The Six Five team discusses Lattice Semiconductor’s latest earnings release.
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Patrick Moorhead: Lattice semiconductor earnings. And I got to tell you, these folks just blew it out of the water again. Because the current state of semiconductors is the following PCs down, data center down, discrete AI accelerators by Nvidia up, industrial and automotive catching up, but still growth. And these guys came out with an 18% year-on-year improvement in revenue, increased their gross margins and increased their EPS by 24%. Yet, the company operates in the markets that are, quite frankly are going down. A lot of this has to do… It’s really a tail of three markets. It’s industrial and automotive, it’s comms and computing. And this third one, which they’re slowly, I wouldn’t say getting out, but it’s just such a small percentage of the business now, it’s almost irrelevant, the consumer side.
If you look at industrial and automotive as an example, robotics, putting in AI enabled low power FPGAs at multiple points in the robotic arm. That’s just one example, putting more FPGAs, bigger FPGAs into automotive. Even though in a lot of these areas, the markets aren’t going off the rails, they’re increasing content, gaining market share, and in some cases even replacing microcontrollers. And the other thing I’ll add is that it’s not just slinging a bunch of hardware, it’s solutions. FPGAs aside to the, where they’re used for pre-silicon, pre hardened silicon is that they were hard to program. And what Lattice keeps doing is they keep adding these SDKs for robotics, for ORAN, for AI, et cetera, et cetera, et cetera.
They’re not just showing up with a bag of parts. They’re showing up with a solution that can improve time to market and getting over that major objections in previous years on FPGAs. Now by the way, we haven’t even seen their next generation mid-range FPGA impact any revenue yet. An amazing quarter with a really good guide. I laugh at the curves that they show around EPS and growth. I’ve never seen multi-year up into the right as this company. Hats off, I’d love to find a flaw or a wort or something like that, but it’s pretty hard in this case.
Daniel Newman: Oh yeah, I had lunch with Esam, their chief strategy and marketing officer. They were very content as they should be. The company has defied the semiconductor lull and it’s not selling GPUs. Meaning, they actually were one company that really didn’t only make it through, but they made it through. They grew, they expanded margins and they offset any weakness that came from their consumer exposure with growth in areas like industrial and then automotive. Like I said, the thing you can’t overlook is somehow they keep pushing their margins up. They are also in the seventies right now, and their launch into Avant, their expanded TAM. They seemingly… They found a stream of new revenue that gives it more access to growth, even as the economy for chips has been a little bit tenuous. Pat, FPGAs aren’t always in vogue to talk about. We like to talk about accelerators, we like to talk about monolithic chips, but we tend to not talk much about programmable. But I don’t, is Lattice bringing sexy back as it pertains to FPGAs?
Patrick Moorhead: I think they did two years ago. But, quite frankly, you and I think have talked about, we’ve written so many articles and done so many podcasts on FPGAs, maybe Dan, we’re helping to make it sexy. We’re spreading good cheer out there like Santa Claus.
Daniel Newman: We’re bringing FPGAs back. I don’t know, it doesn’t flow. I need to work on that. But the long and short of it is this is a story of good product, good development, execution, having a relevant AI story. They’re not trying to come over the top and be like, we are all things AI. But for very specific workloads, they’re showing the ability to attach an FPGA to do things like vision or automotive. And they showed a lot of these demos and we’ll be at their developer day again later this year, Pat, and we will dig more into it. But the company’s just getting it right. Sometimes there doesn’t need to be much said. The only thing is, their guide was optimistic but cautious. They didn’t guide a crazy, they guided it in line. It was their first time, I think they didn’t raise in a while, but the expectation beep beat.
And then clearly the market sees them as a long-term growth prospect because their forward earnings ratio is really high. But when you keep expanding margin and you keep beating, that’s what you get is a market full of people that believe that you have that long-term potential. And Pat, Semiconductors are eating the world and they will continue to. And it will not just be big monolithic GPUs. It will be FPGAs and ASIX. And in fact, I think one of the hottest thing for AI are going to be the FPGAs and ASIX because we already know at some point the training’s going to slow, the inference is going to grow, and the pricing and power is going to become a much bigger factor in the buying decision when this isn’t just all craze, but it becomes very straightforward, practical applications of AI where less power, less processing is needed. And of course, as companies try to do this more affordably. Good stuff for Lattice.