Lattice Semiconductor Corporation — Form 10-Q Summary
Period and filing: This filing reports the quarter and six months ended June 29, 2013, compared with the corresponding periods ended June 30, 2012. The request metadata says “2012 Q2,” but the filing itself is for fiscal 2013 Q2.
Business context
Lattice designs and markets programmable logic products and related software. It reports one business segment. Asia accounted for 74% of Q2 revenue and 72% of first-half revenue. Sales through sell-through distributors were 44% of Q2 revenue and 48% of first-half revenue.
Financial performance
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Revenue | $84.7 million | $70.8 million | $155.9 million | $142.5 million |
| Gross margin | 53.3% | 52.3% | 53.4% | 53.7% |
| Operating income (loss) | $7.0 million | ($2.8 million) | $9.7 million | ($2.6 million) |
| Net income (loss) | $5.0 million | ($12.5 million) | $6.9 million | ($20.3 million) |
| Diluted EPS | $0.04 | ($0.11) | $0.06 | ($0.17) |
| Operating cash flow | Not stated for quarter | $0.9 million | ($13.1 million) |
Q2 revenue increased 20% year over year; first-half revenue rose 9%. Q2 operating margin was 8.3%, versus negative 3.9% a year earlier; first-half operating margin was 6.2%, versus negative 1.8%. First-half cash from operations was positive but modest, and cash and cash equivalents declined $19.3 million during the six months.
Balance sheet and liquidity
- At June 29, 2013, cash and cash equivalents were $99.3 million; short- and long-term marketable securities totaled $79.7 million, for combined cash and securities of $178.9 million.
- Current assets were $300.8 million and current liabilities were $55.9 million. Total liabilities were $61.1 million; the company reported no long-term debt.
- Accounts receivable rose to $63.6 million from $46.9 million at year-end 2012; days sales outstanding increased to 68 from 64. Inventory increased to $49.7 million, while inventory on hand declined to 3.8 months from 4.4.
- Capital expenditures were $6.8 million in the first half. The company repurchased $2.5 million of stock under its prior program; it made no repurchases under the new $20 million, 12-month authorization through June 29.
Material changes and management commentary
- PLD revenue increased 28% in Q2 and 13% in the first half; FPGA revenue increased 5% in Q2 and was essentially flat for the first half. New-product revenue grew 184% in Q2 and 166% for the first half, principally from Consumer and Communications demand.
- Consumer revenue rose sharply—373% in Q2 and 180% for the first half—driven largely by iCE40. Communications revenue was approximately flat in dollars, while Industrial and other and Computing declined, attributed respectively to lower late-life-cycle purchases and macroeconomic factors.
- Q2 gross margin improved 1.0 percentage point, as cost reductions and sales of fully reserved inventory more than offset product/customer mix effects. First-half gross margin declined 0.3 percentage point.
- Lower SG&A and acquisition-related charges supported improved operating results. The 2012 restructuring plan was substantially completed in Q1 2013; Q2 restructuring charges were $19,000.
- Management said financial resources were sufficient for working capital needs over the next 12 months and expected continued significant R&D investment. The filing provides no specific revenue or earnings guidance.
Risks, contingencies, and unusual items
- Key exposures include reliance on independent foundries and distributors, customer and end-market concentration, semiconductor cyclicality, new-product acceptance, pricing and inventory risks, and international and tax uncertainties. Asia is the main revenue region, and the company identified communications exposure as a risk.
- One patent infringement case remains pending; trial was scheduled for September 22, 2014. The company said it could not estimate potential exposure, and no loss accrual had been recorded for the disclosed lawsuits.
- Auction-rate securities with $5.7 million par value were valued at $4.7 million and remained illiquid after failed auctions. The company intended to sell if markets resumed or reasonable offers became available; further impairment is possible.
- The IRS notified the company in July 2013 that it would examine its 2011 federal tax return. Management said it was not currently paying federal income taxes and did not expect to do so until tax loss and credit carryforwards were used.
- The filing early-adopted a tax presentation rule retrospectively, reducing both long-term taxes payable and deferred tax assets by approximately $14 million in periods presented. The 2012 comparison also included unusually high tax provisions associated with implementation of the global tax structure.
Important facts for investors to verify
- Confirm the intended reporting year: the supplied metadata says 2012 Q2, whereas the filing covers Q2 2013.
- Track whether new-product and Consumer growth can offset declines in Mainstream, Mature, Industrial, and Computing products and markets.
- Monitor distributor resale reporting, customer concentration, receivables, and working-capital conversion given the rise in accounts receivable and modest first-half operating cash flow.
- Review liquidity and valuation developments for the illiquid auction-rate securities, and any outcomes or updated estimates in the patent litigation and IRS examination.
- Assess whether management’s stated 12-month liquidity outlook remains supported by operating cash generation, investment needs, and any future share repurchases.