Lattice Semiconductor Corporation — FY2013 Form 10-K
Period clarification: The supplied filing is the annual report for the 52-week fiscal year ended December 28, 2013, with comparative results for fiscal 2012 and 2011. It is not a 2012 Q4 filing. The filing also reports quarterly results, including Q4 2013.
Business context and reporting period
Lattice designs and markets programmable logic devices and related software, serving communications, consumer, industrial, scientific and medical, and computing markets. It outsources wafer fabrication, assembly, and most testing and logistics. Fiscal 2014 was expected to be a 53-week year ending January 3, 2015.
Financial performance and liquidity
| Metric | FY2013 | FY2012 |
|---|---|---|
| Revenue | $332.5 million | $279.3 million |
| Gross profit / margin | $178.2 million / 53.6% | $150.8 million / 54.0% |
| Operating income (loss) | $26.8 million | $(9.4) million |
| Net income (loss) | $22.3 million | $(29.6) million |
| Diluted earnings (loss) per share | $0.19 | $(0.25) |
| Cash from operating activities | $56.5 million | $4.3 million |
| Capital expenditures | $12.5 million | $13.6 million |
Revenue grew 19%. Cash and cash equivalents were $114.3 million; short-term marketable securities were $101.5 million and long-term securities $5.2 million, for total cash and marketable securities of $221.1 million. Total liabilities were $62.2 million and the company reported no long-term debt or credit arrangements. Management said available resources should meet working-capital needs for at least 12 months.
Material changes versus the prior comparable period
- Growth was led by iCE40 products and consumer demand, along with ECP3 sales supporting Chinese communications infrastructure. Consumer revenue rose 180% to $99.6 million; communications revenue rose 8% to $126.6 million.
- Industrial, scientific and medical revenue declined 14% to $76.4 million, and computing revenue declined 21% to $30.0 million.
- New-product revenue increased 145% to $152.4 million, reaching 46% of revenue; mature-product revenue fell 40% to $37.1 million.
- Gross margin declined 0.4 percentage points, primarily due to product and customer mix. Lower SG&A and restructuring costs helped return operating results to profitability.
- Operating cash flow rose to $56.5 million. Cash and short-term investments increased by approximately $32.4 million, chiefly on operating cash generation, partly offset by capital spending and repurchases.
- Q4 2013 revenue was $89.5 million and net income was $6.5 million, compared with Q4 2012 revenue of $65.9 million and a net loss of $7.2 million.
Outlook, risks, contingencies, and unusual items
- No numeric revenue or earnings guidance is provided. Management expects continued significant R&D investment and notes that product mix and average selling-price pressure may weigh on gross margin.
- Sales are concentrated geographically and by customer: China represented about 45% of revenue, foreign sales 91%, and Samsung 22%. The top five end customers represented about 44% of revenue.
- Foundry and distribution dependence are material risks. Fujitsu supplies the majority of wafers; sell-through distributors generated 45% of revenue, and two distributors accounted for 37%.
- A patent infringement lawsuit seeks unspecified damages and injunctive relief. The company said potential exposure could exceed accrued liabilities but could not estimate the amount; no litigation loss accrual was recorded.
- Unrecognized tax benefits were $22.6 million. Auction-rate securities of $5.2 million remained illiquid and were classified as long-term; the company intends to sell them if markets recover or reasonable offers become available.
- The 2012 restructuring, which reduced headcount by approximately 110 and closed certain sites, was substantially completed in Q1 2013. FY2013 restructuring charges were $0.4 million. The company repurchased approximately 0.8 million shares for $3.7 million under its 2013 program and authorized a new $20 million program in February 2014.
- KPMG issued unqualified opinions on the financial statements and internal control over financial reporting.
Most important facts for investors to verify
- Whether consumer demand and the large OEM contribution are sustainable, and whether customer concentration changes.
- Whether new-product growth can offset declines in mature products while maintaining gross margins.
- Continuity, capacity, and pricing at key foundries, and the resilience of major distributor relationships.
- Developments and any potential financial exposure in the patent litigation and tax matters.
- Liquidity and realizable value of the illiquid auction-rate securities, alongside cash use for repurchases and investment.