and cloud data centers.

Wide Communications industrial robotics.

Adash infotainment and Far Edge AI applications.

In customer meetings, throughout Q2, we're energized to see how that is, is increasingly enabling Innovations for our customers, strategic applications.

Our particular note was the recent successful Asia Tech Summit.

We were able to engage with over 100 customers and showcase our leadership in low power. Programmable Innovation, alongside key partners.

We're reinforced how Lattice FPGAs are complementary to A6 and MCUs, with a clear focus on Ledge. The sweet spot is in small to mid-range FPGAs.

At that same conference, we highlighted our extended draw as a companionship in AI and other advanced use cases supporting functions such as bridging.

Sensor Fusion and board management.

In Far Edge AI. Our Solutions are optimized for applications. Requiring less than 1 tops.

Their operations per second and under 1 watt of power.

making them ideal for industrial and Automotive deployments

We are also increasingly convinced of our value propositions.

And emerging areas like humanoids.

Industrial robotics.

Vision systems and security.

With respect to end markets in the second quarter of 2025 Communications and Computing, grew 20% sequentially.

Which was Latisse highest sequential growth for the segment in 5 years.

Pages.

Both sub-segments were up double digits, both sequentially and year-over-year.

Growth in Computing is driven by our expanded footprint, in both general purpose and AI optimized servers.

And the growth in communications is primarily driven by related strengths in data center infrastructure, including network interface cards, switches, routers, and security appliances.

In line with the macro Market, our industrial and Automotive segment declined sequentially as we continue to ship under true demand to normalize Channel inventory.

As I previously stated, we are confident, we're past the bottom and we remain on track for China event, to be back to normal by end of this year.

This is consistent with what was previously said.

Please note that 1 Automotive is slower to recover, it continues to be the much smaller portion of this segment.

And with additional share gains in multiple applications, including smart Factory, robotics medical and Aerospace and defense. We expect industrial will again, be a strong growth driver for lice in 2026.

Finally, total revenue for our new products continues to grow at a strong rate and we're on track to exceed our 2025 goal that we've discussed on prior earning calls.

We are encouraged by this momentum, which reflects both the strength of our products and our deep customer relationships.

Turning to Q3 guidance, we now expect $133 million in revenue at the midpoint.

Or 7.2% sequential growth.

The largest we've achieved in three years.

We also expect a continued improvement in sharing inventory.

Strong gross margin with a 69.5% midpoint.

And EPS of 28 cents at the midpoint, which is above current expectations.

This shows the strength and leverage of our financial model for normalized Revenue delivers, higher benefits to the bottom line.

To summarize we delivered another strong quarter in Q2 with broad-based growth across key financial metrics and record design wins.

We executed what?

State laser focused on Innovation and deepened, our customer engagement.

The latest team is energized and committed to delivering on our long-term strategy.

Our Q3 guidance, reflect our expectation for strong growth in both revenue and profitability.

As you can see for the past 4 quarters, we told you, what we're going to do and we did what we said we would.

And we are confident, we can continue to do more of the same in the future.

Let me now turn the call over to Lorenzo or a detailed review of our Q2 results Lorenzo.

Thank you for and good afternoon, everyone. We will begin with a brief overview of our second quarter 2025 financial performance, followed by our third quarter outlook.

We are pleased to report that Lattice has delivered on expectations. Revenue, gross margin, operating profit, and earnings per share were all in line with our outlook for the quarter.

In Q2 2025 Revenue, increased 3% to 124 million. This was flat compared to the year ago, period.

Our gross margin expanded by 30 basis points quarter on quarter and year on year to 69.3% on a non-gaap basis.

This performance continues to reflect the durability of our business model. With continued growth, in higher margin, new products, and markets and anticipated share gain at strategic customers.

Non-gaap operating expense was slightly up to 51.8 million roughly 1%, sequential growth but 4% lower on a year-over-year basis.

We continue to invest in growth opportunities in a disciplined manner.

Our non-GAAP operating margin expanded by 150 basis points to 27.5%, and our EBITDA margin increased by 70 basis points to 34.1%.

PS of 24 cents, which was at the midpoint of our guidance and up from 22 cents in q1 and 23 cents in the year ago, period.

Gaap net cash flow from operating activities for the second quarter of 2025, increase to 38.5 million up from 31.9 million in q1.

Gap. Operating, cash flow, margin of 31.1% was up from 26.5% in q1.

Free cash flow in Q2 was 31.3 million with a 25.2% free cash flow margin up from 23.3 million and 19.4% respectively in q1.

This is a focus area for us and we expect the trend of increased free. Cash flow margin to continue.

We are expanding our cash flow while selectively investing in capex, in support of R&D and operational Improvement projects.

Channel inventory, continues to decline.

Channel inventory for constant compute is already at normalized levels and for industrial and Automotive we are tracking to plants.

now, let me turn to Capital, allocation

Our balance sheet remains strong. We are debt-free and have ready access to Capital if we need it.

We are well positioned to navigate macro uncertainties and invest for future growth.

Given our balance sheet strength and our business model returning Capital to shareholders remains a key component of our Capital allocation strategy.

During the quarter, we repurchased approximately 46 million shares of common stock under our existing buyback program.

Do the first half of 2025. We've repurchased, 71 million of common stock, which equates to 100% of our operating cash flow.

Now to guidance.

For Q3 2025, we expect Revenue to grow into the range of 128 million, to 138 million, with gross, margin expected to be 69.5% plus or minus 1% on a non-gaap basis.

Non-gaap operating, expenses are expected to be between 52 million and 54 million.

The income tax rate for Q3 is expected to be between 5% and 6% on a non-GAAP basis.

Non-gaap EPS is expected to grow into the range of 26 to 36 per share.

These expectations are based on our current thinking around the macro and geopolitical environment, including tariffs.

In closing we remain focused on executing our strategy. And we are confident that we are. Well, positioned for Revenue growth near and long term. We are driving shareholder value by prioritizing investments in our product roadmap Revenue, generation and customer support.

Operators that concludes our formal remarks, we can now open the call for questions.

Thank you. We will now be conducting a question and answer session.

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Our first question today comes from Reuben Roy of stifel please proceed with your question.

Yes. Hi. Thanks for letting me ask a question. Um, and nice to see the, uh, progress in the second half of the Year guys. Uh, Ford I wanted to start with maybe a high level, uh, question and drill in a little bit on your comments around the companionship opportunity and some of the comments you made on data center infrastructure, um, within the context of what's going on with, hyperscale spend over the last week and a half. Um, you know, we've gotten increasing capacity yet again, and it seems like you know, that uh, trend is going to continue into uh, next year. So I guess we take a step back and think about your positioning uh would you say that? You know, as you speak to customers and and think about some of these opportunities certainly on the companionship side that lattice is in a position to benefit. Uh you know as we think about exiting 2025 and into 26, you know as the AI infrastructure spend continues to grow and that's the first question, thank you.

Was the star of the show uh with server segment growing year on year 85% Q2, 25 over Q2 24 and more than doubling.

First half of 25 over first half 24. So as you can see we've got some very strong growth in the server segment, fueling the strengths uh in the coms and compute. And we expect that to continue in the second half 25 and 26.

And if I were to, uh, drill down, uh, into a bit more detail, there are four factors driving the growth. Number one, the overall CapEx increase was post-earnings, uh, expectation for the major cloud guys to be over 50% year-on-year, whereas it was like 38% pre-earnings.

The second 1 are attached, rate continues to grow into server.

The third 1 are average selling price. Uh ASP for various products, continue to grow. And the last 1 we continue to gain share in AI server, uh, versus traditional, uh, server. We're growing both actually, but Rye server. Attach rate is growing fast. So these 4 factors are contributing to the growth of our server. And hence, the growth of our coms and compute.

Thanks for that detail forward, I guess as a follow-up. How are the conversations going relative to, you know, sort of new products versus, you know, sort of, I hate to use this word legacy but core products at lattice and if we could bring Lorenzo into that discussion and think about, you know, mix uh, you know, into next year, you know, potential margin gross margin impacts as as we think about new products kind of flowing into that data center segment. That's all I have. Thank you.

Thanks Ruben. Let me address the first half of the question and then turn over to Lorenzo to address the, uh, gross margin. Um,

Impact. So uh the first part of that question is we are on track to continue to exceed our forecast of high teens and 2025 from new products

And uh we're on track to get to uh or exceed mid 20s. Uh percent of new product Revenue next year in 2026, uh, just uh, we also on track, this would imply well on track to to have about a 70% growth year on year between 24 to 25 in new products Revenue.

And then let me turn to Lorenzo to discuss gross margin impact. Right, so what I got from your question is: do you want some near-term color? But really, a view longer-term on gross margin, is that right?

Yeah, that's right. Lauren. So and and you know also thinking through as industrial inventories normalized just, you know, sort of how to think about, you know, Market know that that's

That that's great. So you know we obviously saw gross margin Improvement this quarter and without going into all the detail right you know this is something at the starts with the value, we provide to our customers in the products and as you can tell from the growth that Ford Illustrated in uh as comments around what's going on in the server Market you know clearly there's strong demand for for what we have to. You know we are seeing that the overall balance of business that we have is supportive of the gross margins. We have this quarter and as as you know from our guide we see uh Improvement into next quarter.

Uh, we think that the fundamental Dynamic uh for the longer term is is supportive of of of these gross margin levels. So we are not you know giving any specific guidance of about 2026 just yet, but what you said is really important. Uh, if you look at where we are today with this, the strength of the, the relative strength of the cons and compute business and knowing that we have uh a coming uh Rebound in the industrial and auto. Um, we, you know, we are very comfortable with our where, our gross margins are, you know, we look

To, you know, continue to drive expansion of. But we're we're not providing specific Guidance just yet. I think the um,

Key to, uh, what you said about the industrial Auto is that right now. Uh, 1 thing for didn't, uh, hit is we're under shipping, true demand in industrial Auto. And so we think as we as we go through the rest of the year, we'll start to see some significant growth there. And as, as as you indicated find that supportive to growth margins,

Very helpful. Thanks guys.

The next question is from Melissa Weathers of Deutsche Bank. Please proceed with your question.

Months now. Um, and gotten to know the business a lot, uh, a lot more closely. So can you just give us an update on how you're thinking about the business? What is your confidence in the business model? That's been established at lattice? And what opportunities do you see? Uh, for the company going forward?

Right, well, I'll try not to burn the rest of our time and answering the question. I, you know, and you coming in looking at it from the outside that, uh, you know, the the characteristics of the fpga business model was was well represented at lattice again, uh, high value product, uh, you know, a broad base of customers, uh, demanding that product in a, in a broad base of sectors. So you have a, a lot of comfort on the, uh, durability of the top line. As, as you can see this past quarter, the, you know, revenue from industrial and auto was down but more than offset by the fact that we have a very strong Pro, uh, presence in the emerging uh compute, uh, applications that Ford talked about. So, you know, great durability on the revenue line and as as as as Ruben's question, indicated as industrial starts to manifest itself in

In our Revenue, we should see acceleration of growth and all this is supportive of the, of the the, the strong growth margins that we have. But very importantly to me, as, as I've become familiar with with Lis is the is the, um, structure underneath the operational focus on driving profitability and our Focus across the management team and through the organization on improving it. Uh, you know, lots of activities on on, uh, price and cost of the gross margin level. But if you look just, for example, at this year, this time, uh, our Opex for very similar amount of Revenue than last Q2, uh, we're lower by a couple of million. This is based on actions that teams taken to drive profitability and what that sets us up for is near-term. We're seeing expansion of of, of all our prophet,

Metrics. Um, operating income.

EBA is up to over 34%, as I said, but if you look just quarter on quarter, our revenue is up 3.2%.

And our operating income is up 8%.

So, this is what we're trying to set the table for as we go forward and recapture the revenue growth, uh, across the board of the business, um, and accelerate our profitability growth into the end of this year and through next year.

So, I hope that answers your question.

Yeah, definitely.

And we're definitely happy to have you on board.

I guess for my second question and maybe a less friendly question, but um, I think last quarter you guys had indicated in 2026 that you should get back to your 15 to 20% Revenue growth Target. Um, it seems like things are tracking as you planned. If not maybe a little bit better on the cons and compute side so is 15 to 20%. Still a viable, Target for how you guys are thinking about 2026 revenues.

Yes, absolutely. Uh, we are uh we've indicated the strengths and uh comes the compute but we also are under shipping through demand and the uh investment or the motive which uh is uh, allowing us to continue, to bring the Chan inventory down and our own inventory down. So we're still very positive on that segment, going back to growth in 2026 and there's a range of new applications driving it like, for example, just in robotics, we're very excited about all the applications that were being designed in, uh, a range of new application. Robotics, for example, all the way from Electronics, EV production Logistics, Warehouse automation, agriculture,

Industrial Automation Aerospace grocery Logistics. Smart City Oil and Gas. And last but not least the country were most excited about humanoids. So you could see that we're uh just on this 1 uh area in industrial and Automotive are pretty excited about the gross Prospect and and believe 2026 would be uh, a strong year and we're past the bottom in that segment.

Perfect, thank you.

The next question is from Christopher Rowland of Susu, Hannah International Group, please proceed with your question.

For you. Um, so I guess my first question is, could other—first of all, did this surprise you? Secondly, um, could other hyperscalers and their engagements potentially rival this one? And then lastly, like, how should we think about this largest XBU customer versus the GPU opportunity versus, uh, other XPU hyperscale opportunities? Like, how should we size this or what are you most excited about, etc.

Thank you.

Thank you Chris. Um we're doing actually quite well across uh all the hyperscaler because of our uh low power small size and cost effective Solutions. Uh if you have as many fpgas as your uh discussing you do want the 3 attributes of power size and

cost to be to be adequate and we were more than we're actually Superior and and every aspect and this is causing us to have a leadership in server. Um, you know, in addition we also processor agnostic. So where Switzerland from that point of view, uh, the complexity of the board is increasing. So you're seeing more, uh, of these, uh, pga's Barack, uh, security and post-quantum cryptography. Are are driving more attached to the driving higher asp.

And you see more servers uh, having more cards, uh, because of this AI system. So, um, in general for a, uh, a hyperscaler rock architecture, they range from 40 to 60 servers per rack. And we could range anywhere from 70 to 130 of pgas per rack depending on on the configuration. And so we're seeing this across the board. Um, whether it's xpu or GPU or other AI accelerators, uh, they're all driving that content and they're driving, uh, you know, strong attach rate, uh, strong ASP and and, uh, you know, strong Revenue growth for us. Um,

Did this address the question? Chris.

Yeah, no. I I think that was some great color forward. Um, maybe as a follow-up, uh, on, uh, just the inventory in particular. I saw just, he was up as a percentage of total, uh, so I think 91%, but also so that means sell sell in was pretty high, but you guys are, uh, also saying self through was even higher as you guys are burning inventory. Um, I don't know if you're able to tell us or give us a rough idea of the difference. How much inventory was burned? Uh, it sounds like a lot of it was in Ina, you know, how much of Ina is left and are you guys definitely on track for, um, for for that to be normalized particular.

Particularly in Ina, uh, by the end of the year.

Yes, no, thank you for the question are, uh, inventory, incomes and compute. As we discussed, has already been normalized and as you are alluding to are, uh, inventory and Industrial Automotive Ina is on track to be normalized by mid year. We're making very good progress, uh months uh months and months quarter on quarter and uh we're not breaking up the exact number but we continue to substantially ship um you know over the revenue. So so the the point of sale outflows from our Channel inventory, from a channel and partner is uh definitely continue to be higher than revenue and we'll continue to be. So until uh end of the year at which point we should be normalized and Industrial Automation. And

Give us really strong growth and strong headwinds, uh, strong tailwinds actually into 2026, given that inventory will be normalized.

super, thanks for

The next question is from Blaine Curtis of Jeffrey's. Please proceed with your question.

Hi, Ezra Weiner on for Blaine. Thanks for taking my question. I guess first, I would be, we've seen pretty mixed commentary from the rest of your peers in terms of industrial and auto. And you're talking a lot about growth next year and normalization to the end of this year. Can you just talk about what you're seeing from, I guess, a regional basis and maybe break up industrial and auto?

The auto into what gives you that confidence on time?

The demand is extremely strong right now. We are starting with a starting backlog that is at a record high level, not only for Q3, but also for Q4, and we're starting to see that for Q1. So, buildings and backlog, including starting backlog, is extremely strong.

The book to build is the highest has been for, uh, you know, a couple of years. Uh, the um, uh, as we talked about inventory on both the channel inventory and our own inventory continued to go down.

And then record design wins. So, I think what's also giving us confidence is, we got record, design wins across all segments. Um, not only compute but also very strong in industrial automotive and very strong across the new products. So the new product

Funnel is almost doubled. Uh, you know, uh, over the past 12 months with a very strong winds and hyperscalers and, uh, in robotics and Industrial Automation, um, uh, and in in that segment, Automotive is the smallest area. So, this the automotive is less than 10% of that segment. So, less than 5% of our overall Revenue. So some of the other peers are probably talking about weakness coming from Automotive. Uh, we're actually seeing Automotive being strong for us driven by China and somewhat in, uh, in the rest of Europe. But, but really, uh, it's not a big factor in our Revenue because only less than less 5 less than 5% of Revenue there.

Got it. Uh, actually that's it. Thank you.

The next question is from David Williams of Benchmark Company. Please proceed with your question.

Hey, good afternoon. And, uh, certainly appreciate you letting me ask a question here, I guess. Maybe first, uh, you've touched on the ASP trends and just kind of curious, is that a dynamic of where you're just seeing some pricing power come back in? Or are you seeing just a mix?

A mix shift in terms of your new products—more Avant or the higher-end products versus maybe some of your prior platforms.

Yeah, we we're definitely a mix shift, uh, not only to, uh, products like Nexus navon, but also within our Mac, XO family, going from XO2 to xo3 to xo4 to xo5. So I think we're continuing to, uh, provide products that are, uh, being driven, uh, by things, like security things, like post-quantum cryptography by higher number of interfaces. Uh, so you know, um,

That that ASP is definitely, uh, benefiting from the, the, what I just mentioned.

And, and then maybe secondly, uh, just kind of thinking about avant's contribution and the way that that is ramping. Can you give me color there around, uh, on the new product side? How much of that growth is driven by Avant, uh, versus some of the, the newer Nexxus products.

Yeah, so look I mean the short term is going to be an accessory uh including 2026 and Avant becomes a bigger factor in 26 and 227. So that's the the progression. Uh so I would I would say um the small

uh,

And the this morning at PGA and is really what's driving. The the short term and medium-term revenue into 26 and I won't becomes a much bigger contributor as we go in the second half. 26 and really into 27.

Thanks so much for the color.

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Our next question comes from Gary Moby of loop capital, please proceed with your question.

Good afternoon, everybody. Thanks for taking my question.

Um, at that $133 million revenue guide for Q3 approximately, how much are you under shipping as you draw down the continued excess inventory, and the industrial and automotive? And then I guess, conversely, is there any sort of constraint on communications and computers? Perhaps your inventory might be running too lean or you might?

Have extended lead times.

In the second part of your question, we are seeing, you know, turns in the comms and compute business within the quarter right now.

Yeah, I know as as Lorenzo said comes the compute continues to be strong and and our goal is to be a good supplier to our customers.

Um, and uh, we will do the best we can to, uh, to meet supply. Obviously, uh, it gets challenging with some of the upsides, but.

Appreciate the color.

Uh, Lorenzo. I know this wasn't your target as it was given back in 2023, but I think the long-term state of goal is to have Opex somewhere in the range of 30% of revenue. And I know that the recent restructuring, you know, perhaps isn't necessarily under your guard as well, but...

To climb back to that OPEX, goal revenue has to increase from, you know, has to increase 35% from current levels.

You know, is it, is it the um,

Is the strategy now to just remain patient and wait for the top line to recover? Or do you feel like you've got some more Opex, right? Sizing to go.

So, uh, I'm I'm glad you, uh, let me out in a way, Gary, I'd appreciate that. But I will say, at the same time, uh, you know, if if I'm, if I'm afraid to if I'm free to Define longer term, uh, I don't think it's, uh, a bad objective. I do. Uh, uh,

Look at what we're doing in our OPEX investment as the driver of growth for the future. And, um, I think that that's just the inherent nature of the FPGA business.

Um we have done as you indicated, a significant action last year in order to get our Opex run rate down. We continue to to tune our uh operation structures to to optimize what we're doing. We just have gone through an exercise in, in the middle of the year of refocusing where we're where we're investing and uh trying to invest in the right things. So, no, I don't think it's a bad objective, uh, or I should let me rephrase that I think it's the right objective, but I'm not yet, uh, at the point of telling you when we think that's going to happen, uh, you know, given the revenue growth that, that you alluded to. I do think it's feasible.

Appreciate the color. Thank you.

The next question is from Quinn Bolton of Neiman Company. Please proceed with your question.

Hey guys, thanks for letting me ask you a question. I guess Ford and Lorenzo, you've talked about undershipping demand in the Industrial Automation site. Sorry, Oto, and Industrial segments. I'm wondering if you've actually started to see PS in that market starting to increase, or has PS been pretty stable?

Pretty flat and you guys are just under shipping more of a a stable PS level.

In short, when PS is increasing,

Excellent. Okay. And then, um, so that's pretty close, right?

Yeah, no, that's, that's great. Um, thank you for that. I just wanted to to clarify. Um, Ford, I'm gonna ask you what? Maybe a tough question. But, you know, let Nick said, we're gonna get Section 232 within about the next week or so. How are you guys preparing for Section? 232 do you have sort of a sense where you think those terrorists May land. And, um, you know, how do you, how do you handle that uncertainty?

Number 1. Our understanding is that the country-specific tariffs supersede Section 232.

So we get a fair amount of our, uh, Supply from Japan, South Korea, and Malaysia. And so, those are already in place, so no, change on that front.

Um, number 2, a lot of our, uh, Channel Partners bring, uh, um, inventory from Mexico into a free trade zone and, and ship from their out out the US. So, the percent, uh, that is coming into US, is a small percent of our business, right? And at this point, we haven't seen any direct impact, uh, from tariffs and we'll wait and see. But some of these factors are going to mitigate, uh, any

Potential, 232, uh, impact. Yeah, let me just, uh, Leverage What port said, uh, the, um, direct impact. Uh, that as we see it on our business doesn't seem to be significant in terms of changing our cost structures. Uh, based on the way, our our supply chains are oriented in the way our customer flows work,

Do you know as as everybody else? Uh, we do look out for bigger macro level impacts on, on the overall demand. Uh, but, but right now as, as you see in in what we've guided, uh, we we see strength in in our end markets and and given what's driving that strength. If you look at, for instance, the hyperscaler capex. Uh, you know we we're hoping that the direct, the indirect impact of tariffs are are minimized on us but um we have a good supply chain structure. Uh, in order to deal with this flexibly and we've been working with our customers over the past, you know, several months as this has become an issue in order to help them optimize their supply chains as well.

Got it. Thank you for that.

The next question is from Ducks and Jiang of Bank of America. Please proceed with your question.

Hi, thank you for squeezing me in on comms and compute, Ford. I know you mentioned a lot of good drivers, some of which are secular and some of which are more specific to Lattice.

Um, is there any way to sort of force rank those four contributions that you mentioned? Um, say the market growing versus your wins or your attach rate versus content? That would be very helpful.

So um, you'd like us to rank uh, the 4 sec, the 4, the 4 factors that are the overall capex increase that the cloud hyperscaler have indicated on the earnings score being 1.

Are attached rates being 2.

The ASP is 3 and are attached to knee servers, being 4. Uh, and these are all related and intertwined. So, um,

You know, um, the number 5, I forgot to mention, is the record design wins we're having with hyperscalers. Uh, and um, so that's, uh, that is a strong, uh, number 5, if you wish. And number 6, I think, as I think about the sort of ecosystem that we use to sell into that market.

Um, we, um, you know, sell, if you wish, uh, to forward different constituents. One is the ODMs that are building for the hyperscaler and OEMs.

2. We sent directly with AI accelerators. 3. We send directly with some of the related wired communication types.

Uh providers and number 4, the server or yams uh directly as well. And so we've got these 4 constituents also going strong. So Dr. I'm not sure there's a scientific way to, to break this. We have all the data but but I'm not sure it we we could we could take it offline and come back to you, but, but quite a few factors that are helping us grow. Uh, the comes in compute,

Mhm. Yeah. Understood

Um, and then the second question on industrial and auto. So, I know you mentioned the strong recovery outlook. Um, but then the channels have been elevated for quite some time, and you said you've been under shipping demand for a time as well. So, do you anticipate that once the inventory actually normalizes?

Um, do you expect the market to go back to shipping in line with the demand? Or do you expect it to be a little bit more conservative?

Now, I would expect it to be in line with demand and our design wins.

Take hold of our new design; as these products and these sectors ramp, we should have quite strong growth.

Got it. Thank you.

The next question is from Joshua Buckhalter of TD Cowen. Please proceed with your question.

Hey guys, thank you for taking my question. Um, maybe following up on Quinn's earlier question about the geopolitical backdrop. Uh, maybe it's a good thing it hasn't come up, but any changes you've observed in your customers' order patterns specifically in China over the last 90 days? Given all the volatility, I think in the Q2 it said China was up like 11% sequentially, so it doesn't seem like anything egregious, but we'd just be curious to hear your thoughts on the geopolitical backdrop from the tariff angle. Thank you.

What is true demand. Um, but 1 of the things that you should put into context, is that question is is our growth that we're forecasting and Ford's earlier comments about we're bookings are, uh, so we you the phenomenon you're asking for is that we see a, a pull in and then are expecting a drop off. And and we just don't see that in our data.

Got it. Thank you, runs our caller there. Um, and then as we think about the new product growth, I think, you know, you said 70% this year. Given the upside you saw on Comms and Computing this quarter, I mean, should we think about new products being more tied to Comms and Computing? And is there faster design cycle times in that end market, too? Um, and then, you know, I'll kind of squeeze in a second one from, you know, any outlook you can give us on sequential growth by end market in the guidance. On that note, thank you.

So, as we indicated, we do believe that investors and auto will, uh, you know, start outperforming as we get into, um, the end of this year, into next year. And so, we should see growth across both markets, both comes and compute, as well as industrial auto.

uh,

So, we're not sort of uh,

We're not seeing one. We're seeing both of them grow into next year.

Thank you.

Our next question is from Kevin Garrigan of Rosenblat Security. Please proceed with your question.

Yeah. Hey, good afternoon all. Congrats on the strong results. Ford, you had mentioned several Edge AI growth areas that will benefit the company. You know, looking at the market in your business, could you give us a sense of what applications you see developing more in the near term that will benefit from that, and what is more on the longer tail?

Yeah, for sure. So, on Edge AI, uh,

It's, um, we're on track to achieve tight teams of revenue coming from AI in 2025 and expect this to grow to mid-20% of revenue in 2026.

So that's, uh, positive and aligned with what we had indicated in the past.

And the way we break it up by end segments, we see about 60% of this.

AI-related revenue is coming from compute and consumer markets, and about 40% of this AI revenue is generated from the industrial, automotive, and consumer segments.

By application, we see.

You know about, you know, 55% of these applications where we are a companion to sort of AI accelerators and GPUs, and switches, etc. And we see about 45% that, uh, are applications where we're either on the data path or are running AGI into our chip for like tiny AI models. So that should give you a color of that AI revenue.

Yep. Okay, that's perfect. Um, and then, you know, you delivered another record quarter for design wins for you, coming up on your one year at the company. So, you know, what are you seeing at Lattice that helps with capturing design wins versus the rest of the market?

I think what's helping us is a very single-minded focus on small and mid-range PGAs, which we believe is a sweet spot.

Uh, of growth in the FPGA market and, um, we're actually clarifying our positioning to be a complement to AI accelerator networking chips, um, NIC cards, etc., versus our competitors trying to do this in the mid-range and high, uh, large FPGA in a way competing with some of our customers or their customers, uh, sort of as6.

So we are more of a pure play fpga in. In the sense that we, this small to mid-range is, is, is more of a companionship if we run AI on our chip. This is as I said less than 1, Tera Ops, uh, less than 1 watt, so very focused, uh, type approach, uh, versus, and we call this far Aji near sensory AI as opposed to the, uh, competitors, uh, uh, larger competitors, larger PGA, trying to go after what they call near Aji, which in a way competes, uh, with our customers.

So we see ourselves as a companionship, for example, to, um, you know, image, image, image, image processor AI, where we can be fed an input from various sensors. It could be image sensors, it could be radar, it could be light, or it could be infrared cameras. And many of these could be, you know,

15 different scents are being fed into our fpga or we pre-process the data and and sort of uh make that um near AGI inferencing, uh, chip more effective. Uh, and so, um, we are in that companion role, we are adding value to our customers because they're spending a ton of money on these AI accelerators. And we make those actually is more efficient. Because our low power, uh, small size. Um, cost effective solution near the sensor. We our customer call this contextual intelligence, so, so that intelligence is uh, is contextual to that sensor and and, uh, and helps that main ai, ai chip

Make sense. Yes. Absolutely. I appreciate the color. Thanks for.

Our last question today comes from Christopher Rowland of Susco, Hannah International Group. Please proceed with your question.

Uh, thanks for the follow-up. Um, I guess, first of all, uh, I I just want to know, forward what you meant by the country, Tariff of superseding, the section, uh, 232. So, um, uh, I I guess that means you don't think there will be any additional semiconductor. Um, uh, terrorists on top of country specific, but just wanted, uh, you to elaborate there. Uh, and then also,

If you guys, uh, had any more color on Q4 or '26 based on the positive bookings backlog, uh, commentary, that would be great as well.

Sure. So, on the first question I understanding is if you look at terrorists for example, from Japan or South Korea, where we procure Wafers or Malaysia, we procure assembly and test uh stuff. Uh, is that those, let's say, 15% in the case of Japan and South Korea would supersede a 232, 232 were to be higher. So let's say at, 232 comes in, at 20% on the standing, is that the Japan, 15% or South Korea, 15% would supersede that, that 20% and and stay valid.

Uh, so, that's number 1 on number 2 on the question on Q4 and 2026. As I said, we see strong backlog actually into Q4 now and, uh, and starting into Q1 of next year. So this is, uh, way above, uh, where we have been, uh, in probably some of the best, uh, bookings and backlog for the past 3 years.

Excellent. And then Ford may maybe just a high level, um, technical uh, discussion as to where you see opportunities. Um, when we think about scale up, AI, particularly networking, just because that was your background, are there any opportunities for things like scale up or ret timers or DSP?

Uh, or, or Sardis or I/O chips or anything like that, or, uh, are these, um, FPGAs including a vant, uh, too small for some of these functions? I'm just wondering.

If there could be expanded opportunities, just in your heritage of networking.

Yeah. Look. Today, we are increasingly confident in our positioning.

Being the companionship to all of the above, right? So not just somebody asking about xpu and GPU and they are accelerator and switches and Nic cards and Rhett timer and even board management controller. And, you know, uh, Nick storage. Uh, we are actually being companionship to all of the above and and that's all of these ships are driving. Uh, the AI infrastructure, AI infrastructure is not just the accelerator but also all of the chips that you mentioning that are companionship to these uh accelerator with companionship to these companionship. So I think

Uh, right now, we are benefiting from being Switzerland and being a support, uh, uh, a very important support role, uh, in all of these deployments.

And his companionship role is going to increase because there is a tremendous amount of complexity increase in these AI. There is a tremendous amount of pressure to reduce system design cost and to increase the speed at which the system goes to market. A lot of these functions are typically better done in FPGAs, and these are not the big, larger FPGAs that are power-hungry and expensive. These are the small and mid-range FPGAs that are going to fit in the systems when you talk about tens of FPGAs per rack.

So, um, we're happy with the row we have and feel like this can be a very big opportunity for us.

Thank you.

This concludes our question-and-answer session. I would like to turn the floor back over to Rick Muscha for closing comments.

Yeah. Thanks, everyone, for joining us today. For a copy of our earnings release, please visit us on our investor relations website. We'll be attending the following conferences this quarter: the Jeffrey Semi IT Hardware and Communications Tech Conference in Chicago on August 26th, the Oppenheimer Semiconductor IT Hardware Networking Conference, also in Chicago, on August 27th, and the Benchmark Annual Tech Media Telecom Conference in New York on September 3rd.

This completes our call. Thank you again very much for your participation.

You may now disconnect your lines at this time. Have a wonderful day.