Lattice leads global shipments of low-power FPGAs, competing in a differentiated segment against market leaders AMD Xilinx and Intel Altera.
Lattice Q1 Results:
Revenue was $141M, down 24% year over year, down 18% sequentially; first time since 2020 with two consecutive quarters of year-over-year decline.
GAAP gross margin was 68.3%, still at a historical high; operating margin was 11.8%, down 20 percentage points year over year.
Non-GAAP net income $40.3M, down 44% year over year, down 36% sequentially, back to 2021 levels; Non-GAAP net margin 28.6%, lowest since 2021 Q2.
Repurchased $20M this quarter, 14th consecutive quarter of buybacks.
A Lattice strength is gross and net margin levels that rank near the top of semiconductors, which is why I've tracked it; FPGA lane margins are indeed high, and even at the cycle trough, gross margin holding this high is remarkable.
Early 2024 brought a wave of blow-ups in automotive semiconductors, and weak FPGA demand at both Intel Altera and AMD Xilinx left Lattice unable to escape the industry-wide slump. AMD Embedded (mostly Xilinx) Q1 revenue was $840M, down 46% year over year. Intel Altera Q1 revenue was $340M, down 58% year over year, even posting an operating loss.
Q1 Segment Results:
Industrial and Automotive revenue was $75.3M, down 31% year over year, accounting for 53% of revenue; this is Lattice's highest-margin business; overall industrial/auto demand weak, customers continue destocking; medical demand stable, defense/aerospace strong, but other segments weak.
Communications and Compute revenue was $54.6M, down 18% year over year, the fourth consecutive quarterly decline, accounting for 39% of revenue; Compute revenue grew sequentially, driven by server demand; 5G demand in Communications is poor, recovery awaits carrier capex rebound; expect Q2 Compute revenue to continue growing sequentially, Communications to continue declining sequentially, with Compute revenue exceeding Communications revenue.
Consumer revenue was $10.9M, up 12% year over year, accounting for 8% of revenue.
Products:
Lattice has three main product lines: two FPGA hardware lines and a software development platform, where software adoption exceeds 50%, unaffected by the downturn, expected to keep rising; prior quarter revenue was a few million dollars.
On FPGA, the Nexus product line targeting the Small FPGA market has 7 series, 6 now in volume production, 1 ramping in Q3; Nexus remains the primary shipment driver in 2024.
Last year's new Avant product line opened the mid-range FPGA market, with 3 series (E/G/X for edge/general/connectivity); G/X series just launched Dec 2023, to start contributing revenue late this year, to account for 10%-15% of company revenue in 2-3 years; Avant E already contributing revenue, early customers in comms gateways, industrial control, LiDAR, expected to ramp in H2.
AI Exposure:
Current Product AI Use Cases: Server Control/Security Chips, AI PC Detection Chips, ADAS Chips.
Outlook:
Guided Q2 revenue $120-140M, down 26%-37% year over year; Non-GAAP gross margin ~69%; Non-GAAP net income ~$25-40M; expect H2 revenue better than H1, but a gradual recovery, driven by inventory normalization and Nexus/Avant new product ramps.
Xilinx exiting low-end FPGA market benefits Lattice.
Maintain 2022-2026 revenue CAGR target of 15-20%.
Previously noted on valuation: Lattice's sustained high growth in prior years kept valuations elevated for a long time, making entry difficult. The current downcycle may present an opportunity.
Xilinx and Altera both guide for H1 bottom, H2 recovery. Given Lattice's current results, I lower full-year Non-GAAP net income to $170M near term, applying the low end of 5-year historical valuation (35-60x P/E) for ~$6-10B. If you believe the official story, revenue CAGR 15%-20% implies ~$1.1B revenue in 2025, ~$400M net income, 25x P/E.
Long term, Avant can indeed open Lattice's second growth curve, but near term need to watch H2 recovery strength.