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Lattice Semiconductor Reports Fourth Quarter 2011 Results


January 26, 2012 - Hillsboro, OR

Lattice Semiconductor Corporation (NASDAQ: LSCC)

Financial Highlights:

  • Revenue of $70.2 million, a decrease of 14.1% from $81.7 million in 3Q11 and a decrease of 4.0% from $73.1 million in 4Q10.
  • Gross margin of 57.7%, compared to 58.6% in 3Q11 and 62.7% in 4Q10.
  • Net income of $0.34 per diluted share, compared to net income of $0.11 per diluted share in 3Q11 and net income of $0.11 per diluted share in 4Q10. 4Q11 financial results include approximately $35.1 million ($0.29 per diluted share) of income tax benefit, $1.1 million of restructuring related charges and $0.5 million of acquisition related costs. 3Q11 financial results included approximately $1.8 million of restructuring related charges and a $0.9 million tax settlement benefit.

Lattice Semiconductor Corporation (NASDAQ: LSCC) today announced financial results for the fourth quarter ended December 31, 2011. Results for the fourth quarter of 2011 reflect the Company's acquisition of SilionBlue Technologies Ltd. ("SiliconBlue") on December 16, 2011.

For the fourth quarter, revenue was $70.2 million, a decrease of 14% from the $81.7 million reported in the prior quarter, and a decrease of 4% from the $73.1 million reported in the same quarter a year ago. FPGA revenue for the fourth quarter was $22.1 million, a decrease from the $26.2 million reported in the prior quarter, and a decrease from the $24.4 million reported in the same quarter a year ago. PLD revenue for the fourth quarter was $48.1 million, a decrease from the $55.5 million reported in the prior quarter, and a decrease from the $48.7 million reported in the same quarter a year ago.

Net income for the fourth quarter was $40.9 million ($0.34 per diluted share), compared to a prior quarter net income of $13.3 million ($0.11 per diluted share) and net income of $13.9 million ($0.11 per diluted share) reported in the same quarter a year ago. In the fourth quarter of 2011, we recognized a tax benefit of $35.1 million ($0.29 per diluted share) related to the release of tax valuation allowance for certain deferred tax assets, based on an evaluation of the likelihood of use of these tax attributes due to the improvement in our operating results in 2011 and the implementation of a new global tax structure during the fourth quarter of 2011. The Company anticipates completing its global tax restructuring during the first quarter of 2012, which will result in a tax provision of approximately $10.8 million. Fourth quarter 2011 financial results include approximately $1.1 million of restructuring related charges, as compared to approximately $1.8 million of restructuring related charges included in the third quarter 2011 financial results. The fourth quarter of 2011 also included $0.5 million related to acquisition charges.

Darin G. Billerbeck, President and Chief Executive Officer, said, "We achieved approximately 7% revenue growth in 2011 compared to 2010, even with ongoing, broader market weakness and the macro softening of demand, primarily in the communications business. During this period of uncertainty, our primary focus is on controlling costs and our spending, and continuing to invest in new products and technologies, while managing our inventory. Our integration of the SiliconBlue acquisition is progressing well. Importantly, we believe this acquisition will accelerate our growth strategy in the Consumer market driven by its desire for longer battery life, more natural interfaces, increased functionality, smaller form factors and lower cost."

Joe Bedewi, Corporate Vice President and Chief Financial Officer, added, "Total operating expenses were $34.8 million, including approximately $1.1 million in restructuring charges in the quarter. While most elements of our 2011 restructuring program are now substantially complete, we will incur restructuring charges in the first quarter of 2012 related to our previously discussed transfer of our operations to our low cost site in the Philippines. Gross margin for the fourth quarter was 57.7%, in line with our original guidance. This also includes the impact of SiliconBlue. We generated $10.3 million of cash from operations, ending the quarter with a cash, cash equivalents and short-term marketable securities balance of $210.1 million, reflecting our acquisition of SiliconBlue for approximately $63 million in cash. We concluded our stock repurchase program on October 20, 2011, having repurchased approximately 2.8 million shares during the term of the program at a cost of $16.4 million."

Fourth Quarter 2011 Business Highlights:

  • Acquired SiliconBlue: Lattice extended its leadership position in the highly attractive mobile consumer and handheld market with its $63 million acquisition of SiliconBlue. The mobile consumer market for PLD's includes digital cameras, smartphones, eReaders, tablets, notebooks and netbooks. Key market growth trends include the drive for longer battery life, more natural interfaces, increased functionality, lower cost and reduced weight.
  • Shipped More Than 75 Million MachXOProgrammable Logic Devices: Lattice has now shipped more than 75 million MachXO™ PLDs since their introduction. Widely adopted in a broad range of high volume, cost sensitive applications, customers worldwide are taking advantage of the MachXO™ PLD family's innovative combination of ease-of-use, flexibility, system integration and price. The MachXO™ PLD family's unique system integration benefits have continued to drive its widespread adoption in a broad range of low-density applications that require general purpose I/O expansion, interface bridging and power-up management functions.
  • All members Of Lattice's Award Winning MachXO2PLD Family Released To Production: The MachXO2™ PLD family consists of nine devices in 29 device/package combinations to satisfy a broad range of customer requirements.
  • MachXO2PLD Family Recognized by EDN Magazine as "Hot 100" Product: Recognition as a Hot 100 product is unique because there is no nomination process: instead, EDN's editors select from among thousands of new products that, in their judgment, are particularly noteworthy.
  • Shipped 15 Millionth Power Manager Device: Lattice's seven Power Manager devices have been broadly adopted in a wide range of high volume, cost sensitive applications because they enable board designers to integrate the multiple power management functions of a circuit board into a single programmable device. Integration reduces overall system cost by eliminating duplicate functions.
  • Announced New Release Of Lattice Diamond® Design Software: Release 1.4 of Lattice Diamond® design software will accelerate FPGA design optimization for low power and cost sensitive applications, and reduce time to market. Lattice Diamond 1.4 software enhances support for the MachXO2™ PLD family by providing final production timing, power models and bitstreams for the entire family, including the latest wafer-level chip scale packaged version of the LCMXO2-2000U and LCMXO2-1200U devices that are ideal for very high volume, cost- and power-sensitive applications.

Business Outlook - First Quarter 2012:

  • Revenue is expected to increase approximately 1% to 5% on a sequential basis.
  • Gross margin percentage is expected to be approximately 57% plus or minus 2%.
  • Total operating expenses are expected to be approximately $39.0 million, including approximately $0.8 million in restructuring charges and $0.9 million in acquisition related charges (primarily amortization of intangible assets).
  • Income will be affected by a tax provision of approximately $10.8 million primarily associated with the completion of the Company's new global tax structure.

Investor Conference Call / Webcast Details:

Lattice Semiconductor will review the Company's financial results for the fourth quarter 2011 and business outlook for the first quarter 2012 on Thursday, January 26, 2012 at 5:00 p.m. EST. The conference call-in number is 1-888-286-6281 or 1-706-643-3761 with conference identification number 41340129. A live webcast of the conference call will also be available on Lattice's website at www.latticesemi.com. The Company's financial guidance will be limited to the comments on its public quarterly earnings call and the public business outlook statements contained in this press release.

A replay of the call will be available approximately two hours after the conclusion of the live call through 11:59 p.m. EDT on February 2, 2012, by telephone at 1-404-537-3406. To access the replay, use conference identification number 41340129. A webcast replay will also be available on Lattice's investor relations website at www.latticesemi.com

Forward-Looking Statements Notice:
The foregoing paragraphs contain forward-looking statements that involve estimates, assumptions, risks and uncertainties. Such forward-looking statements include statements relating to: our business outlook, including those statements under the heading "Business Outlook - First Quarter 2012" relating to expected revenue, gross margin, total operating expenses, projected restructuring charges, projected acquisition related charges, and projected tax provision; the completion and effects of our global tax restructuring; the effects of our acquisition of SiliconBlue, including the acceleration of our growth strategy in the Consumer market; our continued focus on controlling costs and spending, investing in new products and technologies, and managing inventory. Other forward-looking statements may be indicated by words such as "will," "could," "should," "would," "expect," "plan," "anticipate," "intend," "forecast," "believe," "estimate," "predict," "propose," "potential," "continue" or the negative of these terms or other comparable terminology. Lattice believes the factors identified below could cause actual results to differ materially from the forward-looking statements.

Estimates of future revenue are inherently uncertain due to, among other things, the high percentage of quarterly "turns" business. In addition, revenue is affected by such factors as global economic conditions, which may affect customer demand, pricing pressures, competitive actions, the demand for our Mature, Mainstream and New products, and in particular our MachXO and LatticeECP3 solutions, the ability to supply products to customers in a timely manner or changes in our distribution relationships. Actual gross margin percentage and operating expenses could vary from the estimates on the basis of, among other things, changes in revenue levels, changes in product pricing and mix, changes in wafer, assembly, test and other costs, including commodity costs, variations in manufacturing yields, the failure to sustain operational improvements, the actual amount of restructuring charges and compensation charges due to stock price changes. Restructuring charges may vary from the estimate on the basis of the timing and scope of the restructuring. In addition, our results could vary due to our acquisition of SiliconBlue. We have not had experience operating SiliconBlue or projecting its operating results. The acquisition of a new company carries inherent risks, including our discovering unknown liabilities or encountering unanticipated issues relating to integrating the business with ours. Any unanticipated declines in revenue or gross margin, any unanticipated increases in our operating expenses or unanticipated charges, including without limitation, restructuring charges, or issues with integrating SiliconBlue, could adversely affect our profitability during the quarter.

In addition to the foregoing, other factors that may cause actual results to differ materially from the forward-looking statements in this press release include global economic uncertainty, overall semiconductor market conditions, market acceptance and demand for our new products, the Company's dependencies on its silicon wafer suppliers, the impact of competitive products and pricing, technological and product development risks, and the other risks that are described in this press release and that are otherwise 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 is the source for innovative FPGA, PLD, and programmable Power Management solutions. For more information, visit www.latticesemi.com. Follow Lattice via Facebook, RSS and Twitter.

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



Lattice Semiconductor Corporation
Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)

Three Months Ended Year ended
--------------------------------- ---------------------
December October 1, January 1, December January 1,
31, 2011 2011 2011 31, 2011 2011
--------- ---------- ---------- --------- ----------
Revenue $ 70,170 $ 81,720 $ 73,080 $ 318,366 $ 297,768

Costs and
expenses:
Cost of products
sold 29,707 33,866 27,239 129,769 117,943
Research and
development 16,085 16,999 15,672 71,855 60,326
Selling, general
and
administrative 17,121 16,809 16,738 68,838 64,359
Acquisition
related charges
(1) 536 -- -- 536 --
Restructuring (2) 1,097 1,760 (30) 6,079 11
--------- ---------- ---------- --------- ----------
64,546 69,434 59,619 277,077 242,639
--------- ---------- ---------- --------- ----------
Income from
operations 5,624 12,286 13,461 41,289 55,129

Other income, net
(3) 255 248 558 1,434 2,474
--------- ---------- ---------- --------- ----------
Income before
(benefit)
provision for
income taxes 5,879 12,534 14,019 42,723 57,603
(Benefit) provision
for income taxes
(4) (35,066) (803) 140 (35,509) 531
--------- ---------- ---------- --------- ----------
Net income $ 40,945 $ 13,337 $ 13,879 $ 78,232 $ 57,072
========= ========== ========== ========= ==========

Net income per
share (5):
Basic $ 0.35 $ 0.11 $ 0.12 $ 0.66 $ 0.49
========= ========== ========== ========= ==========
Diluted $ 0.34 $ 0.11 $ 0.11 $ 0.65 $ 0.48
========= ========== ========== ========= ==========

Shares used in per
share calculations
(5):
Basic 117,528 117,926 117,907 117,875 116,726
========= ========== ========== ========= ==========
Diluted 120,473 120,627 121,215 121,139 120,143
========= ========== ========== ========= ==========

Notes:

(1) The Company recorded consulting and legal costs of $0.4 million and
amortization of intangible assets of $0.1 million associated with
customer relationships and developed technology in the acquisition of
SiliconBlue, from the acquisition date, December 16, 2011 through
December 31, 2011.

(2) Represents costs and adjustments incurred primarily related to the
corporate restructuring plan announced on April 21, 2011.

(3) During the first quarter of fiscal 2011 and the second quarter of
fiscal 2010, the Company recognized a gain on the sale of certain
auction rate securities of $0.6 million and a gain on the sale of real
estate of $0.7 million, respectively.

(4) In the fourth quarter fiscal 2011, we recognized a tax benefit of
$35.2 million related to the release of tax valuation allowance for
certain deferred tax assets, following our evaluation about the
likelihood of using these tax attributes in the future in light of the
significant improvement in our operating results in 2011 and the
affects of our global tax restructuring, which will be completed in
2012. In the third quarter of fiscal 2011 a tax benefit was recorded
in connection with the settlement of IRS proposed adjustments for the
Company's income tax returns for 2001 and 2002.

(5) For all periods presented the computation of diluted earnings per
share includes the effects of stock options and restricted stock units
as they are dilutive. ESPP shares are included if dilutive.



Lattice Semiconductor Corporation
Consolidated Balance Sheets
(in thousands)
(unaudited)

December 31, January 1,
2011 2011
------------- -------------
Assets
Current assets:
Cash, cash equivalents and short-term
marketable securities $ 210,134 $ 238,220
Accounts receivable, net 36,993 41,188
Inventories 37,278 37,333
Other current assets 15,517 8,648
------------- -------------
Total current assets 299,922 325,389

Property and equipment, net 41,113 39,322
Long-term marketable securities 6,946 10,232
Other long-term assets 11,579 2,744
Intangible assets, net of amortization (1) 18,426 --
Deferred income taxes 45,130 --
Goodwill (1) 44,808 --
------------- -------------
$ 467,924 $ 377,687
============= =============

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and other accrued liabilities $ 41,215 $ 38,648
Deferred income and allowances on sales to
sell-through distributors 10,761 15,692
------------- -------------
Total current liabilities 51,976 54,340

Other long-term liabilities 22,387 4,625
------------- -------------
Total liabilities 74,363 58,965

Stockholders' equity 393,561 318,722
------------- -------------
$ 467,924 $ 377,687
============= =============

(1) The Company is in the process of finalizing the purchase price
accounting for the December 16, 2011 acquisition of SiliconBlue.



Lattice Semiconductor Corporation
- Supplemental Historical Financial Information -

4Q11 3Q11 4Q10
------- ------- -------
Operations Information
Percent of Revenue
Gross Margin 57.7% 58.6% 62.7%
R&D Expense 22.9% 20.8% 21.4%
SG&A Expense 24.4% 20.6% 22.9%

Depreciation and amortization (in thousands) 4,084 4,089 3,850
Capital Expenditures (in thousands) 4,309 1,383 5,325
Stock Compensation Expense (in thousands) 1,588 1,687 1,046

Balance Sheet Information
Current Ratio 5.8 5.7 6.0
A/R Days Revenue Outstanding 47 59 51
Inventory Months 3.8 3.1 4.1

Revenue% (by Product Family)
PLD 69% 68% 67%
FPGA 31% 32% 33%

Revenue% (by Product Classification)
New 50% 48% 43%
Mainstream 27% 27% 30%
Mature 23% 25% 27%

Revenue% (by Geography)
Asia 64% 64% 66%
Europe (incl. Africa) 19% 20% 19%
Americas 17% 16% 15%

Revenue% (by End Market)
Communications 42% 44% 46%
Industrial & Other 30% 31% 29%
Computing 15% 13% 13%
Consumer 13% 12% 12%

Revenue% (by Channel)
Distribution 65% 61% 59%
Direct 35% 39% 41%

New: LatticeECP3, LatticeXP2, LatticeECP2/M, MachXO, Power Manager II, ispClock A/D/S, ispMACH 4000ZE, iCE40, iCE65

Mainstream: ispXPLD, ispGDX2, ispMACH 4000/Z, ispXPGA, LatticeSC, LatticeECP, LatticeXP, ispClock, Power Manager I, Software and IP

Mature: FPSC, 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, GDX/V, ispMACH 4/LV, all SPLDs

For more information contact:
Joe Bedewi
Chief Financial Officer
Lattice Semiconductor Corporation
503-268-8000

David Pasquale
Global IR Partners
914-337-8801
lscc@globalirpartners.com

MarketWire

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