Lattice Semiconductor Corporation Q2 FY2025 earnings call

• Q2 was a solid quarter with revenue of $124 million, flat year-over-year. Non-GAAP gross margin was 69.3% and adjusted EBITDA was 34.1%. - Confidence in the market environment is based on strong Comms and Compute demand, normalized inventory in Industrial and Automotive, growth in companion chip opportunities, and record design wins. - Continues to execute long-term strategy, leverage competitive position, and expand growth opportunities across core markets.

In Q2 2025, Lattice delivered revenue of $124 million, up 3% over Q1 and flat year-over-year. The Comms and Compute segment grew 20% sequentially and 26% year-over-year. Industrial and Automotive declined sequentially but is expected to recover. New products revenue is on track to exceed high teens in 2025 and reach mid-20s percent in 2026. Comms and Compute demand remains strong with normalized inventory and continued growth expected. Channel inventory for Industrial and Automotive is decreasing and on track to be normalized by year-end.

• For Q3 2025, revenue is expected to be in the range of $128 million to $138 million, with a midpoint of $133 million (7.2% sequential growth). - Gross margin is expected to be 69.5% midpoint on a non-GAAP basis. - Non-GAAP EPS is expected to be in the range of $0.26 to $0.30 per share. - Confidence in strong growth in both revenue and profitability for Q3.

• Macro market uncertainties. - Geopolitical factors such as potential Section 232 tariffs and their impact on supply chain and demand. - Uncertainties related to inventory normalization and market recovery in certain segments.

Q: Nice to see the progress into the second half of the year, guys. Ford, I want to start with maybe a high-level question and drill in a little bit on your comments around the companion chip opportunity and some of the comments you made on data center infrastructure within the context of what's going on with hyperscale spend over the last 1.5 weeks, we've gotten increasing CapEx yet again, and it seems like that trend is going to continue into next year. So I guess when we take a step back and think about your positioning, would you say that as you speak to customers and think about some of these opportunities, certainly on the companion chip side, that Lattice is in a position to benefit as we think about exiting 2025 and into '26 as the AI infrastructure spend continues to grow?

A: Thank you, Ruben. Yes, we absolutely believe that our Comms and Compute segment grew 20% quarter-over-quarter and 26% year-on-year. And within that segment, the Server was the start of the show with Server segment growing year-on-year 85%, Q2 '25 over Q2 '24 and more than doubling first half of '25 over first half '24. So as you could see, we've got some very strong growth in the Server segment, fueling the strength in the Comms and Compute, and we expect that to continue in the second half '25 and '26. And if I were to drill down into a bit more detail, there are 4 factors driving the growth. Number one, the overall CapEx increase was post-earning expectation for the major cloud guys to be over 50% year-on-year, whereas it was like 38% pre-earnings. The second one, our attach rate continues to grow into server. The third one, our average selling price, ASP for various products continue to grow. And the last one, we continue to gain share in AI server versus traditional server. We're growing both actually, but our AI server attach rate is growing fast. So these 4 factors are contributing to the growth of our Server and hence, the growth of our Comms and Compute.

Q: I guess for my first one, I'll also keep it pretty high level. This one is for Lorenzo. You've now been in the seat for a few months now and gotten to know the business a lot more closely. So can you just give us an update on how you're thinking about the business? What is your confidence in the business model that's been established at Lattice? And what opportunities do you see for the company going forward?

A: I'll try not to burn the rest of our time in answering the question. I knew coming in, looking at it from the outside that the characteristic strength of the FPGA business model was well represented at Lattice. Again, high-value product, a broad base of customers demanding that product in a broad base of sectors. So you have a lot of comfort on the durability of the top line. As you can see this past quarter, the revenue from Industrial and Auto was down, but more than offset by the fact that we have a very strong presence in the emerging Comms and Compute applications that Ford talked about. So great durability on the revenue line. And as Ruben's question indicated, as Industrial starts to manifest itself in our revenue, we should see acceleration of growth. And all this is supportive of the strong gross margins that we have. But very importantly to me, as I've become familiar with Lattice is the structure underneath the operational focus on driving profitability and our focus across the management team and through the organization on improving it. Lots of activities on price and cost at the gross margin level. But if you look just, for example, at this year, this time, our OpEx for a very similar amount of revenue than last Q2, we're lower by a couple of million. This is based on actions the team has taken to drive profitability. And what that sets us up for is near term, we're seeing expansion of all our profitability metrics. Operating income, EBITDA is up over 34%, as I said. But if you look just quarter-on-quarter, our revenue is up 3.2%, and our operating income is up 8%. So this is what we're trying to set the table for as we go forward and recapture the revenue growth across the board of the business and accelerate our profitability growth into the end of this year and through next year. So I hope that answers your question.