Lattice Semiconductor Corporation — Form 10-Q Summary
Period and filing: The filing covers the quarter ended March 31, 2012, compared with the three months ended April 2, 2011. The request metadata says 2011 Q1, but the filing itself reports 2012 Q1. Financial amounts below are in millions of dollars unless stated otherwise.
Business context and results
Lattice designs and markets programmable logic devices and related software. It operates as one segment. Revenue is substantially international and distributor-reported resale is an important source of recognized sales.
| Metric | Q1 2012 | Comparable 2011 quarter |
|---|---|---|
| Revenue | $71.7 | $82.6 |
| Gross profit / margin | $39.5 / 55.1% | $49.6 / 60.0% |
| Operating income / margin | $0.2 / 0.2% | $10.5 / 12.7% |
| Income before taxes | $0.2 | $11.1 |
| Income tax provision | $7.9 | $0.2 |
| Net income (loss) | $(7.7) | $10.9 |
| Diluted earnings (loss) per share | $(0.07) | $0.09 |
| Operating cash flow | $(9.9) | $3.3 |
- Revenue fell 13% year over year. Communications revenue declined 16% and Industrial and other declined 21%; Consumer revenue rose 14%. Communications remained the largest end market at 43% of revenue.
- FPGA revenue declined 25%; PLD revenue declined 6%. New-product revenue increased 42%, while Mainstream and Mature product revenue declined 20% and 17%, respectively.
- Gross margin contracted 4.9 percentage points, which management attributed mainly to product and end-market mix, including a greater New-product share and weaker higher-margin Industrial and other sales.
Financial position, liquidity and capital allocation
- At March 31, cash and cash equivalents were $136.5; short-term marketable securities were $59.7. Together these totaled $196.2, down from $210.1 at December 31, 2011.
- Working capital was $251.2, compared with $248.6 at year-end. Current assets were $305.7 and current liabilities $54.6.
- Total liabilities were $75.9 and stockholders’ equity was $388.1. The filing does not identify interest-bearing debt as a separate balance-sheet item.
- Operating cash use of $9.9 included a $15.8 increase in accounts receivable; days sales outstanding rose to 66 from 54 a year earlier. Capital expenditures were $3.4. Cash declined by $4.9 during the quarter.
- Inventory was $36.8, slightly below $37.3 at year-end. Accounts receivable increased to $52.8 from $37.0.
- The board authorized a $20.0 million, 12-month repurchase program. The company repurchased approximately 246,000 shares for $1.6 million during the quarter; $18.4 million remained available under the program at March 31.
Outlook, commentary and material risks
- Management said existing liquid resources and expected operating cash generation should cover operating and capital needs for at least 12 months. This is a forward-looking assessment, not a guarantee.
- Management expected a similar net income tax provision in the next quarter as inventory involved in the new global tax structure is sold to customers. It also estimated approximately $1.0 million of SiliconBlue-related acquisition charges for Q2; estimated future acquisition charges total $19.9 million through 2018.
- Management expects significant continued R&D investment and noted that advanced-process mask and engineering-wafer costs may increase. Communications-market cyclicality, product acceptance, competition, pricing and demand variability may affect results.
- Arrow and Weikeng together represented approximately 44% of Q1 revenue. Most Q1 revenue was from foreign locations (85%), and Asia Pacific accounted for 51%. Fujitsu was identified as the sole-source wafer supplier for the newest FPGA and PLD products, creating supply and continuity risk.
- The company held illiquid auction-rate securities with par value $8.3 million and fair value $6.9 million. Failed auctions continued; realization on sale could differ materially from carrying value.
- Two patent infringement matters were disclosed, including the Lizy K. John case and litigation brought by Intellectual Ventures. The company could not estimate potential exposure and had recorded no loss contingency accrual for these lawsuits.
- Other notable risks include distributor dependence, execution and integration of acquisitions, global tax uncertainty, foreign-currency exposure, and reliance on outsourced manufacturing and fulfillment. No off-balance-sheet arrangements were reported. Management concluded disclosure controls were effective at quarter-end.
Key investor verification points
- Confirm the period: the actual filing is for Q1 2012, despite the request metadata specifying Q1 2011.
- Assess whether revenue, receivables and distributor resale trends improved after the quarter, including the effect of the Avnet distribution transition.
- Evaluate the sustainability and cash impact of the global tax structure, including the anticipated subsequent-quarter tax provision.
- Monitor operating cash flow, receivable collections and days sales outstanding alongside management’s liquidity assessment.
- Check progress on the $20 million repurchase authorization, SiliconBlue integration and related charges, and Fujitsu wafer-supply continuity.
- Review developments in the patent cases and the valuation or sale prospects of the auction-rate securities.