Lattice Semiconductor’s Financial Performance: Navigating Market Challenges

Lattice Semiconductor, a leading provider of programmable logic semiconductor products and solutions, has recently released its financial report for the fiscal year 2024. The report provides insights into the company’s financial performance, market trends, and future outlook.

Overview of Financial Performance

Lattice Semiconductor’s revenue for the fiscal year 2024 was $509.4 million, a decrease of 30.9% compared to the previous year. This decline was primarily due to softer demand in the industrial and automotive applications, telecommunications infrastructure deployments, and continued inventory normalization by customers.

The company’s gross margin decreased from 69.8% in fiscal 2023 to 66.8% in fiscal 2024, primarily due to a one-time charge of $7 million for expiring production materials and changes in product mix. However, Lattice expects gross margins to increase in future periods as this one-time charge is not expected to recur.

Segmental Performance

Lattice Semiconductor’s revenue is divided into three primary end market groups: Communications and Computing, Industrial and Automotive, and Consumer.

• Communications and Computing: Revenue from this segment decreased by 11.4% in fiscal 2024 compared to the previous year, primarily due to softer demand in telecommunications infrastructure deployments and continued inventory normalization by customers, partially offset by stronger demand in data center applications.

• Industrial and Automotive: Revenue from this segment decreased by 45.3% in fiscal 2024 compared to the previous year, primarily due to softer end market demand and continued inventory normalization by customers.

• Consumer: Revenue from this segment decreased by 4% in fiscal 2024 compared to the previous year.

While Lattice does not consider AI applications as a distinct end market, the company expects AI-related revenue to grow over the next few years based on the growing pipeline of AI-related design wins across all three of its end market segments.

Geographical Performance

Lattice Semiconductor has a diverse customer base, with a significant portion of its revenue coming from Asia. Revenue from Asia decreased by 25% in fiscal 2024 compared to the previous year, primarily due to the macroeconomic environment in the region. Revenue from the Americas and Europe also decreased, driven by reduced demand in the Industrial and Automotive end market.

Operating Expenses

Lattice Semiconductor’s operating expenses include Research and Development (R&D), Selling, General, and Administrative (SG&A), Amortization of Acquired Intangible Assets, Restructuring, and Impairment of Acquired Intangible Assets.

• R&D Expenses: R&D expenses decreased slightly by 0.3% in fiscal 2024 compared to the previous year, primarily due to lower costs for outside services and R&D equipment expenses, partially offset by increased headcount-related costs and rent expense.

• SG&A Expenses: SG&A expenses decreased by 14.8% in fiscal 2024 compared to the previous year, primarily due to a reduction in stock compensation expense from the forfeiture of equity awards by departing executives and reduced headcount-related costs as the company aligned resources to the lower level of business.

• Amortization of Acquired Intangible Assets: Amortization of acquired intangible assets remained flat in fiscal 2024 compared to the previous year.

• Restructuring: Restructuring costs increased significantly in fiscal 2024 compared to the previous year, primarily due to higher severance costs incurred as the company aligned resources to the lower level of business.

• Impairment of Acquired Intangible Assets: Lattice recorded a $13.9 million impairment charge in fiscal 2024 related to the intangible assets acquired in the Mirametrix acquisition, due to a decline in customer demand.

Income Taxes

Lattice Semiconductor’s income tax benefit for fiscal 2024 was $24.9 million, a decrease of 43.7% compared to the previous year. The lower income tax benefit was primarily due to the reduction in valuation allowance over the $56.9 million of U.S. Federal deferred tax assets in 2023. The company continues to maintain a full valuation allowance against its state deferred tax assets due to insufficient income sources.

Adjusted EBITDA

Lattice Semiconductor uses Adjusted EBITDA, a non-GAAP financial measure, to evaluate its performance. Adjusted EBITDA decreased from $324.7 million in fiscal 2023 to $162.0 million in fiscal 2024, primarily due to the decline in revenue and gross margin.

Liquidity and Capital Resources

Lattice Semiconductor believes that its current financial resources, including cash and cash equivalents, cash flow from operating activities, and credit facilities, will be sufficient to meet its liquidity and working capital needs through at least the next 12 months.

The company may consider acquisition opportunities in the future to further expand its product or technology portfolios. If necessary, Lattice may seek to obtain equity or additional debt financing to fund capital expenditures, acquisitions, or to increase its working capital.

Outlook and Challenges

Lattice Semiconductor’s financial performance in fiscal 2024 was impacted by the broader macroeconomic environment, including increased financial market volatility, inflationary pressure, interest rate changes, recessionary concerns, uncertainty in the financial and banking industry, and geopolitical tension. These factors have disrupted the company’s labor markets and supply chains, and have also affected the broader semiconductor industry, leading to softened demand across Lattice’s end markets.

Despite these challenges, Lattice remains focused on delivering innovative programmable logic semiconductor products and solutions to its customers. The company’s strategy of targeting low-power, small-size, and easy-to-use programmable logic products, as well as its growing pipeline of AI-related design wins, position it for potential growth in the future.

However, the extent to which these macroeconomic factors will continue to impact Lattice’s business activities remains uncertain and will depend on future developments. The company will need to navigate these challenges and adapt its strategies accordingly to maintain its competitive position and drive long-term growth.