Business Context and Reporting Period
Company: Lattice Semiconductor Corporation
Filing Type: Form 10-K (Annual Report)
Period Ended: March 29, 1997
Business Overview: Lattice designs, develops, and markets high-performance programmable logic devices (PLDs) and related software. The company is the inventor and leading supplier of In-System Programmable (ISP) PLDs, which allow logic configuration without removing the device from the circuit board. Products include low-density GAL devices and high-density CPLDs (ispLSI families). The company does not manufacture its own silicon wafers, relying on strategic relationships with Seiko Epson (Japan) and United Microelectronics Corporation (UMC) (Taiwan).
Key Financial Metrics
Note: Specific revenue, profit, and cash flow figures for the fiscal year ended March 29, 1997, are incorporated by reference from the Annual Report to Stockholders and are not explicitly stated in the provided text. The following metrics are available:
- Research & Development Expenses: $27.8 million for fiscal 1997 (compared to $26.8 million in 1996 and $22.9 million in 1995).
- International Revenue: Accounted for 49% of total revenues in fiscal 1997 (48% in 1996, 47% in 1995).
- Regional Revenue (Fiscal 1997): Europe: $39.9 million; Asia: $52.6 million.
- Customer Concentration: No single end customer accounted for more than 5% of revenue. No single distributor accounted for more than 10% of revenue in fiscal 1997.
- Stock Information: As of June 12, 1997, 23,066,825 shares of common stock were outstanding. The aggregate market value of non-affiliate voting stock was approximately $785 million.
- Valuation Accounts (in thousands): Allowance for doubtful accounts ended at $874; Allowance for deferred tax asset ended at $1,996.
Material Changes and Operational Highlights
- Product Portfolio Expansion: Continued introduction of high-density CPLD families (ispLSI 1000/E, 2000/V, 3000, 6000) and low-density GAL products with 3.3-volt capabilities.
- Software Growth: Installed seats of software development tools grew from over 10,000 to over 17,000 during fiscal 1997.
- Manufacturing Agreements:
- Seiko Epson: Entered a new agreement in March 1997 to advance up to $150 million (initial payment of $17.0 million made) to finance an eight-inch sub-micron wafer facility. Previous advances totaled $42 million.
- UMC/UICC: Committed to invest approximately $53 million for a 10% equity interest in UICC (Taiwan). Payments of $13.7 million (Jan 1996) and $25.8 million (Jan 1997) have been made.
- Revenue Recognition Policy: The company does not recognize revenue from distributors until products are resold to end customers due to price protection and return policies.
Outlook, Risks, and Contingencies
Management Commentary & Outlook: The company anticipates continued investment in R&D and manufacturing capacity to support future growth, particularly in high-density products. Future results are expected to be subject to quarterly variations due to the cyclical nature of the semiconductor industry.
Key Risks and Contingencies:
- Supply Chain Dependency: 100% of silicon wafers are sourced from Seiko Epson and UMC. A significant interruption in supply would have a material adverse effect.
- Currency Fluctuations: Wafer purchases from Seiko Epson are denominated in Japanese yen. Deterioration of the dollar-yen exchange rate could materially impact results.
- Intellectual Property: The company received a letter from a semiconductor manufacturer claiming patent infringement regarding product packaging. While a license was offered, terms are uncertain. The company relies heavily on patents and trade secrets.
- Competition: Intense competition from AMD, Altera, Xilinx, and others. The industry is characterized by rapid technological change and price erosion.
- Manufacturing Yields: Success depends on achieving acceptable yields at new facilities (Seiko Epson's 8-inch facility and UICC). Delays or yield issues could adversely affect operations.
Investor Verification Checklist
- Verify the specific revenue, net income, and cash flow figures for fiscal 1997 in the incorporated Annual Report to Stockholders (pages 14-28).
- Confirm the status of the patent infringement claim regarding product packaging and any potential licensing costs.
- Monitor the progress of the $150 million advance to Seiko Epson and the $53 million investment in UICC to ensure capacity commitments are met.
- Assess the impact of the dollar-yen exchange rate on future cost of goods sold, given the yen-denominated wafer purchases.
- Review the "Selected Financial Data" table in the Annual Report to Stockholders for historical trend analysis not fully detailed in this text.