For the third quarter, revenue was $58.3 million, a decrease of two percent from the $59.2 million reported in the prior quarter, and a decrease of eight percent from the $63.5 million reported in the same quarter a year ago.
FPGA revenue for the third quarter was a record $13.6 million, up slightly from the $13.5 million reported in the prior quarter, and an increase of two percent from the $13.3 million reported in the same quarter a year ago. PLD revenue for the quarter was $44.7 million, a two percent decrease over the $45.7 million reported in the prior quarter, and a decrease of 11 percent from the $50.2 million reported in the same quarter a year ago.
New product revenue for the third quarter was $8.3 million, up 28% from the $6.5 million reported in the prior quarter, and an increase of 73% from the $4.8 million reported in the same quarter a year ago.
Other income for the third quarter of 2007 was $3.6 million and included a $1.7 million gain related to the extinguishment of outstanding zero coupon convertible notes.
Net loss for the third quarter was $4.4 million ($0.04 per share), as compared to a net loss of $1.5 million ($0.01 per share) reported in the prior quarter, and net income of $0.9 million ($0.01 per share) in the same quarter a year ago. These results include non-cash amortization charges, stock based compensation expense and restructuring charges, which total $5.5 million and $3.9 million for the third quarter of 2007 and 2006, respectively, and $4.0 million for the second quarter of 2007. Excluding these charges net income for the third quarter was $1.1 million as compared to a net income of $2.6 million for the prior quarter, and net income of $4.8 million for the comparable quarter a year ago.
"We are pleased by the strong growth we experienced for our New products in the third quarter. Unfortunately, this continued growth was more than offset by a substantial decline in our Mature products. This decline negatively impacted both revenue and gross margin for the quarter," said Steve Skaggs, Lattice's President and Chief Executive Officer. "Looking forward, we anticipate continued growth in New products and believe that as older products become an increasingly smaller percentage of total revenue overall revenue growth will resume and increasingly benefit the Company throughout 2008. Nonetheless, as our current financial results are below expectations, we will continue to seek opportunities to minimize operating expenses in the short-term."
Third Quarter Business Highlights:
-- During the quarter, Lattice released all members of the 90 nanometer
LatticeECP2M™ family of low cost, high performance FPGAs to volume
production. By combining a low cost FPGA architecture with high-end FPGA
features like 3.125 Gbps SERDES (SERializer/DESerializer) I/O and high
memory capacity, the LatticeECP2M family is bringing new levels of
performance to value-conscious electronic system designs.
-- Released a new XAUI to SPI4.2 intellectual property ("IP") core
optimized for the LatticeSC™ Extreme Performance FPGA family. This core
provides critical bus bridging functions needed to interface 10 Gb Ethernet-
based networks and leading-edge network processor and traffic management
devices. The LatticeSC family's pre-engineered, on-chip SPI4.2 controller,
memory controller and Media Access Controller ("MAC") blocks complete these
solutions to provide exceptional integration, performance and power savings
benefits for Lattice's customers developing network equipment.
-- Announced membership in the HyperTransport™ Consortium to help
promote the use of HyperTransport interface technology. The LatticeSC
family's exceptionally fast 2.0 Gbps PURESPEED™ I/O provides unique
performance in support of the HyperTransport 2.0 specification.
-- Announced collaboration with Silicon Laboratories to provide SONET/SDH
standard-compliant solutions through a combination of LatticeSC FPGAs and
Silicon Labs' multi-rate clock and data recovery (CDR) devices and Any-Rate
precision clock devices.
-- Released Version 7.0 Service Pack 1 of Lattice's ispLEVER® FPGA
design tools providing significant customer upgrades to support high
density FPGA design, including general release of the Reveal™ logic
analysis / hardware debug tool that provides best-in-class design analysis
and an enhanced Power Calculator module that accurately models device
thermal environments and resulting power consumption.
Business Outlook - December 2007 Quarter:
-- Sequential quarterly revenue is expected to be approximately $57
million to $59 million;
-- Gross margin percentage is expected to be approximately 55%;
-- Total operating expenses are expected to be approximately $33.0
million to $33.5 million;
-- Restructuring charge is expected to be approximately $1.5 million to
$2.5 million;
-- Intangible asset amortization is expected to be approximately $2.0
million: and
-- Other income is expected to be approximately $2.5 million.
Discussion of Non-GAAP Financial Measures:
Management evaluates and makes operating decisions using various performance measures. In addition to our GAAP results, we also consider adjusted net income, which we refer to as non-GAAP net income. This measure is generally based on the revenue of our products and the costs of those operations, such as cost of products sold, research and development, sales and marketing and general and administrative expenses, that management considers in evaluating our ongoing core operating performance. Non-GAAP net income excludes amortization of intangible assets, stock-based compensation and restructuring charges. Intangible assets relate to assets acquired through acquisitions and consist of technology purchased in connection with the acquisitions. Stock-based compensation charges are related to the adoption of SFAS No. 123(R) effective January 1, 2006, and include expense for items such as stock options and restricted stock units granted to employees, purchases under the employee stock purchase plan and deferred stock compensation issued in connection with acquisitions. Restructuring charges consist of expenses and subsequent adjustments incurred under our corporate restructuring plans that were initiated in the fourth quarter of fiscal 2005 and in the third quarter of fiscal 2007, and include items such as separation packages, costs to vacate space under long-term lease arrangements, and other related expenses.
Non-GAAP net income is a supplemental measure of our performance that is not required by and not presented in accordance with GAAP. Moreover, it should not be considered as an alternative to net (loss) income, operating loss or any other performance measure derived in accordance with GAAP, or as an alternative to cash flow from operating activities or as a measure of our liquidity. Investors and potential investors are encouraged to review the reconciliation of non-GAAP financial measures contained within this press release with our net (loss) income, which is our most directly comparable GAAP financial result. For more information, see the consolidated statement of operations contained in this earnings release.
Conference Call and Business Update:
On October 25, 2007, Lattice will hold a telephone conference call at 2:00 p.m. (Pacific Time) with financial analysts. Investors may listen to our conference call live via the web at www.lscc.com. Replays of the call will also be available at www.lscc.com. On December 13, 2007, we plan to publish a "Business Update Statement" on our website. Our financial guidance will be limited to the comments on our public quarterly earnings call and these public business outlook statements.
Forward-Looking Statements Notice:
The foregoing paragraphs contain forward-looking statements that involve estimates, assumptions, risks and uncertainties. With respect to particular forward-looking statements in the "Business Outlook - December 2007 Quarter" section of this release, Lattice believes the factors identified below in connection with each such statement could cause actual results to differ materially from the forward-looking statements.
Estimates of future revenue are inherently uncertain due to the high percentage of quarterly "turns" business. In addition, revenue is affected by such factors as pricing pressures, competitive actions, the demand for our Mature, Mainstream, and New products, and the ability to supply products to customers in a timely manner. Actual gross margin percentage and operating expenses could vary from the estimates contained herein on the basis of, among other things, changes in revenue levels, changes in product pricing and mix, changes in wafer, assembly and test costs, variations in manufacturing yields, and changes in stock-based compensation charges due to stock price changes.
In addition to the foregoing, other factors that may cause actual results to differ materially from the forward-looking statements herein include the Company's dependencies on its silicon wafer suppliers, technological and product development risks, and the other risks that are described from time to time in our filings with the Securities and Exchange Commission. The Company does not intend to update or revise any forward-looking statements, whether as a result of events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
About Lattice Semiconductor:
Lattice Semiconductor Corporation provides the industry's broadest range of Programmable Logic Devices (PLD), including Field Programmable Gate Arrays (FPGA), Complex Programmable Logic Devices (CPLD), Mixed-Signal Power Management and Clock Generation Devices, and industry-leading SERDES products.
Lattice continues to deliver "More of the Best" to its customers with comprehensive solutions for system design, including an unequaled portfolio of high performance, non-volatile and low cost FPGAs.
Lattice products are sold worldwide through an extensive network of independent sales representatives and distributors, primarily to OEM customers in communications, computing, industrial, consumer, automotive, medical and military end markets. For more information, visit http://www.latticesemi.com.
Lattice Semiconductor Corporation, Lattice (& design), L (& design), ispLEVER, Reveal, LatticeECP2M, LatticeSC, PURESPEED, and specific product designations are either registered trademarks or trademarks of Lattice Semiconductor Corporation or its subsidiaries in the United States and/or other countries. HyperTransportTM is a licensed trademark of the HyperTransport Technology Consortium in the U.S. and other jurisdictions.
GENERAL NOTICE: Other product names used in this publication are for identification purposes only and may be trademarks of their respective holders.
Lattice Semiconductor Corporation
Consolidated Statement of Operations
(in thousands, except per share data)
Three months ended Nine months ended
---------------------------------- -----------------------
September June September September September
29, 30, 30, 29, 30,
Description 2007 2007 2006 2007 2006
----------- ---------- ---------- ---------- ---------- ----------
(unaudited)(unaudited) (unaudited) (unaudited) (unaudited)
Revenue $ 58,304 $ 59,243 $ 63,456 $ 175,654 $ 183,627
Costs and
expenses (1):
Cost of
products
sold 26,705 26,593 27,764 79,516 79,855
Research and
development 20,166 20,752 20,905 62,926 61,696
Selling,
general and
administrative 15,054 14,785 15,207 44,405 43,490
Amortization
of
intangible
assets (2) 2,458 2,665 2,657 7,790 8,140
Restructuring
(3) 1,718 27 102 1,615 318
---------- ---------- ---------- ---------- ----------
Total costs and
expenses 66,101 64,822 66,635 196,252 193,499
---------- ---------- ---------- ---------- ----------
Loss from
operations (7,797) (5,579) (3,179) (20,598) (9,872)
Other income,
net (4) 3,551 4,299 4,324 10,858 12,721
---------- ---------- ---------- ---------- ----------
(Loss) income
before
provision for
income taxes (4,246) (1,280) 1,145 (9,740) 2,849
Provision for
income taxes 201 181 248 551 693
---------- ---------- ---------- ---------- ----------
Net (loss)
income $ (4,447) $ (1,461) $ 897 $ (10,291) $ 2,156
========== ========== ========== ========== ==========
Basic net
(loss) income
per share $ (0.04) $ (0.01) $ .01 $ (0.09) $ .02
========== ========== ========== ========== ==========
Diluted net
(loss) income
per share $ (0.04) $ (0.01) $ .01 $ (0.09) $ .02
========== ========== ========== ---------- ==========
Shares used in
per share
calculations:
Basic 115,057 114,827 114,376 114,852 114,091
========== ========== ========== ========== ==========
Diluted (5) 115,057 114,827 115,560 114,852 114,577
========== ========== ========== ========== ==========
Notes:
(1) As a result of the restructuring implemented in the fourth quarter of
2005, the Company realigned certain departments and job
responsibilities in 2006. Due to these changes, the Company reviewed
its historical cost center allocations and has reclassified these to
reflect post-restructuring operations. Amounts previously reported
in the three and nine months ended September 30, 2006 have been
reclassified to be consistent with the approach applied for the other
periods presented.
(2) Intangible assets subject to amortization aggregate $7.9 million, net,
at September 29, 2007 and relate to the acquisition of the FPGA
business of Agere Systems, Inc. on January 18, 2002. Intangible assets
related to the acquisition of Cerdelinx Technologies, Inc. became fully
amortized in the third quarter of fiscal 2007. Amortization charges
are expected to be substantially eliminated by the end of 2008.
(3) Represents costs and adjustments incurred under the corporate
restructuring plans, implemented in the fourth quarter of 2005 and the
third quarter of 2007. During the third quarter of 2007, we approved
and initiated a restructuring plan ("2007 restructuring plan") to lower
operating expenses. During the third quarter of 2007, we recorded an
initial restructuring charge of $1.7 million comprised primarily of
severance and related costs of which $1.2 million was paid during the
third quarter of 2007. The Company expects to incur an additional
charge of $1.5 million to $2.5 million in the fourth quarter of 2007
primarily related to costs to vacate leased space.
(4) Includes a $1.6 million gain recorded during the three months ended
June 30, 2007 as a result of the Company selling a parcel of
undeveloped land near its corporate headquarters.
(5) For the three months ended September 29, 2007 and June 30, 2007 and
the nine months ended September 29, 2007, the computation of diluted
earnings per share excludes the effects of stock options, restricted
stock units, warrants and Convertible Notes, as they are antidilutive.
For the three and nine months ended September 30, 2006, the
computation of diluted earnings per share excludes Convertible
Notes, as they are antidillutive.
Reconciliation of GAAP Net (Loss) Income to Non-GAAP Net Income
(in thousands)
Three Months ended Nine Months ended
----------- ----------- ----------- ----------- -----------
September September September September
29, June 30, 30, 29, 30,
2007 2007 2006 2007 2006
----------- ----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
GAAP net (loss)
income $ (4,447)$ (1,461)$ 897 $ (10,291) $ 2,156
Reconciling
items:
Amortization
of
intangibles
(1) 2,458 2,665 2,657 7,790 8,140
Stock-based
compensation 1,349 1,325 1,117 4,063 2,462
Restructuring
(2) 1,718 27 102 1,615 318
----------- ----------- ----------- ----------- -----------
Non-GAAP net
income $ 1,078 $ 2,556 $ 4,773 $ 3,177 $ 13,076
=========== =========== =========== =========== ===========
Reconciliation of GAAP Net (Loss) Income per Share to Non-GAAP Net Income
per Share
Three Months ended Nine Months ended
----------- ----------- ----------- ----------- -----------
September September September September
29, June 30, 30, 29, 30,
2007 2007 2006 2007 2006
----------- ----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Basic and
Diluted (4):
GAAP net
(loss) income $ (0.04) $ (0.01) $ 0.01 $ (0.09) $ 0.02
Reconciling
items:
Amortization
of
intangibles
(1) 0.02 0.02 0.02 0.07 0.07
Stock-based
compensation 0.01 0.01 0.01 0.04 0.02
Restructuring
(2) 0.01 0.00 0.00 0.01 0.00
----------- ----------- ----------- ----------- -----------
Non-GAAP net
income $ 0.01 $ 0.02 $ 0.04 $ 0.03 $ 0.11
=========== =========== =========== =========== ===========
Shares used in
per share
calculations:
Basic 115,057 114,827 114,376 114,852 114,091
=========== =========== =========== =========== ===========
Diluted (3) 120,659 122,611 125,385 122,462 124,816
=========== =========== =========== =========== ===========
Notes:
(1) Intangible assets subject to amortization aggregate $7.9 million, net,
at September 29, 2007 and relate to the acquisition of the FPGA
business of Agere Systems, Inc., on January 18, 2002. Intangible
assets related to the acquisition of Cerdelinx Technologies, Inc.
became fully amortized in the third quarter of fiscal 2007.
Amortization charges are expected to be substantially eliminated
by the end of 2008.
(2) Represents costs and adjustments incurred under the corporate
restructuring plans, implemented in the fourth quarter of 2005 and the
third quarter of 2007. During the third quarter of 2007, we approved
and initiated a restructuring plan ("2007 restructuring plan") to
lower operating expenses. During the third quarter of 2007, we
recorded an initial restructuring charge of $1.7 million comprised
primarily of severance and related costs of which $1.2 million was
paid during the third quarter of 2007. The Company expects to incur an
additional charge of $1.5 million to $2.0 million in the fourth
quarter of 2007 primarily related to costs to vacate leased space.
(3) For all periods presented the effects of stock options, restricted
stock units and convertible notes are included as they are dilutive.
(4) Per share amounts may differ due to rounding.
Lattice Semiconductor Corporation
Consolidated Balance Sheet
(in thousands)
Description September December
----------- 29, 30,
2007 2006
--------- ---------
(unaudited)
Assets
Current assets:
Cash and short-term investments $ 128,364 $ 233,208
Accounts receivable, net 31,097 22,545
Inventories 36,677 38,816
Other current assets 35,111 35,474
--------- ---------
Total current assets 231,249 330,043
Property and equipment, net 44,813 46,696
Foundry investments, advances and other assets 93,909 109,964
Goodwill and other intangible assets, net (1) 231,412 239,203
--------- ---------
$ 601,383 $ 725,906
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and other accrued liabilities $ 33,114 $ 82,843
Deferred income and allowances on sales to
distributors 7,042 6,230
Zero Coupon Convertible Notes due in 2010 (2) 40,000 20,480
--------- ---------
Total current liabilities 80,156 109,553
Zero Coupon Convertible Notes due in 2010 (2) - 89,120
Other long-term liabilities 6,031 15,488
--------- ---------
Total liabilities 86,187 214,161
Stockholders' equity 515,196 511,745
--------- ---------
$ 601,383 $ 725,906
========= =========
Notes:
(1) At September 29, 2007, includes approximately $223.6 million in
goodwill and $7.9 million of other intangible assets, net, related to
the acquisition of the FPGA business of Agere Systems, Inc. Goodwill is
not amortized effective with the March 2002 quarter.
(2) Effective July 1, 2007, the Convertible Notes were classified as a
current liability as the holders of the Convertible Notes have a right
to require payment of the Convertible Notes on July 1, 2008. At
December 30, 2006, $20.5 million of Convertible Notes were classified
as a current liability because it was known at the time of filing our
financial statements this amount would be extinguished in the first
quarter of fiscal 2007.
Lattice Semiconductor Corporation
- Supplemental Historic Financial Information -
Operations Information Q307 Q207 Q306
--------- --------- ---------
Percent of Revenue (1):
Gross Margin 54.2% 55.1% 56.2%
R&D Expense 34.6% 35.0% 32.9%
SG&A Expense 25.8% 25.0% 24.0%
Depreciation Expense ($000) 3,398 3,396 3,151
Capital Expenditures ($000) 2,110 2,914 2,728
Balance Sheet Information
Current Ratio 2.9 5.9 5.9
A/R Days Revenue Outstanding 49 46 33
Inventory Months 4.1 4.3 4.0
Revenue% (by Product Family)
FPGA 23% 23% 21%
PLD 77% 77% 79%
Revenue% (by Product Classification)
New 14% 11% 8%
Mainstream 53% 50% 49%
Mature 33% 39% 43%
Revenue% (by Geography)
Americas 21% 24% 25%
Europe (incl. Africa) 20% 18% 21%
Asia 59% 58% 54%
Revenue% (by End Market)
Communications 54% 52% 52%
Industrial & Other 24% 24% 22%
Consumer & Automotive 11% 13% 11%
Computing 11% 11% 15%
Revenue% (by Channel)
Direct 66% 64% 64%
Distribution 34% 36% 36%
New: LatticeSC, LatticeECP2/M, LatticeECP, LatticeXP, MachXO,
Power Manager, ispClock
Mainstream: FPSC, XPLD, ispGDX2, ispMACH 4/LV, ispGDX/V, ispMACH
4000/Z, XPGA, Software and IP
Mature: ORCA 2, ORCA 3, ORCA 4, ispPAC, ispLSI 8000V, ispMACH
5000B, ispMACH 2LV, ispMACH 5LV, ispLSI 2000V, ispLSI
5000V, ispMACH 5000VG, all 5 Volt CPLDs, all SPLDs
Note:
(1) Q306 amounts have been reclassified to be consistent with the current
period.