Lattice Semiconductor Corp. Q1 2010 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended April 3, 2010. Lattice Semiconductor Corporation designs, develops, and markets high-performance programmable logic devices (PLDs) and field-programmable gate arrays (FPGAs). The company operates in a single industry segment with significant exposure to the communications equipment end market and the Asia Pacific region.
Key Financial Metrics
| Metric (in thousands) | Q1 2010 | Q1 2009 |
|---|---|---|
| Revenue | $70,432 | $43,336 |
| Gross Margin | $41,168 (58.5%) | $22,678 (52.3%) |
| Operating Income | $10,986 | $(5,359) |
| Net Income | $11,089 | $(5,750) |
| Diluted EPS | $0.10 | $(0.05) |
| Cash from Operations | $20,894 | $7,508 |
| Cash & Equivalents | $156,120 | $69,446 |
| Total Debt | $0 | $0 |
Note: The company reported no long-term debt or current debt obligations as of April 3, 2010.
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 63% year-over-year, driven by an 87% increase in FPGA unit sales and an 88% increase in PLD unit sales.
- Profitability Turnaround: The company returned to profitability, reporting net income of $11.1 million compared to a net loss of $5.8 million in the prior year quarter.
- Margin Expansion: Gross margin improved to 58.5% from 52.3%, attributed to higher production volumes absorbing fixed overhead and a favorable product mix shift toward higher-margin mature and mainstream products.
- Geographic Shift: While total revenue grew, the percentage of revenue from the United States decreased to 13% from 18%, while Asia Pacific revenue grew to 54% of the total.
- Investing Activity: Net cash used in investing activities turned negative ($20.8 million) due to significant purchases of short-term marketable securities, contrasting with a net positive position in the prior year.
Outlook, Risks, and Unusual Items
- Liquidity and Auction Rate Securities: The company holds approximately $23.9 million par value of auction rate securities, currently classified as long-term due to illiquidity and failed auctions. These are carried at a fair value of $12.8 million. Management believes existing liquid resources are adequate for the next 12 months, but liquidation of these securities could result in material losses.
- Supply Chain Concentration: Fujitsu is the sole source supplier for wafers for the company's newest FPGA and PLD products. Disruptions in this supply chain pose a significant risk.
- Market Concentration: Approximately 52% of revenue is derived from the communications end market. Two large telecommunications equipment providers accounted for 13% of total revenue in Q1 2010.
- Restructuring: The company incurred $82,000 in restructuring charges, primarily related to severance costs under 2009 plans. A new operations center in Singapore is being established to transfer supply chain activities.
- Legal Proceedings: A patent infringement lawsuit filed by Lizy K. John remains stayed pending re-examination by the USPTO; potential exposure cannot be estimated.
- Subsequent Event: On April 12, 2010, the company sold excess real estate in China for a net gain of approximately $0.5 million, to be recorded in Q2 2010.
Investor Verification Checklist
- Verify the liquidity status and potential impairment risks associated with the $23.9 million par value of illiquid auction rate securities.
- Monitor the health of the communications end market, which represents over half of total revenue.
- Assess the reliability of the sole-source wafer supply agreement with Fujitsu for next-generation products.
- Review the accuracy of sell-through distributor resale reports, which now drive the majority of revenue recognition.
- Track the progress of the patent litigation with Lizy K. John and potential outcomes of the USPTO re-examination.