Lattice Semiconductor Corporation

customer meeting we had in Asia, we had NXP semiconductor be there with us. We worked together at OCP and the partnership with NXP is actually becoming quite strong and customers quite like the two of us together. We're expanding it across others. So on the microcontroller, we're seeing interest from other players in that space to do the same. And you'll hear more partnerships in the future. So we do believe that on the processing side, whether it's microprocessor or microcontroller, you're going to see one plus one equals three, where we'd be providing joint solutions to customers that leverage the best out of FPGA and these processors next to us. On where we're going to take this longer term, there's definitely quite a few discussions going on and exploration, but we're not ready to discuss at this point. We're being asked by customers to do some specific stuff that we're investing in and that may be part of the increased investment into 2026 that Lorenzo has hinted to in his prepared remarks. So stay tuned on that. We'll have more detail as we go.

Thanks, Ford. Thank you. We take the next question from the line of Ruben Roy from Stiefel. Please go ahead.

Yes, thank you. Ford, I wondered if you could add a little detail to the AI usage comment. I think you previously said high teens going into the mid-20s for next year. How are you thinking about mix on that relative to AI? compute and comms versus industrial and automotive, and maybe a little detail on how you're defining AI usage would be great.

Thank you. Thank you, Ruben.

We are still on track for the mid-teens in this year, 2025, going into the mid-20s by next year, 2026. And the ratio is about 60% comms and compute versus 40% industrial and automotive. On the comms and compute, we play a role of a companionship to the various ASICs and ASSP I've mentioned before. On the industrial auto, we can play a far-edge AI near-sensor intelligence, if you wish, and that's our focus. Less than one-tops, these very power-sensitive technologies you know, applications that are really tied to these camera, LIDAR, radar, other industrial sensors. Hope that answers the question.

Great. Yeah, that's helpful. Thank you, Ford. And then just to follow up on your comment regarding Nexus, year of Nexus next year and then Avant 27. And you mentioned that Nexus, you know, sort of plays into data center and Avant maybe a little more slated for industrial and auto. And I'm just wondering, why you wouldn't see some mid-range FPGA kind of usage in some of the, I guess, higher-end common compute applications that are coming up. Am I reading that wrong or listening to you wrong or anything to add on that comment?

No. I mean, we would see Avant applications in the comms and compute. We'd see Nexus application in industrial auto. So I wasn't trying to imply, you know, exclusion. I was trying to apply a majority, if you wish, of the design when it would be Nexus on the Composite Computing on industrial auto. And we, for example, had Ericsson at our developer conference who was showing an Avant application. And so, again, we'll have applications of Avant in Composite Compute for sure.

Okay, got it. Thank you, Ford.

Thank you. We take the next question from the line of Melissa Wethers from Deutsche Bank. Please go ahead.

Melissa, please unmute from your end. I'll proceed with your question.

Since there is no response, we'll move on to the next question, which is from the line of Joshua Buckalter from TD Cowen. Please go ahead.

Hey, guys. Thank you for taking my question. I guess I wanted to ask about some of the assumptions behind the growth rates you just talked about for 2026 or the revenue split, I should say. Any metrics you can give us on what would or details you can give us on what would allow you to come in at the lower end versus the high end of the 20% to 40% range, given it's such a wide range and maybe any details on how much contribution you're expecting from general purpose versus AI servers. And then on the industrial and auto side, is that sort of assuming just shipping to normal seasonality with the 5% to 15% and no restocking? I'm trying to understand what's the sort of normalized

sell through for auto and industrial at this point given all the volatility. Thank you.

So I'm going to, Josh, I'm going to go a little backwards on this.

The industrial and auto, like I said, for us to be confident, given what's happening in the world and what could happen, We thought that it would be prudent really to, as you indicated, just say we're back to kind of a normal, I don't know if seasonal is the right word, but normal demand cycles as we start shipping to where consumption and our revenue are aligned versus undershipping demand as we have been. I think that's not aggressive at all. On the comms and compute side, I think we are pretty confident that the 20 to 40 range, as Ford said earlier, we have good support in with the fundamental driver, which is the capex of the industry. And that range aligns with what we see in the CapEx for the industry being. And as Fort said earlier, we could have upside as our footprint actually grows against that CapEx based on the design wins we have and the opportunities that we're beginning to shift to now. So hopefully that answers your question. I don't I think that AI mix, and this is something you can jump in and correct me if I'm wrong, the AI mix will continue to grow just as the nature of the prevalence of AI in the overall footprint in both comms and compute and industrial grows as well. We haven't broken that out separately.

Is that helpful?

Yeah, it was. Thank you. I appreciate all the color there.

And for my follow-up, I mean, you guys called out a bunch of different applications for companionship and use cases that you're seeing in both general purpose and AI servers. Could you maybe speak to which ones you're seeing the most traction for now and which ones you expect to grow more as Nexus and Avant product portfolio layers into the mix?

Thank you.

Yeah, Josh, I'm not sure we're prepared to break it up to such a level of detail by application. I think as Lorenzo was saying, what gives us confidence if you see the overall CapEx expected to grow 20% to 30% next year, we expect to grow faster than that underlying CapEx. You know, hence the numbers that we're mentioning. I think it's time to break this down by application is beyond this call. We can discuss on the post calls if you like.

Sounds great. Thank you.

Thank you. We take the next question from the line of Melissa Weathers from Deutsche Bank. Please go ahead.

Hi, guys. Can you hear me now? Yes. Yeah. Okay, great. Sorry. I'm having some phone issues. Maybe my line needs more FPGAs. I guess... Sorry if I missed this in an earlier question, but you guys have been talking about PQC a lot. And I'm still a bit uncertain how big that market could be. So could you just talk about how big is that opportunity for you guys? Is it growing? What are you seeing? Just anything else on the PQC side.

I mean, PQC is a big driver of our security adoption. We do believe we're ahead. It is being mandated in all systems right now. So we're being designed in. now into both SCARMs and compute type of applications. And we haven't broken it up, Melissa. So again, I think we're probably not going to be ready here to break down percent of applications per use case on this call.

Okay, got it. That's fair. And then on the pricing side, I just want to make sure, as we're kind of bottoming out in this semi-cycle, are you seeing anything interesting on the pricing side, either from your industrial and automotive customers or maybe on the constant compute side, a little bit more leverage? Is there anything on pricing?

No. So our pricing strategy is obviously to price to value, as you can tell by our gross margins. And as I said earlier in the commentary around Gross margin, that varies a lot between the segments and within the segments between the different design ones, depending on how the customers are going to use it. We also have had consistently a strategy of working with our customers to provide a long-term value proposition. So we're not tactically taking advantage necessarily of certain, you know, demand trends because, you know, we think we're going to work a long time with these customers and over time we'll get the full value of what we offer, uh, from our, from our product set to these customers. So, um, we do see, uh, you know, at the same time, candidly, uh, pressure from our suppliers based on demand. Uh, and we're managing through that, um, uh, on both sides of the supply chain with them and with our customers, uh, to mitigate the impacts of that.

Thank you. Thank you.

Thank you. We take the next question from the line of Quinn Bolton from Needham and Company. Please go ahead.

Hey, guys. I just want to come back to the auto industrial. That business has been running at about $50 million a quarter recently. all year and it's been very consistent. You've also said you've been under shipping by 15 to 20 million every quarter. So consumption feels like it's been very consistently at 65 to 70 million for the last four to five quarters. I guess I really struggle to see why would that drop to something in the 55 million range implied by your, you know, five to 15% guidance in 2026. That just seems like there's a massive, change in the consumption level implied by your guidance?

Yeah, I think the challenge in reconciling these, what you're saying and what we're seeing is there is a direct aspect meaning non-channel piece of our industrial and auto. And what we're talking about in terms of where you see the phenomenon of undershipping demand, it's really primarily in the channel. But I don't want to underwrite, if you will, that level of increase into 2026 until we actually see

the strength underlying the overall industrial and auto business. Okay, so it sounds like the backlog coverage.

Yeah, sorry, go ahead, Book.

No, what is the number that you're mentioning then for?

He's seeing 52, 47, 50, and something like that in terms of the industrial auto through the year. Is that right, Quinn?

Yeah, I'm just looking at the reported industrial and auto. Yeah, that's the same as our numbers.

That's our numbers.

Okay. So your number for, well, maybe we should do this. Maybe we should do this reconciliation after Quinn.

Yeah, we can take it offline. The other question I had just on the comms and compute, you guys talked about servers up over 80% year-to-date, and I think the comms up over 60% year-to-date. Yet, if I look at the total comms and compute in 25, even with a healthy increased queue-on-queue in December, it kind of looks like you're going to be up mid-20s for the year. And so it feels like there must be a portion of comms and compute that's down pretty substantially. to bring the total bucket to mid-20s when I think the two biggest components of comms and compute servers and wired comms are growing three years faster.

So we're like, what's the offset? Yes, yes. Yeah, the offset is the client business. So we had a big client business last year that pretty much has disappeared now. So we've had a big headwind in the client business, Quinn. with three client OEMs.

One large one and two medium-sized ones. And that headwind disappears now.

Thank you. We take the next question from the line of Chris Myers from Rosenblatt Securities. Please go ahead.

Hi, this is Chris Myers on for Kevin Cassidy, and thank you for taking my question. First, can you guys just share your current view on the automotive market right now? Are you guys seeing any inventories come down or any backlogs start to build up again? And then on the data center side, what's the trend that you guys are seeing in terms of your dollar content per traditional server versus AI servers? And then do these devices play different roles in the two different types of systems?

Yes, on the AI server versus traditional server, we definitely have more content in AI servers because of the segregated nature of these servers.

So yes, and then on the... On the auto, first let's remind everybody that the automotive business is a very small part of our business and What we see on a global basis is we don't see any tailwinds there yet, except the place that seems to be moving the fastest is in China automotive. But again, that's a portion of our overall business, which is a small part of our overall industrial and auto business. So that's what we see.

We don't see auto strength anywhere but China. Got it. Thank you. Thank you guys very much. I appreciate you taking my question. Thank you.

Thank you. Ladies and gentlemen, this concludes our question and answer session. I would now hand the conference over to Lattice's Semiconductor's Vice President of Investor Relations, Rick Moshe, for closing comments.

Thanks, everyone, for joining us today. We'll be attending the following investor events this quarter. the Stifel 2025 Midwest One-on-One Conference in Chicago on November the 6th, the Alliance Bernstein 2025 BISIDE Small and Mid-Cap Summit in New York City on November 18th, and then lastly, the UBS Global Technology and AI Conference on December 2nd in Scottsdale. This completes our call. Thank you very much for your participation, and have a good evening.

Thank you. Ladies and gentlemen, the conference of Lattice Semiconductor has now concluded. Thank you for your participation. You may now disconnect your lines.