Lattice Semiconductor Corporation

Greetings. Welcome to the Lattice Semiconductor Second Quarter 2022 earnings column. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero and a telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host. Rick Mouchet, 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. We'll provide a financial and business review of the second quarter of 2022 and the business outlook for the third quarter of 2022. 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 third quarter of 2022. If 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. We refer primarily to non-GAAP financial measures during this call. 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. 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 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. We delivered strong results in Q2 with record quarterly revenue, which grew 28% year-over-year and non-GAAP net income growth of 68% year-over-year. Growth continues to be led by our largest end markets of communications and computing and industrial and automotive. Our growth in these strategic markets is fueled by growing demand for our rapidly expanding product portfolio and continued strong customer momentum. Let me touch on a few additional highlights from Q2. In addition to the strong revenue growth, we expanded non-GAAP gross margin by 700 basis points year over year to a record 69.1%. We achieved record non-GAAP operating profit of 38.1%, which was an increase of 900 basis points year over year. And we further expanded our product portfolio with the launches of our Mach XL5NX device and our Lattice 5G ORAN solution stack. Let me now provide an overview of our business by end market. In the communications and computing market, revenue increased 13% sequentially and 35% on a year-over-year basis. We're on track to deliver our fourth consecutive year of double-digit growth for this segment. In data center, our dollars of content per server continues to increase due to our growing attach rate, which is now well over 1x, and increasing ASPs. In client computing, where we have a large greenfield growth opportunity, new customer systems began production in Q2, including the new platforms that were announced with Lenovo and LG over the past quarter. Lastly, in 5G infrastructure, we're benefiting from ongoing global deployments with strong revenue growth, both sequentially and year over year. Turning now to the industrial and automotive market, revenue increased 7% sequentially and was up 30% on a year-over-year basis. Revenue growth was driven by new customer platforms where Lattice has either displaced competitors or brought new functionality and capabilities to the system. Lattice's market-leading power efficiency in combination with the software content that we provide has been a key driver for customers adopting Lattice products. We continue to be very excited about the growing customer opportunities for Lattice products in the industrial and automotive segment. Turning now to consumer, revenue declined 17% sequentially and was down 1% year-over-year, reflecting macroeconomic softness in the consumer electronics end market. Because consumer represents less than 10% of our overall revenue, the consumer demand softness was more than offset by growth in our other core strategic markets. I'll now provide some product roadmap highlights. We introduced Mach X05NX, the fifth device family built on the Lattice Nexus platform. This device family enhances system monitoring and control in multiple applications across our strategic markets with class leading power efficiency and reliability. Overall, we continue to be pleased with the broad adoption of our Nexus platform across all our market segments. We're also pleased with the revenue ramp of our Nexus products, which we expect to continue to ramp over multiple years. In addition to the continued portfolio expansion of Nexus, we're excited this year to be further expanding our product portfolio with the launch of our Lattice Avant platform. Avant will have 5x the capacity of Nexus, which will double our addressable market and will allow us to address mid-range FPGA applications. Customer engagement and momentum is very healthy, and continues to grow, and we believe Avant will create an important new revenue stream for Lattice when it ramps into production. Execution remains on track for launch in the second half of this year, and as we previously mentioned, we expect to hold a public launch event for our Avant customers and partners in Q4 of this year. Turning now to our software strategy, as we've discussed over the past few years, we've been increasing investment in our software portfolio. These investments are focused on making it easy for our customers to adopt Lattice products and get to market quickly. During the quarter, we launched the Lattice 5G ORAN solution stack, which is the fifth software solution stack in our portfolio of software solutions. The 5G ORAN solution stack provides customers with the ability to secure data and accelerate network functions. Over half of our new silicon design wins. are now enabled by at least one of our five software solution stacks, which increases the value that we're delivering to our customers and the long-term stickiness of our products. In summary, we believe Lattice is well positioned in the right strategic growth markets with a rapidly expanding product portfolio and accelerating customer momentum. We're pleased with our first half results, and we expect to have a strong second half as well. I'll now turn the call over to our CFO, Sherry Luther.