I spent over 20 years in “big tech,” most of those years as an executive, and I was always getting performance appraisals from the CEO, formally or informally. As a tech industry analyst, I get to give the CEO performance appraisals, which can be a lot of fun, especially when the performance is good. After one year to the day, I wanted to reflect on the job that Lattice Semiconductor CEO Jim Anderson is doing, but let me introduce you to the company first.
Lattice Semiconductor may not be a household name, but it’s been around for quite some time. Founded in 1983, and headquartered in Portland, OR, the company made a name for itself in the semiconductor space, specializing in programmable logic devices, aka “PLD’s,” now more commonly referred to as “FPGAs.”
I attended the company’s Financial Analyst Day back in May (see my coverage here), where I learned a lot about the many recent changes the company has undergone in terms of management, culture, strategy, and yes, financial performance. A lot of that can be credited to Lattice Semiconductor’s installation of Jim Anderson as CEO back in September of 2018. I wanted to take some time today to take stock of Jim Anderson’s tenure one year in and his impact on the company.
A newly focused Lattice Semiconductor
Whereas the company was previously in a phase where I believe it was spreading itself too thin and getting into a bunch of (albeit related) businesses, such as USB-C and HDMI, it is now 100% laser-focused on small, low-power FPGAs. This new focus, under Anderson, puts R&D and the full weight of the company towards growth areas like AI, 5G, edge computing, datacenter, and security. This is significant because these are areas that are experiencing significant, stable growth and will likely drive semiconductor consumption into the foreseeable future and are a fit for the company’s core competency, lowest power FPGAs.
This redirection was evident in several of Lattice Semiconductor’s recent announcements. It launched the MachXO3D (wrote about here), which the company calls “the industry’s most secure FPGA for control applications.” It also announced a new enhanced video processing FPGA called CrossLinkPlus and unveiled plans to release its first major platform update in years—one developed on a 28nm FD-SOI process (wrote about here). Lattice Semiconductor, I believe under Anderson’s tenure, has strengthened its product roadmap and moved towards a more platform-based development methodology—moves which should allow for a faster cadence of new products and solutions embraced by customers.
Another significant strategy shift we’ve seen with Lattice Semiconductor since Anderson’s appointment is a move away from producing mainly standalone silicon products towards delivering complete solution stacks to customers. Silicon is now bundled with software, IP, reference designs, hardware, and design partners, an approach that I believe will allow its customers to better leverage its FPGAs in next-generation applications such as AI (wrote about here). Some chip companies fire chips over the wall and hope their ecosystem embraces. Lattice Semiconductor is removing this “hope and pray” strategy by creating a full solution with accompanying hardware and software. It takes more resources to create a solution, but if you realign your resources around fewer, more profitable lines, overall costs don’t increase.
Then there’s the change in management. Obviously, the installation of Jim Anderson as CEO was a huge change. Having previously served as the General Manager and Senior Vice President of AMD’s Computing and Graphics Business Group, Anderson brought with him a track record of transformational business and technical leadership. While Lattice Semiconductor is in more diverse markets than AMD, Anderson’s no stranger to Lattice Semiconductor’s target markets and customers.
The management transformation didn’t stop there though—Anderson rebuilt Lattice Semiconductor’s leadership team with other proven industry experts in the FPGA realm. I believe Anderson is also responsible for an overhaul of the company’s culture, with a renewed focus on speed, accountability, and metric-driven performance. What I am hearing from Lattice Semiconductor customers is that he brought new operational discipline throughout the company, not only driving new products, but also delivering profitability and cash flow.
The bottom line
Speaking of market performance, profitability, and cash flow—nowhere else is Anderson’s impact more obvious and measurable. The company’s Q2 2019 financials showed a record non-GAAP operating profit of 24%, and revenue grew 4.3% sequentially from the first quarter of the year. The company showed a gross margin of 58.7% on a GAAP Basis (59% non-GAAP), which takes the cake for the company’s highest profitability in a decade.
The company’s net income improved to $.06 / $.15 per diluted share on a GAAP/Non-GAAP basis. For comparison’s sake, in Q2 2018 (the last earnings report before Anderson took the helm), Lattice Semiconductor’s gross margin was 48.9% on a GAAP basis and 57.2% on a non-GAAP basis, and showed a net loss of $.16% per share on a GAAP basis and a net income of $.10 per share on a non-GAAP basis. Anderson also made investor and financial analyst engagement a priority, contributing to an impressive expansion of market capitalization by over two times—from a $7.55 stock price in August 2018, to $19 in August 2019. Finally, another noteworthy financial achievement under Anderson’s tenure so far include the refinancing of the company’s debt under more favorable terms and over $85 million paid down.
As impressive as these results are, Anderson acknowledges that there is still room for improvement. He told me in a phone call last week that “the team is proud of what we accomplished over the past year, but we have a lot more work to do. We are determined to execute to our strategy, and we’re excited about the path in front of us.” If you have met Jim Anderson, you will recognize that it is “so Jim.”
I recognize that this article is very positive, some might argue overly positive, but I challenge you to find a chink in the Lattice Semiconductor Semiconductor armor over the last year. I guess I could pick on year on year revenue growth, but when you’re remaking the entire roadmap, adding new products and deprioritizing others, that’s not going to happen in a year. Maybe we could get more vocal on Twitter. OK, that's digging deep.
It’s quite remarkable what Anderson, and his team has been able to accomplish one year into his tenure. I said this after the company’s Financial Analyst Day—this is a whole new Lattice Semiconductor, reenergized and refocused on what it does best: low power, small footprint FPGAs. The company is releasing new solutions at an impressive cadence and is delivering impressive financials. Given the importance of FPGAs in tomorrow’s next-generation technologies—AI, 5G, automotive, edge, etc.— I believe Lattice Semiconductor is well-positioned to maintain its current upward trajectory. While it certainly takes a team to make these sorts of changes to a company’s culture, strategy, and performance, it has found an excellent coach in Jim Anderson. I’ll continue to watch with interest.