SOURCE: Lattice Semiconductor Corporation

January 26, 2006 16:15 ET

Lattice Semiconductor Reports Fourth Quarter and Year End Financial Results

HILLSBORO, OR -- (MARKET WIRE) -- January 26, 2006 -- Lattice Semiconductor Corporation (NASDAQ: LSCC) today announced financial results for the fourth quarter and year ended December 31, 2005.

For the fourth quarter, revenue was $54.0 million, an increase of 11 percent from the $48.5 million reported in the same quarter a year ago and an increase of one percent from the $53.4 million reported last quarter. Quarterly revenue from PLD products was $44.1 million, or 82 percent of total revenue, and increased two percent sequentially. Quarterly revenue from FPGA products was $9.9 million, or 18 percent of total revenue, and decreased three percent sequentially. Quarterly revenue from New products, now 38 percent of total revenue, grew five percent sequentially and 66 percent on a year over year basis.

Net loss for the fourth quarter was $23.0 million ($0.20 per share). This loss includes charges of $3.7 million for the amortization of intangible assets and $11.9 million for restructuring costs. Excluding these charges, loss for the quarter was $7.3 million ($0.06 per share). The non-cash amortization charges have been highlighted as these charges are currently expected to be substantially eliminated in 2008. Further, the restructuring costs are significant charges that are unique to the fourth quarter of 2005 and are related to severance payments, accrued lease obligations, write-off of an intellectual property license, and other costs incurred prior to year-end. Remaining costs to complete the restructuring will be recorded in future periods as incurred and are not expected to be significant. The Company believes exclusion of these charges more closely approximates its ongoing operational performance. In addition to the above, the Company recorded charges related to its last-time buy program to obsolete certain mature parts.

Fourth Quarter Business Highlights:

    
--  Completed volume production release of the full, five-device LatticeXP
    non-volatile 130nm FPGA product family;
--  Completed volume production release of the full, four-device MachXO
    non-volatile 130nm cross-over programmable logic family;
--  Released the ispLever 5.1 software design tool, which  supports all
    next generation 130nm product families (LatticeEC/P, LatticeXP and MachXO);
--  Introduced the second generation Power Manager II devices, the ispPAC-
    Power1220AT8, and announced the second generation ispClock products with a
    family of revolutionary zero-delay clock generators, the ispClock5600;
--  Completed the previously announced corporate restructuring by reducing
    14 percent of the workforce and streamlining the R&D organization by
    closing four remote design centers; and
--  Reached an agreement to settle the shareholder derivative litigation.
    
    
"With our company-wide restructuring and related one-time write-offs behind us, we enter 2006 with a renewed sense of optimism. Our operating expense level has been reduced, and our next generation FPGAs, now fully production released, continue to make inroads into the worldwide customer base. Acceptance of these new FPGA products is increasing across multiple applications, and we are winning a growing number of design-ins," said Steve Skaggs, President and CEO of Lattice Semiconductor Corporation.

For the year 2005, revenue was $211.1 million, a decrease of seven percent from the $225.8 million reported in 2004.

Net loss for 2005 was $49.1 million ($0.43 per share), as compared to the net loss of $52.0 million ($0.46 per share) reported in 2004. These losses also include the previously described non-cash amortization charges and restructuring charges, which total approximately $28.1 million and $47.2 million for the years ended 2005 and 2004, respectively. Excluding these charges, the loss for 2005 was $21.0 million ($0.18 per share) as compared to a loss of $4.7 million ($0.04 per share) for 2004.

A reconciliation of non-GAAP net loss to GAAP net loss accompanies the financial tables in this earnings release.

Business Outlook - March 2006 Quarter:

--  Sequential quarterly revenue growth is expected to be approximately 2%-
    5%;
--  Gross margin percentage is expected to be approximately 54%-56%;
--  Total operating expenses are expected to be approximately $34-$35
    million, which includes an estimated $1 million of stock-based compensation
    expense (inclusion of stock-based compensation in operating expenses adds
    significant uncertainty to our estimates of expenses due to the effect of
    the volatility in our stock price, which we can not predict);
--  Intangible asset amortization is expected to be approximately $2.9
    million; and
--  Other income is expected to be approximately $2.4 million.
    
Discussion of Non-GAAP Financial Measures:

Management evaluates and makes operating decisions using various performance measures. In addition to our GAAP results, we also consider adjusted net loss, which we refer to as non-GAAP net loss. This measure is generally based on the revenues of our products and the costs of those operations, such as cost of revenue, research and development, sales and marketing and general and administrative expenses, that management considers in evaluating our ongoing core operating performance. Non-GAAP net loss consists of net loss excluding amortization of intangible assets and restructuring charges.

Intangible assets relate to assets acquired through acquisitions and consist of purchased technology and deferred stock compensation issued in connection with the acquisitions. Restructuring charges consist of expenses incurred under our corporate restructuring plan, and include items such as separation packages, costs to vacate space under long-term lease arrangements, cost to write-off an intellectual property license and other related expenses.

Non-GAAP net loss is a supplemental measure of our performance that is not required by and not presented in accordance with GAAP. Moreover, it should not be considered as an alternative to net loss, operating loss or any other performance measure derived in accordance with GAAP, or as an alternative to cash flow from operating activities or as a measure of our liquidity. Investors and potential investors are encouraged to review the reconciliation of non-GAAP financial measures contained within this press release with our net loss, which is our most directly comparable GAAP financial result. For more information, see the consolidated statements of operations contained in this earnings release.

On January 26, 2006, Lattice will hold a telephone conference call at 2:00 pm (Pacific Time) with financial analysts. Investors may listen to our conference call live via the web at www.lscc.com. Replays of the call will also be available at www.lscc.com. On March 15, 2006, we plan to publish a "Business Update Statement" on our website. Our financial guidance will be limited to the comments on our public quarterly earnings call and these public business outlook statements. Additionally, during the March 2006 quarter, Lattice plans to participate in an investor conference sponsored by Morgan Stanley. Specific presentation dates and times are posted on our website at www.lscc.com.

The foregoing paragraphs contain forward-looking statements that involve estimates, assumptions, risks and uncertainties. With respect to particular forward-looking statements in the Business Outlook - March 2006 Quarter section of this release, Lattice believes the factors identified below in connection with each such statement could cause actual results to differ materially from the forward-looking statements.

Estimates of future revenue are inherently uncertain due to the high percentage of quarterly "turns" business. In addition, revenue is affected by such factors as pricing pressures, competitive actions, the demand for our products, and the ability to supply products to customers in a timely manner. Actual gross margin percentage and operating costs could vary from the estimates contained herein on the basis of, among other things, changes in revenue levels, product pricing, changes in wafer, assembly and test costs, and variations in manufacturing yields.

In addition to the foregoing, other factors that may cause actual results to differ materially from the forward-looking statements herein include the Securities and Exchange Commission's informal inquiry and any resulting actions, developments in our pending securities class action litigation, the Company's dependencies on its silicon wafer suppliers, technological and product development risks, and the other risks that are described from time to time in our filings with the Securities and Exchange Commission. The Company does not intend to update or revise any forward-looking statements, whether as a result of events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Lattice Semiconductor Corporation, the inventor of in-system programmable (ISPTM) logic products, designs, develops and markets the broadest range of Field Programmable Gate Arrays (FPGA), Field Programmable System Chips (FPSCs) and high-performance Programmable Logic Devices (PLDs), including Complex Programmable Logic Devices (CPLD), Programmable Mixed Signal Components (ispPAC®), and Programmable Digital Interconnect (ispGDX®). Lattice also offers industry leading SERDES products. Lattice offers total solutions for today's system designs by delivering the most innovative programmable silicon products that embody leading-edge system expertise.

Lattice products are sold worldwide through an extensive network of independent sales representatives and distributors, primarily to OEM customers in the communications, computing, consumer, industrial and military end markets. Company headquarters are located at 5555 N.E. Moore Court, Hillsboro, Oregon 97124 USA. For more information access our web site at www.latticesemi.com.

Lattice Semiconductor Corporation, Lattice (& design), L (& design), LatticeECP, LatticeXP, MachXO, isp, ispLever, ispPAC, ispGDX, Power Manager, and specific product designations are either registered trademarks or trademarks of Lattice Semiconductor Corporation or its subsidiaries in the United States and/or other countries.

                            Lattice Semiconductor Corporation
                           Consolidated Statement of Operations
                           (in thousands, except per share data)

                               Three months ended           Year Ended
                            Dec. 31, Sept. 30, Dec. 31,  Dec. 31, Dec. 31,
  Description                2005      2005      2004     2005     2004
                           -------- -------- --------   --------  --------
                    (unaudited) (unaudited) (unaudited) (unaudited)

Revenue                     $53,991  $53,390  $48,541  $211,060   $225,832

Costs and expenses:
   Costs of
    products sold            27,494   23,398   21,058    95,925     96,857
   Research and
    development              23,653   22,719   22,886    95,412     90,957
   Selling, general
    and administrative       13,217   13,558   13,017    57,541     53,803
  Amortization of
   intangible assets (1)(2)   3,714    3,968    5,759    16,211     47,249
   Restructuring costs       11,936       --       --    11,936         --
                           -------- -------- --------   --------  --------
     Total costs and
      expenses               80,014   63,643   62,720   277,025    288,866
                           -------- -------- --------   --------  --------
Loss from operations        (26,023) (10,253) (14,179)  (65,965)   (63,034)

Other income, net             2,829    3,405    1,141    17,079     11,373
                           -------- -------- --------   --------  --------
Loss before (benefit)
 provision for
 income taxes               (23,194)  (6,848) (13,038)  (48,886)   (51,661)

Benefit (provision)
 for income taxes              (204)     237      100        233       318
                           -------- -------- --------   --------  --------
Net loss                   ($22,990) ($7,085)($13,138)  ($49,119) ($51,979)
                           ======== ======== ========   ========  ========
Basic net loss per share     ($0.20)  ($0.06)  ($0.12)    ($0.43)   ($0.46)
                           ======== ======== ========   ========  ========
Diluted net loss per share   ($0.20)  ($0.06)  ($0.12)    ($0.43)   ($0.46)
                           ======== ======== ========   ========  ========
Shares used in per
 share calculations:

       Basic                113,619  113,544  113,307    113,525   112,976
                           ======== ======== ========   ========  ========
       Diluted (3)          113,619  113,544  113,307    113,525   112,976
                           ======== ======== ========   ========  ========


Notes:
(1) Intangible assets subject to amortization aggregate $26.4 million,
net, at December 31, 2005 and relate to the acquisition of Cerdelinx
Technologies, Inc. on August 26, 2002, the acquisition of the FPGA
business of Agere Systems, Inc. on January 18, 2002 and the acquisition
of Integrated Intellectual Property Inc. on March 16, 2001.
These intangible assets are amortized to expense
generally over three to seven  years on a straight-line basis.

(2) Includes $0.2 million, $0.4 million and $0.6 million of deferred
stock compensation expense for the quarters ended December 31, 2005,
September 30, 2005, December 31, 2004, respectively, attributable to
Research and Development activities.  Includes $1.8 million, and $3.4
million of deferred stock compensation expense for the years ended
December 31, 2005, and December 31, 2004, respectively, attributable
to Research and Development activities.

(3) For all periods presented, the computation of diluted net loss
per share excludes the effect of stock options and our convertible
notes as they are antidilutive.




         Reconciliation of GAAP Net Loss to Non-GAAP Net Loss
                              (unaudited)

                         Three months ended               Year Ended
                   Dec. 31,   Sep. 30,   Dec. 31,     Dec. 31,    Dec. 31,
                    2005        2005       2004         2005        2004
                   --------   --------   --------     --------    --------


GAAP net loss     ($22,990)  ($ 7,085)   ($13,138)   ($49,119)   ($51,979)
Reconciling
 items:
  Amortization of
   intangibles (1)   3,714      3,968       5,759      16,211      47,249
  Restructuring
   charges (2)      11,936         --          --      11,936          --
                  --------------------------------    --------------------
Non-GAAP net
  loss            ($ 7,340)  ($ 3,117)   ($ 7,379)   ($20,972)   ($ 4,730)
                  ================================    ====================



  Reconciliation of GAAP Net Loss per Share to Non-GAAP Net Loss per Share
                                 (unaudited)



                         Three months ended               Year Ended
                   Dec. 31,   Sep. 30,    Dec. 31,   Dec. 31,    Dec. 31,
                    2005       2005        2004        2005        2004
                  --------   --------   --------     --------    --------

Basic and Diluted:
GAAP net loss per
  share            ($0.20)     ($0.06)     ($0.12)     ($0.43)     ($0.46)
Reconciling items:
  Amortization of
   intangibles (1)   0.03        0.03        0.05        0.14        0.42
  Restructuring
   charges (2)       0.11          --         --         0.11          --
                  --------------------------------    --------------------
Non-GAAP net
 loss per share    ($0.06)      ($0.03)    ($0.07)     ($0.18)      ($0.04)
                  ================================    ====================


(1)     Relates to intangible assets acquired through our acquisition of
Cerdelinx Technologies, Inc. on August 26, 2002, the acquisition of the
FPGA business of Agere Systems, Inc. on January 18, 2002 and the
acquisition
of Integrated Intellectual Property Inc. on March 16, 2001. Includes
deferred compensation expense attributable to Research and Development
activities.

(2)     Represents costs incurred year to date under the corporate
restructuring plan, which was implemented in the fourth quarter of 2005.
These costs primarily relate to separation packages and costs to vacate
space under long-term lease arrangements. Also includes $2.7 million
related to the write-off of an intellectual property license.


                       Lattice Semiconductor Corporation
                          Consolidated Balance Sheet
                               (in thousands)

                                                   Dec. 31,    Dec. 31,
Description                                         2005         2004
                                                  ---------    ---------
                                                 (unaudited)
                   Assets
Current assets:
   Cash and short-term investments                $ 264,192    $ 296,295
   Accounts receivable, net                          23,577       19,587
   Inventories                                       28,581       38,634
   Other current assets                              24,614       46,527
                                                  ---------    ---------
            Total current assets                    340,964      401,043

Property and equipment, net                          45,450       47,586
Foundry investments, advances and other assets       79,432       97,877
Goodwill and other intangible assets, net (1)       250,011      264,400
                                                  ---------    ---------
                                                  $ 715,857    $ 810,906
                                                  =========    =========

Liabilities and Stockholders' Equity

Current liabilities:
   Accounts payable and other accrued
          liabilities                             $  53,438    $  61,161
   Deferred income on sales to distributors          10,449       11,399
                                                  ---------    ---------
            Total current liabilities                63,887       72,560

Zero Coupon Convertible notes due in 2010           133,500      169,000
Other long-term liabilities                          20,386       26,755
                                                  ---------    ---------
                                                    153,886      195,755
Stockholders' equity                                498,084      542,591
                                                  ---------    ---------
                                                  $ 715,857    $ 810,906
                                                  =========    =========

Note:

(1) At December 31, 2005, includes approximately $223.6 million in
    goodwill and $26.4 million of other intangible assets, net, related
    to previous acquisitions. The other intangible assets will be
    amortized to expense generally over three to seven years. Goodwill
    is not amortized effective with the March 2002 quarter.


                           Lattice Semiconductor Corporation
                    - Supplemental Historic Financial Information -


Operations Information                            Q405      Q305      Q404
                                                 ------    ------    ------
Percent of Revenue:
  Gross Margin                                    49.1%     56.2%     56.6%
  R&D Expense                                     43.8%     42.6%     47.1%
  SG&A Expense                                    24.5%     25.4%     26.8%
  Restructuring Expense                           22.1%      --        --


Depreciation Expense ($000)                      3,047     3,199     3,890
Capital Expenditures ($000)                      3,327     3,305     2,301

Balance Sheet Information
  Current Ratio                                    5.3       6.3       5.5
  A/R Days Revenue Outstanding                      40        45        37
  Inventory Months                                 3.2       4.1       5.5

Revenue % (by Product Family)
  FPGA                                              18%       19%       18%
  PLD                                               82%       81%       82%

Revenue % (by Product Classification*)
  New                                               38%       36%       26%
  Mainstream                                        28%       29%       35%
  Mature                                            34%       35%       39%

Revenue % (by Geography)
  Americas                                          28%       31%       33%
  Europe (incl. Africa)                             23%       24%       26%
  Asia (incl. ROW)                                  49%       45%       41%

Revenue % (by End Market)
  Communications                                    49%       51%       48%
  Computing                                         18%       18%       20%
  Other                                             33%       31%       32%

Revenue % (by Channel)
  Direct                                            65%       65%       59%
  Distribution                                      35%       35%       41%

* Product Classification:
  ----------------------
  New: LatticeEC/P,  LatticeXP, MachXO,  FPSC, XPLD, XPGA, GDX2, ORCA 4,
       ispMACH 4000/Z, ispPAC-PWR, ispCLK

  Mainstream: ORCA 3, GDX/V, ispMACH L/V, ispLSI 2000V, ispLSI 5000V,
              ispLSI 8000V, ispMACH 5000VG, and Other

  Mature: ORCA 2, All 5-Volt CPLDs, all SPLDs

Contact Information

  • For more information contact:

    Jan Johannessen
    Chief Financial Officer
    Lattice Semiconductor Corporation
    (503) 268-8000