Lattice Semiconductor Corporation

Ladies and gentlemen, thank you for standing by and welcome to the third quarter 2020 conference call. Please be advised that today's conference is being recorded. And without further delay, I would like to hand it over to our speaker today, Mr. Rick Muscha, Director of Investor Relations.

Thank you, Operator, and good afternoon, everyone. With me today are Jim Anderson, Lattice's President and CEO, and Sherry Luther, Lattice's CFO. We'll provide a financial and business review of the third quarter of 2020 and the business outlook for the fourth 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 then actual results made different 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 fourth 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-GAAP measures to better assess operating performance and to establish operational goals. For historical periods, we provided reconciliations of these non-GAAP financial measures to GAAP financial measures that can be found on the investor relations section of our website at latasemi.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. To start off, I'd like to once again thank our customers and partners for their support, and I'd especially like to thank the Lattice team for their continued dedication and execution. While I'm pleased with our progress, I'm even more excited about the potential of the company moving forward. Let me cover a few highlights from Q3 of 2020. We continue to see year-over-year revenue growth in our two main segments of communications and computing and industrial and automotive. We also expanded non-GAAP gross margin by 170 basis points year-over-year. Non-GAAP operating margin expanded to 26.5%, and non-GAAP net income increased 16% year-over-year. We launched our Sentry Solution Stack, which is focused on providing platform security in applications such as data center servers. This solution stack was the third installment in our expanding portfolio of application-specific software solutions. Finally, we remain on track to launch the third product based on our Nexus platform later this year. Let me now provide an overview of our business buy-in market. In the communications and computing market, revenue is down 4% sequentially, but up 6% on a year-over-year basis. After a strong Q2, we saw a modest sequential decline in communications and computing due to a decline in units shipped for servers as well as a decline in Year-over-year growth of 6% was driven by growth in servers and client computing. We continue to see this segment as a long-term growth opportunity as we expand our business in computing as well as in 5G infrastructure deployments. Turning now to the industrial and automotive market, revenue increased 8% sequentially in Q3 and was up 14% on a year-over-year basis. Q3 growth in the industrial segment reflects an improvement in end-market demand and increase use of our products used in a broad range of applications, including industrial, automation and safety, robotics and embedded vision. Turning now to the consumer market, revenue declined 8% sequentially in Q3 and 45% year-over-year. This segment has been impacted this year by lower end market demand due to COVID-19, as well as an expected mix shift in our business. We remain focused on securing design wins in consumer applications with multi-year revenue streams and higher margins and where our solutions are enabling customers to differentiate their products. I'll now provide some highlights of our recent product roadmap execution. As we discussed at our Nexus platform launch last December, we're investing in a portfolio of higher level software that enables our customers to adopt our solutions quickly and go to market faster. The first installment in our software portfolio was our award-winning SenseAI software stack, which is focused on low-power inference processing at the edge of the network. Earlier this year, we launched Envision, our software stack focused on embedded vision applications, which was the second installment in our portfolio. We built on this strong foundation with the launch of our third installment in Q3, which is our security stack called Sentry. The Sentry Stack provides customers a comprehensive software solution to implement platform firmware resiliency in applications such as servers, networking, and client computing. In parallel with the Sentry launch, we introduced Lattice Supply Guard service. Supply Guard extends the system protection provided by Sentry throughout the supply chain. This is accomplished by delivering factory-locked devices to enable dynamic trust for our customers and the end users of their products. When we launched our Nexus FPGA platform last December, we also launched our first product based on that platform called Crosslink NX. At that time, we committed to releasing two additional Nexus-based products in 2020. In June, we launched Certis NX as promised, and I'm pleased to report that we remain on track to launch our third Nexus-based product in Q4. We continue to be pleased with the customer engagement on our Nexus platform. where the power efficiency and faster performance are helping our customers differentiate their applications and systems. In summary, we're pleased with our strong results in Q3 and we remain focused on executing our strategy for sustained long-term revenue growth and profitability. I'll now turn the call over to our CFO, Sherry Luther.