Lattice Semiconductor Corporation — Form 10-Q Summary
Period clarification: The filing is for the 13 weeks ended July 3, 2021 (fiscal Q2 2021), with comparisons to the quarter ended June 27, 2020. This conflicts with the request metadata describing “2020 Q2.” Financial amounts below are in U.S. dollars; millions unless otherwise stated.
Business context and reporting period
Lattice develops programmable logic semiconductor products, system solutions, design services, and licenses, serving communications and computing, industrial and automotive, and consumer markets. Its strategy emphasizes low-power, small-size, easy-to-use products, with investment in areas including edge AI, 5G, platform security, and factory automation.
Financial results and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $125.9 | $100.6 | $241.6 | $197.9 |
| Gross margin | $77.2 | $60.6 | $147.8 | $118.1 |
| Gross margin percentage | 61.3% | 60.2% | 61.2% | 59.7% |
| Operating income | $23.3 | $12.5 | $44.0 | $22.2 |
| Net income | $21.8 | $10.6 | $40.7 | $18.8 |
| Diluted earnings per share | $0.15 | $0.08 | $0.29 | $0.14 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $70.7 | $36.9 |
Q2 revenue rose about 25% year over year; net income more than doubled. Six-month revenue increased about 22% and net income more than doubled. Gross margin improved 110 basis points in Q2 and 150 basis points for the half, which management attributed to pricing optimization, product cost reductions, and product mix. Product gross margin was 60.2% in Q2 versus 58.3% a year earlier.
At July 3, 2021, cash and cash equivalents were $187.7, total current assets $346.5, and current liabilities $88.6. Long-term debt principal was $167.5, including $17.2 classified as current; the term-loan and revolving-loan effective rates were 1.57% and 1.35%, respectively. Cash exceeded debt principal by approximately $20.2. The company had a $75.0 revolving facility available under its credit agreement; the filing does not state a drawn balance at period-end. Management said available cash, operating cash flow, and credit facilities should meet liquidity and working-capital needs for at least 12 months.
Six-month investing cash outflow was $10.8, including $4.4 of capital expenditures and $6.4 for software and IP licenses. Financing cash outflow was $54.5, including $40.1 of share repurchases, $13.9 of tax withholdings on restricted stock units, and $4.4 of debt repayment. Cash increased $5.4 to $187.7.
Material changes and operating trends
- Industrial and automotive revenue grew 47% in Q2 and 33% for the first half, primarily on demand across applications including industrial automation and robotics.
- Communications and computing revenue grew 15% in Q2 and 21% for the first half, reflecting demand for servers, client computing, and 5G infrastructure.
- Consumer revenue rose 13% in Q2 and 3% for the first half. Licensing and services revenue declined 27% in Q2 and 14% for the first half, primarily due to lower royalties.
- Research and development expense increased 22% in Q2 to $27.5; management cited higher headcount and plans to continue increasing R&D, particularly software development. SG&A increased 5% to $25.6, but fell as a share of revenue to 20.3% from 24.3%.
- Distributors accounted for 88% of Q2 revenue versus 85% a year earlier. China accounted for 52% of Q2 revenue; Asia overall accounted for 77%.
- Inventory was $65.6, up slightly from fiscal year-end, while days inventory on hand declined to 123 from 139. Days sales outstanding improved to 52 from 55.
Outlook, risks, contingencies, and unusual items
- The filing provides no specific revenue, earnings, or margin guidance. Management said it expected to continue increasing R&D investment.
- Management described COVID-19 effects as uncertain and warned that demand could be affected in Q3 and beyond; restrictions could also disrupt suppliers, materials availability, and product transportation.
- A lawsuit concerning products sold around 2008 seeks $138 million, treble damages, and other remedies. The company said it cannot estimate the likelihood or amount of exposure, considers the claims without merit, and intends to defend them vigorously.
- The company repurchased approximately 0.83 million shares for $40.1 under a $60.0 million, 12-month program; approximately $19.9 remained authorized at July 3, 2021. Repurchased shares were retired.
- U.S. federal and state deferred tax assets remained subject to a full valuation allowance. Uncertain tax positions, including penalties and interest, were $21.9.
- The company reported no material changes to previously disclosed risk factors or market-risk exposure, no material off-balance-sheet arrangements, and effective disclosure controls. It noted substantial uncertainty from COVID-19 and global economic conditions.
Important facts for investors to verify
- Confirm the intended reporting period: the filing covers Q2 2021, not Q2 2020.
- Assess whether distributor, large-distributor receivables, and geographic concentration—particularly China—create material customer or market exposure.
- Monitor whether demand, supply-chain conditions, and COVID-19 effects change after the reporting date; the filing offers no specific forward guidance.
- Review debt repayment terms and revolving-facility availability, alongside continued buybacks and planned R&D spending.
- Track the $138 million lawsuit and the company’s inability to estimate potential exposure.