Lattice leads global shipments of low-power FPGAs, competing in a differentiated segment against market leaders AMD Xilinx and Intel Altera.
Lattice Q3 Earnings:
Revenue was $133M, up 4.9% year over year and 7.6% sequentially, ending seven consecutive quarters of year-over-year declines.
GAAP gross margin was 67.9%, down 1.1 percentage points year over year and 0.5 points sequentially. Operating loss of $1.5M, swinging to a loss year over year, primarily due to stock-based compensation expense.
Non-GAAP operating income was $38.7M, up 14.7% year over year and 13.6% sequentially, the second consecutive quarter of year-over-year growth. Non-GAAP operating margin was 29%, up 2.4 points year over year and 1.5 points sequentially.
Non-GAAP net income was $38.2M, up 17.2% year over year and 17.1% sequentially, the second consecutive quarter of year-over-year growth. Non-GAAP net margin was 28.6%, up 3.0 points year over year and 2.3 points sequentially.
Repurchased $15M this quarter, the 20th consecutive quarter of buybacks. ~$14M remains authorized.
Bookings hit a six-quarter high. The current book-to-bill ratio reached an ~1.5-year high, with orders booked through the first half of next year.
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 FPGA demand has remained soft. Lattice has not been immune, and the entire FPGA market has been in distress. However, 2025 Q2 finally marked the trough: Intel Altera Q3 revenue was $386M, down 6% year over year, with operating income of $100M; the business has since been divested. AMD Embedded (mostly Xilinx) Q3 revenue was $857M, down 8% year over year, marking the ninth consecutive quarter of year-over-year decline, but the second straight quarter of sequential growth, with an operating margin of 33%.
Both AMD Xilinx and Lattice guided for sequential revenue growth in Q4, confirming the industry has bottomed. AMD cited strengthening demand in test & simulation, aerospace & defense, and industrial vision & medical, with design wins continuing to grow, now exceeding $14B this year, broadly consistent with Lattice's outlook.
Q3 by Segment:
Industrial & Automotive revenue was $50.3M, down 7% year over year but up 6% sequentially, the sixth consecutive quarter of double-digit year-over-year declines. Revenue share 38%. Inventory expected to normalize by year-end, setting up strong growth in 2026. China auto market remains robust. Auto is <5% of total revenue, but China may be the only region showing auto strength; no strength seen outside China. Aerospace & defense performing strongly globally, winning increasing design share in that sub-market.
Communications & Compute revenue was $74.0M, up 21% year over year, the third consecutive quarter of year-over-year growth, and up 8% sequentially. Revenue share 55%. Compute sub-market growth is driven by expanding use cases in general-purpose and AI servers. Server business YTD up 85% year over year. Communications sub-market growth continues to be driven by wired data center infrastructure, including NICs, switches, routers, and security appliances. Communications YTD up 63% year over year. The offset within Communications & Compute is Client business. Last year had a large client compute block; that business has now nearly disappeared. Expect Communications & Compute to deliver strong growth in Q4 and 2026. Revenue share rising from 35% in 2023 to 45% in 2024, to >55% in 2025, to ~60% in 2026.
Consumer revenue was $9M, down 24% year over year, the fifth consecutive quarter of year-over-year decline. Revenue share 7%.
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.
On FPGAs: small FPGA Nexus series now has 8 SKUs; Nexus 2 has 1 SKU. Last year's new Avant product line opened the mid-range FPGA market with 3 series (E/G/X for edge/general/connectivity). Expect 5-6 additional Nexus SKUs in 2026.
New product revenue grew strongly in Q3. Expect 2025 new product revenue share to exceed the high-teens % target. Believe 2026 will be the year of Nexus (more data center relevant), and 2027 the year of Avant (industrial/auto relevant). Management views 2026 as the data center year, 2027 as the year of major industrial and auto recovery.
AI Exposure:
Existing product AI use cases: server control/security chips, AI PC detection chips, ADAS chips. AI exposure scale: AI-related revenue is expected to account for high-teens percent in 2025 and grow to mid-20s percent in 2026.
Management stated the company's products are being adopted as companion chips in data center AI chips, networking chips, and edge compute chips. Server attach rate growth will continue to outpace industry capex growth. Large FPGAs are less suited as companion chips due to power and cost. In one hyperscaler's rack architecture, each rack typically has 40-60 servers, but depending on configuration can have 70-130+ small/medium FPGAs per rack. One hyperscaler provided 2026-2028 demand forecasts showing substantial growth.
Outlook:
Q4 guidance: revenue $138-148M, up 18-26% year over year, the second consecutive quarter of year-over-year growth. Non-GAAP gross margin ~69.5%, continuing modest sequential and year-over-year improvement. Non-GAAP net income midpoint $44.2M, up 119% year over year, the third consecutive quarter of year-over-year growth.
Expect 2026 Industrial & Automotive revenue growth in the mid-single-digit to 15% range. Communications & Compute revenue growth in the 20-40% range. Revenue split roughly 60/40.
Equity compensation requires 20% revenue growth in 2026. Based on management's Communications & Compute growth guide, 2026 revenue is estimated to grow ~28% year over year (raised).
PQC (post-quantum cryptography) is a key driver for adoption of the company's security solutions.
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 valuations elevated, making entry difficult. The current downcycle may present an opportunity, but industry recovery remains lengthy. Compared to connectivity chips like Astera Labs shining in the AI era, the once-star FPGA has dimmed considerably. Management previously indicated small low-power FPGAs may have more opportunity than large FPGAs in the AI semiconductor era.
Per current management guidance, 2026 revenue and Non-GAAP net income are roughly in line with prior expectations. Current market cap implies ~43x P/E.