For the second quarter, revenue was $58.1 million, an increase of three percent from the $56.6 million reported in the prior quarter, and a decrease of two percent from the $59.2 million reported in the same quarter a year ago.
FPGA revenue for the second quarter was $13.4 million, down two percent from the $13.7 million reported in the prior quarter, and down one percent from the $13.5 million reported in the same quarter a year ago. PLD revenue for the quarter was $44.7 million, an increase of four percent over the $42.9 million reported in the prior quarter, and a two percent decrease from the $45.7 million reported in the same quarter a year ago.
New product revenue for the second quarter was $12.3 million, up 10 percent from the $11.2 million reported in the prior quarter, and up 90 percent from the $6.5 million reported in the same quarter a year ago.
Other (expense) income, net for the second quarter was an expense of $10.5 million compared to income of $1.3 million reported in the prior quarter and income of $4.3 million reported in the same quarter a year ago. Other expense for the second quarter of 2008 included an impairment charge of $11.3 million primarily related to an other-than-temporary decline in fair value of auction rate securities held in Long-term marketable securities. Other income for the second quarter of 2007 included a $0.4 million gain related to the extinguishment of our Zero Coupon Convertible Notes and a $1.6 million gain related to the sale of land.
Net loss for the second quarter was $13.6 million ($0.12 per share), as compared to a prior quarter net loss of $3.3 million ($0.03 per share), and a net loss of $1.5 million ($0.01 per share) reported in the same quarter a year ago. These results include amortization charges, stock-based compensation expense, an impairment charge, restructuring charges, and gain on sale of land which totaled $14.9 million and $4.6 million for the second quarter of 2008 and prior quarter, respectively, and $2.4 million for the second quarter of 2007. Excluding these items, non-GAAP net income for the second quarter of 2008 was $1.3 million as compared to non-GAAP net income of $1.4 million for the first quarter of 2008 and non-GAAP net income of $1.0 million for the same quarter a year ago. The Company believes exclusion of these items more closely approximates its ongoing operational performance.
"I'm honored and excited that the board of Lattice entrusted me to take the lead of our company moving forward," stated Bruno Guilmart, President and CEO, who joined Lattice July 7, 2008. "In the near term, I am working closely with my management team to comprehensively review Lattice's business in order to formulate a new cost structure and a refined product strategy. We intend to implement a new business model that better aligns our operating costs with near-term revenue expectations and to deliver improved operating results."
Business Outlook -- September 2008 Quarter:
-- Revenue is expected to be flat to down three percent on a sequential
basis;
-- Gross margin percentage is expected to be approximately 55% to 56% of
revenue;
-- Total operating expenses are expected to be approximately $33 million;
-- Intangible asset amortization is expected to be approximately $1.4
million; and
-- Interest and other income is expected to be approximately $0.7
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, impairment of Long-term marketable securities and Other current assets, restructuring charges and gain on sale of land. Intangible assets relate to assets acquired through acquisitions and consist of technology purchased in connection with the acquisitions. Stock-based compensation charges include expense for items such as stock options and restricted stock units granted to employees and purchases under the employee stock purchase plan. Impairment of Long-term marketable securities relates to an other-than-temporary decline in fair value of our auction rate securities that continue to experience unsuccessful auctions. Impairment of Other current assets relates to an other-than-temporary decline in fair value of common stock of one of our foundry partners. 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. Gain on sale of land relates to a gain resulting from the sale of real property during the relevant period.
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, 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 July 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 September 11, 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, including statements relating to the implementation of a new business model and the expected results produced by that model, the timing of related announcements and statements relating to our business outlook. The forward-looking statements in the "Business Outlook - September 2008 Quarter" section of this release do not include the effects of any restructuring charges or other accounting adjustments that may be required by actions taken in connection with the formulation of a new cost structure or refinement of product strategy. Lattice also 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 disruption of our business activities due to the transition to our new Chief Executive Officer, 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, LatticeECP2/M, 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)
(unaudited)
Three months ended Six months ended
------------------------------- --------------------
June 28, March 29, June 30, June 28, June 30,
2008 2008 2007 2008 2007
--------- --------- --------- --------- ---------
Revenue $ 58,079 $ 56,604 $ 59,243 $ 114,683 $ 117,350
Costs and expenses:
Cost of products
sold 25,551 25,160 26,593 50,711 52,811
Research and
development 17,937 17,668 20,752 35,605 42,760
Selling, general
and
administrative 15,195 14,999 14,785 30,194 29,351
Amortization of
intangible
assets (1) 1,368 1,481 2,665 2,849 5,332
Restructuring (2) 858 1,790 27 2,648 (103)
--------- --------- --------- --------- ---------
60,909 61,098 64,822 122,007 130,151
--------- --------- --------- --------- ---------
Loss from operations (2,830) (4,494) (5,579) (7,324) (12,801)
Other (expense)
income, net (3) (10,520) 1,333 4,299 (8,195) 7,307
--------- --------- --------- --------- ---------
Loss before
provision from
income taxes (13,350) (3,161) (1,280) (15,519) (5,494)
Provision for income
taxes 221 93 181 314 350
--------- --------- --------- --------- ---------
Net loss $ (13,571) $ (3,254) $ (1,461) $ (15,833) $ (5,844)
========= ========= ========= ========= =========
Net loss per share
(4):
Basic and diluted $ (0.12) $ (0.03) $ (0.01) $ (0.14) $ (0.05)
========= ========= ========= ========= =========
Shares used in per
share calculations:
Basic and diluted 115,171 115,146 114,827 115,159 114,758
========= ========= ========= ========= =========
Notes:
(1) Intangible assets subject to amortization aggregate $3.0 million, net,
at June 28, 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.
(2) Represents costs and adjustments incurred under the corporate
restructuring plans initiated in the fourth quarter of 2005 and the
third quarter of fiscal 2007. During the second quarter of fiscal 2008,
the Company recorded a charge of $0.9 million, primarily comprised of
severance costs related to the resignation of our former President and
Chief Executive Officer effective on May 31, 2008. During the first
quarter of fiscal 2008, the Company incurred costs of $1.8 million, of
which $1.3 million related primarily to costs to vacate leased space
and $0.5 million related to severance costs for the resignation of our
former President and Chief Executive Officer.
(3) Includes an $11.3 million loss recorded during the three months ended
June 28, 2008 as a result of the Company recognizing an impairment
charge related to an other-than-temporary decline in fair value of
auction rate securities held in Long-term marketable securities
($10.3 million) and our common stock investment in a foundry partner
held in Other current assets ($1.0 million). 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.
(4) For all periods presented, 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
(in thousands)
(unaudited)
Three months ended Six months ended
------------------------------- --------------------
June 28, March 29, June 30, June 28, June 30,
2008 2008 2007 2008 2007
--------- --------- --------- --------- ---------
GAAP net loss $ (13,571) $ (3,254) $ (1,461) $ (16,825) $ (5,844)
Reconciling items:
Amortization of
intangibles (1) 1,368 1,481 2,665 2,849 5,332
Stock-based
compensation 1,294 1,368 1,325 2,662 2,714
Impairment of
Long-term
marketable
securities
and Other
current assets (2) 11,337 - - 11,337 -
Gain on sale of
land - - (1,604) - (1,604)
Restructuring (3) 858 1,790 27 2,648 (103)
--------- --------- --------- --------- ---------
Non-GAAP net income $ 1,286 $ 1,385 $ 952 $ 2,671 $ 495
========= ========= ========= ========= =========
Reconciliation of GAAP Net Loss per Share
to Non-GAAP Net Income per Share
(unaudited)
Three months ended Six months ended
------------------------------- --------------------
June 28, March 29, June 30, June 28, June 30,
2008 2008 2007 2008 2007
--------- --------- --------- --------- ---------
Basic and Diluted:
GAAP net loss $ (0.12) $ (0.03) $ (0.01) $ (0.15) $ (0.05)
Reconciling items:
Amortization of
intangibles (1) 0.01 0.01 0.02 0.02 0.05
Stock-based
compensation 0.01 0.01 0.01 0.02 0.02
Impairment of
Long-term
marketable
securities
and Other
current assets (2) 0.10 - - 0.10 -
Gain on sale of
land - - (0.01) - (0.01)
Restructuring (3) 0.01 0.02 0.00 0.02 (0.00)
--------- --------- --------- --------- ---------
Non-GAAP net
income (5) $ 0.01 $ 0.01 $ 0.01 $ 0.02 $ 0.00
========= ========= ========= ========= =========
Shares used in per
share calculations
(in thousands):
Basic 115,171 115,146 114,827 115,159 114,758
========= ========= ========= ========= =========
Diluted (4) 119,083 119,227 122,611 119,211 123,290
========= ========= ========= ========= =========
Notes:
(1) Intangible assets subject to amortization aggregate $3.0 million, net,
at June 28, 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.
(2) Includes an $11.3 million loss recorded during the three months ended
June 28, 2008 as a result of the Company recognizing an impairment
charge related to an other-than-temporary decline in fair value of
auction rate securities held in Long-term marketable securities
($10.3 million) and our common stock investment in a foundry partner
held in Other current assets ($1.0 million).
(3) Represents costs and adjustments incurred under the corporate
restructuring plans initiated in the fourth quarter of 2005 and the
third quarter of 2007. During the second quarter of fiscal 2008, the
Company recorded a charge of $0.9 million, primarily comprised of
severance costs related to the resignation of our former President
and Chief Executive Officer effective on May 31, 2008. During the
first quarter of fiscal 2008, the Company incurred costs of
$1.8 million, of which $1.3 million related primarily to costs to
vacate leased space and $0.5 million related to severance costs for the
resignation of our former President and Chief Executive Officer.
(4) For all periods presented, the computation of diluted earnings per
share includes the effects of stock options, restricted stock units,
warrants and Convertible Notes, as they are dilutive.
(5) Per share amounts may not add up due to rounding.
Lattice Semiconductor Corporation
Consolidated Balance Sheet
(in thousands)
June 28, December 29,
2008 2007
-------------- --------------
(unaudited)
Assets
Current assets:
Cash, cash equivalents and short-term
marketable securities (1) (4) $ 96,286 $ 85,063
Accounts receivable, net 29,334 29,293
Inventories 39,071 40,005
Other current assets (2) 35,438 37,185
-------------- --------------
Total current assets 200,129 191,546
Property and equipment, net 44,113 43,617
Long-term marketable securities (1) 34,555 44,900
Foundry advances, investments and other
assets 78,933 90,407
Intangible assets, net (3) 2,965 5,815
-------------- --------------
$ 360,695 $ 376,285
============== ==============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and other accrued
liabilities $ 32,449 $ 32,978
Deferred income and allowances on sales to
distributors 7,521 8,033
Zero Coupon Convertible Notes due in 2010
(4) 40,000 40,000
-------------- --------------
Total current liabilities 79,970 81,011
Other long-term liabilities 7,600 9,042
-------------- --------------
Total liabilities 87,570 90,053
Stockholders' equity (1) 273,125 286,232
-------------- --------------
$ 360,695 $ 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. As a
result of an other-than-temporary decline in fair value for the
securities, we recorded an impairment charge of $10.3 million to Net
loss for the quarter ended June 28, 2008.
(2) An impairment charge of $1.0 million was recorded to Net loss for the
quarter ended June 28, 2008 for an investment in a foundry partner
which is held in Other current assets.
(3) 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.
(4) Subsequent to June 28, 2008, the Company completed the purchase of
$40.0 million in principal amount of its Zero Coupon Convertible Notes
("Notes") due July 1, 2010. The Notes were purchased on July 2, 2008
pursuant to the exercise by the noteholders of their repurchase rights.
Based on these purchases, no such Notes remain outstanding.
Lattice Semiconductor Corporation
- Supplemental Historic Financial Information -
Q208 Q108 Q207
----- ----- -----
Operations Information
Percent of Revenue
Gross Margin 56.0% 55.6% 55.1%
R&D Expense 30.9% 31.2% 35.0%
SG&A Expense 26.2% 26.5% 25.0%
Depreciation Expense (in thousands) 3,379 3,249 3,396
Capital Expenditures (in thousands) 3,917 3,207 2,914
Balance Sheet Information
Current Ratio 2.5 2.6 5.9
A/R Days Revenue Outstanding 46 47 46
Inventory Months 4.6 4.7 4.3
Revenue% (by Product Family)
FPGA 23% 24% 23%
PLD 77% 76% 77%
Revenue% (by Product Classification)
New 21% 20% 11%
Mainstream 49% 48% 50%
Mature 30% 32% 39%
Revenue% (by Geography)
Americas 20% 22% 24%
Europe (incl. Africa) 20% 22% 18%
Asia 60% 56% 58%
Revenue% (by End Market)
Communications 52% 54% 52%
Industrial & Other 23% 24% 24%
Computing 14% 12% 11%
Consumer & Automotive 11% 10% 13%
Revenue% (by Channel)
Direct 67% 63% 64%
Distribution 33% 37% 36%
New: LatticeXP2, LatticeSC, LatticeECP2/M, LatticeECP, LatticeXP,
MachXO, Power Manager, ispClock
Mainstream: FPSC, ispXPLD, ispGDX2, ispMACH 4/LV, ispGDX/V, ispMACH 4000/Z,
ispXPGA, Software and IP
Mature: ORCA 2, ORCA 3, ORCA 4, ispPAC, ispLSI 8000V, ispMACH 5000B,
ispMACH 2LV, ispMACH 5LV, ispLSI 2000V, ispLSI 5000V, ispMACH
5000VG, all 5 Volt CPLDs, all SPLDs