Lattice leads global shipments of low-power FPGAs, competing in a differentiated segment against market leaders AMD Xilinx and Intel Altera.
Lattice Q2 Earnings:
Revenue $124M, down 0.1% year over year, up 3.2% sequentially. Seventh consecutive quarter of year-over-year decline, one step away from growth.
GAAP gross margin 68.4%, up 0.1 pp year over year, up 0.4 pp sequentially. Operating income $4.7M, down 79% year over year.
Non-GAAP operating income $34.1M, up 8% year over year and 8% sequentially, ending six consecutive quarters of year-over-year decline. Non-GAAP operating margin 27.5%, up 2.1 pp year over year, up 1.3 pp sequentially.
Non-GAAP net income $32.6M, up 4% year over year and 6% sequentially, ending six consecutive quarters of year-over-year decline. Non-GAAP net margin 26.3%, up 1 pp year over year, up 0.7 pp sequentially.
Q2 repurchased $45.9M, 19th consecutive quarter of buybacks. ~$29M remaining authorization.
Design wins hit a record high this quarter. Book-to-bill ratio at a multi-year high.
No direct tariff impact seen yet. US shipments represent only a small portion of business.
A previously cited strength of Lattice was its gross and net margins ranking among the highest in semiconductors, which was the reason for continued coverage; the FPGA segment indeed commands high margins, and it is remarkable that gross margin can remain this elevated even at a cyclical trough.
Since 2024, the automotive semiconductor sector has seen a string of blow-ups, while Intel Altera and AMD Xilinx have suffered weak FPGA demand. Lattice has not been immune, and the entire FPGA market has been in distress. But 2025 Q2 finally marks the trough: Intel Altera Q2 revenue was $448M, up 24% year over year, marking its second consecutive quarter of year-over-year growth; AMD Embedded (mostly Xilinx) Q2 revenue was $824M, down 4% year over year, its eighth straight quarter of year-over-year decline, with an operating margin of 33%. Q2 shipments showed some recovery, but strong performance across most markets was offset by industrial weakness and inventory digestion.
Q3 guidance for both AMD Xilinx and Lattice shows sequential revenue growth. The industry is climbing out of the trough. AMD expects test & measurement, communications, and aerospace demand improvement to drive Embedded back to growth in 2025, with 2025 design wins potentially exceeding 2024's record $14B, broadly consistent with Lattice's guidance.
Q2 by Segment:
Industrial & Auto revenue $47.3M, down 19% year over year, down 9% sequentially. Sixth consecutive quarter of double-digit year-over-year decline. Revenue share 39%, lowest since Q3 2019. Inventory expected to normalize by year-end, with strong growth targeted for 2026. Auto business strong driven by China and parts of Europe, but auto currently <10% of segment revenue. Market share rising across smart factory, robotics, medical, aerospace, and defense.
Communications & Compute revenue $68.7M, up 26% year over year. Second consecutive quarter of year-over-year growth. First double-digit year-over-year growth since Q4 2022. Revenue share 55%, all-time high. Both communications and compute grew double digits year over year and sequentially. Compute growth driven by servers, benefiting from expanding share in general-purpose and AI-optimized servers. Server revenue up 85% year over year. Share gains faster in AI servers. Communications growth driven by strong data center infrastructure: network NICs, switches, routers, security appliances.
Consumer revenue $8M, down 29% year over year. Fourth consecutive quarter of year-over-year decline. Revenue share 6%.
Products:
Lattice has three main business lines: two FPGA hardware platforms and one software development platform; management previously stated the software platform generated a few million dollars per quarter, but has not updated the figure since.
FPGA portfolio: Small FPGA Nexus series has 8 parts; Nexus 2 has 1 part. Last year's new Avant product line opened the mid-range FPGA market, with 3 series (E/G/X for edge/general/interconnect).
New product revenue grew double digits both year over year and sequentially in Q2.2025 new product revenue share guided at high-teens%, 2026 at mid-20%s (unchanged). Nexus to accelerate in 2026, Avant in 2027 (unchanged). Design life 20-30 years; FPGA products and applications are characterized by very long lifecycles.
AI Exposure:
Current AI use cases: Server control/security chips, AI PC detection chips, ADAS chips. Management disclosed AI exposure scale for the first time: 2025 AI-related revenue share guided at high-teens%, growing to mid-20%s in 2026.
By end market, ~60% of AI-related revenue from Communications & Compute, ~40% from Industrial, Auto, and Consumer.
By application, in ~55% of applications, Lattice FPGAs act as companion chips to AI accelerators and switches. In ~45%, they sit on the data path or run edge AI on the FPGA itself.
Management stated that mid-to-small low-power FPGAs are becoming companion chips in AI accelerators, switches, NICs, retimers, and even BMC chips. Large FPGAs are less suited as companions due to power and cost. In a hyperscaler's rack architecture, typically 40-60 servers per rack; depending on configuration, each rack can have 70-130+ mid-to-small FPGAs.
Outlook:
Q3 revenue guided $128-138M, up 1-9% year over year, ending seven consecutive quarters of year-over-year decline. Non-GAAP gross margin ~69.5%, continuing modest sequential and year-over-year improvement. Non-GAAP net income midpoint $38.5M, up 18% year over year, second consecutive quarter of year-over-year growth.
2026 revenue growth guided 15-20% year over year (unchanged).
Future AI opportunity driven by five factors: 1) Hyperscaler capex continues to grow; 2) Small low-power FPGA attach rates in AI servers continue to rise; 3) Company ASPs continue to rise; 4) Record design wins at hyperscalers; 5) Diversified sales ecosystem covering ODMs, AI accelerator vendors, communication suppliers, and server OEMs.
Previously noted on valuation: Lattice's sustained high growth in prior years kept valuation elevated, making entry difficult. The downcycle may present an opportunity, but industry recovery remains lengthy. Compared to connectivity chips like Astera Labs shining in the AI era, former star FPGA has dimmed. However, this earnings call management disclosed for the first time that mid-to-small low-power FPGAs may have more opportunity than large FPGAs in the AI semiconductor era, boosting investor confidence.
Because low-power FPGAs have not yet shown the same direct volume leverage to the AI server ramp as Astera Labs' PCIe retimer connectivity chips, I continue to estimate slightly more than $600M of 2026 revenue and $200M of non-GAAP net income. The current market capitalization implies a price-to-earnings multiple of 42 times.