Lattice Semiconductor Corporation — Form 10-K Summary
Period clarification: The supplied filing is the annual report for fiscal 2021, ended January 1, 2022—not a 2020 Q4 filing. Fiscal 2020 ended January 2, 2021 and had 53 weeks; fiscal 2021 had 52 weeks. Financial amounts below are in U.S. dollars.
Business context and reporting period
Lattice develops fabless programmable logic semiconductors, related software and system solutions, and intellectual-property licensing and services. Its principal markets are Communications and Computing, Industrial and Automotive, and Consumer. Products are manufactured, assembled, and tested by third parties, primarily in Asia. The company reported one operating segment.
Financial performance and liquidity
| Metric | FY2021 | FY2020 | Change / context |
|---|---|---|---|
| Revenue | $515.3 million | $408.1 million | Up 26.3% |
| Gross profit / margin | $321.7 million / 62.4% | $245.3 million / 60.1% | Margin up 230 basis points |
| Operating income / margin | $100.8 million / 19.6% | $52.4 million / 12.8% | Operating income nearly doubled |
| Net income | $95.9 million | $47.4 million | More than doubled |
| Diluted EPS | $0.67 | $0.34 | Up from $0.34 |
| Cash from operations | $167.7 million | $91.7 million | Up $76.0 million |
| Cash and cash equivalents | $131.6 million | $182.3 million | Down $50.8 million |
| Long-term debt principal | $158.8 million | $171.9 million | $13.1 million repaid in FY2021; maturity in May 2024 |
Management attributed revenue growth mainly to client computing, 5G wireless infrastructure, and industrial and robotics demand. Gross-margin improvement was attributed to pricing optimization and the company’s margin-expansion strategy. Product gross margin rose to 60.9% from 58.1%. R&D expense increased 23.9% to $110.5 million as Lattice invested in product development; SG&A increased 10.8% to $105.6 million.
FY2021 investing activities used $89.8 million, including $68.1 million net cash for the Mirametrix acquisition and $21.7 million for capital expenditures and software and IP licenses. Financing activities used $128.6 million, including $70.1 million of share repurchases and $13.1 million of debt repayments. Management said available cash, operating cash flow, and credit facilities should meet liquidity and working-capital needs for at least 12 months. Cash included $59.1 million held by foreign subsidiaries.
Material changes versus the prior comparable year
- Revenue increased across the reported end markets except that the comparison to FY2019 is not the primary year-over-year basis. Communications and Computing revenue rose 24.8% to $218.0 million; Industrial and Automotive rose 34.4% to $226.2 million; Consumer rose 11.3% to $50.7 million; Licensing and Services rose 4.4% to $20.5 million.
- Asia represented 74.6% of revenue, with China alone at 55%. Revenue through distributors rose to 87.3% from 83.1%; Weikeng and Arrow accounted for 37.2% and 27.1%, respectively.
- Lattice acquired Mirametrix in November 2021 for $68.5 million in cash. The purchase added $47.8 million of goodwill and $24.8 million of identifiable intangible assets; the purchase-price allocation remained subject to further review of certain tax matters.
- Cash declined despite stronger operating cash flow, primarily reflecting the acquisition, share repurchases, and other financing activity. Inventory increased 4.6% to $67.6 million, while days of inventory on hand decreased to 122 from 139.
Outlook, risks, contingencies, and unusual items
The filing provides no specific numerical revenue, earnings, or margin guidance. Management expects continued significant R&D investment, particularly in software, but cautions that forecasting is difficult given the sales cycle, product and customer mix, and changing market conditions. The company identifies opportunities in areas including 5G, cloud and enterprise servers, edge AI, industrial automation, automotive electronics, and hardware security.
- Supply chain and operating risks: Reliance on a concentrated group of Asian foundries and outsourced assembly and test providers exposes the company to supply, capacity, yield, cost, shipping, and disruption risks. At filing time, management said the business had not been materially affected by supply constraints, inflation, or labor-market disruptions, but warned these conditions could change.
- COVID-19 and macroeconomic uncertainty: The pandemic, variants, restrictions, and resulting economic or supply-chain disruption could affect demand, product development, operations, margins, and cash flows. Management said the impact and duration remained uncertain and made forecasting especially difficult.
- Customer, channel, and geographic concentration: Distributors accounted for 87.3% of revenue, and the two largest distributor groups accounted for 64.3%. Heavy Asia and China exposure increases sensitivity to regional demand and trade restrictions.
- Debt and capital allocation: Credit terms include leverage and interest-coverage covenants, restrictions on certain actions, and scheduled principal payments. The board authorized a further $100 million repurchase program through December 2022; $89.9 million remained under that authorization at year-end. Lattice has never paid cash dividends and said it intends to retain earnings.
- Legal contingency: Plaintiffs in an Oregon case seek $138 million, treble damages, and other remedies relating to products sold around 2008. Lattice disputes the claims; it said it could not estimate the likelihood or amount of potential exposure.
- Tax and accounting judgments: The company maintained a full valuation allowance against U.S. federal and state net deferred tax assets. Unrecognized tax benefits were $56.2 million, and the Philippines 2019 and 2020 tax returns were under examination.
- Other unusual items: FY2021 included $0.9 million of restructuring charges and $1.2 million of acquisition-related charges. The company reported no goodwill impairment in FY2019–FY2021. Independent auditors gave unqualified opinions on the financial statements and internal controls; management and the auditor concluded controls were effective as of year-end.
Important facts for investors to verify
- Confirm the filing period: this is FY2021, ended January 1, 2022, and FY2020 included an extra week.
- Review whether revenue growth and gross-margin gains are sustainable, including the contribution from pricing, product mix, and newer products.
- Assess distributor concentration, receivables exposure, China and Asia revenue dependence, and potential effects of export controls or sanctions.
- Check the Mirametrix acquisition’s integration, expected benefits, final purchase-price allocation, and associated goodwill and intangible-asset assumptions.
- Monitor cash generation against debt maturities, repurchases, working-capital needs, and the company’s stated liquidity expectations.
- Follow developments in the $138 million lawsuit and the company’s tax examinations and uncertain tax positions.