Lattice Semiconductor Corporation

Welcome to the second quarter 2020 conference call. At this time, all participants are in the listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone keypad. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. And without further delay, I would like to hand it over to your speaker today, Mr. Rick Muscha, Director of Investor Relations. Sir, you may begin.

Thank you, Operator, and good afternoon, everyone. With me today are Jim Anderson, Lattice's President and CEO, and Sherry Luther, Lattice's CFO. will provide a financial and business review of the second quarter of 2020 and the business outlook for the third quarter of 2020. If you have not obtained a copy of our earnings press release, it can be found at our company website in the investor relations section at latticecemi.com. I would like to remind everyone that during our conference call today, we may make projections or other forward-looking statements regarding future events or the future financial performance of the company. We wish to caution you that such statements are predictions based on information that is currently available and that actual results may differ materially. We refer you to the documents that the company files with the SEC, including our 10-Ks, 10-Qs, and 8-Ks. These documents contain and identify important risk factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements. This call includes and constitutes the company's official guidance for the third quarter of 2020. If at any time after this call we communicate any material changes to this guidance, we intend that such updates will be done using a public forum, such as a press release or publicly announced conference call. Some financial information that we present during the call will be provided on both a GAAP and a non-GAAP basis. By disclosing certain non-GAAP information, management intends to provide investors with additional information to permit further analysis of the company's performance and underlying trends. Management uses non-gap measures to better assess operating performance and to establish operational goals. For historical periods, we provided reconciliations of these non-gap financial measures to gap financial measures that can be found on the investor relations section of our website at latticecemi.com. Let me now turn the call over to Jim Anderson, our CEO.

Thank you, Rick, and thank you everyone for joining us on our call today. I'm pleased with our results in Q2 of 2020 as we continue to execute on our product roadmap and build momentum with our customer base. Let me cover a few highlights from our second quarter. We drove strong growth in our communications and computing segment as our position continues to grow in server, client computing, and 5G infrastructure. We continue to make steady progress on gross margin expansion as non-GAAP gross margin increased 150 basis points sequentially and 230 basis points year over year. We also continue to expand profitability with a 17% sequential increase in non-GAAP net income. And we launched our new Certis NX general purpose FPGA on time as promised. Finally, we remain on track for our third Lattice Nexus product launch in the second half of 2020. Let me now provide an overview of our business by end market. In the communications and computing market, revenue was up 19% sequentially and 15% on a year-over-year basis. In computing, our revenue grew sequentially and year-over-year due to strong growth in both server and client computing. In servers, we benefited from increased attach rates and higher ASPs, as well as higher revenue from data center customers due to the increased demands on data center infrastructure as people worked from home. In client computing, we've benefited from the start of a new client computing platform from one of our key customers. In the communications market, we continue to benefit from ongoing 5G infrastructure deployments, with 5G revenue higher both sequentially and year over year. We expect 5G revenue will continue to grow over the long term as the 5G wireless infrastructure build-out progresses. Turning now to the industrial and automotive market, revenue decreased 6% sequentially and was up slightly on a year-over-year basis. Despite the impact to near-term demand from COVID-19, we continue to believe this segment will remain a long-term growth factor for us given the breadth of applications that we serve, including robotics, industrial automation and safety, embedded vision, and automotive electronics. Turning now to the consumer market, revenue declined 17% sequentially and 43% year-over-year. The decline reflects a full quarter of COVID-19 demand impact as well as the expected shift in the mix of our revenue profile over time. We remain focused on serving the areas of the consumer market that include applications with consistent multi-year revenue streams and higher margins where our solutions are enabling customers to differentiate their products. I'll now provide some highlights of our recent product roadmap execution. When we launched our Nexus FPGA platform this past December, we also launched our first device based on that platform The Crosslink NX device. At that time, we committed to releasing two additional Nexus-based devices in 2020. We delivered on that promise with the June launch of Certus NX, representing the second device from the Nexus platform. We're excited about the Certus NX family, which relative to comparable FPGAs, offer 70% faster performance, We continue to be very pleased with the enthusiastic and broad adoption of our Nexus platform, as the number of customer engagements and opportunities continues to increase. We are now introducing products at a pace that is roughly three times faster than in the past. This accelerated cadence has provided our customers a broader portfolio of Lattice solutions to choose from. As part of the long-term investment strategy that we shared at our investor day in May of last year, we continue to invest in tools, solutions, and software stacks to make it easy for our customers to design our products into their systems. In Q2, we launched Lattice Propel, our new embedded system design environment. For processor-based designs, Propel is an easy-to-use tool that enables FPGA-based processing in a wide variety of applications. We also remain firmly on track for the launch of our third solution stack, which is focused on security applications and plan for delivery to customers in the second half of 2020. This follows the two solution stacks that were previously launched, Sense AI, which is focused on low-power inference processing at the edge of the network, and mVision, are solutions to act for embedded vision applications. In summary, while COVID-19 continues to create some uncertainty in the near-term business environment, we remain focused on executing our business strategy and product roadmap for sustained long-term revenue growth and profitability. I want to thank the Lattice employees for their continued execution to our plan despite the current environment. I'll now turn the call over to our CFO, Sherry Luther.