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Lattice Semiconductor Reports Second Quarter Financial Results

HILLSBORO, OR -- (MARKET WIRE) -- Jul 26, 2007 -- Lattice Semiconductor Corporation (NASDAQ: LSCC) today announced financial results for the second quarter ended June 30, 2007.

For the second quarter, revenue was $59.2 million, an increase of two percent from the $58.1 million reported in the prior quarter, and a decrease of six percent from the $62.7 million reported in the same quarter a year ago.

FPGA revenue for the second quarter was a record $13.5 million, up 14 percent from the $11.9 million reported in the prior quarter, and an increase of four percent from the $13.1 million reported in the same quarter a year ago. PLD revenue for the quarter was $45.7 million, a one percent decrease over the $46.3 million reported in the prior quarter, and a decrease of eight percent from the $49.7 million reported in the same quarter a year ago.

New product revenue for the second quarter was $6.5 million, up 35% from the $4.8 million reported in the prior quarter, and an increase of 85% from the $3.5 million reported in the same quarter a year ago.

Other income for the second quarter of 2007 was $4.3 million and included a $0.4 million gain related to the extinguishment of outstanding zero coupon convertible notes and a $1.6 million gain related to the sale of a land investment.

Net loss for the second quarter was $1.5 million ($0.01 per share), as compared to a net loss of $4.4 million ($0.04 per share) reported in the prior quarter, and net income of $2.1 million ($0.02 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 $4.0 million and $3.4 million for the second quarter of 2007 and 2006, respectively, and $3.9 million for the first quarter of 2007. Excluding these charges net income for the second quarter was $2.6 million as compared to a net loss of $0.5 million for the prior quarter, and net income of $5.5 million for the comparable quarter a year ago.

"We are very pleased by the strong growth in FPGA revenue and the accelerating demand we experienced for our New products in the second quarter. It is particularly rewarding to see that the historic customer design-ins we have won over the past few years are now increasingly moving into production," said Steve Skaggs, Lattice's President and Chief Executive Officer. "Industry conditions, particularly in the communications sector, continued to improve during the quarter, which, together with our increasingly competitive product portfolio, allow us to be optimistic regarding growth of our FPGA revenue."

Second Quarter Business Highlights:

    
--  Introduced the industry's first true 90nm non-volatile FPGA family,
    the LatticeXP2™, which compared to prior generation devices, doubles
    logic capacity to 40K Look-Up Tables (LUTs), improves performance 25%,
    reduces static power consumption by 33%, adds dedicated DSP blocks, and
    lowers the price per function by up to 50%. Designed using the industry's
    most advanced non-volatile FPGA technology, the LatticeXP2 devices provide
    "instant-on" logic functionality and a smaller device footprint, while also
    enhancing design security, RAM back-up and live field update capabilities;
--  Announced the immediate availability of an extensive intellectual
    property ("IP") core portfolio for the LatticeXP2 FPGA family, which will
    enable continued customer adoption of Lattice's industry leading non-
    volatile FPGAs;
--  Announced a new partnership with IP core provider PLD Applications to
    provide a full range of PCIe IP cores and related solutions to our mutual
    customer base. These solutions, targeting the emerging market for high-
    volume, low-cost bridging applications, support the groundbreaking
    LatticeECP2M™ family, the first low cost FPGA to offer SERDES and high
    capacity memory;
--  Delivered major performance and functional enhancements in version 7.0
    of Lattice's ispLEVER® FPGA design tool. This new tool suite delivers
    dramatically improved performance, significantly lower runtime and memory
    utilization as well as powerful new features, including major enhancements
    to our hardware debug and power calculator tools, along with support for
    the new LatticeXP2 FPGAs;
--  Announced industry-leading support for HyperTransport™ technology
    at rates up to 1.6 Gbps, using the LatticeSC™ high performance FPGA
    family. In addition, these advanced FPGA devices offer industry leading
    memory interface support operating at rates up to 667 Mbps for DDR2,
    750Mbps for QDRII+ and 800 Mbps for RLDRAM®II. Support of HyperTransport
    and high-speed memory interfaces are made possible through use of the
    innovative PURESPEED™ I/O technology in the LatticeSC™ family.
    
    

Business Outlook - September 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 flat;
--  Intangible asset amortization is expected to be approximately $2.5
    million; and
--  Other income is expected to be approximately $3.0 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 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 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) 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 July 26, 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 September 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.

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 - September 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), ispLEVER, ispXP2, LatticeECP2M, LatticeSC, 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. HyperTransport™ 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            Six months ended
                ----------------------------------  ----------------------
                 June 30,   March 31,    July 1,     June 30,    July 1,
  Description      2007        2007       2006        2007        2006
                ----------  ----------  ----------  ----------  ----------
                (unaudited)(unaudited) (unaudited) (unaudited) (unaudited)

Revenue         $   59,243  $   58,107  $   62,719  $  117,350  $  120,171

Costs and
 expenses (1):
  Cost of
   products
   sold             26,593      26,218      26,946      52,811      52,091
  Research and
   development      20,752      22,008      20,440      42,760      40,791
  Selling,
   general and
   administrative   14,785      14,566      14,594      29,351      28,283
  Amortization
   of intangible
   assets (2)        2,665       2,667       2,670       5,332       5,483
  Restructuring
   (3)                  27        (130)         97        (103)        216
                ==========  ==========  ==========  ==========  ==========

Total costs and
 expenses           64,822      65,329      64,747     130,151     126,864
                ==========  ==========  ==========  ==========  ==========
Loss from
 operations         (5,579)     (7,222)     (2,028)    (12,801)     (6,693)

Other income,
 net (4)             4,299       3,008       4,350       7,307       8,397
                ==========  ==========  ==========  ==========  ==========

(Loss) income
 before
 provision for
 income taxes       (1,280)     (4,214)      2,322      (5,494)      1,704

Provision for
 income taxes          181         169         256         350         445
                ==========  ==========  ==========  ==========  ==========

Net (loss)
 income         $   (1,461) $   (4,383) $    2,066  $   (5,844) $    1,259
                ==========  ==========  ==========  ==========  ==========

Basic net
 (loss) income
 per share      $    (0.01) $    (0.04) $     0.02  $    (0.05) $     0.01
                ==========  ==========  ==========  ==========  ==========

Diluted net
 (loss) income
 per share      $    (0.01) $    (0.04) $     0.02  $    (0.05) $     0.01
                ==========  ==========  ==========  ==========  ==========

Shares used in
 per share
 calculations:

Basic              114,827     114,688     114,165     114,758     113,960
                ==========  ==========  ==========  ==========  ==========

Diluted (5)        114,827     114,688     125,343     114,758     114,287
                ==========  ==========  ==========  ==========  ==========



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 six months ended July 1, 2006 have been reclassified
      to be consistent with the approach applied for the other periods
      presented.

  (2) Intangible assets subject to amortization aggregate $10.3 million,
      net, at June 30, 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) 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 June 30, 2007 and March 31, 2007 and the
      six months ended June 30, 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 six months ended July 1, 2006, the computation of diluted
      earnings per share excludes Convertible Notes, as they are
      antidilutive.



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

                              (in thousands)

                       Three months ended              Six months ended
                 ----------------------------------  ----------------------
                  June 30,   March 31,    July 1,     June 30,    July 1,
                    2007        2007       2006        2007        2006
                 ----------  ----------  ----------  ----------  ----------
                (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)


GAAP net (loss)
 income          $  (1,461)  $  (4,383)  $   2,066   $  (5,844)  $    1,259
Reconciling items:
   Amortization of
    intangibles(1)   2,665       2,667       2,670       5,332        5,483
   Stock-based
    compensation     1,325       1,389         638       2,714        1,345
   Restructuring
    (2)                 27        (130)         97        (103)         216
                ----------  ----------  ----------- ----------  -----------
Non-GAAP net
 income (loss)   $   2,556   $    (457)  $   5,471   $   2,099   $    8,303
                ==========  ==========  =========== ==========  ===========


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


                       Three months ended              Six months ended
                ----------------------------------  ----------------------
                 June 30,   March 31,    July 1,     June 30,    July 1,
                   2007        2007       2006        2007        2006
                ----------  ----------  ----------  ----------  ----------
                (unaudited)(unaudited) (unaudited) (unaudited) (unaudited)
Basic and
 Diluted (4):
GAAP net (loss)
 income         $    (0.01) $    (0.04) $      0.02 $    (0.05) $      0.01
Reconciling
 items:
   Amortization of
    Intangibles (1)   0.02        0.02         0.02       0.05         0.05
   Stock-based
    compensation      0.01        0.01         0.01       0.02         0.01
   Restructuring
   (2)                0.00       (0.00)        0.00      (0.00)        0.00
                ----------  ----------  ----------- ----------  -----------
Non-GAAP net
 income (loss)  $     0.02  $    (0.00) $      0.05 $     0.02  $      0.07
                ==========  ==========  =========== ==========  ===========
Shares used in
 per share
 calculations:
  Basic            114,827     114,688      114,165    114,758      113,960
                ==========  ==========  =========== ==========  ===========
  Diluted (3)      122,611     114,688      125,343    123,290      124,763
                ==========  ==========  =========== ==========  ===========


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, costs to vacate space under
      long-term lease arrangements and adjustments to sublease income.

  (3) For the three months ended March 31, 2007, the computation of diluted
      earnings excludes the effects of stock options, restricted stock
      units, warrants and Convertible Notes, as they are antidilutive.

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



                       Lattice Semiconductor Corporation

                          Consolidated Balance Sheet

                                (in thousands)


                                                     June 30,  December 30,
Description                                            2007        2006
                                                    ----------- -----------
                                                    (unaudited)

                          Assets
Current assets:
  Cash and short-term investments                   $   165,220 $   233,208
  Accounts receivable, net                               29,661      22,545
  Inventories                                            38,207      38,816
  Other current assets                                   34,553      35,474
                                                    ----------- -----------
   Total current assets                                 267,641     330,043

Property and equipment, net                              46,101      46,696
Foundry investments, advances and other assets          101,259     109,964
Goodwill and other intangible assets, net (1)           233,870     239,203
                                                    ----------- -----------

                                                    $   648,871 $   725,906
                                                    =========== ===========

           Liabilities and Stockholders' Equity

Current liabilities:
  Accounts payable and other accrued liabilities    $    37,741 $    82,843
  Deferred income and allowances on sales to
   distributors                                           7,290       6,230
  Other current liabilities                                  --      20,480
                                                    ----------- -----------
   Total current liabilities                             45,031     109,553

Zero Coupon Convertible Notes due in 2010 (2)            80,000      89,120
Other long-term liabilities                               5,814      15,488
                                                    ----------- -----------
   Total liabilities                                    130,845     214,161

Stockholders' equity                                    518,026     511,745
                                                    ----------- -----------

                                                    $   648,871 $   725,906
                                                    =========== ===========


Notes:

  (1) At June 30, 2007, includes approximately $223.6 million in goodwill
      and $10.3 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.

  (2) Effective July 1, 2007, the Convertible Notes will be 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.



                   Lattice Semiconductor Corporation

            - Supplemental Historic Financial Information -


Operations Information                           Q207      Q107      Q206
                                               -------   -------   -------
Percent of Revenue (1):
Gross Margin                                      55.1%     54.9%     57.0%
R&D Expense                                       35.0%     37.9%     32.6%
SG&A Expense                                      25.0%     25.1%     23.3%


Depreciation Expense ($000)                      3,396     3,383     3,028
Capital Expenditures ($000)                      2,914     3,915     5,461

Balance Sheet Information
Current Ratio                                      5.9       4.7       5.7
A/R Days Revenue Outstanding                        46        45        48
Inventory Months                                   4.3       4.6       4.0

Revenue% (by Product Family)
FPGA                                                23%       20%       21%
PLD                                                 77%       80%       79%

Revenue% (by Product Classification)
New                                                 11%        8%        5%
Mainstream                                          50%       48%       46%
Mature                                              39%       44%       49%

Revenue% (by Geography)
Americas                                            24%       23%       30%
Europe (incl. Africa)                               18%       22%       24%
Asia                                                58%       55%       46%

Revenue% (by End Market)
Communications                                      52%       45%       51%
Industrial & Other                                  24%       32%       23%
Consumer & Automotive                               13%       12%        9%
Computing                                           11%       11%       17%

Revenue% (by Channel)
Direct                                              64%       62%       58%
Distribution                                        36%       38%       42%



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) Q206 amounts have been reclassified to be consistent with the
      current period.



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