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Operator
Greetings. Welcome to the BADIS Semiconductor Second Quarter 2023 earnings call. At this time, all participants are on 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 on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Rick Mouchet, Senior Director of Investor Relations. May we begin?
Rick Mouchet
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 2023 and the business outlook for the third quarter of 2023. 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 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 containing our projections or forward-looking statements. This call includes and constitutes the company's official guidance for the third quarter of 2023. 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. We will 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, atlantasemi.com. Let me now turn the call over to Jim Anderson, our CEO.
Jim Anderson
Thank you, Rick, and thank you, everyone, for joining us on our call today. We've delivered strong results in the first half of 2023, with first half revenue growing 20% year over year and non-GAAP net income increasing 29% over the same period. We're pleased with our first half results, but we're even more excited about the path moving forward as we continue to drive the largest product portfolio expansion in the company's history. Let me touch on a few Q2 highlights. We achieved record revenue growth in Q2, with growth of 18% year over year. Q2 was also our 13th consecutive quarter of sequential growth. We expanded non-GAAP gross margin by 140 basis points year-over-year to a record 70.5%, and non-GAAP net income increased 23% year-over-year. Let me now provide an overview of our business buy-in market. In the communications and computing market, revenue was down 3% sequentially and down 11% on a year-over-year basis. The sequential decline was primarily due to software and market demand in communications infrastructure applications, which was partially offset by sequential growth in computing, where we saw strong demand in data center applications, such as servers used for artificial intelligence. Turning now to the industrial and automotive market, revenue increased 7% sequentially and was up 55% year-over-year. Our strong growth was across multiple applications, such as industrial automation and robotics, as well as automotive ADAS and infotainment systems. We continue to deliver robust growth in this segment, and we believe our product portfolio is well-positioned to drive sustained long-term growth. I'll now provide some product roadmap highlights. At our Analyst and Investor Day in May, we detailed the broad and rapid expansion of our product portfolio. We're driving the largest product portfolio expansion in the company's history, which continues to create new revenue streams for Lattice. We've launched six device families to date based on our Nexus platform with five of those device families in production and ramping with customers. On our new Lattice Avant mid-range FPGA platform, we launched the first device family at the end of last year and continue to expect to generate revenue from this family before the end of this year. with the revenue ramp continuing into next year and the following years. In addition, we remain on track to further expand the Avant platform offerings with the planned launch of two new Avant device families at our Lattice Developers Conference in Q4. Turning now to our software portfolio, software is a key component of our strategy and it's an important part of how we enable our customers. We built a portfolio of application-specific software solution stacks, which accelerates customer adoption and enables faster time to market for our customers. We recently launched Lattice Drive, which is our sixth software solution stack and is targeted at a variety of automotive electronics applications. We believe customer adoption of our software drives long-term multi-generational stickiness for our solutions. Overall, we continue to be pleased with our execution of our portfolio expansion and the customer momentum that it's generating. While we're certainly not immune to any macroeconomic challenges impacting the industry, we believe Lattice continues to be well-positioned for long-term growth and expansion. I'll now turn the call over to our CFO, Sherry Luther.
Sherry Luther
Thank you, Jim. We are pleased with our financial results in Q2 as we continue to deliver double-digit revenue growth, record gross margin, and strong profitability. We generated strong free cash flow, returned capital to shareholders through our 11th consecutive quarter of share buybacks, and subsequent to Q2 have fully paid off our debt. Let me now provide a summary of our results. Second quarter revenue was a record $190.1 million, up 3% sequentially from the first quarter and up 18% year over year. Q2 was the 13th consecutive quarter of sequential revenue growth. Both sequential and year-over-year revenue growth in industrial and automotive offset the revenue decline in communications and computing. Our non-GAAP gross margin increased 20 basis points in Q2 compared to the prior quarter to a record 70.5% and was up 140 basis points on a year-over-year basis. Both the sequential and year-over-year increases in gross margin continue to be driven by consistent execution on our gross margin expansion strategy. Non-GAAP operating expenses were $58 million compared to $54 million in the prior quarter and $49.9 million in the year-ago quarter. Both R&D and SG&A expenses increased sequentially as we continued to make investments in our product roadmap as well as in demand creation. Our non-GAAP operating margin was 40% in Q2 and was up 190 basis points compared to the year-ago quarter. We continue to balance operating margin with investments that will drive Lattice's long-term revenue growth. Q2 earnings per diluted share was 52 cents compared to 42 cents in the year-ago quarter. This represents 24% year-over-year growth and is faster than our revenue growth. Driving strong cash flow generation continues to be a key focus area for the company. In Q2, we generated a free cash flow margin of 35%, and returned capital to our shareholders by repurchasing $10 million in stock or 122,000 shares in the 11th consecutive quarter of our share repurchase program. During Q2, we also paid down $60 million in debt. Subsequent to Q2, we paid off the remaining $45 million of outstanding debt, and the company is now debt-free. We ended the quarter with $104 million in cash. Let me now review our outlook for the third quarter. Revenue for the third quarter of 2023 is expected to be between 187 million and 197 million. Gross margin is expected to be 70.5% plus or minus 1% on a non-GAAP basis. Total operating expenses for the third quarter are expected to be between 58 million and 60 million on a non-GAAP basis. In closing, I am pleased with our financial results and continued execution. Despite the continuing macroeconomic challenges impacting the industry, we remain focused on driving further revenue growth and profit expansion. Operator, we can now open the call for questions.
Operator
Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
David
Our first question comes from the line of Srini Prajuri with Raymond James.
Operator
Please proceed with your questions.
Avant - E. later this year
Thank you. Thanks for taking my question. Jim, first one for you. Obviously, very strong quarter with 18% growth and you're guiding for double-digit growth again next quarter on a year-on-year basis. Some of your peers have talked about potential slowdown in the second half. I'm just curious, as we look through the, I guess, next few quarters, can you talk about where you're seeing continued strength and where you might be seeing somewhat of a macro slowdown in terms of your end markets?
Jim Anderson
Yeah, thanks for the question, Srini. First of all, really pleased with the results in the first half of this year. If we look at first half, 20% year-over-year growth. Pleased with that relative to the fact that we've had a couple years now of really strong growth, plus relative to the overall broader semiconductor industry performance. So pleased with that. with the first half. And, you know, if you look at the midpoint of our guidance, we guided up sequentially for Q3. I think first, if you look at it from a customer or market perspective, if I look at, you know, what's the source of that growth in the first half, vast majority of that growth is coming from new design wins, new revenue streams that have really just begun production and initiated within the last, say, 12 to 24 months. So we look at that to be really positive in that those revenue streams are fresh revenue streams that are kind of early in their life cycle and ramping. And they're underpinned by multiple different growth vectors, growth in industrial automation robotics. The industrial segment has been a really good performer for us. growth in automotive electronics, continued content expansion and things like data center servers, networking equipment. And so those are just a few examples. So we feel well positioned in terms of the freshness of the revenue and kind of the growth factors that we're positioned in. But then also you can look at it from a product perspective. And frankly, we're just going through so many new product cycles and product drivers. If you look first at just the portfolio we have today, it's the strongest product portfolio we've had in the company's history. I think our customers would say the same. And then we're in the middle of the biggest product portfolio expansion in our history too. So also from a product perspective, You know, we've got multiple new product cycle drivers. You know, Nexus is an example. Nexus, our newest platform for small FPGA. We now have five different device families based on Nexus that are in production and ramping. We have six that we've launched that will go into production next year. More to come on the roadmap. Nexus will continue to ramp, we believe, for multiple years to come. And then Avant, our new mid-range FPGA platform, that's all FPGA. That revenue and that revenue ramp is still ahead of us. So we feel good from both a market and in a product position in terms of our ability to continue to grow over the long term. Certainly not, you know, not immune to any end market fluctuations. You know, we would feel that just like everybody else, but we feel well positioned for growth over the long term, given the lattice specific growth drivers.
Avant - E. later this year
Great. Thank you for that answer. And then, I guess, as you look at your new products, and in particular, the Avant mid-range products, Jim, you talked about some of the new products ramping, you know, which were launched in the last, you know, 12 to 18 months. Just curious how, you know, Nexus design cycles compare with Avant, you know, are the Avant cycles a little longer, somewhat similar? And also, if you can talk about where you're seeing the most traction in terms of the Avant product, you know, the designs, you know, I think you talked about potentially generating some revenue this year. So if you can talk about which end markets you expect the revenue from.
Jim Anderson
Thanks, Srini. uh first of all on the design cycles you know in terms of the timing of the design from when say a design is one to when it reaches production the avant design cycles are very similar to nexus in that standpoint right um so we we look at the timing of the revenue to be very similar now that the asps of avant are different um asps of Avant are significantly higher than Nexus, and about 10 to 20 times higher than if you look at the company's average ASP today. So significantly better ASPs, but similar cycle times in terms of time to revenue. And then on the second part of your question around just traction of Avant. You know, we're really pleased with the, you know, continued growth of the Avant DesignWin pipeline. When we launched Avant in the platform at the end of last year, we also launched the first device family in in that based on that platform, Avant-E, we continue to expect the first revenue for Avant-E to begin before the end of this year. It'll be a small amount of revenue this year, but it's an important milestone for us to generate first revenue before the end of this year. And then it would continue to ramp into next year and beyond. And then also remember at our analyst and investor day, we also announced that we would launch two additional device families based on Avant-E. later this year, and those will launch, we expect, at our developers conference, which is scheduled for Q4 of this year. So, yeah, we feel really good about progress with Avant, and certainly stay tuned. We'll share more about our next product launches, Avant GNX, as we get closer to that launch date in Q4.
Avant - E. later this year
Thank you. That's all I have.
Operator
Our next question comes from the line of David Williams with Benchmark Company. Please proceed with your question.
David Williams
Hey, good afternoon. Thanks for taking my questions, and congrats on the execution and stability here. I guess my first question, Sherry, just kind of thinking about the debt payoff, and congratulations on being debt-free, but I'm curious if this changes your approach to the capital structure going forward and maybe how we should think about your appetite for leverage down the road.
Sherry
Thank you, David, for the question. We are really pleased that sitting here in Q3 that we have zero debt outstanding on our balance sheet. As I noted in my prepared remarks, subsequent to the end of Q2, we did pay off the remaining debt that we had on the balance sheet. And it's really, really due to the strength of our free cash flow for the quarter. We had 35% free cash flow. I'm really pleased with the strength there that we were able to pay off our debt balance From a capital allocation perspective, number one priority for us is investing in our long-term product roadmap as well as demand creation. And so that continues to be a priority for us. You can see that with the rapid expansion of our product portfolio and the investments that we've been making in those areas. You can see that in our P&L. The other areas that we focus on from a capital allocation perspective is really returning capital to our shareholders. And you see that in Q2, we executed on our 11th consecutive quarter of share buybacks, where we repurchased $10 million in stock. And so we're really pleased with that. We do have another $110 million still outstanding on the board authorization, and that expires at the end of this year. But we'll continue to focus on cash and the free cash flow and evaluating the best use of cash on a quarterly basis.
David Williams
Great. Thanks for the color sharing. Maybe, Jim, just then, and you talked a little bit about the automotive industrial in the last question, but just kind of curious if you could give maybe a little more color around the industrial segment specifically, maybe what you're seeing there. It seems like there's some undercurrents here where some are thinking industrial automation is slower and robotics, but it sounds like yours is pretty strong. And maybe just any puts or takes or what you're seeing around the industrial segment specifically. Thank you.
Jim Anderson
Yeah, thanks, David. Yeah, we continue to see good strength in the industrial, and I'll include in there automotive as well, both industrial and automotive. Again, in industrial, it's primarily around industrial automation, robotics, automotive, electronics. That's really around ADAS and infotainment systems and electronics. Yeah, we continue to see good, healthy demand there. Again, I'll emphasize what I said earlier, which is a lot of those revenue streams that are driving growth for us, the vast majority are fresh revenue streams. And if you think about the lifetime of those revenue streams, we're still really in the lifetime of those new design wins, new revenue streams that we've seen ramping. So we feel good about that. you know, continued growth in that segment, certainly over the long term. We continue to view industrial and automotive as one of our key growth areas over the long term, as we highlighted in the Investor and Analyst Day back in May.
David
And our next question comes from the line of Matt Ramsey with TD Cowan & Company.
Operator
Please proceed with your question.
Lattice
Thank you very much. Good afternoon, guys.
Matt
Jim, I wanted to ask a little bit about, I mean, obviously the industrial and comms business is super strong over the last few quarters. We've been hearing a little bit about lead times potentially coming in. So if you could maybe level set us on particularly your industrial business, but comms as well, just how you're seeing sort of in customer demand, the channel and lead times in that business and how you're thinking about trends over the next couple of quarters in that segment, given the massive results you've seen in the last couple of quarters. Thanks.
Jim Anderson
Yeah, thanks, Matt. In terms of lead times in general, I think you're asking about lattice lead times, just to clarify. And so to talk about lattice lead times, we're certainly seeing our lead times return to what we'd view as normal, closer to normal lead times, sort of lead times more consistent with pre-lead. pre-pandemic supply chain, you know, ahead before that supply chain crunch that we saw. And so, yeah, we just continue to see lead times normalize, which we view as very positive. That's positive for our customers, our distributors, us as well. And so, yeah, think about lead times continuing to normalize. In the industrial segment, as I just mentioned, we continue to see good demand. If I look at our Q3 guidance, if you look at the midpoint of Q3 guidance, we guided up sequentially, and we would expect the industrial and automotive segment to be up sequentially or flat to sequential growth from Q2 to Q3, consistent with our overall guide. And then I think you mentioned comms as well, communications. Now, in Q2, we did see some softness in communications infrastructure, specifically in wireline and wireless. We saw some end-market softness related to, I think, slower capital spending around 5G build-out, et cetera. So we saw a little bit of sequential revenue decline from Q1 to Q2 in that communications and computing segment. But that was partially offset by we saw pickup in demand for servers, our chips going into servers that go into data centers. So those are kind of some of the puts and takes that we saw in the Q2 timeframe. So hopefully that's a little bit of additional color in just kind of what we're seeing by end market.
Matt
Thanks, Jim. I appreciate it. As my follow-up, I wanted to ask about we're getting really, really close to when Avant starts to contribute to revenue a bit. And you guys were kind enough to give us a little bit of insight into software attached rates for Nexus and what that might mean for ASPs at your investor meeting. And as you get towards rolling out Avant's revenue and you look over the pipeline over the next, I don't know, 18, 24 months, What are you seeing for Avant software attach rates at this point relative to what you might expect and what you might have expected when you launched the product almost a year ago? And just how is that software attach trending in the pipeline? Any info you have there would be really helpful. Thanks, guys.
Jim Anderson
Yeah, thanks, Matt. I would say the software attach on Avant is very similar to what we're seeing on Nexus and even some of our pre-Nexus products. As we had shared prior, we're seeing a software attach that's now over 50%, meaning Over 50% of the time, when a customer selects a piece of silicon, they're using one of our software solution stacks on top or in conjunction with that silicon. And now with the new Lattice Drive solution stack that we just launched, we now have six different solution stack software customers. And those solution stacks, just as a reminder, are around making it really easy for customers to adopt Lattice silicon and solutions, get to market quickly, speeds up our time to revenue, and then also creates multi-generational stickiness. And we've also tried to make sure that customers that adopt those software solutions or software on, say, a Nexus device, that they can leverage that same software infrastructure onto Avant devices as well. We're seeing adoption rates on Avant that would be similar to what we see on Nexus. In general, over time, we would expect that adoption rate to continue to increase over time, especially as we introduce new solution stacks like Lattice Drive, which we just introduced for the automotive electronics segment.
Operator
And as a reminder, if anyone has any questions, you may press star one on your telephone keypad to join the question and answer queue. Our next question comes from the line of Tristan Jara with Baird. Please proceed with your question.
Tristan Jara
Hi, good afternoon. We've had a couple of companies last week mentioning how some spending in data center was redirected toward AI, and that was at the expense of the more traditional spending. Do you view yourself as a beneficiary of that trend? What would be the reason why the increase of a GPU-based data center board would actually benefit you as opposed to being on the other side of the scale?
Jim Anderson
Yeah, thanks, Tristan. So first of all, in Q2, we did see an uptick in the products that are used in servers for data centers, either kind of general purpose servers or servers that are more optimized for artificial intelligence workloads. So that was a nice positive sign that we saw in Q2. But I think in general, when we look at, let's say, let's call it general purpose servers versus servers that are more optimized optimized for AI workloads, usually we have about the same level of content. If not, in some cases on the AI optimized servers, we have higher levels of content. So we view it as a net positive for us. And certainly over the long term, we believe that, you know, just the tremendous amount of compute cycles that AI will drive into the data center is We view that as a net benefit for the industry and Lattice as well. And then just as a reminder, and we've talked about this in past, in fact, we talked about this at the last Investor Day in May, is that on the new generation of servers that's beginning to ramp, we have a significant step up in the dollars of content per server in that new generation. So as that new generation ramps, through the second half of this year and into next year, that's certainly a tailwind for us as we enjoy a higher level of dollars of content per each server.
Tristan Jara
Great, thanks for the color. And then for my follow-up, we're starting to see companies later this year launching MCUs with native neural network, AI at the edge type of capabilities. Where should we be looking at in terms of your product pipeline that would be playing on that trend, and specifically AI at the edge?
Jim Anderson
Yeah, we continue to feel really well positioned with our product portfolio in terms of being able to support edge computing applications, specifically AI at the edge, which is most often inference at the edge of the network. You know, FPGAs are a naturally good match for those type of workloads, because if you look at AI workloads in general, inference workloads in particular, generally those are parallel algorithms, and they can be mapped really efficiently in some cases onto, for instance, Lattice FPGAs. You can basically program your Lattice FPGA as a customized AI processor for your particular algorithm. And so there's a number of different applications where Lattice FPGA can provide really great inference performance, especially on a performance per watt basis. And those algorithms are evolving, right? A lot of our customers are evolving those algorithms on a pretty constant basis. And so the ability to simply reprogram your FPGA for your updated new inference algorithm is a big benefit. It provides some level of future-proofing as your algorithm changes over time. And then we've also tried to make sure that our customers have good software support from us as well. And so there's software solution stacks like Sense AI that we've built that are specifically around supporting our customers for designing our products into edge computing, edge artificial intelligence applications. And Sense AI is actually the first software stack that we launched, and we continue to see good adoption of that software stack. So, yeah, we feel really well positioned to benefit from continued growth in artificial intelligence processing at the edge.
Tristan Jara
Great. Thank you very much.
Operator
Our next question comes from the line of Christopher Rowland with Susquehanna. Please proceed with your question.
Christopher Rowland
Hey, guys. Thanks for the question and congrats on the results. My first question was going to be around 5G. And Jim, I think you kind of mentioned it, some weakness in the quarter. You know, Nokia, Ericsson were out. Things look like they're slowing quickly. All our checks kind of say the same thing around 5G infra. I know you guys are exposed there. I guess, first of all, can you update us as to what percent of comms and compute is kind of telco-related, 5G-related data? what might fall into this bucket. And then if these headwinds last for a while, would we see continued weakness in this area? You know, would you have negative year-over-year growth here for a while because of this? Perhaps you can just tell us what the impact might be. Thanks.
Jim Anderson
Thanks for the question, Chris. So, yeah, as I mentioned in the prepared remarks, if we look at sequentially from Q1 to Q2, we definitely did see softness in the communications part of our communications and computing segment. For us, communications is softness. both wireline and wireless. And we did see softness in both 5G wireless infrastructure as well as related wireline infrastructure. And I think that definitely related to end market softness that other companies are seeing in terms of, you know, telco capital spending into infrastructure build out. In terms of, you know, the second part of your question, what percentage of comms and compute costs does that account for? We don't break out comms into a separate sub-segment, but comms is the smaller portion of that segment. Computing has grown to be the majority of that segment over time, especially given some of our growth in content and servers. And so comms is the smaller portion of that. And in terms of the outlook, Uh, you know, we, we only guide a current quarter, but if we look at, uh, Q3, the current quarter that we're in, you know, sequentially from Q2 to Q3, we would expect comms and computing overall to be kind of flat to sequentially up.
Christopher Rowland
Uh, I see. Okay. So I guess that means consumer would probably be down, uh, for next quarter as well. Um, uh, but I actually have a bigger question around AI. So in your presentation, you mentioned the GPU card. Looks like you do have some content there. You mentioned power control reporting and throttling. Would love to know a little bit more about this. Also, if you see some additional applications you could be addressing. But really, what is the content here? What is the attach rate? Like in server, it's more than one. What do you think the attach rate here is? And do you think this is going to be a meaningful needle moving opportunity potentially going forward?
Lattice
Yeah, thanks, Chris.
Jim Anderson
We do see, we do believe AI is a net benefit driver for us in the server data center space over time. As I mentioned earlier, when we look at general purpose servers and then I'll call it servers that are more optimized for artificial intelligence workloads, we usually see about the same level of content or sometimes higher levels of content in the AI optimized server. Now, there's a lot of different configurations of both general purpose as well as servers that are optimized for AI. But in general, what we're seeing is on those servers that are AI optimized equal to or greater than levels of content. And then if we look out over the long term, yeah, we certainly see additional opportunity in those AI optimized servers in terms of increasing our attach rate, but also increasing the capabilities, functionality that we're bringing to those servers. servers and the ability to continue to grow our dollars of content per server. And I think that actually applies to not just the AI optimized servers, but even in general purpose servers, we see continued ability and opportunity to drive higher levels of dollars of content per server. And as we've shared in the past in that new generation of servers that's ramping, we have a significant step up in content in that newer generation of servers.
David
Thanks so much, guys.
Operator
And again, as another reminder, if you have any questions, pressing star one will allow you to join the question and answer queue to ask a question. Our next question comes from the line of Ruben Roy with Stiefel Nichols. Please proceed with your question.
Ruben Roy
Yes, thank you. Hi, Jim. I wanted to revisit I think the first question that was asked on Avant around kind of the design activity, et cetera, and the way I'm thinking about it, Lattice is a much different company now, right, versus when you launched your first Nexus device. I would say, I would think there'd be much more awareness, customer awareness, et cetera. And so can you talk about design activity six months into Avant-E being out there versus
Jim Anderson
how you know you saw nexus design activity can you can you compare how those are lining up yeah absolutely so if we look at the same relative point in time so if you think about you know avant launching uh end of last year and kind of being you know six seven months from launch and if you compare it to the same point in time from the Nexus launch, the design win opportunity for Avant is significantly larger than Nexus. And we're really pleased by that. I think our customers are really pleased by what they're seeing in terms of the Avant products that we're bringing to market. But, yeah, we certainly view that as a really positive sign. And we're also really excited to get the first device family, Avanti, to start to generate revenue. We expect that to start to generate a little bit of revenue before the end of this year, obviously more significant contributor next year. And then, as I mentioned earlier, also really excited to bring Avanti and X to market and launch that at the developers conference in Q4. So yeah, I would say overall, really pleased with the progress with the customers and the continued build out to the Avant portfolio.
Ruben Roy
Appreciate it, Jim. And a quick follow up, just on general pricing environment. So, you know, obviously, Avant's coming out and much higher ASPs, but In terms of sort of the lead time backdrop and maybe backlog out there in distribution, can you talk about pricing environment for Nexus and pre-Nexus products as you see it maybe this quarter and going forward through the end of the year?
Jim Anderson
Yeah, certainly. I would call the pricing environment for us very stable. We believe our pricing is very durable. We have been doing pricing optimization for, we're now in our, I guess, our fifth year of doing that as part of our gross margin expansion strategy. At the beginning of 2009, we kicked off that strategy. Part of that was pricing optimization. And so over the last four or five years, we've built really good internal processes and muscle around pricing our products correctly in the market, making sure that we're pricing for the value that we deliver to the market. And yeah, we believe our pricing is very durable. And then the one thing that's going on over time is as we build out the portfolio, as we widen the product portfolio, as we add newer devices that are higher capability, higher capacity, certainly those new products with higher capability, higher capacity, those come with higher ASPs. And so we've seen our ASPs increase steadily over time. And We believe that will continue as we continue to bring higher capacity, higher capability devices to market. So we do expect that ASP to continue to trend up over time.
Lattice
Great. Thanks, Jim.
Operator
And we have reached the end of the question and answer session, and I'll turn the call back over to CEO Jim Anderson for closing remarks.
Jim Anderson
All right, thank you, Operator, and thanks, everybody, for being on the call with us today. We're certainly pleased with the continued execution and strong results in the first half while we continue to execute on certainly our biggest product portfolio expansion in the company's history, and we're excited about the opportunities ahead for Lattice.
Lattice
Operator, that concludes today's call.
Operator
And this concludes today's conference, and you may disconnect your line at this time.
David
Thank you for your participation.
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