Lattice Semiconductor Corporation

Greetings and welcome to the Lattice Semiconductor fourth quarter 2023 earnings call. At this time, all participants are in a listen-only mode. A brief 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Rick Mouchet, Vice President of Investor Relations. Thank you. 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 fourth quarter of 2023 and the business outlook for the first quarter of 2024. 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 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 first quarter of 2024. 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 at latissemi.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. 2023 was another strong year for Lattice as we expanded our product portfolio and delivered record financial results. Annual revenue grew by 12%, marking the third consecutive year of double-digit growth. Full-year non-GAAP gross margin increased 130 basis points to a record 70.4%. and we delivered 15% year-over-year growth in non-GAAP EPS. We also continued our rapid product portfolio expansion with the launch of multiple new hardware and software solutions, including two new device families based on our new Abant mid-range FPGA platform. While I'm pleased with the full year revenue growth for 2023, our progress in Q4 of 2023 was impacted by the cyclic correction affecting the broader semiconductor industry. In the industrial and automotive market, although revenue grew 11% year-over-year in Q4, revenue declined 9% sequentially as demand softened across the SEND market as customers reduced their inventory levels. In the communications and computing market, revenue declined by 14% sequentially in Q4 as growth in data-centered computing was offset by weaker demand in wired and wireless telecommunications driven by lower wireless infrastructure deployments. Looking forward, we expect Q124 revenue to be sequentially down from Q423, driven by softer end-customer demand across our end markets as end-customers rebalance their inventory levels. At this point, we expect revenue in the second half of 2024 to be higher than the first half of 2024, driven by improving end-market conditions as end-customer inventory levels normalize, as well as new Lattice Nexus and Avant product ramps. Turning now to our product portfolio, In our small FPGA portfolio, we now have seven Nexus device families launched, with five in production and ramping with customers, and two families entering production later this year. We are very pleased with the strong revenue growth of Nexus in 2023, as it was a major contributor to the overall company growth. We also achieved a record level of design wins with Nexus in 2023, and our Nexus pipeline of opportunities continues to grow. Nexus' revenue and design and growth in 23 was primarily due to a combination of displacing competitor devices, as well as the adoption of Nexus' new Greenfield applications. Turning to our mid-range FPGA portfolio, at the Lattice Developers Conference in December, we launched two new device families based on our new Avant platform. We now have three Avant device families in the hands of our customers. With the first device family, the Avant E, generating initial revenue at the end of 2023 as planned. Avant's initial revenue was driven by numerous applications such as communication gateways, industrial engine controls, LIDAR applications, and more. We expect the Avant E series to ramp throughout the course of this year with a more significant contribution in the second half of this year and continued growth in the following years. We expect initial revenue from the newly launched Avant G and X series before the end of this year. Our three Avant device families provide a market-leading lineup of solutions for customers in the mid-range FPGA market. As a reminder, 90% of the target customers for Avant are already customers of Lattice today, and Avant leverages the same software that customers use today on Nexus. Given the competitive differentiation and use of adoption of Avant, The overall pipeline of Avant Design opportunities continues to grow and significantly exceeds the pipeline of access at the same relative point in time. We also refreshed four of our key software solution stacks. We continue to see strong software adoption at an attach rate of over 50%. We continue to expand the capabilities and performance of our software portfolio to enhance the customer design experience and to make it easy for them to adopt Lattice products and get to market quickly. Our most widely adopted solution stack to date has been our Sense AI stack, which supports a variety of AI applications. One of the frequent questions we've gotten from investors over the past months has been around overall Lattice AI-related opportunity, so I'd like to provide some additional color on that topic. Lattice hardware and software solutions can be used in a wide variety of AI-related applications. For example, in AI-optimized servers in the data center where the system is running generative AI workloads, for example, Lattice devices are used in the control, management, and security of the AI computing system. Another example is in AI-enabled PCs where Lattice solutions are used to run the AI inference algorithm that provides features such as user presence and gaze detection in PC systems like the Lenovo ThinkPad. A third example is AI-enabled automotive ADAS systems, where a lot of solutions are used to aggregate and preprocess sensor data that are used for AI processing. We recently announced that a lot of solutions are being used in the ADAS systems of Mazda crossover SUVs. There are many other examples as well. When we look across all the AI applications across our own markets, we estimate that Lattice revenue in 2023 included about $100 million of AI-related revenue. We expect our AI-related revenue to more than double over the next few years based on the growing pipeline of AI-related design lens. In summary, I'm pleased with the strong progress in 2023 as we achieve record revenue and gross margin and continue to execute on the biggest product expansion in our company's history. While the industry moves through a temporary correction cycle and we experience some short-term cyclic headwinds in our end markets, we continue to be well-positioned for growth over the mid and long term. We have the strongest product portfolio in our history, and we continue to rapidly expand our product lines and accelerate our customer momentum. I'll now turn the call over to our CFO, Sherry Luther.