Monday, Lattice Semiconductor held its Financial Analyst Day (FAD), which I attended in person at the NASDAQ MarketSite in Times Square in New York City. This is a day, like all major public companies have, where senior management discusses their plans for the future with its major institutional investors and a handful of press and industry analysts, and also stream it to other interested parties online. Lattice's FAD was a bit different as the company and its management have changed nearly everything. Literally everything.
I am an industry analyst, not a financial analyst, which means I am looking at the company’s markets, products, and technologies through a different lens than a spreadsheet. My primary lens comes from nearly 30 years' experience of watching the relationships between buyers, products, markets, technologies and the companies who deliver them. And through my lens, I saw a lot on Monday.
Low power programmable leader mission
One thing that struck me the most was the focus that CEO Jim Anderson brought to the table. Lattice said Monday it wants to be the "low power programmable leader." This is very different from the days when it seemed like Lattice was getting into a bunch of different, but related businesses like HDMI and USB-C. Now we see Lattice and the new management team taking the company back to its roots by focusing 100% on FPGAs. Lattice has cut projects that were not related to high ROI FPGA projects and invested the funds into newer and higher ROI projects. Now is also the perfect time for Lattice to refocus to low power FPGAs because of its growing, $3 billion-dollar addressable market. This market is healthy, and I believe will grow for years to come based on growth in 5G, IoT, security and automotive.
Lattice is focused on FPGAs in the 1mW to 1-watt power range and 2 mm2 to 100 mm2. This is very different from other companies with larger FPGAs that operate at around 200 watts and 3,000 mm2. Since Lattice has changed focused its strategy, I believe it has reduced the amount of competition they have with other FPGA companies. The new leadership team has also set its focus on financial discipline. Lattice plans on bringing in consistent profitability and cash flow expansion. The mission of Lattice is driven by the new leadership team with industry experience and plan to jump-start its new strategies.
Lattice’s new and executive team
Sometimes what's required to jump-start a company with years of history is a new, energized management team and a new style. This doesn't always lead to the change the board or street is looking for, but when you get positive change, some real magic can happen. I see this at the 100 companies I closely follow in the industry.
The new management team provides deep expertise with many of them coming from the FPGA background:
- Jim Anderson joined as President and CEO in September 2018 and was formerly a senior executive at AMD. He had joined the Lattice team because he considers Lattice to be in a great location in the semiconductor market. He believes that Lattice has a lot of opportunity with its strong core franchise, it just needs a remodel. With that remodel, he assembled a team to take advantage of these opportunities.
- Esam Elashmawi joined as CMO and CSO in September of 2018. He was formerly a senior executive at Microsemi and has over 30 years of FPGA experience.
- Sherri Luther joined as CFO in January of 2019. She was formerly a senior executive at Coherent and was one of the last to join the team. Luther had been at Coherent for the past sixteen years and saw an opportunity at Lattice to apply what she had learned and practiced at Coherent.
- Steve Douglass joined as CVP and R&D in September of 2018. He was formerly a senior executive at Xilinx and has an abundant amount of experience not only in R&D roles but also in other business leadership roles.
- Mark Nelson joined as CVP Worldwide Sales in January of 2019. He was formerly a senior executive at Intel FPGA.
- Glenn O’Rourke joined as CVP Global Operations in December of 2018. He was formerly a senior executive at Xilinx.
Anderson has put together a team that with experience not only in FPGAs but also experience in being in different positions of the executive team. For example, Elashmawi and Douglass have both had product and technology roles. With a unique executive team, the company says it is creating a culture that's "fast, accountable and performance driven" with "financial discipline." From what I know about Jim Anderson and his tenure at AMD, this is in perfect alignment.
$3 billion SAM in 2022
As stated earlier, I believe now is the perfect time for Lattice to direct its focus to low power FPGAs because as Elashmawi pointed out, low power FPGAs are a growing market, not only in existing markets but also in new upcoming markets. Low power FPGAs have taken on a growing number of applications and have begun taking other non-FPGA semiconductor (i.e. controller, ASIC) applications. I believe if Lattice focuses on the low power FPGA market, they could see their SAM almost double within a few years. The end markets that these FPGAs are developing new and growing applications for are communication, compute, industrial, automotive, and consumer markets.
Even though the industrial end market is the largest of the five, Lattice surfaced the communication market and the compute market first because they contain a fair amount of excitement when it comes to the integration of FPGAs into the 5G communication ecosystem as well as future servers and enterprise storage.
The comms and compute end markets are healthy markets for low power FPGAs to be in. We will see a massive build-out of 5G and even though Lattice is not in the high-power FPGAs for the data plane, low power FPGAs will also have a major impact. FPGAs will have a higher value proposition from the current dominant 4G network to the growing future-dominant 5G network. Low power FPGAs will be in the 5G control plane functions, bridging, and power management of the remote radio units(RRU) of these 5G antennas as well as the baseband units (BBU) that connect to these towers. They will then be connected to a heterogeneous network of other RRUs, BBUs, and various connected units in the 5G network. Low power FPGAs will and do play a part in the development of the 5G network and it is something to be excited about.
One question that came up in the executive Q&A was the notion of FPGAs being replaced by ASICs as the standards gelled. For larger 5G FPGAs for the data plane, this makes some sense, but for smaller, lower power FPGA’s like Lattice, this won’t happen. Why? The ROI to replace it doesn’t make any sense and 5G base station vendors won’t spend the money to do it.
Similar to the impact that FPGAs are having on 5G networks, FPGAs are increasing in value proposition in the compute end market as well. Lattice has added value to its X86, Arm and RIISC-V server platforms by offering enhanced peripheral control I/O, full power management and a new system status monitoring. This increase in value has skyrocketed Lattice’s attach rate to more than 80% and doubled their ASP so far. Lattice plans on expanding its server platform by adding more value and expanding their position in the next generation of servers, by including security and expanding its position in servers.
FPGAs have always been applicable in the Industrial market but up until recently, FPGAs have become applicable in the automotive industry. Previously, FPGAs were used in the Industrial market for simple things like motor control and programmable logic controller because they are able to take up low power and are easily programmable. Some examples of Lattice increasing its future revenue markets would be machine vision, factory automation like functional safety and predictive maintenance, and robotics like collision avoidance and package detection.
In the past, FPGA companies had to convince the automotive market to use FPGAs in their products while today it is considered a norm. Lattice considers this their fastest growing market because there are a lot more technologies going into the automotive industry, and FPGAs are valuable for their low power and programmability. These new automotive technologies are anywhere from motor control of an electric vehicle to a technological accessory such as a smart mirror. FPGAs have its footprint in the increasingly technological automotive industry and Lattice is having no trouble making its FPGAs applicable to the automotive end market
Refined and supporting R&D strategy
Lattice has made some significant changes to their research and development (R&D) strategy enter these growing end markets. Before, R&D was focused on many projects at one time. They had non-FPGA projects and low ROI projects that spread their research team thin which resulted in a lack of system-level solutions and little to no sharing between projects. Lattice had multiple FPGA architectures made independent of each other and a growing system complexity making it difficult for their customers to implement their design efficiently.
Lattice’s stated solution is to solely focus on low power FPGA projects and to do a platform based design, allowing multiple product families off of one product architecture. Its R&D can now work together, be leveraged, and focus on low power FPGAs because they are now all working on the same thing, what they are best at.
Lattice’s platform-based design consists of having a single product architecture with multiple product families that are optimized for different applications. This can cater to Lattice’s customers and solves the problem of customers finding it difficult to implement their own designs. Lattice’s goal is to maximize design reuse, create lower development costs, and improve time to market.
Refocused product line
From Lattice’s next-generation platform, it plans on having multiple product families. By using a single common architecture, Lattice can theoretically release its product portfolio in an efficient and timely manner. Lattice says it has optimized these families to focus on all the applications it has targeted for growth in their roadmap. Embedded vision, artificial intelligence, and security are the focus for these families by providing faster connectivity, optimized AI inferencing, and advanced hardware security. This single common architecture has been optimized for low power and a small design so that Lattice can focus on “power efficiency and area efficiency.”
All four of the product families benefit from this new optimized architecture platform while at the same time, focus on specific platform applications:
- The ECP family is made of general-purpose FPGAs with 12k to 100k gates. The CrossLink family focuses on sensor fusion, video muxxing, and scaling applications.
- The iCE 40 focuses on the lowest power possible while being optimized for the smallest form factor.
- The MachXO family is focused on security and platform management.
Out of these families, Lattice has announced the MachXO3D from the MachXO product family. The MachXO3D focuses on security and integration by enhancing security in computing, communications, industrial control, and automotive systems. Another new product that Lattice announced at financial analyst day was the SenseAI2.0 stack. The SenseAI stack provides high-performance AI technology with power efficiency for smart devices operating at the edge.
Both of these new products have been covered in a separate blog for each new product, the MachXO3D, and SenseAI
Reconstructing the sales model for the top OEMs
Just as Jim Anderson’s plan was to bring the company back to its roots, so was Mark Nelson’s as he followed in its footsteps for the sales team. The sales team restructured from a fragmented, complex and siloed sales team to a unified, simple and collaborative sales team. This unification was influenced by the mission of the executive team to focus solely on low power FPGAs. The sales team could then strategize how they handled its customers to make sure they had the best access, influence, and that it continued to win with those customers as well as the customers those companies had an influence on.
Lattice is focusing its coverage on its top 20 customers who took up 50% of the project $3 billion SAM projected in 2022. On top of that, they focused on the companies that those top 20 companies influenced and that brought in new applications and value proposition for its product. Jim Anderson said that “Lattice has a great relationship with those top OEMs” that he considers are market makers. Lattice’s new sales model is set up for these top OEMs and to sell what they are asking for, low power programmable FPGAs. Nelson’s strategy makes a lot of sense.
At Lattice's financial analyst day, Lattice’s executive team presented a re-energized vision of Lattice and a new focus towards what its top customers are asking for: low power programmable FPGAs. I believe Lattice has a great opportunity for a $3 billion SAM in the near 2022. Jim Anderson has put together a team that is bringing Lattice back to its roots with the mission statement of “low power programmable leader.” Lattice has refocused its R&D team to be 100% focused on low power FPGAs, has jumped into markets with a growing number of applications for its low power FPGAs, all while improving its value proposition and share of solution.
Let me be very clear- Lattice has made many improvements already and investors don't need to wait around for some turnaround. Previously, the company was running at a loss and it is now generating healthy cash at 20% and with a target to get to 25-30%. Lattice has beat consensus and is returning more cash now compared to several years ago. There is a lot of goodness with two product announcements and two more coming in the next 12 months.
Lattice Semiconductor is a completely new company.
Note: Moor Insights & Strategy writers and editors may have contributed to this article.