Lattice Semiconductor Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
July 31, 2023

There are 10 speakers on the call.

Operator

Greetings. Welcome to the Vadis Semiconductor Second Quarter 2023 Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded.

Operator

I will now turn the conference over to your host, Rick Muche, Senior Director of Investor Relations, you may begin.

Speaker 1

Thank you, operator, and good afternoon, everyone. With me today are Jim Anderson, Lattice's President and CEO and Sherry Luther, Lattice's CFO. We will provide a financial and business review for the Q2 of 2023 and the business outlook for the Q3 of 2023. If you have not obtained a copy of our earnings press release, It can be found at our company website in the Investor Relations section atlatticemi.com. I would like to remind everyone that during our conference call today, We may make projections or other forward looking statements regarding future events or the future financial performance of the company.

Speaker 1

Wish to caution you that such statements are predictions based on information that is currently available and that actual results may differ materially. We refer you to the documents that the company files with the SEC, including our 10 ks, 10 Qs and 8 ks. These documents contain and identify important risk factors that could cause the actual results to differ materially from those contained in our projections or forward looking statements. This call includes and constitutes the company's official guidance for the Q3 of 2023. If at any time after this call, we communicate any material changes to this guidance, We intend that such updates will be done using a public forum such as a press release or publicly announced conference call.

Speaker 1

We will refer primarily to non GAAP financial measures during this call. By disclosing certain non GAAP information, management intends to by investors with additional information to permit further analysis of the company's performance and underlying trends. For historical periods, We provide reconciliations of these non GAAP financial measures to GAAP financial measures that can be found on the Investor Relations section of our website at latticemi.com. Let me now turn the call over to Jim Anderson, our CEO.

Speaker 2

Thank you, Rick, and thank you, everyone, for joining us on our call today. We delivered strong results in the first half of twenty twenty three, the first half revenue growing 20% year over year and non GAAP net income increasing 29% over the same period. We're pleased with our first half results, but we're even more excited The path moving forward as we continue to drive the largest product portfolio expansion in the company's history. Let me touch on a few Q2 highlights. We achieved record revenue growth in Q2 with growth of 18% year over year.

Speaker 2

Q2 was also our 13th consecutive quarter of sequential growth. We expanded non GAAP gross margin by 140 basis points year over year to a record 70.5% Non GAAP net income increased 23% year over year. Let me now provide an overview of our business by end market. In the communications and computing market, revenue was down 3% sequentially and down 11% on a year over year basis. The sequential decline was primarily due to softer end market demand in communications infrastructure applications, which was partially offset by Turning now to the industrial and automotive market, revenue increased 7% sequentially and was up 55% year over year.

Speaker 2

Our strong growth was across multiple applications such as industrial automation and robotics as well as automotive ADAS and infotainment systems. We continue to deliver robust growth in this segment and we believe our product portfolio is well positioned to drive sustained long term growth. I'll now provide some product roadmap highlights. At our Analyst and Investor Day in May, we detailed the broad and rapid expansion of our product portfolio. We're driving the largest product portfolio expansion in the company's history, which continues to create new revenue streams for Lattice.

Speaker 2

We've launched 6 device families to date based on our Nexus platform with 5 of those device families in production and ramping with customers. On our new Lattice Avant mid range FPGA platform, we launched the first device family at the end of last year and continue to expect to generate revenue from family before the end of this year, with the revenue ramp continuing into next year and the following years. In addition, we remain on track to further And the AVANT platform offerings with the planned launch of 2 new AVANT device families at our Vattice Developers Conference in Q4. Turning now to our software portfolio. Software is a key component of our strategy and it's an important part of how we enable We built a portfolio of application specific software solution stacks, which accelerates customer adoption and enables faster time to market for our customers.

Speaker 2

We recently launched Lattice Drive, which is our 6th software solutions stack and is targeted at a variety of automotive electronics applications. We believe customer adoption of our software drives long term multi generational stickiness for our solutions. Overall, we continue to be pleased with our execution of our portfolio expansion and the customer momentum that it's generating. While we're certainly not immune to any macroeconomic challenges impacting the industry, We believe Lattice continues to be well positioned for long term growth and expansion. I'll now turn the call over to our CFO, Sherry Luthier.

Speaker 3

Thank you, Jim. We are pleased with our financial results in Q2 as we continue to deliver double digit revenue growth, Record gross margin and strong profitability. We generated strong free cash flow, We returned capital to shareholders through our 11th consecutive quarter of share buybacks and subsequent to Q2 have fully paid off our debt. Let me now provide a summary of our results. 2nd quarter revenue was a record $190,100,000 up 3% sequentially from the Q1 and up 18% year over year.

Speaker 3

Q2 was the 13th consecutive quarter of sequential revenue growth. Both sequential and year over year revenue growth in Industrial and Automotive offset the revenue decline in Communications and Computing. Our non GAAP gross margin increased 20 basis points in Q2 compared to the prior quarter to a record 70.5% and was up 140 basis points on a year over year basis. Both the sequential and year over year increases in gross margin continue to be driven by consistent execution on our gross margin expansion strategy. Non GAAP operating expenses were $58,000,000 compared to $54,000,000 in the prior quarter $49,900,000 in the year ago quarter.

Speaker 3

Both R and D and SG and A expenses increased sequentially as we continue to make investments and our product roadmap as well as in demand creation. Our non GAAP operating margin was 40% in Q2 and was up 190 basis points compared to the year ago quarter. We continue to balance operating margin with investments that will drive Lattice's long term revenue growth. Q2 earnings per diluted share was $0.52 compared to $0.42 in the year ago quarter. This represents 24% year over year growth and is faster than our revenue growth.

Speaker 3

Driving strong cash flow generation continues to be a key focus area for the company. In Q2, we generated a free cash flow margin of 35% and returned capital to our shareholders by repurchasing $10,000,000 in stock or 122,000 shares in the 11th consecutive quarter of our share repurchase program. During Q2, we also paid down $60,000,000 in debt. Subsequent to Q2, we paid off the remaining $45,000,000 of outstanding debt and the company is now debt free. We ended the quarter with $104,000,000 in cash.

Speaker 3

Let me now review our outlook for the Q3. Revenue for the Q3 of 2023 is expected to be between $187,000,000 $197,000,000 Gross margin is expected to be 70.5 percent plus or minus 1% on a non GAAP basis. Total operating expenses for the Q3 are expected to be between $58,000,000 $60,000,000 on a non GAAP basis. In closing, I am pleased with our financial results and continued execution despite the continuing macroeconomic challenges impacting the industry. We remain focused on driving further revenue growth and profit expansion.

Speaker 3

Operator, we can now open the call for questions.

Operator

Thank you. At this time, we will be conducting a question and answer session. Our first question comes from the line of Srini Fajuri with Raymond James, please proceed with your questions.

Speaker 4

Thank you. Thanks for taking my question. Jim, first one for you. Obviously, very strong quarter with 18% growth and you're guiding for double digit growth again next quarter on a year on year basis. Some of your peers have talked about potential slowdown in the second half.

Speaker 4

I'm just curious as we look through the, I guess, next few quarters, Can you talk about where you're seeing continued strength and where you might be seeing somewhat of a macro slowdown in terms of your end markets?

Speaker 2

Yes. Thanks for the question, Srini. First of all, really pleased with the results in the first half of this year. If we look First half 20 percent year over year growth, pleased with that relative to the fact that we've had a couple of years now of really strong growth plus relative to the overall kind of broader semiconductor industry performance. So pleased with the first half.

Speaker 2

And if you look at the midpoint of our guidance, we guided up sequentially for Q3. I think first, if you look at it from a Customer or market perspective, if I look at where is what's the source of that growth in the first half, Vast majority of that growth is coming from new design wins, new revenue streams that have really

Operator

just begun production and initiated within the

Speaker 2

last, say, 12 to 24 months. So we look at initiated within the last, say, 12 to 24 months. So we look at that to be really positive in that. Those revenue streams are fresh revenue streams that are kind of early in their lifecycle and ramping and they're underpinned by multiple different growth vectors, Growth in industrial automation robotics, the industrial segment has been a really good performer for us. Growth in automotive electronics, Continued content expansion and things like data center servers, networking equipment, and so those are just a few examples.

Speaker 2

So we feel well positioned in terms of the freshness of the revenue and kind of the growth vectors that we're positioned in. But then also you can look at it from And we're frankly, we're just going through so many new product cycles and product drivers. If you look first at just the portfolio we have today, it's the strongest product portfolio we've had in the company's history. I think our customers would say the same. And then, we're in the middle of the biggest product portfolio expansion in our history too.

Speaker 2

So also from a product perspective, We've got multiple new product cycle drivers. Nexus is an example. Nexus, our newest platform for small FPGA, we We'll now have 5 different device families based on Nexus that are in production and ramping. We have 6 that we've launched that That will go into production next year, more to come on the roadmap. Nexus will continue to ramp, we believe, for multiple years to come.

Speaker 2

And then Bond, our new mid range FPGA platform, that's all that revenue and that revenue ramp is still ahead of us. So we feel good from both the market and And a product position in terms of our ability to continue to grow over the long term. Certainly not immune to any end market fluctuations. We would feel that just like everybody else, but we feel well positioned for growth over the long term given the Lattice specific growth drivers.

Speaker 4

Great. Thank you for that answer. And then, I guess as you look at your new products and in particular the Avant mid range products, Jim, You talked about some of the new products ramping, which were launched in the last 12 to 18 months. Just curious How Nexus design cycles compare with Avant? Are the Avant cycles a little longer, somewhat similar?

Speaker 4

And also if you can talk about where you're seeing the most Traction in terms of the Avant product, the designs that I think you talked about potentially generating some revenue this So if you can talk about which end markets you expect the revenue from?

Speaker 2

Yes. Thanks, Srini. First of all, on the design cycles, in terms of the timing of the design from when, say, a design is 1 to when it reaches production, The Avant design cycles are very similar to NEXUS in that standpoint, right? So we look at the timing of the revenue To be very similar, now the ASPs of Avant are different. ASPs of Avant are significantly higher than Nexus, 10 to And about 10 to 20 times higher than if you look at the company's average ASP today.

Speaker 2

So significantly better ASPs, but similar Cycle times in terms of time to revenue. And then on the second part of your question around just traction of Avant, we're really pleased With continued growth of the Avant design win pipeline, when we launched Avant At the end of last year, we also launched the first device family in that based on that platform, Avanti. We continue to expect the first revenue for Avanti to begin before the end of this year. It will be a small amount of revenue this year, but it's an important for us to generate first revenue before the end of this year and then it would continue to ramp into next year and beyond. And then also remember at our Analyst and Investor Day, we also announced that we would launch 2 additional device families based on Avan later this year.

Speaker 2

And those will launch, we expect at our developers conference, which is scheduled for Q4 of this year. So Yes, we feel really good about progress with Avant and certainly stay tuned. We'll share more about our next product launches, Avant G and X as we

Operator

Our next question comes from the line of David Williams with Benchmark Company. Please proceed with your question.

Speaker 5

Hey, good afternoon. Thanks for taking my questions and congrats on the execution and stability here. I guess First question, Sherry, just kind of thinking about the debt payoff and congratulations on being debt free. But I'm curious if this changes your approach to the capital structure going forward and maybe how we should think about your appetite for leverage down the road?

Speaker 3

Yes. Thank you, David, for the question. We are really pleased that sitting here in Q3 that we have 0 debt outstanding on our balance sheet. As I noted in my prepared remarks, subsequent to the end of Q2, we did pay off the remaining debt that we had on the balance sheet. And it's really, really due to the strength of our free cash flow for the quarter.

Speaker 3

We had 35% free cash flow. I'm really pleased with the strength there that we were able to pay off our debt balance. From a capital allocation perspective, number one priority for us is investing in our long term product roadmap as well as demand creation. And so that continues to be a priority for us. You can see that with the rapid expansion of our product portfolio and the investments that we've been making In those areas, you can see that in our P and L.

Speaker 3

The other areas that we focus on from a capital allocation perspective is really returning capital to our shareholders. And you see that in Q2, we executed on our 11th consecutive quarter of share buybacks, where we repurchased $10,000,000 in stock. And so we're really pleased with that. We do have another $110,000,000 still Outstanding on the Board authorization and that expires at the end of this year, but we'll continue to focus On cash and free cash flow and evaluating the best use of cash on a quarterly basis.

Speaker 5

Great. Thanks for the color, Sherry. Maybe, Jim, just then and you talked a little bit about the automotive and industrial in the last question. But just kind of curious, If you could give maybe a little more color around the industrial segment specifically, maybe what you're seeing there? It seems like there's some Undercurrents here where some are thinking about industrial automation is slower and robotics, but it sounds like yours is pretty strong.

Speaker 5

And maybe just any puts or takes or what you're seeing around the industrial segment specifically? Thank you.

Speaker 2

Yes, thanks, David. Yes, we continue to see good strength And I'll include in there automotive as well, both industrial and automotive. Again, in industrial, it's primarily around Industrial Automation, Robotics, Automotive, Electronics, that's really around ADAS and Infotainment Systems. And Yes, we continue to see good healthy demand there. Again, I'll emphasize what I said earlier, which is a lot of Those revenue streams that are driving growth for us, vast majority are fresh revenue streams.

Speaker 2

And if you think about the lifetime of those revenue streams, we're still Really in the lifetime of those new design wins, new revenue streams that we've seen ramping. So we feel good about Continued growth in that segment certainly over the long term. We continue to view industrial and automotive as one of our key growth areas over the long term as we highlighted in the Investor and Analyst Day back in May.

Speaker 1

Thank you very much. Good afternoon, guys.

Speaker 6

Jim, I wanted to ask a little bit about, Obviously, the industrial and comms business is super strong over the last few quarters. We've been hearing a little bit about lead times potentially coming in. So if you could maybe level set us on particularly your business but comms as well, just how you're seeing sort of end customer demand, the channel and lead times in that business and How you're thinking about trends over the next couple of quarters in that segment given the massive results you've seen in the last couple of quarters? Thanks.

Speaker 2

Yes. Thanks, Matt. In terms of lead times in general, I think you're asking about lattice lead times just to clarify. And so And talking about lattice lead times, we're certainly seeing our lead times return to what we view as normal closer to normal lead times sort of Lead times more consistent with pre pandemic supply chain ahead before That supply chain crunch that we saw. And so, yes, we just continue to see lead times normalize, which we view as very positive.

Speaker 2

That's positive Customers are distributors as well. And so, yes, think about lead times continuing to normalize. In the industrial segment, As I just mentioned, we continue to see good demand. If I look at our Q3 Guidance, we if you look at the midpoint of Q3 guidance, we guided up sequentially and we would The Industrial and Automotive segment to be up sequentially or flat to sequential growth from Q2 to Q3 consistent with our overall guide. And then I think you mentioned comms as well, communications.

Speaker 2

Now in Q2, we did see some softness in communications infrastructure, specifically in wireline and wireless. We saw some end market softness related to I think slower capital spending around 5 gs build out, etcetera. So we saw a little bit Sequential revenue decline from Q1 to Q2 in that Communications and Computing segment, But that was partially offset by we saw a pickup in demand for servers, our chips going into servers that go into data centers. So those are kind of some of the puts and takes that we saw in the Q2 timeframe. So hopefully that's a little bit of additional color and just kind of what we're seeing by end market.

Speaker 6

Thanks, Jim. I appreciate it. As my follow-up, I wanted to ask about we're getting really, really close to when Avant starts to contribute to revenue a bit. And you guys were Kind enough to give us a little bit of insight into software attach rates for NEXUS and what that might mean for ASPs at your investor meeting. And as you get Towards rolling out Avant's revenue and you look over the pipeline over the next, I don't know, 18, 24 months, what are you seeing for Avant Software attach rates at this point relative to what you might expect and what you might have expected when you launched the product almost a year ago and Just how is that software attached trending in the pipeline?

Speaker 6

Any info you have there would be really helpful. Thanks guys.

Speaker 2

Yes. Thanks, Matt. I would say the software attach on Avant is very similar to what we're seeing on And even some of our pre Nexus products, as we had shared prior, we're seeing a software attach that's Now over 50%, meaning over 50% of the time, our when a customer selects Piece of silicon, they're using one of our software solution stacks on top or in conjunction with And now with the new Lattice Drive solution stack that we just launched, we now have 6 different solutions And those solutions acts, just as a reminder, are around making it really easy for customers to adopt to Lattice silicon and solutions get to market quickly, Speeds up our time to revenue and then also creates multi generational stickiness. And we've also tried to make sure that Customers that adopt that software those software solutions or software on say a NexSys device that they can leverage That same software infrastructure onto Avant devices as well. And so we're seeing adoption rates on Avant that would be similar to what we see on to what we see on Nexus.

Speaker 2

In general, over time, we would expect that adoption rate to Continue to increase over time, especially as we introduce new solution stacks like Lattice Drive, which we just introduced for the Automotive Electronics

Operator

Our next question comes from the line of Tristan Jarrod with Baird. Please proceed with your question.

Speaker 7

Hi, good afternoon. We've had a couple of companies last week mentioning how some spending in data center was redirected toward And that was at the expense of the more traditional spending. Do you view yourself as a beneficiary of that trend? What would be the reason why the increase of GPU based data center board will actually benefit So first

Speaker 2

of all, in Q2, we did see an uptick in the products that are used in servers for data centers either General purpose servers or servers that are more optimized for artificial intelligence workloads. So that was a nice Positive sign that we saw in Q2. But I think in general, when we look at, let's say, let's call it general purpose servers versus servers that are more Optimized for AI workloads, usually we have about the same level of content, if not in some cases on the AI optimized servers, We have higher levels of content. So we view it as a net positive for us. And certainly over the long term, we believe that just The tremendous amount of compute cycles that AI will drive into the data center, we view that as a net benefit for the industry and Lattice as well.

Speaker 2

And then just as a reminder, and we've talked about this in past in the in fact we talked about this at the last Investor Day in May Yes. On the new generation of servers that's beginning to ramp, we have a significant step up in the dollars of content Per server in that new generation. So as that new generation ramps through the second half of this year and into next year, That's certainly a tailwind for us as we enjoy a higher level of dollars of content per each server.

Speaker 7

Great. Thanks for the color. And then for my follow-up, we're starting to see companies later this year launching MCUs with native Neural Network, AI at the edge type of capabilities. Where should we be looking at in terms of your product Pipeline that would be playing on that trend and specifically AI at the Edge?

Speaker 2

Yes, we feel we continue to feel really well positioned with our product portfolio in terms of being able to support Edge computing applications, specifically AI at the edge, which is most often inference at the edge of the network. FPGAs are a naturally good match for those type of workloads because if you look at AI workloads in general, inference workloads in particular, Generally, those are parallel algorithms and they can be mapped really efficiently In some cases on to, for instance, Lattice FPGAs, you can basically program your Lattice FPGA as a customized AI processor for your particular algorithm. And so there's a number of different applications where Lattice FPGA can provide really great inference performance, especially on a performance per watt basis. And those algorithms Are evolving, right? A lot of our customers are evolving those algorithms on a pretty constant basis.

Speaker 2

And so the ability to Simply reprogram your FPGA for your updated new inference algorithm is a big benefit. It provides some level of future proofing As your algorithm changes over time. And then we've also tried to make sure that our customers have good software support from us as well. And so there are software solutions stacks like Sense AI that we've built that are specifically around supporting our customers for designing our products Into edge computing, edge artificial intelligence applications and Sense AI is actually the 1st software stack that we launched and we continue to see good adoption of that software stack. So yes, we feel really well This should benefit from continued growth in artificial intelligence processing at the edge.

Speaker 7

Great. Thank you very much.

Operator

Our next question comes from the line of Christopher Roland with Susquehanna, please proceed with your question.

Speaker 8

Hey, guys. Thanks for the question and congrats on the results. My first question was going to be around 5 gs. And Jim, I think you kind of mentioned it, some weakness in the quarter. Nokia, Ericsson were out.

Speaker 8

Things look like they're slowing quickly. All our checks Kind of say the same thing around 5 gs infra. I know you guys are exposed there. I guess, first of all, can you update us as to what percent of comps and compute is Telco related, 5 gs related, what might fall into this bucket? And then if these headwinds last for a while, Would we see continued weakness in this area?

Speaker 8

Would you have negative year over year growth here for a while Because of this, perhaps you can just tell us what the impact might be? Thanks.

Speaker 2

Yes. Thanks for the question, Chris. So yes, as I mentioned in the prepared remarks, if we look at sequentially from Q1 to Q2, we definitely did See softness in the communications part of our communications and computing segment. For us communications is Both wireline and wireless, so we did see softness in both 5 gs wireless infrastructure as well as related wireline Infrastructure and I think that definitely related to end market softness that other companies are seeing in terms of Telco capital spending into infrastructure build out. In terms of second part of your question, What percentage of comms and compute does that account for?

Speaker 2

We don't break out comms into a separate sub segment, But comms is the smaller portion of that segment. Computing has grown to be the majority of that segment over time, especially given some of our Growth in content and servers, and so comms is a smaller portion of that. And in terms of the outlook, We only guide current quarter, but if we look at Q3, the current quarter that we're in, sequentially from Q2 to Q3, we would expect Comms and computing overall to be kind of flat to sequentially up.

Speaker 8

I see. Okay. So I guess That means consumer would probably be down for next quarter as well. But I actually have a bigger question around AI. So in your presentation, Taeh Shen, you mentioned the GPU card.

Speaker 8

Looks like you do have some content there. You mentioned Power control, reporting and throttling, would love to know a little bit more About this also if you see some additional applications you could be addressing, but really what is the Content here, what is the attach rate? Like in server, it's more than 1. What do you think the attach rate here is? And do you think this is going to be a meaningful needle moving opportunity potentially going forward?

Speaker 2

Yes, thanks Chris. We do see we do believe AI is a net benefit driver for us in the server data center Base over time, as I mentioned earlier, when we look at general purpose servers and then I'll call it servers that are more optimized For artificial intelligence workloads, we usually see about the same level of content or sometimes Higher levels of content in the AI optimized server. Now there's a lot of different configurations of both general purpose as well as servers that are optimized for AI. But in general, what we're seeing is on those servers that are AI optimized equal to or greater than levels of content. And then if we look out over the long term, yes, we certainly see additional opportunity in Those AI optimized servers in terms of increasing our attach rate, but also increasing the capabilities, functionality that we're bringing to those servers and the ability to continue to grow our dollars of content per server.

Speaker 2

And I think that actually applies to Not just AI optimized servers, but even in general purpose servers, we see continued ability and opportunity to drive higher levels of And as we've shared in the past in that new generation of servers that's ramping, we have a significant

Operator

Our next question comes from the line of Ruben Roy with Stifel,

Speaker 9

Hi, Jim. I wanted to revisit, I think the first question that was asked on Avant around kind of the design activity, etcetera. And the way I'm thinking about it is Lattice is a much different company right now, right, versus when you launched your first NexSys device. I would say I would think there'd be much more awareness, customer awareness, etcetera. And so can you talk about Design activity, 6 months into Bonnie being out there versus how you saw NexSys design activity, can you compare how those are lining up?

Speaker 2

Yes, absolutely. So if we look at The same relative point in time, so if you think about Avant launching end of last And kind of being 6, 7 months from launch and if you compare it to the same point in time at from the NexSys launch, The design win opportunity for Avant is significantly larger than NexSys, and We're really pleased by that. I think our customers are really pleased by what they're seeing in terms of the advanced products that we're bringing to market. But, yes, we certainly view that as a really positive sign. And we're also really excited to get the first device family of Avanti To start to generate revenue, we expect that to start to generate a little bit of revenue before the end of this year, obviously more significant contributor next year.

Speaker 2

And then as I mentioned earlier, also really excited to bring Avan GNX to market and launch that at the developer's conference in Q4. So yes, I would say overall really pleased with the progress with the customers and the continued build out of the AVANT portfolio.

Speaker 9

Appreciate it, Jim. And a quick follow-up, just on general pricing environment. So obviously, AVANCE coming out and much higher ASPs. But In terms of sort of the lead time backdrop and maybe backlog out there in distribution, can you talk about pricing environment for NexSys and pre NexSys products, as you see it maybe this quarter and going forward through the end of the year?

Speaker 2

Yes, certainly, I would call the pricing environment for us very stable. We believe our pricing is very durable. We have been doing pricing optimization for we're now in our I guess our 5th year As part of our gross margin expansion strategy, at the beginning of 2,009, we kicked off that strategy. Part of that was pricing optimization. And so over the last 4, 5 years, we've built really good internal processes and muscle around pricing our products Correctly in the market, making sure that we're pricing for the value that we deliver to the market.

Speaker 2

And yes, we believe our pricing It's very durable. And then the one thing that's going on over time is as we build out The portfolio as we widen the product portfolio, as we add newer devices that are higher capability, higher capacity, certainly those New products with higher capability, higher capacity, those come with higher ASPs. And so We've seen our ASPs increase steadily over time and we believe that will continue as we continue to bring higher capacity, higher capability devices to market. So we do expect that ASP to continue to trend up over time.

Operator

Great. Thanks, Tim. And we have reached the end of the question and answer session. And I'll turn the call back over to CEO, Jim Anderson for closing remarks.

Speaker 2

All right. Thank you, operator, and thanks everybody for being on the call with us today. We're certainly pleased with the continued execution and strong results in the first half, Well, we continue to execute on certainly our biggest product portfolio expansion in the company's history and we're excited about the opportunities ahead for Lattice. Operator, that concludes today's call.

Operator

And this concludes today's conference and you may disconnect your line at this time. Thank you for your participation.

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Key Takeaways

  • Record Q2 revenue of $190.1 million, up 18% year-over-year and 3% sequentially—the 13th straight quarter of sequential growth—while non-GAAP gross margin hit a record 70.5% and net income rose 23% YoY.
  • Industrial & automotive markets grew 55% YoY (7% sequentially) led by industrial automation, robotics and automotive ADAS/infotainment, offsetting an 11% YoY decline in communications infrastructure.
  • Executing the largest product portfolio expansion in company history: six Nexus device families launched (five in production), with mid-range Avant FPGA’s first Avanti family on track to generate revenue by year-end and two more Avant families due at Q4’s developer conference.
  • Generated a 35% free cash flow margin in Q2, repurchased $10 million of stock (11th consecutive quarter), paid off all debt to become debt free with $104 million cash; Q3 guidance calls for $187–197 million revenue, ~70.5% gross margin, and $58–60 million operating expenses.
  • Benefiting from AI and data-center demand as FPGA content per server remains equal or higher on AI-optimized systems, and driving edge-AI adoption with Sense AI and the new Lattice Drive software stacks.
AI Generated. May Contain Errors.
Earnings Conference Call
Lattice Semiconductor Q2 2023
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