SOURCE: Lattice Semiconductor Corporation

October 25, 2007 16:15 ET

Lattice Semiconductor Reports Third Quarter Financial Results

HILLSBORO, OR--(Marketwire - October 25, 2007) - Lattice Semiconductor Corporation (NASDAQ: LSCC) today announced financial results for the third quarter ended September 29, 2007.

For the third quarter, revenue was $58.3 million, a decrease of two percent from the $59.2 million reported in the prior quarter, and a decrease of eight percent from the $63.5 million reported in the same quarter a year ago.

FPGA revenue for the third quarter was a record $13.6 million, up slightly from the $13.5 million reported in the prior quarter, and an increase of two percent from the $13.3 million reported in the same quarter a year ago. PLD revenue for the quarter was $44.7 million, a two percent decrease over the $45.7 million reported in the prior quarter, and a decrease of 11 percent from the $50.2 million reported in the same quarter a year ago.

New product revenue for the third quarter was $8.3 million, up 28% from the $6.5 million reported in the prior quarter, and an increase of 73% from the $4.8 million reported in the same quarter a year ago.

Other income for the third quarter of 2007 was $3.6 million and included a $1.7 million gain related to the extinguishment of outstanding zero coupon convertible notes.

Net loss for the third quarter was $4.4 million ($0.04 per share), as compared to a net loss of $1.5 million ($0.01 per share) reported in the prior quarter, and net income of $0.9 million ($0.01 per share) in the same quarter a year ago. These results include non-cash amortization charges, stock based compensation expense and restructuring charges, which total $5.5 million and $3.9 million for the third quarter of 2007 and 2006, respectively, and $4.0 million for the second quarter of 2007. Excluding these charges net income for the third quarter was $1.1 million as compared to a net income of $2.6 million for the prior quarter, and net income of $4.8 million for the comparable quarter a year ago.

"We are pleased by the strong growth we experienced for our New products in the third quarter. Unfortunately, this continued growth was more than offset by a substantial decline in our Mature products. This decline negatively impacted both revenue and gross margin for the quarter," said Steve Skaggs, Lattice's President and Chief Executive Officer. "Looking forward, we anticipate continued growth in New products and believe that as older products become an increasingly smaller percentage of total revenue overall revenue growth will resume and increasingly benefit the Company throughout 2008. Nonetheless, as our current financial results are below expectations, we will continue to seek opportunities to minimize operating expenses in the short-term."

Third Quarter Business Highlights:

--  During the quarter, Lattice released all members of the 90 nanometer
    LatticeECP2M™ family of low cost, high performance FPGAs to volume
    production. By combining a low cost FPGA architecture with high-end FPGA
    features like 3.125 Gbps SERDES (SERializer/DESerializer) I/O and high
    memory capacity, the LatticeECP2M family is bringing new levels of
    performance to value-conscious electronic system designs.
--  Released a new XAUI to SPI4.2 intellectual property ("IP") core
    optimized for the LatticeSC™ Extreme Performance FPGA family. This core
    provides critical bus bridging functions needed to interface 10 Gb Ethernet-
    based networks and leading-edge network processor and traffic management
    devices. The LatticeSC family's pre-engineered, on-chip SPI4.2 controller,
    memory controller and Media Access Controller ("MAC") blocks complete these
    solutions to provide exceptional integration, performance and power savings
    benefits for Lattice's customers developing network equipment.
--  Announced membership in the HyperTransport™ Consortium to help
    promote the use of HyperTransport interface technology. The LatticeSC
    family's exceptionally fast 2.0 Gbps PURESPEED™  I/O provides unique
    performance in support of the HyperTransport 2.0 specification.
--  Announced collaboration with Silicon Laboratories to provide SONET/SDH
    standard-compliant solutions through a combination of LatticeSC FPGAs and
    Silicon Labs' multi-rate clock and data recovery (CDR) devices and Any-Rate
    precision clock devices.
--  Released Version 7.0 Service Pack 1 of Lattice's ispLEVER® FPGA
    design tools providing significant customer upgrades to support high
    density FPGA design, including general release of the Reveal™  logic
    analysis / hardware debug tool that provides best-in-class design analysis
    and an enhanced Power Calculator module that accurately models device
    thermal environments and resulting power consumption.
    

Business Outlook - December 2007 Quarter:

--  Sequential quarterly revenue is expected to be approximately $57
    million to $59 million;
--  Gross margin percentage is expected to be approximately 55%;
--  Total operating expenses are expected to be approximately $33.0
    million to $33.5 million;
--  Restructuring charge is expected to be approximately $1.5 million to
    $2.5 million;
--  Intangible asset amortization is expected to be approximately $2.0
    million: and
--  Other income is expected to be approximately $2.5 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 income, which we refer to as non-GAAP net income. This measure is generally based on the revenue of our products and the costs of those operations, such as cost of products sold, research and development, sales and marketing and general and administrative expenses, that management considers in evaluating our ongoing core operating performance. Non-GAAP net income excludes amortization of intangible assets, stock-based compensation and restructuring charges. Intangible assets relate to assets acquired through acquisitions and consist of technology purchased in connection with the acquisitions. Stock-based compensation charges are related to the adoption of SFAS No. 123(R) effective January 1, 2006, and include expense for items such as stock options and restricted stock units granted to employees, purchases under the employee stock purchase plan and deferred stock compensation issued in connection with acquisitions. Restructuring charges consist of expenses and subsequent adjustments incurred under our corporate restructuring plans that were initiated in the fourth quarter of fiscal 2005 and in the third quarter of fiscal 2007, and include items such as separation packages, costs to vacate space under long-term lease arrangements, and other related expenses.

Non-GAAP net income 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) income, 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) income, which is our most directly comparable GAAP financial result. For more information, see the consolidated statement of operations contained in this earnings release.

Conference Call and Business Update:

On October 25, 2007, Lattice will hold a telephone conference call at 2:00 p.m. (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 December 13, 2007, 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.

Forward-Looking Statements Notice:

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 - December 2007 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 Mature, Mainstream, and New products, and the ability to supply products to customers in a timely manner. Actual gross margin percentage and operating expenses could vary from the estimates contained herein on the basis of, among other things, changes in revenue levels, changes in product pricing and mix, changes in wafer, assembly and test costs, variations in manufacturing yields, and changes in stock-based compensation charges due to stock price changes.

In addition to the foregoing, other factors that may cause actual results to differ materially from the forward-looking statements herein include 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.

About Lattice Semiconductor:

Lattice Semiconductor Corporation provides the industry's broadest range of Programmable Logic Devices (PLD), including Field Programmable Gate Arrays (FPGA), Complex Programmable Logic Devices (CPLD), Mixed-Signal Power Management and Clock Generation Devices, and industry-leading SERDES products.

Lattice continues to deliver "More of the Best" to its customers with comprehensive solutions for system design, including an unequaled portfolio of high performance, non-volatile and low cost FPGAs.

Lattice products are sold worldwide through an extensive network of independent sales representatives and distributors, primarily to OEM customers in communications, computing, industrial, consumer, automotive, medical and military end markets. For more information, visit http://www.latticesemi.com.

Lattice Semiconductor Corporation, Lattice (& design), L (& design), ispLEVER, Reveal, LatticeECP2M, LatticeSC, PURESPEED, 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. HyperTransportTM is a licensed trademark of the HyperTransport Technology Consortium in the U.S. and other jurisdictions.

GENERAL NOTICE: Other product names used in this publication are for identification purposes only and may be trademarks of their respective holders.

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

                       Three months ended             Nine months ended
                ---------------------------------- -----------------------
                September      June     September   September   September
                    29,         30,         30,         29,         30,
Description        2007        2007        2006        2007        2006
-----------     ----------  ----------  ----------  ----------  ----------
                (unaudited)(unaudited) (unaudited) (unaudited) (unaudited)
Revenue         $   58,304  $   59,243  $   63,456  $  175,654  $  183,627

Costs and
 expenses (1):
  Cost of
   products
   sold             26,705      26,593      27,764      79,516      79,855
  Research and
   development      20,166      20,752      20,905      62,926      61,696
  Selling,
   general and
   administrative   15,054      14,785      15,207      44,405      43,490
  Amortization
   of
   intangible
   assets (2)        2,458       2,665       2,657       7,790       8,140
  Restructuring
   (3)               1,718          27         102       1,615         318
                ----------  ----------  ----------  ----------  ----------

Total costs and
 expenses           66,101      64,822      66,635     196,252     193,499
                ----------  ----------  ----------  ----------  ----------
Loss from
 operations         (7,797)     (5,579)     (3,179)    (20,598)     (9,872)

Other income,
 net (4)             3,551       4,299       4,324      10,858      12,721
                ----------  ----------  ----------  ----------  ----------

(Loss) income
 before
 provision for
 income taxes       (4,246)     (1,280)      1,145      (9,740)      2,849

Provision for
 income taxes          201         181         248         551         693
                ----------  ----------  ----------  ----------  ----------

Net (loss)
 income         $   (4,447) $   (1,461) $      897  $  (10,291) $    2,156
                ==========  ==========  ==========  ==========  ==========

Basic net
 (loss) income
 per share      $    (0.04) $    (0.01) $      .01  $    (0.09) $      .02
                ==========  ==========  ==========  ==========  ==========

Diluted net
 (loss) income
 per share      $    (0.04) $    (0.01) $      .01  $    (0.09) $      .02
                ==========  ==========  ==========  ----------  ==========

Shares used in
 per share
 calculations:
Basic              115,057     114,827     114,376     114,852     114,091
                ==========  ==========  ==========  ==========  ==========

Diluted (5)        115,057     114,827     115,560     114,852     114,577
                ==========  ==========  ==========  ==========  ==========

Notes:
(1) As a result of the restructuring implemented in the fourth quarter of
    2005, the Company realigned certain departments and job
    responsibilities in 2006.  Due to  these changes, the Company reviewed
    its historical cost center allocations and has reclassified these to
    reflect post-restructuring operations.  Amounts previously reported
    in the three and nine months ended September 30, 2006 have been
    reclassified to be consistent with the approach applied for the other
    periods presented.
(2) Intangible assets subject to amortization aggregate $7.9 million, net,
    at September 29, 2007 and relate to the acquisition of the FPGA
    business of Agere Systems, Inc. on January 18, 2002. Intangible assets
    related to the acquisition of Cerdelinx Technologies, Inc. became fully
    amortized in the third quarter of fiscal 2007. Amortization charges
    are expected to be substantially eliminated by the end of 2008.
(3) Represents costs and adjustments incurred under the corporate
    restructuring plans, implemented in the fourth quarter of 2005 and the
    third quarter of 2007. During the third quarter of  2007, we approved
    and initiated a restructuring plan ("2007 restructuring plan") to lower
    operating expenses. During the third quarter of 2007, we recorded an
    initial restructuring charge of $1.7 million comprised primarily of
    severance and related costs of which $1.2 million was paid during the
    third quarter of  2007. The Company expects to incur an additional
    charge of $1.5 million to $2.5 million in the fourth quarter of 2007
    primarily related to costs to vacate leased space.
(4) Includes a $1.6 million gain recorded during the three months ended
    June 30, 2007 as a result of the Company selling a parcel of
    undeveloped land near its corporate headquarters.
(5) For the three months ended September 29, 2007 and June 30, 2007 and
    the nine months ended September 29, 2007, the computation of diluted
    earnings per share excludes the effects of stock options, restricted
    stock units, warrants and Convertible Notes, as they are antidilutive.
    For the three and nine months ended September 30, 2006, the
    computation of diluted earnings per share excludes Convertible
    Notes, as they are antidillutive.


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

                             (in thousands)

                       Three Months ended             Nine Months ended
               ----------- ----------- ----------- -----------  -----------
               September                 September  September    September
                  29,        June 30,        30,       29,           30,
                 2007         2007          2006       2007          2006
               ----------- ----------- ----------- -----------  -----------
               (unaudited) (unaudited) (unaudited) (unaudited)  (unaudited)

GAAP net (loss)
 income        $    (4,447)$    (1,461)$       897 $   (10,291) $     2,156
Reconciling
 items:
 Amortization
  of
  intangibles
  (1)                2,458       2,665       2,657       7,790        8,140
 Stock-based
  compensation       1,349       1,325       1,117       4,063        2,462
 Restructuring
  (2)                1,718          27         102       1,615          318
               ----------- ----------- ----------- -----------  -----------
Non-GAAP net
 income        $     1,078 $     2,556 $     4,773 $     3,177  $    13,076
               =========== =========== =========== ===========  ===========



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


                       Three Months ended             Nine Months ended
               ----------- ----------- ----------- -----------  -----------
                September               September   September    September
                   29,       June 30,      30,         29,          30,
                  2007        2007        2006        2007         2006
               ----------- ----------- ----------- -----------  -----------
               (unaudited) (unaudited) (unaudited) (unaudited)  (unaudited)
Basic and
 Diluted (4):
GAAP net
 (loss) income     $ (0.04)    $ (0.01) $     0.01 $     (0.09) $     0.02
Reconciling
 items:
  Amortization
   of
   intangibles
   (1)                0.02        0.02        0.02        0.07        0.07
  Stock-based
   compensation       0.01        0.01        0.01        0.04        0.02
  Restructuring
   (2)                0.01        0.00        0.00        0.01        0.00
               ----------- ----------- ----------- ----------- -----------
Non-GAAP net
 income        $      0.01 $      0.02 $      0.04 $      0.03 $      0.11
               =========== =========== =========== =========== ===========
Shares used in
 per share
 calculations:
  Basic            115,057     114,827     114,376     114,852     114,091
               =========== =========== =========== =========== ===========
  Diluted (3)      120,659     122,611     125,385     122,462     124,816
               =========== =========== =========== =========== ===========

Notes:
(1)  Intangible assets subject to amortization aggregate $7.9 million, net,
     at September 29, 2007 and relate to the acquisition of the FPGA
     business of Agere Systems, Inc., on January 18, 2002. Intangible
     assets related to the acquisition of Cerdelinx Technologies, Inc.
     became fully amortized in the third quarter of fiscal 2007.
     Amortization charges are expected to be substantially eliminated
     by the end of 2008.
(2)  Represents costs and adjustments incurred under the corporate
     restructuring plans, implemented in the fourth quarter of 2005 and the
     third quarter of 2007. During the third quarter of 2007, we approved
     and initiated a restructuring plan ("2007 restructuring plan") to
     lower operating expenses. During the third quarter of 2007, we
     recorded an initial restructuring charge of $1.7 million comprised
     primarily of severance and related costs of which $1.2 million was
     paid during the third quarter of 2007. The Company expects to incur an
     additional charge of $1.5 million to $2.0 million in the fourth
     quarter of 2007 primarily related to costs to vacate leased space.
(3)  For all periods presented the effects of stock options, restricted
     stock units and convertible notes are included as they are dilutive.
(4)  Per share amounts may differ due to rounding.



                       Lattice Semiconductor Corporation

                          Consolidated Balance Sheet

                                (in thousands)

Description                                             September December
-----------                                                 29,      30,
                                                           2007     2006
                                                        --------- ---------
                                                        (unaudited)

                      Assets
Current assets:
  Cash and short-term investments                       $ 128,364 $ 233,208
  Accounts receivable, net                                 31,097    22,545
  Inventories                                              36,677    38,816
  Other current assets                                     35,111    35,474
                                                        --------- ---------
    Total current assets                                  231,249   330,043

Property and equipment, net                                44,813    46,696
Foundry investments, advances and other assets             93,909   109,964
Goodwill and other intangible assets, net (1)             231,412   239,203
                                                        --------- ---------

                                                        $ 601,383 $ 725,906
                                                        ========= =========

            Liabilities and Stockholders’ Equity

Current liabilities:
  Accounts payable and other accrued liabilities        $  33,114 $  82,843
  Deferred income and allowances on sales to
   distributors                                             7,042     6,230
  Zero Coupon Convertible Notes due in 2010 (2)            40,000    20,480
                                                        --------- ---------
    Total current liabilities                              80,156   109,553

Zero Coupon Convertible Notes due in 2010 (2)                   -    89,120
Other long-term liabilities                                 6,031    15,488
                                                        --------- ---------
    Total liabilities                                      86,187   214,161

Stockholders’ equity                                      515,196   511,745
                                                        --------- ---------

                                                        $ 601,383 $ 725,906
                                                        ========= =========

    Notes:

(1) At September 29, 2007, includes approximately $223.6 million in
    goodwill and $7.9 million of other intangible assets, net, related to
    the acquisition of the FPGA business of Agere Systems, Inc. Goodwill is
    not amortized effective with the March 2002 quarter.

(2) Effective July 1, 2007, the Convertible Notes were classified as a
    current liability as the holders of the Convertible Notes have a right
    to require payment of the Convertible Notes on July 1, 2008.  At
    December 30, 2006, $20.5 million of Convertible Notes were classified
    as a current liability because it was known at the time of filing our
    financial statements this amount would be extinguished in the first
    quarter of fiscal 2007.




                       Lattice Semiconductor Corporation

                 – Supplemental Historic Financial Information –



Operations Information                       Q307       Q207       Q306
                                           ---------  ---------  ---------
Percent of Revenue (1):
Gross Margin                                 54.2%      55.1%      56.2%
R&D Expense                                  34.6%      35.0%      32.9%
SG&A Expense                                 25.8%      25.0%      24.0%


Depreciation Expense ($000)                 3,398      3,396      3,151
Capital Expenditures ($000)                 2,110      2,914      2,728

Balance Sheet Information
Current Ratio                                 2.9        5.9        5.9
A/R Days Revenue Outstanding                   49         46         33
Inventory Months                              4.1        4.3        4.0

Revenue% (by Product Family)
FPGA                                           23%        23%        21%
PLD                                            77%        77%        79%

Revenue% (by Product Classification)
New                                            14%        11%         8%
Mainstream                                     53%        50%        49%
Mature                                         33%        39%        43%

Revenue% (by Geography)
Americas                                       21%        24%        25%
Europe (incl. Africa)                          20%        18%        21%
Asia                                           59%        58%        54%

Revenue% (by End Market)
Communications                                 54%        52%        52%
Industrial & Other                             24%        24%        22%
Consumer & Automotive                          11%        13%        11%
Computing                                      11%        11%        15%

Revenue% (by Channel)
Direct                                         66%        64%        64%
Distribution                                   34%        36%        36%


New:            LatticeSC, LatticeECP2/M, LatticeECP, LatticeXP, MachXO,
                Power Manager, ispClock

Mainstream:     FPSC, XPLD, ispGDX2, ispMACH 4/LV, ispGDX/V, ispMACH
                4000/Z, XPGA, Software and IP

Mature:         ORCA 2, ORCA 3, ORCA 4, ispPAC, ispLSI 8000V, ispMACH
                5000B, ispMACH 2LV, ispMACH 5LV, ispLSI 2000V, ispLSI
                5000V, ispMACH 5000VG, all 5 Volt CPLDs, all SPLDs

    Note:
(1) Q306 amounts have been reclassified to be consistent with the current
    period.