Lattice Semiconductor Reports First Quarter Results
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Lattice Semiconductor Reports First Quarter Results

HILLSBORO, OR -- (MARKET WIRE) -- Apr 25, 2006 -- Lattice Semiconductor Corporation (NASDAQ: LSCC) today announced financial results for the first quarter ended March 2006.

For the first quarter, revenue was $57.5 million, an increase of 12 percent from the $51.3 million reported in the same quarter a year ago and an increase of six percent from the $54.0 million reported last quarter. Quarterly revenue from PLD products was $46.7 million, or 81 percent of total revenue, and increased six percent sequentially. Quarterly revenue from FPGA products was $10.8 million, or 19 percent of total revenue, and increased nine percent sequentially.

Other income for the first quarter was $3.8 million and included a $1.2 million gain related to the extinguishment of outstanding zero coupon convertible notes.

Net loss for the first quarter was $0.8 million ($0.01 per share), a significant improvement compared to a net loss of $10.9 million ($0.10 per share) in the same quarter a year ago and a net loss of $23.0 million ($0.20 per share) in the previous quarter. The first quarter loss includes charges of $2.8 million for the amortization of intangible assets (currently expected to be substantially eliminated in 2008) and $0.7 million for stock-based compensation expense. Excluding these charges, the Company posted net income for the first quarter of $2.7 million, or $0.02 per share. The Company believes exclusion of these charges more closely approximates its ongoing operational performance.

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

"It is gratifying to see that our efforts are starting to show results and we are very pleased that we have returned to profitability on a pro-forma basis. Our significantly improved financial results are due to a combination of strong revenue growth, a rebounding gross margin, and realization of the forecasted operating expense reductions from last quarter's corporate restructuring," said Steve Skaggs, President and Chief Executive Officer of Lattice Semiconductor Corporation. "The positive worldwide customer reception of our 130nm FPGA products combined with the recent introduction of our exciting 90nm FPGA families cause us to be optimistic about our future prospects," added Mr. Skaggs.

First Quarter Business Highlights:

--  Introduced the LatticeSC System Chip FPGA family of high-density
    devices designed to provide unsurpassed performance and connectivity
    featuring high-speed I/O, world-class SERDES transceivers, embedded ASIC
    blocks, and fabricated on leading edge 90nm CMOS technology utilizing 300mm
    wafers;
    
--  Introduced the LatticeECP2 FPGA family of second generation, low-cost
    devices featuring increased logic densities up to 70K LUTs, enhanced DSP
    capabilities and  increased I/O performance. Capabilities added for the
    first time to this class of devices include pre-engineered 400Mbps DDR2
    interface support, configuration bitstream encryption and dual-boot
    configuration support. This family is also fabricated on leading edge 90nm
    CMOS technology utilizing 300mm wafers;
    
--  Expanded the mixed signal Power Manager II family with programmable
    power management solutions for high-volume applications. These new low-cost
    devices integrate power supervisors, sequencers and reset generators, and
    are ideally suited for cost or size-sensitive applications;
    
--  Added Rochester Electronics as a value added distributor for
    discontinued products;
    
--  Reached agreement, in principle, to settle the consolidated class
    action litigation filed in 2004. The Company expects the entire amount of
    the settlement to be paid by its insurer.  The settlement amount will not
    affect Lattice's current or future financial results.
    
Business Outlook -- June 2006 Quarter:
--  Sequential quarterly revenue growth is expected to be approximately 3%-
    6%;
--  Gross margin percentage is expected to be approximately 56%;
--  Total operating expenses are expected to be approximately $34-$35
    million, which includes an estimated $1 million of stock-based compensation
    expense (inclusion of stock-based compensation in operating expenses adds
    significant uncertainty to our estimates of expenses due to the effect of
    the volatility in our stock price, which we cannot predict);
--  Intangible asset amortization is expected to be approximately $2.7
    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 (loss), which we refer to as non-GAAP net income (loss). This measure is generally based on the revenues of our products and the costs of those operations, such as cost of revenue, research and development, sales and marketing and general and administrative expenses, that management considers in evaluating our ongoing core operating performance. Non-GAAP net income (loss) consists of net loss excluding 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 granted to employees, purchases under the employee stock purchase plan and deferred stock compensation issued in connection with acquisitions (prior quarters have been reclassified to be consistent with the current quarter presentation). Restructuring charges consist of expenses incurred under our corporate restructuring plan, and include items such as separation packages, costs to vacate space under long-term lease arrangements, cost to write-off an intellectual property license and other related expenses.

Non-GAAP net 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 statements of operations contained in this earnings release.

On April 26, 2006, Lattice will hold a telephone conference call at 5:30 am (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, 2006, we plan to publish a "Business Update Statement" on our website. Our financial guidance will be limited to the comments on our public quarterly earnings call and these public business outlook statements. Additionally, during the June 2006 quarter, Lattice plans to participate in an investor conference sponsored by JP Morgan. Specific presentation dates and times are posted on our website at www.lscc.com.

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

Estimates of future revenue are inherently uncertain due to the high percentage of quarterly "turns" business. In addition, revenue is affected by such factors as pricing pressures, competitive actions, the demand for our products, and the ability to supply products to customers in a timely manner. Actual gross margin percentage and operating expenses could vary from the estimates contained herein on the basis of, among other things, changes in revenue levels, product pricing, changes in wafer, assembly and test costs, 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 Securities and Exchange Commission's informal inquiry and any resulting actions, our ability to successfully conclude the settlement of our pending securities class action litigation, the Company's dependencies on its silicon wafer suppliers, technological and product development risks, and the other risks that are described from time to time in our filings with the Securities and Exchange Commission. The Company does not intend to update or revise any forward-looking statements, whether as a result of events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

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

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

Lattice Semiconductor Corporation, Lattice (& design), L (& design), and product family 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              Mar. 31,    Dec. 31,   Mar. 31,
                                            2006        2005       2005

                                         ---------   ---------   ---------
                                        (unaudited) (unaudited) (unaudited)

Revenue                                  $  57,452   $  53,991   $  51,283

Costs and expenses:
   Costs of products sold                   25,297      27,494      22,171
   Research and development (2)             21,121      23,836      25,171
   Selling, general and administrative      12,616      13,217      14,333
   Amortization of intangible assets (1)     2,813       3,531       3,802
   Restructuring costs                           -      11,936           -
                                         ---------   ---------   ---------

       Total costs and expenses             61,847      80,014      65,477
                                         ---------   ---------   ---------
Loss from operations                        (4,395)    (26,023)    (14,194)

Other income, net                            3,777       2,829       3,409
                                         ---------   ---------   ---------
Loss before provision (benefit) for
 income taxes                                 (618)    (23,194)    (10,785)

Provision (benefit) for income taxes           189        (204)        100
                                         ---------   ---------   ---------

Net loss                                ($     807) ($  22,990) ($  10,885)
                                         =========   =========   =========

Basic net loss per share                ($    0.01) ($    0.20) ($    0.10)
                                         =========   =========   =========

Diluted net loss per share              ($    0.01) ($    0.20) ($    0.10)
                                         =========   =========   =========

Shares used in per share calculations:
       Basic                               113,791     113,619     113,460
                                         =========   =========   =========
       Diluted (3)                         113,791     113,619     113,460
                                         =========   =========   =========

Notes:

(1) Intangible assets subject to amortization aggregate $23.6 million, net,
    at March 31, 2006 and relate to the acquisition of Cerdelinx
    Technologies, Inc. on August 26, 2002, the acquisition of the FPGA
    business of Agere Systems, Inc. on January 18, 2002 and the acquisition
    of Integrated Intellectual Property Inc. on March 16, 2001. These
    intangible assets are amortized to expense generally over three to
    seven years on a straight-line basis.

(2) With the adoption of SFAS No. 123(R); effective January 1, 2006,
    deferred stock compensation expense attributable to research
    and development activities previously recorded to Amortization of
    intangible assets has been reclassified to Research and development
    expense.  Includes $0.0 million, $0.2 million and $0.6 million of
    deferred stock compensation expense for the quarters ended
    March 31, 2006, December 31, 2005, March 31, 2005, respectively.

(3) For all periods presented, the computation of diluted net loss per
    share excludes the effect of stock options and Zero Coupon Notes as
    they are antidilutive.  The effects of Zero Coupon Convertible Notes
    are excluded in the computation of basic and diluted earnings per
    share as the contingent conversion features were not triggered for
    all periods.


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

                                                 Three months ended
                                         ---------------------------------
                                          Mar. 31,    Dec. 31,   Mar. 31,
                                            2006        2005       2005
                                         ---------   ---------   ---------

GAAP net loss                           ($     807) ($  22,990) ($  10,885)
Reconciling items:
  Amortization of intangibles (1)            2,813       3,531       3,802
  Stock-based compensation (2)                 707         183         614
  Restructuring charges (3)                      -      11,936           -
                                         ---------   ---------   ---------
Non-GAAP net income (loss)               $   2,713  ($   7,340) ($   6,469)
                                         =========   =========   =========




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

                                                 Three months ended
                                         ---------------------------------
                                          Mar. 31,    Dec. 31,   Mar. 31,
                                            2006        2005       2005
                                         ---------   ---------   ---------
Basic and Diluted:
GAAP net loss per share                 ($    0.01) ($    0.20) ($    0.10)
Reconciling items:
  Amortization of intangibles (1)             0.02        0.03        0.03
  Stock-based compensation (2)                0.01           -        0.01
  Restructuring charges (3)                      -        0.11           -
                                         ---------   ---------   ---------
Non-GAAP net income (loss) per share     $    0.02  ($    0.06) ($    0.06)
                                         =========   =========   =========
Shares used in per share calculations:
  Basic                                    113,791     113,619     113,460
                                         =========   =========   =========
  Diluted (4)                              114,019     113,619     113,460
                                         =========   =========   =========

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

(2)  With the adoption of SFAS No. 123(R); effective January 1, 2006,
     deferred stock compensation expense attributable to research and
     development activities previously recorded to Amortization of
     intangible assets has been reclassified to Research and development
     expense.  Includes $0.0 million, $0.2 million and $0.6 million of
     deferred stock compensation expense for the quarters ended
     March 31, 2006, December 31, 2005 and March 31, 2005, respectively.

(3)  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. Also includes $2.7 million
     related to the write-off of an intellectual property license.

(4)  For the three months ended March 31, 2006 the computation of diluted
     non-GAAP earnings includes the effects of stock options as they are
     dilutive. The effects of the Zero Coupon Convertible Notes are
     excluded in the computation as the contingent conversion features
     were not triggered for all periods.



                    Lattice Semiconductor Corporation
                       Consolidated Balance Sheet
                             (in thousands)

                                                    Mar. 31,    Dec. 31,
                   Description                        2006        2005
                                                   ----------  ----------
                                                   (unaudited)

                     Assets
Current assets:
  Cash and short-term investments                  $  250,705  $  264,192
  Accounts receivable, net                             25,393      23,577
  Inventories                                          32,148      28,581
  Other current assets                                 24,720      24,614
                                                   ----------  ----------
     Total current assets                             332,966     340,964

Property and equipment, net                            45,248      45,450
Foundry investments, advances and other assets         79,528      79,432
Goodwill and other intangible assets, net (1)         247,201     250,011
                                                   ----------  ----------
                                                   $  704,943  $  715,857
                                                   ==========  ==========

       Liabilities and Stockholders' Equity

Current liabilities:
  Accounts payable and other accrued liabilities   $   52,426  $   53,438
  Deferred income and allowances on sales to
   distributors                                         7,684      10,449
                                                   ----------  ----------
     Total current liabilities                         60,110      63,887

Zero Coupon Convertible notes due in 2010             123,500     133,500
Other long-term liabilities                            20,308      20,386
                                                   ----------  ----------
Total liabilities                                     203,918     217,773

Stockholders' equity                                  501,025     498,084
                                                   ----------  ----------
                                                   $  704,943  $  715,857
                                                   ==========  ==========
Note:

(1) At March 31, 2006, includes approximately $223.6 million in goodwill
    and $23.6 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                           Q106      Q405      Q105
                                                 -----     -----     -----
  Percent of Revenue:

                             Gross Margin         56.0%     49.1%     56.8%

                              R&D Expense         36.8%     44.1%     49.1%

                             SG&A Expense         22.0%     24.5%     27.9%

                    Restructuring Expense          0.0%     22.1%        -


  Depreciation Expense ($000)                    2,956     3,047     3,764
  Capital Expenditures ($000)                    2,754     3,327     1,886

Balance Sheet Information
  Current Ratio                                    5.5       5.3       7.4
  A/R Days Revenue Outstanding                      40        40        44
  Inventory Months                                 3.8       3.2       4.9

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

Revenue % (by Product Classification*)
  New                                               10%        9%        -
  Mainstream                                        50%       53%        -
  Mature                                            40%       38%        -

Revenue % (by Geography)
  Americas                                          30%       28%       30%
  Europe (incl. Africa)                             27%       23%       25%
  Asia (incl. ROW)                                  43%       49%       45%

Revenue % (by End Market)
  Communications                                    50%       49%       53%
  Computing                                         18%       18%       19%
  Other                                             32%       33%       28%

Revenue % (by Channel)
  Direct                                            60%       65%       59%
  Distribution                                      40%       35%       41%

* Product Classification:

    New: LatticeEC/ECP,  LatticeXP, MachXO,  FPSC, ispXPLD, ispGDX2, Power
         Manager, ispCLK

    Mainstream: ispMACH 4000/Z, ispXPGA, ispGDX/V, ispMACH 4/LV, ispLSI
                2000V, ispLSI 5000V, ispMACH 5000VG, and Other

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

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