SOURCE: Lattice Semiconductor Corporation

April 24, 2008 16:15 ET

Lattice Semiconductor Reports First Quarter Financial Results

Quarterly Revenue Up Seven Percent Sequentially; Quarterly New Product Revenue Up 20 Percent Sequentially

HILLSBORO, OR--(Marketwire - April 24, 2008) - Lattice Semiconductor Corporation (NASDAQ: LSCC) today announced financial results for the first quarter ended March 29, 2008.

For the first quarter, revenue was $56.6 million, an increase of seven percent from the $53.1 million reported in the prior quarter, and a decrease of three percent from the $58.1 million reported in the same quarter a year ago.

FPGA revenue for the first quarter was $13.7 million, up five percent from the $13.0 million reported in the prior quarter, and up 16 percent from the $11.9 million reported in the same quarter a year ago. PLD revenue for the quarter was $42.9 million, an increase of seven percent over the prior quarter PLD revenue of $40.1 million, and a seven percent decrease from the $46.3 million reported in the same quarter a year ago.

New product revenue for the first quarter was $11.2 million, up 20 percent from the $9.3 million reported in the prior quarter, and up 133 percent from the $4.8 million reported in the same quarter a year ago.

Net loss for the first quarter was $3.3 million ($0.03 per share), as compared to a prior quarter net loss of $229.5 million ($1.99 per share), and a net loss of $4.4 million ($0.04 per share) reported in the same quarter a year ago. These results include non-cash amortization charges, stock-based compensation expense and restructuring charges, which total $4.6 million and $3.9 million for the first quarter of 2008 and 2007, respectively, and $4.2 million for the fourth quarter of 2007. Also included in the net loss for the fourth quarter of 2007 is a non-cash impairment charge of $223.6 million related to the write-off of goodwill. Excluding these charges, non-GAAP net income for the first quarter was $1.4 million as compared to non-GAAP net loss of $1.7 million for the fourth quarter of 2007 and a non-GAAP net loss of $0.5 million for the same quarter a year ago. The Company believes exclusion of these charges more closely approximates its ongoing operational performance.

In the first quarter, the Company also recorded an unrealized loss of $7.9 million related to a decline in fair value of our auction rate securities that continue to experience unsuccessful auctions. The Company recorded this adjustment to accumulated other comprehensive loss because we consider the declines in fair value to be temporary.

"Last quarter was positive for Lattice on a number of dimensions," stated Steve Skaggs, President and CEO. "We resumed sequential quarterly revenue growth powered by 20 percent sequential growth in our New products which remain on track to achieve our stated goal of doubling during 2008. In addition, we improved gross margin and reduced operating expenses. The combination of these results allowed us to drive a significant enhancement to the bottom line and return to profitability on a non-GAAP basis."

First Quarter Business Highlights:

--  Lattice announced that the LatticeXP2™ FPGA family has been fully
    qualified and released to volume production.  Designed using the industry's
    most advanced non-volatile FPGA technology, a 90-nanometer embedded Flash
    process manufactured on 300mm wafers, LatticeXP2 devices provide customers
    the instant-on functionality and reduced footprint benefits of earlier
    Lattice non-volatile devices, while also enhancing design security, RAM
    back-up and live update capabilities. The volume production release of this
    family comes approximately two years after the production release of the
    original 130-nanometer LatticeXP™ family.  This rapid transition between
    technology generations demonstrates Lattice's ongoing commitment to
    leadership in the non-volatile FPGA segment.
    
--  Lattice and Synplicity, Inc., a leading supplier of  IC design and
    verification solutions, announced that Synplicity will become Lattice's
    exclusive OEM synthesis partner.  As part of this new agreement, Lattice
    will enhance its OEM synthesis offering in the ispLEVER® design tool
    suite to include the industry-leading Synplify Pro logic synthesis software
    for higher-level designs.
    
--  Lattice and Aldec, Incorporated, a leading provider of EDA
    verification products, announced a new agreement that will deliver their
    mutual customers the only OEM version of a mixed language simulator for
    FPGA design.  Active-HDL Lattice Edition will be bundled with Lattice's
    ispLEVER® design tool suite, providing mixed language simulation (VHDL,
    Verilog and SystemVerilog), co-simulation with Simulink® from The
    MathWorks™ and simulation support for Lattice encrypted IP Cores.
    
--  Lattice announced that Praesum Communications, a switching and
    bridging solutions provider, has optimized its high-performance Serial
    RapidIO® Interface Endpoint solution for the low-cost LatticeECP2M™
    family featuring embedded SERDES I/O.  Lattice and Praesum plan to develop
    system solutions targeting digital signal processing, embedded computing,
    military/aerospace and communications infrastructure.
    
--  Lattice announced the successful interoperation of its LatticeECP2M
    FPGA family with Linear Technology's 16-bit, 105Msps, high-speed ADC
    (Analog to Digital Converter) in support of the JESD204 high-speed serial
    specification.  This interoperation enables a lower cost, lower power and
    smaller footprint solution for the interface between data converters and
    FPGA devices.  This is particularly important for cost sensitive, high
    volume applications such as wireless base stations.
    
--  Lattice expanded its commitment to open source embedded system design
    by releasing an implementation of the uClinux Operating System (OS)
    targeted for the LatticeMico32™ embedded soft core processor.  The new
    OS support allows developers to rapidly implement control systems in a
    design flow that builds on Lattice's open source embedded solutions
    approach.
    
--  Lattice announced that automotive versions of its second generation
    mixed-signal Power Manager II product family now meet the certification
    requirements of the AEC-Q100 standard as defined by the Automotive
    Electronics Council (AEC) and have been added to its growing automotive
    product portfolio. The Power Manager II family provides a complete power
    management solution for a printed circuit board (PCB) through an optimized
    set of programmable digital and analog functions.
    

Business Outlook - June 2008 Quarter:

--  Revenue is expected to grow 1 percent to 4 percent on a sequential
    basis;
--  Gross margin percentage is expected to be approximately 55.5% to 56.0%
    of revenue;
--  Total operating expenses are expected to be approximately $33 million
    (excludes potential one-time charge related to the employment of a new
    Chief Executive Officer);
--  The Company expects to incur a charge of approximately $0.9 million
    (including a non-cash charge of approximately $0.3 million) in connection
    with the previously announced 2007 Restructuring Plan;
--  Intangible asset amortization is expected to be approximately $1.4
    million; and
--  Other income is expected to be approximately $1.3 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 (loss). 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 (loss) excludes impairment charges, amortization of intangible assets, stock-based compensation and restructuring charges. Impairment charges relate to the write-off of Goodwill which was acquired through acquisitions and was determined in the fourth quarter of 2007 to have no implied fair value. 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 and purchases under the employee stock purchase plan. Restructuring charges consist of expenses and subsequent adjustments incurred under corporate restructuring plans that were initiated in the fourth quarter of 2005 and in the third quarter of 2007, and include items such as severance costs, costs to vacate space under long-term lease arrangements, and other related expenses.

Non-GAAP net income (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 statement of operations contained in this earnings release.

Conference Call and Business Update:

On April 24, 2008, 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 June 12, 2008, 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 - June 2008 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. Restructuring charges are estimates that are subject to change. Other income may vary due to changes in investment returns. Assets held for investment purposes are subject to credit risk and may become impaired on an other than temporary basis.

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, LatticeECP2M, LatticeSCM, LatticeXP, LatticeXP2, LatticeMico32 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
                                        ----------------------------------
                                        March 29,    December   March 31,
                                           2008      29, 2007      2007
                                        ----------  ----------  ----------
                                       (unaudited)  (unaudited) (unaudited)
Revenue                                 $   56,604  $   53,055  $   58,107

Costs and expenses:
   Cost of products sold                    25,160      23,641      26,218
   Research and development                 17,668      20,051      22,008
   Selling, general and administrative      14,999      14,080      14,566
   Goodwill impairment  (1)                     --     223,556          --
   Amortization of intangible assets
    (2)                                      1,481       2,042       2,667
   Restructuring (3)                         1,790         757        (130)
                                        ----------  ----------  ----------

Total costs and expenses                    61,098     284,127      65,329
                                        ----------  ----------  ----------
Loss from operations                        (4,494)   (231,072)     (7,222)

Other income, net                            1,333       1,682       3,008
                                        ----------  ----------  ----------
Loss before provision for income taxes      (3,161)   (229,390)     (4,214)

Provision for income taxes                      93         135         169
                                        ----------  ----------  ----------

Net loss                                $   (3,254) $ (229,525) $   (4,383)
                                        ==========  ==========  ==========

Basic net loss per share                $    (0.03) $    (1.99) $    (0.04)
                                        ==========  ==========  ==========

Diluted net loss per share              $    (0.03) $    (1.99) $    (0.04)
                                        ==========  ==========  ==========

Shares used in per share calculations:
Basic                                      115,146     115,121     114,688
                                        ==========  ==========  ==========

Diluted (4)                                115,146     115,121     114,688
                                        ==========  ==========  ==========

Notes:
(1) At December 29, 2007, the Company performed an impairment test on
    Goodwill in accordance with SFAS No. 142, "Goodwill and Other
    Intangible Assets."  As a result, goodwill related to the acquisition
    of Vantis Corporation on June 15, 1999, the acquisition of Integrated
    Intellectual Properties, Inc. on March 16, 2001, and the acquisition of
    the FPGA business of Agere Systems, Inc. on January 18, 2002, was
    determined to have no implied fair value and the entire balance of
    $223.6 million was recorded as a Goodwill impairment charge.
(2) Intangible assets subject to amortization aggregate $4.3 million, net,
    at March 29, 2008 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 2007. Amortization charges are expected to be
    eliminated after the first quarter of 2009.
(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 first quarter of fiscal 2008, the
    Company incurred costs of $1.8 million, of which $1.3 million primarily
    related to costs to vacate leased space and $0.5 million in severance
    costs related to the resignation of the President and Chief Executive
    Officer announced on February 1, 2008. During the fourth quarter of
    2007, the Company incurred a charge of $0.8 million primarily related
    to severance costs.
(4) For the three months ended March 29, 2008, December 29, 2007 and March
    31, 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.






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

                              (in thousands)


                                                Three months ended
                                        ----------------------------------
                                         March 29, December 29,  March 31,
                                           2008        2007        2007
                                        ----------  ----------  ----------
                                        (unaudited) (unaudited) (unaudited)

GAAP net loss                           $   (3,254) $ (229,525) $   (4,383)
Reconciling items:
      Goodwill impairment  (1)                  --     223,556          --
      Amortization of intangibles (2)        1,481       2,042       2,667
      Stock-based compensation               1,368       1,434       1,389
      Restructuring (3)                      1,790         757        (130)
                                        ----------  ----------  ----------
Non-GAAP net income (loss)              $    1,385  $   (1,736) $     (457)
                                        ==========  ==========  ==========




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


                                                Three months ended
                                        ----------------------------------
                                         March 29, December 29,  March 31,
                                           2008        2007        2007
                                        ----------  ----------  ----------
                                        (unaudited) (unaudited) (unaudited)
Basic and Diluted (5):
GAAP net loss                           $    (0.03) $    (1.99) $    (0.04)
Reconciling items:
      Goodwill impairment  (1)                  --        1.94          --
      Amortization of intangibles (2)         0.01        0.02        0.02
      Stock-based compensation                0.01        0.01        0.01
      Restructuring (3)                       0.02        0.01          --
                                        ----------  ----------  ----------
Non-GAAP net income (loss)              $     0.01  $    (0.02) $     0.00
                                        ==========  ==========  ==========
Shares used in per share calculations:
    Basic                                  115,146     115,121     114,688
                                        ==========  ==========  ==========
    Diluted (4)                            119,227     115,121     114,688
                                        ==========  ==========  ==========

Notes:
(1) At December 29, 2007, the Company performed an impairment test on
    Goodwill in accordance with SFAS No. 142, "Goodwill and Other
    Intangible Assets."  As a result, goodwill related to the acquisition
    of Vantis Corporation on June 15, 1999, the acquisition of Integrated
    Intellectual Properties, Inc. on March 16, 2001, and the acquisition of
    the FPGA business of Agere Systems, Inc. on January 18, 2002, was
    determined to have no implied fair value and the entire balance of
    $223.6 million was recorded as a Goodwill impairment charge.
(2) Intangible assets subject to amortization aggregate $4.3 million, net,
    at March 29, 2008 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 2007. Amortization charges are expected to be
    eliminated after the first quarter of 2009.
(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 first quarter of fiscal 2008, the
    Company incurred costs of $1.8 million, of which $1.3 million primarily
    related to costs to vacate leased space and $0.5 million in severance
    costs related to the resignation of the President and Chief Executive
    Officer announced on February 1, 2008. During the fourth quarter of
    2007, the Company incurred a charge of $0.8 million primarily related
    to severance costs.
(4) For the three months ended March 29, 2008, the computation of diluted
    earnings per share includes the effects of stock options, restricted
    stock units, warrants and Convertible Notes, as they are dilutive. For
    the three months ended December 29, 2007 and March 31, 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.
(5) Per share amounts may not add up due to rounding.





                    Lattice Semiconductor Corporation
                        Consolidated Balance Sheet
                              (in thousands)


                                                    March 29,  December 29,
                                                      2008         2007
                                                  ------------ ------------
                                                  (unaudited)
                      Assets
Current assets:
   Cash, cash equivalents and short-term
    marketable securities (1)                     $     87,738 $     85,063
   Accounts receivable, net                             28,916       29,293
   Inventories                                          39,252       40,005
   Other current assets                                 38,737       37,185
                                                  ------------ ------------
      Total current assets                             194,643      191,546

Property and equipment, net                             43,575       43,617
Long-term marketable securities  (1)                    36,971       44,900
Foundry advances, investments and other assets          80,018       90,407
Intangible assets, net (2)                               4,334        5,815
                                                  ------------ ------------

                                                  $    359,541 $    376,285
                                                  ============ ============

      Liabilities and Stockholders' Equity

Current liabilities:
   Accounts payable and other accrued liabilities $     28,426 $     32,978
   Deferred income and allowances on sales to
    distributors                                         7,114        8,033
   Zero Coupon Convertible Notes due in 2010            40,000       40,000
                                                  ------------ ------------
      Total current liabilities                         75,540       81,011

Other long-term liabilities                              7,358        9,042
                                                  ------------ ------------
      Total liabilities                                 82,898       90,053

Stockholders' equity (1)                               276,643      286,232
                                                  ------------ ------------

                                                  $    359,541 $    376,285
                                                  ============ ============

Notes:
(1) Long-term marketable securities include auction rate securities that
    were reclassified from Cash, cash equivalents and short-term marketable
    securities because recent auctions have been unsuccessful, and as a
    result, such securities are presently considered to be illiquid.  The
    Company has the intent and ability to hold these investments until the
    resumption of orderly auctions.  As a result of temporary declines in
    fair value for the securities, we recorded an unrealized loss of $7.9
    million to accumulated other comprehensive loss.
(2) At December 29, 2007, the Company performed an impairment test on
    Goodwill. As a result, Goodwill related to the acquisition of Vantis
    Corporation on June 15, 1999, the acquisition of Integrated
    Intellectual Properties, Inc. on March 16, 2001, and the acquisition of
    the FPGA business of Agere Systems, Inc. on January 18, 2002, was
    determined to have no implied fair value and the entire balance of
    $223.6 million was recorded as a Goodwill impairment charge. As a
    result, we no longer have Goodwill recorded on our Consolidated Balance
    Sheet.





                    Lattice Semiconductor Corporation
              - Supplemental Historic Financial Information -



OperationsInformation                        Q108       Q407       Q107
                                           ---------  ---------  ---------
Percent of Revenue:
Gross Margin                                    55.6%      55.4%      54.9%
R&D Expense                                     31.2%      37.8%      37.9%
SG&A Expense                                    26.5%      26.5%      25.1%


Depreciation Expense ($000)                    3,249      3,295      3,383
Capital Expenditures ($000)                    3,207      2,099      3,915

Balance Sheet Information
Current Ratio                                    2.6        2.4        4.7
A/R Days Revenue Outstanding                      47         50         45
Inventory Months                                 4.7        5.1        4.6

Revenue% (by Product Family)
FPGA                                              24%        25%        20%
PLD                                               76%        75%        80%

Revenue% (by Product Classification)
New                                               20%        18%         8%
Mainstream                                        48%        49%        48%
Mature                                            32%        33%        44%

Revenue% (by Geography)
Americas                                          22%        21%        23%
Europe (incl. Africa)                             22%        20%        22%
Asia                                              56%        59%        55%

Revenue% (by End Market)
Communications                                    54%        54%        45%
Industrial & Other                                24%        24%        32%
Consumer & Automotive                             10%        11%        12%
Computing                                         12%        11%        11%

Revenue% (by Channel)
Direct                                            63%        66%        62%
Distribution                                      37%        34%        38%

New:        LatticeXP2, LatticeSC, LatticeECP2M, 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