SOURCE: Lattice Semiconductor Corporation

April 26, 2007 16:15 ET

Lattice Semiconductor Reports First Quarter Financial Results

HILLSBORO, OR -- (MARKET WIRE) -- April 26, 2007 --Lattice Semiconductor Corporation (NASDAQ: LSCC) today announced financial results for the first quarter ended March 31, 2007.

For the first quarter, revenue was $58.1 million, an increase of one percent from the $57.5 million reported in the same quarter a year ago, and a decrease of six percent from the $61.8 million reported in the prior quarter.

FPGA revenue for the first quarter was $11.9 million, up 10 percent from the $10.8 million reported in the same quarter a year ago, and up slightly from $11.8 million reported in the prior quarter. PLD revenue for the quarter was $46.3 million, a one percent decrease over the $46.7 million reported in the same quarter a year ago, and a decrease of seven percent from prior quarter revenue of $50.0 million.

New product revenue for the first quarter was $4.8 million, up 126% from the $2.1 million reported in the same quarter a year ago, and up 17% from $4.1 million reported in the prior quarter.

Other income for the first quarter of 2007 was $3.0 million and included a $0.7 million gain related to the extinguishment of outstanding zero coupon convertible notes.

Net loss for the first quarter was $4.4 million ($0.04 per share), as compared to a net loss of $0.8 million ($0.01 per share) reported in the same quarter a year ago, and prior quarter net income of $0.9 million ($0.01 per share). These results include non-cash amortization charges, stock based compensation expense and restructuring charges, which total $3.9 million and $3.6 million for the first quarter of 2007 and 2006, respectively, and $3.8 million for the fourth quarter of 2006. Excluding these charges, net loss for the quarter was $0.5 million as compared to net income of $2.8 million for the comparable quarter a year ago, and net income of $4.8 million for the fourth quarter of 2006.

During the first quarter we paid $37.5 million in cash to Fujitsu, which completed our $125.0 million wafer pre-payment obligation under our foundry agreement. During the quarter we also paid $19.6 million for the repurchase of our zero coupon convertible notes.

"Industry conditions continued to be challenging during the first quarter primarily driven by weakness in the communications and computing end markets and continuing customer inventory corrections. This resulted in an anticipated decline in our overall revenue," said Steve Skaggs, Lattice's President and Chief Executive Officer. "Nonetheless, we were encouraged by the relative performance of our New products and our FPGA business last quarter. Looking forward, we are currently seeing signs of improvement in industry conditions and consequently anticipate sequential revenue growth in the second quarter."

First Quarter Business Highlights:

--  Announced the production qualification and release to high-volume
    manufacturing of the high-performance, 90 nanometer, LatticeSC™ FPGA
    family;
--  Announced the production qualification and release to high volume
    manufacturing of the low-cost, 90 nanometer, LatticeECP2™ and
    LatticeECP2M™ FPGA families;
--  Introduced the industry's first 533Mbps Double Data Rate 2 (DDR2)
    memory controller intellectual property core supporting the low-cost
    LatticeECP2/M FPGA families as well as similar support for the high
    performance LatticeSC family;
--  Introduced the industry's first burst mode receiver reference design,
    delivering 1.25 Gbps speeds for Gigabit Passive Optical Networks ("GPON"),
    to support the LatticeSC family.  This design utilizes Lattice's unique
    Adaptive Input Logic (AIL) block and high-speed I/O to achieve
    differentiated performance for customers currently developing GPON
    equipment;
--  Introduced FreedomChip™, an innovative cost-reduction path for the
    LatticeSC family.  The FreedomChip methodology allows customers to
    seamlessly convert to a pin-compatible device, tested to their specific
    design with industry standard ASIC test coverage and techniques, and
    realize a 30 to 75 percent price reduction for high volume designs;
--  Announced the immediate availability of a SIG compliant PCI Express
    version 1.1 intellectual property core family supporting the low-cost
    LatticeECP2M™ family with integrated SERDES transceivers;
--  Won "Product of the Year" honors from both Electronics Product
    magazine and the editors of Analog Zone for the ground breaking
    LatticeECP2M family.  In addition, this product was named a finalist for
    the Design Vision award sponsored by the International Engineering
    Consortium, the only programmable logic product so honored.  The
    LatticeECP2M family is the first FPGA family to offer high-capacity memory
    and high-performance SERDES I/O in combination with a low-cost FPGA fabric
    and offers unique benefits to customers.
    
Business Outlook - June 2007 Quarter:
--  Sequential quarterly revenue is expected to be flat to up 4%;
--  Gross margin percentage is expected to be approximately 55% to 56%;
--  Total operating expenses are expected to be approximately $35 million;
--  Intangible asset amortization is expected to be approximately $2.7
    million; and
--  Other income is expected to be approximately $3.5 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 (loss) 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 (loss) 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 plan that took place in the fourth quarter of fiscal 2005, and include items such as separation packages, costs to vacate space under long-term lease arrangements, the cost to write-off an intellectual property license and other related expenses.

Non-GAAP net (loss) 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.

On April 26, 2007, 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 June 14, 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.

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 - June 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 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.

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), FreedomChip, ispClock, ispGDX2, ispXPGA, ispGDXV, ORCA, ispLSI, LatticeECP, LatticeECP2, LatticeECP2M, LatticeSC, LatticeXP, MachXO, ispMACH, ispPAC 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.

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
                                    --------------------------------------
         Description                 March 31,   December 30,   April 1,
                                        2007         2006         2006
                                    ------------  -----------  -----------
                                    (unaudited)  (unaudited)  (unaudited)

Revenue                             $     58,107 $     61,832 $     57,452

Costs and expenses (1):
 Costs of products sold                   26,218       26,872       25,145
 Research and development                 22,008       20,272       20,351
 Selling, general and administrative      14,566       14,960       13,689
 Amortization of intangible
  assets (2)                               2,667        2,666        2,813
 Restructuring (3)                          (130)          (7)         119
                                    ------------  -----------  -----------

Total costs and expenses                  65,329       64,763       62,117
                                    ------------  -----------  -----------
Loss from operations                      (7,222)      (2,931)      (4,665)

Other income, net                          3,008        4,230        4,047
                                    ------------  -----------  -----------

(Loss) income before provision for
 income taxes                             (4,214)       1,299         (618)

Provision for income taxes                   169          362          189
                                    ------------  -----------  -----------

Net (loss) income                   $     (4,383)$        937 $       (807)
                                    ============ ============ ============

Basic net (loss) income per share   $      (0.04)$       0.01 $      (0.01)
                                    ============ ============ ============
Diluted net (loss) income per share $      (0.04)$       0.01 $      (0.01)
                                    ============ ============ ============

Shares used in per share calculations:

Basic                                    114,688      114,509      113,791
                                    ============ ============ ============

Diluted (4)                              114,688      115,906      113,791
                                    ============ ============ ============

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 first
  quarter of 2006 have been reclassified to be consistent with the approach
  applied in the fourth quarter of 2006 and the first quarter of 2007.

  (2) Intangible assets subject to amortization aggregate $13.0 million,
  net, at March 31, 2007 and relate to the acquisition of Cerdelinx
  Technologies, Inc. on August 26, 2002 and the acquisition of the FPGA
  business of Agere Systems, Inc. on January 18, 2002. These intangible
  assets are amortized to expense generally over three to seven years on a
  straight-line basis.

  (3) Represents costs and adjustments incurred under the corporate
  restructuring plan, which was implemented in the fourth quarter of 2005.

  (4) For the quarter ended December 30, 2006, the computation of diluted
  earnings includes the effects of stock options, as they are dilutive. For
  all other periods presented, the effects of stock options are excluded,
  as they are antidilutive. The effects of Zero Coupon Convertible Notes
  are excluded in the computation of basic and diluted earnings per share
  for all periods presented, as the effect was antidilutive.


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

                                              Three months ended
                                    --------------------------------------
                                     March 31,   December 30,   April 1,
                                        2007         2006         2006
                                    ------------ ------------ ------------
                                    (unaudited)  (unaudited)  (unaudited)

GAAP net (loss) income              $     (4,383)$        937 $       (807)
Reconciling items:
  Amortization of intangibles (1)          2,667        2,666        2,813
  Stock-based compensation                 1,389        1,161          707
  Restructuring (2)                         (130)         (7)          119
                                    ------------ ------------ ------------
Non-GAAP net (loss) income          $       (457)$      4,757 $      2,832
                                    ============ ============ ============


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

                                              Three months ended
                                    --------------------------------------
                                     March 31,   December 30,   April 1,
                                        2007         2006         2006
                                    ------------ ------------ ------------
                                     (unaudited)  (unaudited)  (unaudited)
Basic and Diluted (4):
GAAP net (loss) income              $      (0.04)$       0.01 $      (0.01)
Reconciling items:
    Amortization of intangibles (1)         0.02         0.02         0.02
    Stock-based compensation                0.01         0.01         0.01
    Restructuring (2)                         --           --           --
                                    ------------ ------------ ------------
Non-GAAP net (loss) income          $      (0.00)$       0.04 $       0.02
                                    ============ ============ ============
Shares used in per share
 calculations:
  Basic                                  114,688      114,509      113,791
                                    ============ ============ ============
  Diluted (3)                            114,688      115,906      114,019
                                    ============ ============ ============

Notes:
  (1) Relates to intangible assets acquired through our acquisition of
  Cerdelinx Technologies, Inc. on August 26, 2002 and the acquisition of
  the FPGA business of Agere Systems, Inc. on January 18, 2002.

  (2) Represents costs incurred 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 and adjustments primarily relate to sublease
  income.

  (3) For the quarter ended March 31, 2007, the computation of diluted
  earnings excludes the effect of stock options, as they are antidilutive.
  For all other periods presented, the effects of stock options are included,
  as they are dilutive. The effects of Zero Coupon Convertible Notes are
  excluded in the computation of basic and diluted earnings per share, as
  the effect was antidilutive.

  (4) Per share amounts may differ due to rounding.



                    Lattice Semiconductor Corporation
                        Consolidated Balance Sheet
                              (in thousands)

                                                 March 31,    December 30,
                      Description                  2007           2006
                                              -------------- --------------
                                                (unaudited)

                         Assets
Current assets:
   Cash and short-term investments            $      169,656 $      233,208
   Accounts receivable, net                           28,659         22,545
   Inventories                                        40,311         38,816
   Other current assets                               37,071         35,474
                                              -------------- --------------
      Total current assets                           275,697        330,043

Property and equipment, net                           47,228         46,696
Foundry investments, advances and other
 assets                                              101,749        109,964
Goodwill and other intangible assets, net (1)        236,536        239,203
                                              -------------- --------------

                                              $      661,210 $      725,906
                                              ============== ==============

        Liabilities and Stockholders' Equity

Current liabilities:
   Accounts payable and other accrued
    liabilities                               $       44,212 $       85,016
   Deferred income and allowances on sales to
    distributors                                       7,548          6,230
   Other current liabilities                              --         20,480
                                              -------------- --------------
      Total current liabilities                       51,760        111,726

Zero Coupon Convertible Notes due in 2010             89,120         89,120
Other long-term liabilities                            5,639         15,488
                                              -------------- --------------
      Total liabilities                              146,519        216,334

Stockholders' equity                                 514,691        509,572
                                              -------------- --------------

                                              $      661,210 $      725,906
                                              ============== ==============

Note:
(1) At March 31, 2007, includes approximately $223.6 million in goodwill
and $13.0 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                       Q107       Q406       Q106
                                           --------   ---------  ---------
 Percent of Revenue (1):
    Gross Margin                               54.9%       56.5%      56.2%
    R&D Expense                                37.9%       32.8%      35.4%
    SG&A Expense                               25.1%       24.2%      23.8%
    Restructuring                              (0.2)%         -        0.2%


 Depreciation Expense ($000)                  3,383       3,292      2,956
 Net Capital Expenditures ($000)              3,915       2,730      2,754

Balance Sheet Information
 Current Ratio                                  5.3         3.0        5.7
 A/R Days Revenue Outstanding                    45          33         40
 Inventory Months                               4.6         4.3        3.9

Revenue % (by Product Family)
 FPGA                                            20%         19%        19%
 PLD                                             80%         81%        81%

Revenue % (by Product Classification)
 New                                              8%          7%         4%
 Mainstream                                      48%         52%        44%
 Mature                                          44%         41%        52%

Revenue % (by Geography)
 Americas                                        23%         22%        30%
 Europe (incl. Africa)                           22%         20%        27%
 Asia                                            55%         58%        43%

Revenue % (by End Market)
 Communications                                  45%         45%        50%
 Computing                                       11%         15%        18%
 Industrial & Other                              32%         27%        26%
 Consumer & Automotive                           12%         13%         6%

Revenue % (by Channel)
 Direct                                          62%         66%        60%
 Distribution                                    38%         34%        40%

                                           --------   ---------  ---------



New:        LatticeSC, LatticeECP2/M, LatticeECP, LatticeXP, MachXO, Power
            Manager, ispClock
Mainstream: FPSC, ispXPLD, ispGDX2, ispMACH 4/LV, ispGDX/V, ispMACH 4000/Z,
            ispXPGA, 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) Q106 amounts have been reclassified to be consistent with the current
period.

Contact Information

  • For more information contact:
    Jan Johannessen
    Chief Financial Officer
    Lattice Semiconductor Corporation
    (503) 268-8000