Lattice Semiconductor Corporation — Form 10-Q Summary
Period note: The supplied filing is for the quarter ended September 28, 2013 (fiscal 2013 Q3), not 2012 Q3 as specified in the request. It compares with the quarter ended September 29, 2012. Financial amounts below are in U.S. dollars; millions unless stated otherwise.
Business context and reporting period
Lattice designs, develops, and markets programmable logic products and related software. Its third quarter and first nine months of fiscal 2013 ended September 28, 2013. The company reports one operating segment. Asia accounted for 76% of quarterly revenue and 73% of nine-month revenue.
Financial performance and liquidity
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $87.2 | $70.9 | $243.0 | $213.4 |
| Gross margin | 53.2% | 54.4% | 53.3% | 53.9% |
| Operating income (loss) | $8.9 | $(0.3) | $18.6 | $(3.0) |
| Net income (loss) | $8.8 | $(2.2) | $15.8 | $(22.4) |
| Diluted earnings (loss) per share | $0.08 | $(0.02) | $0.13 | $(0.19) |
- Revenue increased approximately 23% year over year in Q3 and 14% for the first nine months. PLD revenue grew 36% in Q3 and 21% year to date; FPGA revenue was essentially flat in both comparisons.
- Gross margin declined year over year, which management attributed mainly to product and customer mix, including a higher share of new products; cost reductions and lower inventory reserves partly offset the pressure.
- Operating cash flow was $44.1 million for the first nine months, versus cash used of $0.6 million in the comparable period. Investing activities used $41.3 million; capital expenditures were $10.2 million. Financing activities used $0.4 million.
- Cash and cash equivalents were $120.8 million at September 28, 2013. Short- and long-term marketable securities totaled $94.7 million, bringing cash and securities to $215.5 million. Current assets were $320.7 million and current liabilities $62.0 million.
- Total liabilities were $67.0 million; the company reported no long-term debt or credit arrangements. Stockholders’ equity was $379.7 million.
Material changes versus the prior comparable period
- Growth was concentrated in newer products and consumer demand: consumer revenue rose 303% in Q3 and 221% year to date, driven substantially by iCE40. New-product revenue increased 140% in Q3 and 155% year to date.
- Industrial and other revenue fell approximately 23% in Q3 and 20% year to date, mainly on lower mature-product volume. Computing revenue declined approximately 22% in Q3 and 26% year to date.
- Asia revenue grew 35% in Q3 and 23% year to date. Communications revenue was broadly flat in dollars, while its share of total revenue fell as consumer revenue expanded.
- Research and development expense was nearly flat in dollars, while SG&A fell 8% in Q3 and 9% year to date, primarily reflecting lower compensation costs after headcount reductions.
- The year-ago nine-month tax provision included a substantial effect from the global tax restructuring and related inventory and asset transfers. The 2013 nine-month provision was $3.0 million versus $20.3 million in 2012.
- Sell-through distributors represented 41% of Q3 revenue and 44% year to date, down from 56% and 55%, respectively, in the prior-year periods. The largest sell-through distributor accounted for 23% of Q3 revenue and 27% year to date.
Outlook, commentary, risks, and unusual items
- No specific revenue or earnings guidance is provided. Management expects to continue significant investment in research and development and states that financial resources should meet working-capital needs for the next 12 months.
- The company relies on independent foundries, with Fujitsu supplying the majority of wafers, and depends substantially on distributors. Supply disruption, distributor performance, customer concentration, semiconductor cyclicality, product acceptance, pricing, and forecast uncertainty are prominent risks.
- The top five end customers represented approximately 45% of nine-month revenue; the largest represented approximately 23%. Consumer became the largest end-market contributor in Q3.
- Long-term marketable securities included illiquid auction-rate securities with $5.7 million par value and $4.7 million estimated fair value. The company intends to sell when markets resume or reasonable offers become available; valuation depends partly on unobservable inputs.
- A patent infringement case brought by Lizy K. John remains pending, with trial scheduled for December 8, 2014. The company stated that it could not estimate the likelihood or amount of exposure; no accrual was recorded for the pending lawsuits described.
- The 2012 restructuring plan was substantially completed in Q1 2013. A new $20 million repurchase authorization was approved in February 2013, but no shares had been repurchased under it through September 28, 2013. A prior program repurchased approximately 0.6 million shares for $2.5 million.
- The filing reports effective disclosure controls and no material change in internal control over financial reporting during the first nine months of 2013.
Important facts for investors to verify
- Confirm the intended reporting period: the supplied filing covers fiscal 2013 Q3, not fiscal 2012 Q3.
- Assess whether new-product and consumer-led growth can continue, and whether product mix will keep pressuring gross margin.
- Review distributor and customer concentration, sell-through inventory and estimates, and the risk of changes in end demand or channel reporting.
- Evaluate foundry dependence, especially Fujitsu supply and the ability to secure capacity for new products.
- Monitor the tax provision and future tax rate given geographic profit mix, tax attributes, and the ongoing examination of the 2011 federal return.
- Track the auction-rate securities’ liquidity and valuation, and developments in the patent litigation and any related exposure.