Lattice Semiconductor Corporation (LSCC) Q2 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary shows strong financial performance with record design win momentum and robust new product revenue growth. The Q&A session indicates confidence in future growth, especially in AI and automotive sectors, and highlights strong market positioning and shareholder returns. Although there are some uncertainties in gross margins and inventory, the overall sentiment remains positive, bolstered by optimistic guidance and strategic focus on innovation and market expansion.
Key Financial Performance
Q2 2025 Revenue $124 million, up 3% over Q1 and flat with the year-ago period. The flat year-over-year performance was due to market conditions, but sequential growth reflects improved demand in Communications and Compute.
Non-GAAP Gross Margin 69.3%, up 30 basis points quarter-on-quarter and year-on-year. This reflects growth in higher-margin new products and markets.
Adjusted EBITDA Margin 34.1%, up 70 basis points quarter-on-quarter. This improvement is attributed to disciplined execution and a strong product portfolio.
Non-GAAP Operating Expense $51.8 million, up 1% sequentially but down 4% year-over-year. The year-over-year decrease is due to disciplined investment in growth opportunities.
Non-GAAP Operating Margin 27.5%, up 150 basis points year-over-year. This reflects operational efficiency and strategic customer gains.
Non-GAAP EPS $0.24, up from $0.22 in Q1 and $0.23 in the year-ago period. The increase is due to improved profitability.
GAAP Net Cash Flow from Operating Activities $38.5 million, up from $31.9 million in Q1. This increase is due to improved operational performance.
Free Cash Flow $31.3 million with a 25.2% margin, up from $23.3 million and 19.4% in Q1. The improvement is attributed to better cash flow management and operational efficiency.
Communications and Computing Revenue Grew 20% sequentially and 26% year-over-year. Growth was driven by expanding footprint in AI-optimized servers and data center infrastructure.
Industrial and Automotive Revenue Declined sequentially due to inventory normalization. Automotive recovery is slower, but Industrial is expected to drive growth in 2026.
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Operating Highlights
New Product Revenue Growth: Total revenue for new products continues to grow at a strong rate, on track to exceed the 2025 goal.
Companion Chip Opportunity: Significant growth opportunities from major design wins in AI accelerators, cloud data centers, industrial robotics, ADAS, infotainment, and far-edge AI applications.
Far-Edge AI Solutions: Optimized for applications requiring less than 1 TOPS and under 1 watt of power, ideal for industrial and automotive deployments.
Communications and Computing Growth: Segment grew 20% sequentially and 26% year-over-year, driven by expanding footprint in AI-optimized servers and data center infrastructure.
Industrial and Automotive Segment: Declined sequentially but expected to recover by year-end, with Industrial poised to be a strong growth driver in 2026.
Revenue and Profitability: Q2 revenue of $124 million, up 3% over Q1, with a strong gross margin of 69.3% and adjusted EBITDA of 34.1%.
Channel Inventory Management: Normalized inventory levels expected by year-end, with Communications and Compute already normalized.
Cash Flow and Capital Allocation: Free cash flow margin increased to 25.2%, with $46 million in stock repurchases during the quarter.
Asia Tech Summit: Engaged with over 100 customers, showcasing leadership in low-power programmable innovation and expanded role in AI and advanced use cases.
Customer Engagement: Deepened relationships through record design wins and strategic applications in emerging areas like humanoids, robotics, and vision systems.
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Risk or Challenges
Market Uncertainty: The company operates in an uncertain market environment, which could impact demand and financial performance.
Inventory Management: While progress has been made, the company is still working to normalize inventory levels, particularly in the Industrial and Automotive segments, which could pose risks if delays occur.
Automotive Segment Recovery: The Automotive segment is slower to recover compared to other segments, which could impact overall growth.
Macroeconomic and Geopolitical Risks: Guidance for Q3 2025 is based on current macroeconomic and geopolitical conditions, including tariffs, which could change and adversely affect performance.
Capital Allocation Risks: The company has repurchased a significant amount of common stock, equating to 100% of its operating cash flow, which could limit financial flexibility in the event of unexpected challenges.
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Guidance & Outlook
Revenue Expectations: For Q3 2025, revenue is expected to grow into the range of $128 million to $138 million, with a midpoint of $133 million, representing 7.2% sequential growth, the largest in 3 years.
Gross Margin Projections: Gross margin is expected to be 69.5%, plus or minus 1%, on a non-GAAP basis for Q3 2025.
Earnings Per Share (EPS): Non-GAAP EPS is expected to grow into the range of $0.26 to $0.30 per share for Q3 2025.
Market Trends and Segment Performance: Communications and Compute demand remains strong, with normalized inventory and continued growth expected through the second half of 2025 and beyond. Industrial and Automotive segments are expected to recover, with channel inventory levels normalizing by year-end 2025. Industrial is anticipated to be a strong growth driver in 2026.
Growth Drivers: Companion chip opportunities are expected to become significant growth drivers, with impactful design wins in AI accelerators, cloud data centers, wired communications, industrial robotics, ADAS, infotainment, and far-edge AI applications.
New Products: Revenue from new products continues to grow at a strong rate, and the company is on track to exceed its 2025 goals.
Capital Expenditures and Cash Flow: The company expects the trend of increased free cash flow margin to continue while selectively investing in CapEx for R&D and operational improvements.
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Shareholder Return Plan
Share Repurchase Program: During the quarter, Lattice Semiconductor repurchased approximately $46 million of common stock under its existing buyback program. Through the first half of 2025, the company has repurchased $71 million of common stock, which equates to 100% of its operating cash flow.
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Key Q&A
Q:What is Lattice's positioning in the AI infrastructure market, particularly in relation to companion chips?
A:Lattice is positioned to benefit from the AI infrastructure market as a companion chip provider. The Comms and Compute segment grew 20% quarter-over-quarter and 26% year-on-year, with the Server segment showing significant growth. Four factors driving this growth include increased CapEx by major cloud providers, growing attach rates in servers, rising average selling prices (ASP), and gaining share in AI servers. Lattice expects this growth to continue into 2025 and 2026.
Q:How is Lattice balancing new products versus legacy products, and what is the impact on gross margins?
A:Lattice is on track to exceed its forecast of high teens revenue from new products in 2025 and mid-20s percent in 2026. New product revenue is expected to grow 70% year-on-year between 2024 and 2025. Gross margins have improved, supported by strong demand in the server market and a rebound in industrial and auto sectors. However, no specific guidance for 2026 gross margins was provided.
Q:What is Lorenzo Flores' perspective on Lattice's business model and opportunities?
A:Lorenzo Flores expressed confidence in Lattice's FPGA business model, highlighting its high-value products and broad customer base. He noted the durability of the top line, strong gross margins, and operational focus on profitability. Lattice has reduced OpEx while expanding profitability metrics, setting the stage for revenue and profitability growth into 2024 and 2025.
Q:Is Lattice still targeting 15%-20% revenue growth in 2026?
A:Yes, Lattice is confident in achieving 15%-20% revenue growth in 2026. The company is optimistic about growth in the Industrial and Automotive segment, driven by new applications in robotics, logistics, agriculture, and humanoids, among others.
Q:What is the opportunity for Lattice in the hyperscale market, and how does it compare to other opportunities?
A:Lattice is performing well across all hyperscalers due to its low power, small size, and cost-effective solutions. The company is processor-agnostic and benefits from increasing complexity in server boards, driving higher attach rates and ASPs. Hyperscaler racks typically range from 70 to 130 FPGAs per rack, depending on configuration, and Lattice sees strong growth across XPU, GPU, and other AI accelerators.
Q:What is the status of Lattice's inventory normalization, particularly in Industrial and Automotive?
A:Lattice's inventory in Comms and Compute has normalized, and the company is on track to normalize inventory in Industrial and Automotive by the end of the year. Sell-through continues to exceed sell-in, and inventory normalization is expected to provide strong growth tailwinds into 2026.
Q:What is Lattice's outlook for Industrial and Automotive growth, and how does it compare to peers?
A:Lattice is optimistic about Industrial and Automotive growth, with strong demand, record design wins, and high book-to-bill ratios. Automotive accounts for less than 5% of revenue, and the company sees strength in robotics and industrial automation. This outlook contrasts with some peers who have reported weakness in automotive.
Q:What is the contribution of Avant and Nexus products to Lattice's growth?
A:Nexus products are driving short- to medium-term growth, while Avant is expected to become a significant contributor in the second half of 2026 and into 2027. The focus remains on small and midrange FPGAs.
Q:How is Lattice preparing for potential impacts from Section 232 tariffs?
A:Lattice believes country-specific tariffs from Japan, South Korea, and Malaysia will supersede Section 232 tariffs. The company has a flexible supply chain and works with customers to optimize their supply chains, minimizing potential impacts.
Q:What are the key growth drivers for Lattice in the Comms and Compute segment?
A:Key growth drivers include increased CapEx by hyperscalers, growing attach rates, rising ASPs, and strong design wins. Lattice also benefits from its role as a companion chip to various components in AI infrastructure.
Q:What is Lattice's strategy for Edge AI, and what are the revenue expectations?
A:Lattice expects high teens revenue from Edge AI in 2025, growing to mid-20% in 2026. About 60% of AI-related revenue comes from Compute and Comms, and 40% from Industrial, Automotive, and Consumer markets. Applications include companion chips for AI accelerators and tiny AI models for edge devices.
Q:Review of Unclear Management Responses
A:Management avoided providing specific guidance for 2026 gross margins, citing the need for further data and analysis. Additionally, they did not disclose the exact amount of inventory being undershipped in Industrial and Automotive, stating it requires estimation. There was also no scientific breakdown of the factors contributing to growth in Comms and Compute, despite acknowledging multiple drivers.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
ADAS edge
AG Research
AI accelerator
AI solution
AI use
ASICs MCUs
Asia Tech
Automotive bottom
Automotive portion
Automotive segment
Bank AG
Benchmark LLC
BofA Securities
Buchalter TD
CEO President
CFO Muscha
Capital Markets
Communications Compute
Communications segment
Communications strength
Compute demand
Cowen Research
Director Flores
Division Conference
Division Duksan
Division Ezra
LLC Research
Research Division
Semiconductor
companion chip
inventory level
midpoint
strength product
LSCC Transcript
Lattice Semiconductor Corporation (LSCC) Presents at 28th Annual Needham Growth Conference Transcript
Neutral1-14
Lattice Semiconductor Corporation (LSCC) Q3 2025 Earnings Call Transcript
Positive11-4
The earnings call reveals strong growth expectations, particularly in communications and compute, with a promising outlook for industrial and automotive segments. Significant design wins in AI and data centers bolster future prospects. Although gross margins are stable, revenue from new products is rising, and increased free cash flow margins are anticipated. The Q&A session provided clarity on growth drivers and market trends, despite some vague responses. Overall, the company's optimistic guidance and strong market positioning suggest a positive stock price movement over the next two weeks.
Lattice Semiconductor Corporation (LSCC) Q2 2025 Earnings Call Transcript
Positive8-4
The earnings call summary shows strong financial performance with record design win momentum and robust new product revenue growth. The Q&A session indicates confidence in future growth, especially in AI and automotive sectors, and highlights strong market positioning and shareholder returns. Although there are some uncertainties in gross margins and inventory, the overall sentiment remains positive, bolstered by optimistic guidance and strategic focus on innovation and market expansion.
Lattice Semiconductor Corporation (NASDAQ:LSCC) Q1 2025 Earnings Call Transcript
Unknown5-7
The earnings call presents a mixed picture. Revenue declined YoY but increased QoQ, and gross margins improved significantly. However, guidance is weak with low single-digit growth expected for 2025. Share repurchases are positive, but the lack of detailed guidance and avoidance of specifics in the Q&A raise concerns. The market's reaction is likely to be muted, resulting in a neutral stock price movement over the next two weeks.
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