Lattice Semiconductor Reports Second Quarter Financial Results

SOURCE:

Lattice Semiconductor Corporation

2008-07-24 15:15:00

Lattice Semiconductor Reports Second Quarter Financial Results

Lattice Semiconductor Reports Second Quarter Financial Results

Quarterly Revenue Up Three Percent Sequentially

HILLSBORO, OR–(EMWNews – July 24, 2008) – Lattice Semiconductor Corporation (NASDAQ: LSCC) today announced financial results for the second quarter of fiscal

2008 ended June 28, 2008.

For the second quarter, revenue was $58.1 million, an increase of three

percent from the $56.6 million reported in the prior quarter, and a

decrease of two percent from the $59.2 million reported in the same quarter

a year ago.

FPGA revenue for the second quarter was $13.4 million, down two percent

from the $13.7 million reported in the prior quarter, and down one percent

from the $13.5 million reported in the same quarter a year ago. PLD revenue

for the quarter was $44.7 million, an increase of four percent over the

$42.9 million reported in the prior quarter, and a two percent decrease

from the $45.7 million reported in the same quarter a year ago.

New product revenue for the second quarter was $12.3 million, up 10 percent

from the $11.2 million reported in the prior quarter, and up 90 percent

from the $6.5 million reported in the same quarter a year ago.

Other (expense) income, net for the second quarter was an expense of $10.5

million compared to income of $1.3 million reported in the prior quarter

and income of $4.3 million reported in the same quarter a year ago. Other

expense for the second quarter of 2008 included an impairment charge of

$11.3 million primarily related to an other-than-temporary decline in fair

value of auction rate securities held in Long-term marketable securities.

Other income for the second quarter of 2007 included a $0.4 million gain

related to the extinguishment of our Zero Coupon Convertible Notes and a

$1.6 million gain related to the sale of land.

Net loss for the second quarter was $13.6 million ($0.12 per share), as

compared to a prior quarter net loss of $3.3 million ($0.03 per share), and

a net loss of $1.5 million ($0.01 per share) reported in the same quarter a

year ago. These results include amortization charges, stock-based

compensation expense, an impairment charge, restructuring charges, and gain

on sale of land which totaled $14.9 million and $4.6 million for the second

quarter of 2008 and prior quarter, respectively, and $2.4 million for the

second quarter of 2007. Excluding these items, non-GAAP net income for the

second quarter of 2008 was $1.3 million as compared to non-GAAP net income

of $1.4 million for the first quarter of 2008 and non-GAAP net income of

$1.0 million for the same quarter a year ago. The Company believes

exclusion of these items more closely approximates its ongoing operational

performance.

“I’m honored and excited that the board of Lattice entrusted me to take the

lead of our company moving forward,” stated Bruno Guilmart, President and

CEO, who joined Lattice July 7, 2008. “In the near term, I am working

closely with my management team to comprehensively review Lattice’s

business in order to formulate a new cost structure and a refined product

strategy. We intend to implement a new business model that better aligns

our operating costs with near-term revenue expectations and to deliver

improved operating results.”

Business Outlook — September 2008 Quarter:


--  Revenue is expected to be flat to down three percent on a sequential

    basis;

--  Gross margin percentage is expected to be approximately 55% to 56% of

    revenue;

--  Total operating expenses are expected to be approximately $33 million;

--  Intangible asset amortization is expected to be approximately $1.4

    million; and

--  Interest and other income is expected to be approximately $0.7

    million.

    

Discussion of Non-GAAP Financial Measures:

Management evaluates and makes operating decisions using various

performance measures. In addition to our GAAP results, we also consider

adjusted net income, which we refer to as non-GAAP net income. This

measure is generally based on the revenue of our products and the costs of

those operations, such as cost of products sold, research and development,

sales and marketing and general and administrative expenses, that

management considers in evaluating our ongoing core operating performance.

Non-GAAP net income excludes amortization of intangible assets, stock-based

compensation, impairment of Long-term marketable securities and Other

current assets, restructuring charges and gain on sale of land. Intangible

assets relate to assets acquired through acquisitions and consist of

technology purchased in connection with the acquisitions. Stock-based

compensation charges include expense for items such as stock options and

restricted stock units granted to employees and purchases under the

employee stock purchase plan. Impairment of Long-term marketable securities

relates to an other-than-temporary decline in fair value of our auction

rate securities that continue to experience unsuccessful auctions.

Impairment of Other current assets relates to an other-than-temporary

decline in fair value of common stock of one of our foundry partners.

Restructuring charges consist of expenses and subsequent adjustments

incurred under corporate restructuring plans that were initiated in the

fourth quarter of 2005 and in the third quarter of 2007, and include items

such as severance costs, costs to vacate space under long-term lease

arrangements, and other related expenses. Gain on sale of land relates to

a gain resulting from the sale of real property during the relevant period.

Non-GAAP net income is a supplemental measure of our performance that is

not required by and not presented in accordance with GAAP. Moreover, it

should not be considered as an alternative to net loss, operating loss or

any other performance measure derived in accordance with GAAP, or as an

alternative to cash flow from operating activities or as a measure of our

liquidity. Investors and potential investors are encouraged to review the

reconciliation of non-GAAP financial measures contained within this press

release with our net loss, which is our most directly comparable GAAP

financial result. For more information, see the Consolidated Statement of

Operations contained in this earnings release.

Conference Call and Business Update:

On July 24, 2008, Lattice will hold a telephone conference call at 2:00

p.m. (Pacific Time) with financial analysts. Investors may listen to our

conference call live via the web at www.lscc.com. Replays of the call will

also be available at www.lscc.com. On September 11, 2008, we plan to

publish a “Business Update Statement” on our website. Our financial

guidance will be limited to the comments on our public quarterly earnings

call and these public business outlook statements.

Forward-Looking Statements Notice:

The foregoing paragraphs contain forward-looking statements that involve

estimates, assumptions, risks and uncertainties, including statements

relating to the implementation of a new business model and the expected

results produced by that model, the timing of related announcements and

statements relating to our business outlook. The forward-looking statements

in the “Business Outlook – September 2008 Quarter” section of this release

do not include the effects of any restructuring charges or other accounting

adjustments that may be required by actions taken in connection with the

formulation of a new cost structure or refinement of product strategy.

Lattice also believes the factors identified below in connection with each

such statement could cause actual results to differ materially from the

forward-looking statements.

Estimates of future revenue are inherently uncertain due to the high

percentage of quarterly “turns” business. In addition, revenue is affected

by such factors as pricing pressures, competitive actions, the demand for

our Mature, Mainstream, and New products, and the ability to supply

products to customers in a timely manner. Actual gross margin percentage

and operating expenses could vary from the estimates contained herein on

the basis of, among other things, changes in revenue levels, changes in

product pricing and mix, changes in wafer, assembly and test costs,

variations in manufacturing yields, and changes in stock-based compensation

charges due to stock price changes.

In addition to the foregoing, other factors that may cause actual results

to differ materially from the forward-looking statements herein include the

disruption of our business activities due to the transition to our new

Chief Executive Officer, the Company’s dependencies on its silicon wafer

suppliers, technological and product development risks, and the other risks

that are described from time to time in our filings with the Securities and

Exchange Commission. The Company does not intend to update or revise any

forward-looking statements, whether as a result of events or circumstances

after the date hereof or to reflect the occurrence of unanticipated events.

About Lattice Semiconductor:

Lattice Semiconductor Corporation provides the industry’s broadest range of

Programmable Logic Devices (PLD), including Field Programmable Gate

Arrays (FPGA), Complex Programmable Logic Devices (CPLD), Mixed-Signal

Power Management and Clock Generation Devices, and industry-leading SERDES

products.

Lattice continues to deliver “More of the Best” to its customers with

comprehensive solutions for system design, including an unequaled portfolio

of high performance, non-volatile and low cost FPGAs.

Lattice products are sold worldwide through an extensive network of

independent sales representatives and distributors, primarily to OEM

customers in communications, computing, industrial, consumer, automotive,

medical and military end markets. For more information, visit

http://www.latticesemi.com.

Lattice Semiconductor Corporation, Lattice (& design), L (& design),

ispLever, LatticeECP2/M, LatticeSCM, LatticeXP, LatticeXP2, LatticeMico32

and specific product designations are either registered trademarks or

trademarks of Lattice Semiconductor Corporation or its subsidiaries in the

United States and/or other countries. GENERAL NOTICE: Other product names

used in this publication are for identification purposes only and may be

trademarks of their respective holders.






                 Lattice Semiconductor Corporation

                Consolidated Statement of Operations

                (in thousands, except per share data)

                             (unaudited)





                           Three months ended           Six months ended

                     -------------------------------  --------------------

                     June 28,   March 29,  June 30,   June 28,   June 30,

                       2008       2008       2007       2008       2007

                     ---------  ---------  ---------  ---------  ---------

Revenue              $  58,079  $  56,604  $  59,243  $ 114,683  $ 117,350



Costs and expenses:

   Cost of products

    sold                25,551     25,160     26,593     50,711     52,811

   Research and

    development         17,937     17,668     20,752     35,605     42,760

   Selling, general

    and

    administrative      15,195     14,999     14,785     30,194     29,351

   Amortization of

    intangible

    assets (1)           1,368      1,481      2,665      2,849      5,332

   Restructuring (2)       858      1,790         27      2,648       (103)

                     ---------  ---------  ---------  ---------  ---------

                        60,909     61,098     64,822    122,007    130,151

                     ---------  ---------  ---------  ---------  ---------

Loss from operations    (2,830)    (4,494)    (5,579)    (7,324)   (12,801)



Other (expense)

 income, net (3)       (10,520)     1,333      4,299     (8,195)     7,307

                     ---------  ---------  ---------  ---------  ---------

Loss before

 provision from

 income taxes          (13,350)    (3,161)    (1,280)   (15,519)    (5,494)

Provision for income

 taxes                     221         93        181        314        350

                     ---------  ---------  ---------  ---------  ---------

Net loss             $ (13,571) $  (3,254) $  (1,461) $ (15,833) $  (5,844)

                     =========  =========  =========  =========  =========



Net loss per share

 (4):

Basic and diluted    $   (0.12) $   (0.03) $   (0.01) $   (0.14) $   (0.05)

                     =========  =========  =========  =========  =========



Shares used in per

 share calculations:

Basic and diluted      115,171    115,146    114,827    115,159    114,758

                     =========  =========  =========  =========  =========





Notes:



(1) Intangible assets subject to amortization aggregate $3.0 million, net,

    at June 28, 2008 and relate to the acquisition of the FPGA business of

    Agere Systems, Inc. on January 18, 2002. Intangible assets related to

    the acquisition of Cerdelinx Technologies, Inc., became fully amortized

    in the third quarter of 2007. Amortization charges are expected to be

    eliminated after the first quarter of 2009.



(2) Represents costs and adjustments incurred under the corporate

    restructuring plans initiated in the fourth quarter of 2005 and the

    third quarter of fiscal 2007. During the second quarter of fiscal 2008,

    the Company recorded a charge of $0.9 million, primarily comprised of

    severance costs related to the resignation of our former President and

    Chief Executive Officer effective on May 31, 2008.  During the first

    quarter of fiscal 2008, the Company incurred costs of $1.8 million, of

    which $1.3 million related primarily to costs to vacate leased space

    and $0.5 million related to severance costs for the resignation of our

    former President and Chief Executive Officer.



(3) Includes an $11.3 million loss recorded during the three months ended

    June 28, 2008 as a result of the Company recognizing an impairment

    charge related to an other-than-temporary decline in fair value of

    auction rate securities held in Long-term marketable securities

    ($10.3 million) and our common stock investment in a foundry partner

    held in Other current assets ($1.0 million).  Includes a $1.6 million

    gain recorded during the three months ended June 30, 2007 as a result

    of the Company selling a parcel of undeveloped land near its corporate

    headquarters.



(4) For all periods presented, the computation of diluted earnings per

    share excludes the effects of stock options, restricted stock units,

    warrants and Convertible Notes, as they are antidilutive.







                    Reconciliation of GAAP Net Loss

                       to Non-GAAP Net Income

                           (in thousands)

                             (unaudited)



                           Three months ended           Six months ended

                     -------------------------------  --------------------

                     June 28,   March 29,  June 30,   June 28,   June 30,

                       2008       2008       2007       2008       2007

                     ---------  ---------  ---------  ---------  ---------

GAAP net loss        $ (13,571) $  (3,254) $  (1,461) $ (16,825) $  (5,844)

Reconciling items:

  Amortization of

   intangibles (1)       1,368      1,481      2,665      2,849      5,332

  Stock-based

   compensation          1,294      1,368      1,325      2,662      2,714

  Impairment of

   Long-term

   marketable

   securities

   and Other

   current assets (2)   11,337          -          -     11,337          -

  Gain on sale of

   land                      -          -     (1,604)         -     (1,604)

  Restructuring (3)        858      1,790         27      2,648       (103)

                     ---------  ---------  ---------  ---------  ---------

Non-GAAP net income  $   1,286  $   1,385  $     952  $   2,671  $     495

                     =========  =========  =========  =========  =========



                 Reconciliation of GAAP Net Loss per Share

                    to Non-GAAP Net Income per Share

                               (unaudited)



                            Three months ended          Six months ended

                     -------------------------------  --------------------

                       June 28,  March 29,  June 30,   June 28,   June 30,

                        2008       2008      2007       2008       2007

                     ---------  ---------  ---------  ---------  ---------

Basic and Diluted:

GAAP net loss        $   (0.12) $   (0.03) $   (0.01) $   (0.15) $   (0.05)

Reconciling items:

 Amortization of

  intangibles (1)         0.01       0.01       0.02       0.02       0.05

 Stock-based

  compensation            0.01       0.01       0.01       0.02       0.02

 Impairment of

  Long-term

  marketable

  securities

  and Other

  current assets (2)      0.10          -          -       0.10          -

 Gain on sale of

  land                       -          -      (0.01)         -      (0.01)

 Restructuring (3)        0.01       0.02       0.00       0.02      (0.00)

                     ---------  ---------  ---------  ---------  ---------

Non-GAAP net

 income (5)          $    0.01  $    0.01  $    0.01  $    0.02  $    0.00

                     =========  =========  =========  =========  =========

Shares used in per

 share calculations

 (in thousands):

    Basic              115,171    115,146    114,827    115,159    114,758

                     =========  =========  =========  =========  =========

    Diluted (4)        119,083    119,227    122,611    119,211    123,290

                     =========  =========  =========  =========  =========



Notes:



(1) Intangible assets subject to amortization aggregate $3.0 million, net,

    at June 28, 2008 and relate to the acquisition of the FPGA business of

    Agere Systems, Inc. on January 18, 2002. Intangible assets related to

    the acquisition of Cerdelinx Technologies, Inc., became fully amortized

    in the third quarter of 2007. Amortization charges are expected to be

    eliminated after the first quarter of 2009.



(2) Includes an  $11.3 million loss recorded during the three months ended

    June 28, 2008 as a result of the Company recognizing an impairment

    charge related to an other-than-temporary decline in fair value of

    auction rate securities held in Long-term marketable securities

    ($10.3 million) and our common stock investment in a foundry partner

    held in Other current assets ($1.0 million).



(3) Represents costs and adjustments incurred under the corporate

    restructuring plans initiated in the fourth quarter of 2005 and the

    third quarter of 2007. During the second quarter of fiscal 2008, the

    Company recorded a charge of $0.9 million, primarily comprised of

    severance costs related to the resignation of our former President

    and Chief Executive Officer effective on May 31, 2008. During the

    first quarter of fiscal 2008, the Company incurred costs of

    $1.8 million, of which $1.3 million related primarily to costs to

    vacate leased space and $0.5 million related to severance costs for the

    resignation of our former President and Chief Executive Officer.



(4) For all periods presented, the computation of diluted earnings per

    share includes the effects of stock options, restricted stock units,

    warrants and Convertible Notes, as they are dilutive.



(5) Per share amounts may not add up due to rounding.









          Lattice Semiconductor Corporation

             Consolidated Balance Sheet

                  (in thousands)





                                                June 28,     December 29,

                                                  2008           2007

                                              -------------- --------------

                                               (unaudited)

                       Assets

Current assets:

  Cash, cash equivalents and short-term

   marketable securities (1) (4)              $       96,286 $       85,063

  Accounts receivable, net                            29,334         29,293

  Inventories                                         39,071         40,005

  Other current assets (2)                            35,438         37,185

                                              -------------- --------------

      Total current assets                           200,129        191,546



Property and equipment, net                           44,113         43,617

Long-term marketable securities (1)                   34,555         44,900

Foundry advances, investments and other

 assets                                               78,933         90,407

Intangible assets, net (3)                             2,965          5,815

                                              -------------- --------------

                                              $      360,695 $      376,285

                                              ============== ==============



         Liabilities and Stockholders' Equity

Current liabilities:

  Accounts payable and other accrued

   liabilities                                $       32,449 $       32,978

  Deferred income and allowances on sales to

   distributors                                        7,521          8,033

  Zero Coupon Convertible Notes due in 2010

   (4)                                                40,000         40,000

                                              -------------- --------------

      Total current liabilities                       79,970         81,011



Other long-term liabilities                            7,600          9,042

                                              -------------- --------------

      Total liabilities                               87,570         90,053



Stockholders' equity (1)                             273,125        286,232

                                              -------------- --------------

                                              $      360,695 $      376,285

                                              ============== ==============

Notes:



(1) Long-term marketable securities include auction rate securities that

    were reclassified from Cash, cash equivalents and short-term marketable

    securities because recent auctions have been unsuccessful, and as a

    result, such securities are presently considered to be illiquid. As a

    result of an other-than-temporary decline in fair value for the

    securities, we recorded an impairment charge of $10.3 million to Net

    loss for the quarter ended June 28, 2008.



(2) An impairment charge of $1.0 million was recorded to Net loss for the

    quarter ended June 28, 2008 for an investment in a foundry partner

    which is held in Other current assets.



(3) At December 29, 2007, the Company performed an impairment test on

    Goodwill. As a result, Goodwill related to the acquisition of Vantis

    Corporation on June 15, 1999, the acquisition of Integrated

    Intellectual Properties, Inc. on March 16, 2001, and the acquisition

    of the FPGA business of Agere Systems, Inc. on January 18, 2002, was

    determined to have no implied fair value and the entire balance of

    $223.6 million was recorded as a Goodwill impairment charge. As a

    result, we no longer have Goodwill recorded on our Consolidated

    Balance Sheet.



(4) Subsequent to June 28, 2008, the Company completed the purchase of

    $40.0 million in principal amount of its Zero Coupon Convertible Notes

    ("Notes") due July 1, 2010. The Notes were purchased on July 2, 2008

    pursuant to the exercise by the noteholders of their repurchase rights.

    Based on these purchases, no such Notes remain outstanding.







                       Lattice Semiconductor Corporation

                - Supplemental Historic Financial Information -





                                           Q208      Q108     Q207

                                           -----    -----    -----

Operations Information

Percent of Revenue

Gross Margin                                56.0%    55.6%    55.1%

R&D Expense                                 30.9%    31.2%    35.0%

SG&A Expense                                26.2%    26.5%    25.0%



Depreciation Expense (in thousands)        3,379    3,249    3,396

Capital Expenditures (in thousands)        3,917    3,207    2,914



Balance Sheet Information

Current Ratio                                2.5      2.6      5.9

A/R Days Revenue Outstanding                  46       47       46

Inventory Months                             4.6      4.7      4.3



Revenue% (by Product Family)

FPGA                                          23%      24%      23%

PLD                                           77%      76%      77%



Revenue% (by Product Classification)

New                                           21%      20%      11%

Mainstream                                    49%      48%      50%

Mature                                        30%      32%      39%



Revenue% (by Geography)

Americas                                      20%      22%      24%

Europe (incl. Africa)                         20%      22%      18%

Asia                                          60%      56%      58%



Revenue% (by End Market)

Communications                                52%      54%      52%

Industrial & Other                            23%      24%      24%

Computing                                     14%      12%      11%

Consumer & Automotive                         11%      10%      13%



Revenue% (by Channel)

Direct                                        67%      63%      64%

Distribution                                  33%      37%      36%







New:        LatticeXP2, LatticeSC, LatticeECP2/M, LatticeECP, LatticeXP,

            MachXO, Power Manager, ispClock



Mainstream: FPSC, ispXPLD, ispGDX2, ispMACH 4/LV, ispGDX/V, ispMACH 4000/Z,

            ispXPGA, Software and IP



Mature:     ORCA 2, ORCA 3, ORCA 4, ispPAC, ispLSI 8000V, ispMACH 5000B,

            ispMACH 2LV, ispMACH 5LV, ispLSI 2000V, ispLSI 5000V, ispMACH

            5000VG, all 5 Volt CPLDs, all SPLDs

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