Lattice Semiconductor Corporation — Form 10-Q Summary
Period clarification: The filing covers the fiscal quarter ended March 30, 2013 (fiscal Q1 2013), compared with the quarter ended March 31, 2012. It is not a filing for fiscal Q1 2012.
Business context and results
Lattice designs and markets programmable logic products and related software. It operates as one segment. Asia generated 69% of quarterly revenue; communications remained the largest end market at 39%.
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Revenue | $71.2 million | $71.7 million |
| Gross margin | $38.2 million; 53.6% | $39.5 million; 55.1% |
| Operating income | $2.6 million; 3.7% of revenue | $0.2 million; 0.2% of revenue |
| Net income (loss) | $1.9 million | $(7.7) million |
| Diluted EPS | $0.02 | $(0.07) |
| Operating cash flow | $4.1 million | $(9.9) million |
Financial position and liquidity
- At March 30, 2013, cash and cash equivalents were $105.5 million; marketable securities totaled $78.3 million, including $4.7 million of illiquid auction-rate securities. Cash and short- and long-term securities together were $183.8 million.
- Total assets were $435.0 million and total liabilities $75.0 million. The company reported no long-term debt and no credit arrangements.
- Accounts receivable rose $9.0 million from year-end to $56.0 million; days sales outstanding increased from 64 to 71. Inventory was $43.8 million, down $0.4 million, or 1%, from year-end.
- Cash and cash equivalents declined $13.0 million during the quarter. Cash from operations was partly offset by investment purchases, capital expenditures, other investing activity and share repurchases.
Changes versus prior comparable quarter
- Revenue was nearly flat, down 0.8%. Gross margin declined 1.5 percentage points, which management attributed to customer and product mix; manufacturing and material cost improvements offset more than 40% of that mix impact.
- New-product revenue increased 144% to $27.8 million, or 39% of revenue. Mainstream revenue declined 13%, and mature-product revenue declined 54%.
- Consumer-market revenue increased approximately 77%; industrial and other declined approximately 20%, and computing declined approximately 32%. Communications revenue was essentially flat.
- Research and development expense declined 5% and selling, general and administrative expense declined 8%, mainly reflecting reduced headcount and related costs.
- The income tax provision fell to $0.7 million from $7.9 million. The prior-year provision reflected tax effects of the global tax restructuring; management said no comparable discrete tax item arose in Q1 2013.
Outlook, risks and unusual items
- Management believes resources are sufficient for working-capital needs over the next 12 months and expects Asia to remain the primary revenue source. It provided no specific revenue or earnings guidance in the supplied filing text.
- The company expects significant future investment in research and development. It expects approximately $2.9 million of annual acquired-intangible amortization in each of fiscal 2013–2016.
- A $20 million share-repurchase authorization was approved in February 2013, for a 12-month period. No shares were repurchased under that new program during the quarter; future purchases are expected to be open-market transactions funded from working capital.
- The 2012 restructuring plan, which reduced headcount by about 110 and eliminated certain sites, was substantially completed in Q1 2013. The quarter included $0.2 million of restructuring charges; $1.4 million of restructuring-related liabilities remained at quarter-end.
- Key risks include reliance on independent foundries and distributors, concentration in communications and Asia, semiconductor cyclicality, product acceptance and pricing, supply-chain disruptions, international and tax exposure, and the difficulty of forecasting demand and margins.
- A patent-infringement lawsuit remains pending, with trial scheduled for September 2014. The company said it could not estimate likelihood or potential exposure; no loss accrual was recorded for current lawsuits.
- Auction-rate securities remain illiquid after repeated failed auctions. Their $4.7 million fair value compares with $5.7 million par value; the company intends to sell when markets resume or reasonable offers become available.
Important facts for investors to verify
- Confirm the period: the filing is fiscal Q1 2013, notwithstanding the request’s 2012 Q1 label.
- Review new-product growth against the decline in mainstream and mature products, and assess whether mix-related margin pressure persists.
- Monitor distributor resale reporting and concentration: sell-through distributors represented 49% of revenue, and one distributor group represented 29%.
- Track receivables and collections given the quarter-end increase and higher days sales outstanding.
- Assess the liquidity and valuation assumptions for auction-rate securities, tax exposures, restructuring costs and the unquantified litigation exposure.
- The MD&A end-market table lists prior-year total revenue as $71.770 million, while the financial statements report $71.700 million; verify the apparent discrepancy against the filed data.