Lattice Semiconductor Corporation

Ladies and gentlemen, thank you for standing by for Lattice Semiconductor's fourth quarter 2020 financial results call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. At that time, if you have a question, you will need to press the star 1 on your push-button button. A replay will be available approximately two hours after the call today. The replay dial-in number is 404-537-3406 The conference ID number is 4589457. The replay will also be accessible on Lattice's website at www.lscc.com. I would now like to turn the call over to Mr. Rick Mouchet, Lattice Semiconductors Director of Investor Relations. Please go ahead.

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 will provide a financial and business review of the fourth quarter of 2020 and the business outlook for the first quarter of 2021. 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 LatticeSemi.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 the 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 containing our projections or forward-looking statements. This call includes and constitutes the company's official guidance for the first quarter of 2021. If at any time after this call, we communicate any material changes to this guidance, we attend 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 latisemi.com. Before we get started, I'd like to let everyone know that we will be hosting a Virtual Investor Day in May. We will be sharing more details over the coming month and hope you can all join us. 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 want to start by thanking the Lattice team as well as our partners and customers for their strong support and execution in 2020. I'm pleased with the progress that we made last year, and I'm even more excited about the opportunities ahead of us in 2021. Let me now cover a few highlights from 2020. We grew revenue double digits year over year in our two largest segments of communications and computing in industrial and automotive. We expanded non-GAAP gross margin by 170 basis points year-over-year, closing Q4 at 61.6%, as we continue to execute on our strategy of pricing optimization and product cost reduction. We expanded profitability with non-GAAP net income increasing 20% year-over-year. On our hardware roadmap, our team executed on time and launched two new products based on our Nexus platform. We also launched three new software products focused on embedded vision applications, platform security, and embedded system design. Let me now provide an overview of our business by end market for 2020. In the communications and computing market, revenue increased 12% year-over-year, which is the second consecutive year of double-digit revenue growth in this segment. The increase was driven by growth in servers, client computing, and 5G infrastructure. In servers, growth is driven by expansion in both attach rates and ASPs year over year. In client computing, growth is driven by the ramp of new client computing platforms, including a new platform ramp that began production in Q4. In 5G infrastructure, we saw strong growth year over year, reflecting our higher content in 5G versus 4G. We continue to see communications and computing as a long-term growth driver, given its multiple growth vectors. Turning now to the industrial and automotive market, revenue increased 11% year-over-year, despite some end-market softness due to the global pandemic. Our business grew across a number of applications, such as industrial automation, safety, and robotics, where Lattice solutions provide significant competitive advantages for our customers. As the need for industrial and automotive electronics continues to increase, the Lattice product portfolio is well positioned for long-term growth. Turning now to consumer, Revenue declined 40% in 2020 due to weaker demand caused by the global pandemic, as well as the expected mix shift in our business. We saw this segment stabilized towards the end of the year with a sequential revenue increase from Q3 to Q4. The quality of this revenue stream has improved over the last two years as we've targeted higher value, multi-generational designs that better leverage our FPGA portfolio. I'll now provide some highlights of our recent product roadmap execution. I'm very pleased with our team's execution in 2020. When we launched our Nexus FPGA platform in December of 2019, we committed to releasing two additional Nexus-based products in 2020. Both products were launched on time as promised to our customers. In June, we launched Certus NX, which is focused on general purpose FPGA applications. And in December, we launched Mach NX, our second generation security FPGA. We continue to be pleased with the broad market adoption of our Nexus platform across all of our market segments, and I look forward to sharing more information at our upcoming Investor Day about additional new products on our roadmap. Another key element of our R&D strategy is to develop a broader portfolio of software solutions to make it fast and easy for our customers to design our products into their systems and get to market quickly. During 2020, we significantly strengthened our software portfolio. In the first half of the year, we launched Envision, our embedded vision software stack, as well as Lattice Propel, our embedded system design environment. And in the second half, we launched Sentry, our platform security software stack. In summary, I'm very pleased with the progress we made in 2020. We significantly strengthened our product portfolio as we accelerated the cadence of new products and continued to execute towards our long-term financial model. Our two largest market segments grew double digits year over year, and we expanded our net income by 20%. As we began 2021, customer engagements across all our markets are extremely strong, and our team is energized and focused on executing our strategy for sustained revenue growth and increased profitability. I'll now turn the call over to our CFO, Sherry Luther.