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Lattice Semiconductor’s Record-breaking Q2 2022 Revenue: A Look at the Company, its Strategy, and What’s Going on in Chips – Futurum Tech Webcast Interview Series
by Daniel Newman | August 12, 2022

On this special episode of the Futurum Tech Webcast – Interview Series I am joined by Esam Elashmawi, Chief Marketing and Strategy Officer at Lattice Semiconductor. Our conversation centers around Lattice’s recent Q2 earnings, what to expect from the company going forward, what their strategy is, and much more you won’t want to miss.

In our conversation we discussed the following:

  • A broad overview of recent earnings from around the industry
  • A deep dive into the recent record breaking Q2 2022 revenue report from Lattice, and how they can continue their growth and success
  • A look into the CHIPS Act and how it will drive innovation in the future
  • An exploration of FPGA’s as an industry and as a market, and how more applications could leverage an FPGA that maybe wasn’t considered before

If you’d like to learn more about Lattice Semiconductor, check out their website here.

Watch my interview with Esam here:

Or listen on your favorite streaming platform here:

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Disclaimer: The Futurum Tech Webcast is for information and entertainment purposes only. Over the course of this webcast, we may talk about companies that are publicly traded and we may even reference that fact and their equity share price, but please do not take anything that we say as a recommendation about what you should do with your investment dollars. We are not investment advisors and we do not ask that you treat us as such.

Transcript:

Daniel Newman: Hey, everybody. Welcome to another episode of the Futurum Tech Webcast and Podcast. I’m your host, Daniel Newman, founding partner, principal analyst, Futurum Research. Excited about this one, always enjoy having my friend Esam join me here from Lattice Semiconductor, week after earnings. Going to talk a little bit about the company, the business, the strategy, what’s going on in chips, FPGAs. Maybe a little bit about what’s going on in the broader markets, why this company’s doing so well when some chip companies this quarter did not. Anyways, hold your horses, we’ll get to that in a minute. But first, Esam, welcome back to the podcast. How are you?

Esam Elashmawi: I’m doing good. Glad to be here. I guess it’s a good sign when you re-invite me back and you allow me to get back on. It means I didn’t screw up the first time.

Daniel Newman: Means you either did great.

Esam Elashmawi: Thank you. I’m always excited to get on.

Daniel Newman: Yeah. You either did great or you have a really awesome comms person that just battered me. I’m kidding. Yes. You always do great. You know-

Esam Elashmawi: I do have an awesome comms team.

Daniel Newman: You know I enjoy having you on, and like I said, I always like telling stories that have growth and have strength in them. It makes my life a lot easier. Over the last few weeks, there’s been a ton of earnings. Pat and I, my cohort on the Six Five, if you haven’t listened to that before, I’d suggest you do.

Esam Elashmawi: By the way, I saw that last week. Really good episode, good recap of what happened in the market. I suggest anyone that hasn’t seen it, they should be watching it. It’s a really good show. You guys are doing a really good job.

Daniel Newman: Appreciate that, Esam. But we call it earnings Palooza because there’s about a week to two weeks every quarter where the wave of big tech and tech companies reporting, it’s absolutely the only thing happening, and then it kind of trickles all the way through the rest of the quarter and then it happens again.

Esam Elashmawi: You’ve been busy.

Daniel Newman: It’s been crazy. And again, it was kind of an interesting one, maybe it’s a good starting point for our conversation. Before I do jump all the way in though, just remember everybody out there, this show is for information, entertainment purposes only. While we will be talking to and about publicly traded companies, don’t take anything said here as investment advice. Got to get that knocked out now because we’re not telling anybody what to buy. We’re just talking about what’s going on.

Maybe we start with a quick chat, Esam, on the macros, and the macros of the market are essentially for the last couple of quarters, earnings were largely good but the market was largely selling, and I think it was because we had the raising rates, inflation data was starting to come out, worries about a recession, we had a war going on. A lot of things were happening, and I think after this money cannon had been launched all over the world, we were saying, “At some point, there’s going to be tightening. At some point, we’re going to have to pull back. At some point, these earnings and multiples can’t sustain.” And people were selling.

This quarter was a little different though, Esam. It’s kind of the first quarter where we started to see more of what I’d say is a mixed bag. Companies that were just hitting and beating consistently throughout the whole thing. Anything they could make, they could sell, they could grow. This quarter, it’s been a little more mixed. It seems a little bit more dependent on alpha than beta, if you know what I’m talking about in terms of the winners and the losers. What’s your take on what’s going on broadly, before we talk more about Lattice?

Esam Elashmawi: Broadly, I’ve been in this industry for well over 30 years and it seems like you always get surprised with a different scenario, and this is clearly a different scenario than what we’ve seen before, for the reasons that you had talked about when you think about all the stuff that’s happening globally, plus all the trillions of dollars that got put into the market. But like you said, there’s been a mixed bag as far as results, but what I can tell you for Lattice, we had another quarter that we’re very pleased with the results on for Lattice. We grew 28% year over year, and that was 7% growth from Q1 to Q2. That was a record, by the way, from a quarterly record perspective. But not only was that a record, but our gross margins hit a record as well at 69.1%, which says, okay, the customers are really valuing what we’re providing into the market. And our earnings per share, if you look at it on a year over year basis, it grew 68%. So it was a really good quarter that we’re pleased of the performance of the entire team.

But yeah, we’re in some really good growth drivers in the market. You guys talked about it as well on Six Five, I really appreciate it. But we’re in markets that are growing and robust. In our communications segment with 5g, we’re well proliferated across the top OEMs there so as 5g gets deployed, we benefit from that. But in the compute market, people are talking about the compute market now, what’s happening in the compute market, but if you were to take the compute market for us, and we look at in two different segments within that. One is the server market. Server market, what we’ve seen from generation over generation, our attach rate within servers is increasing.

I remember when I first started at Lattice almost about four years ago, our attach rate was closer to like 25%. Now, we’ve got an attach rate of over one, well over one, which means that we’re actually shipping more of our FPGAs into servers than the actual market is producing servers. So we got an attach rate that’s well over one. And we’re doing that by finding new applications for FPGAs, so they’re finding more ways to leverage FPGAs, which drives a higher attach rate, a higher ASP. So for us, we’re well positioned such that even if there’s moderate growth in the server market, we grow because of the additional attach rate and the higher ASP.

The other part of the compute market, and you were alluding to some of the softness in the market that we’re being reported was around PCs and client devices. Well, this is an area that the team’s done a really fabulous job within Lattice of finding new ways to leverage FPGAs into client devices. And we looked at this in the past. Well, if we’re in servers and our attach rate is so high, a lot of what happens in a server also is needed in a client device or a laptop. And so we’ve been taking our FPGAs and working with the OEMs there and identifying new ways that they can leverage our FPGAs.

An example of that, if you remember Daniel, that press release that came out at CES with Lenovo and leveraging Lattice FPGAs and software for their ThinkPads, where we’re doing AI functions. And this is all greenfields, this is greenfield for us. So as we start to adopt more and more platforms on the client side, and we’ve got Lenovo that was publicly announced, LG and also Lenovo on the Chromebook, not just the ThinkPad was announced as well. These are all new product ramps for us so even if there’s some weakness in that particular market, for us, it’s greenfield and we’re leveraging these new ramps. So it’s a good market for us with lots of opportunities.

By the way, I’ll remind you that the client market is about 20 times larger than the server market, so there’s a lot of opportunities for us there from that perspective. Even if we captured 10% of the attached rate, that’s going to be larger than the server market as well, so we’re really excited about that. That goes on to industrial and auto segments as well, which has been a really good growth driver for us.

Daniel Newman: And we’ll hit on all the sectors in a sec because I think that’s really important. A couple of things you said I think warrant a little bit of attention. First of all, when it comes to this sort of macro environment, I alluded to some of the factors that are differentiating different companies. The overall conditions though are still such that the growth for tech is going to be sustained and that we’re seeing basically a very strong robustness in the enterprise. I think as you mentioned, I mentioned, you mentioned, and now I’m mentioning again, I think some of that consumer discretionary is going to get hit a little bit, but it’s not because the market has contracted. I think the market has normalized. So there’s not less demand for PCs, there’s less demand than there was in a period of time where demand went up by some exponential amount for a short period because we had to get people equipped to work from home in a very short period of time.

So we saw a ton of demand get pulled forward, it got filled, and now, what we’re basically seeing is PC actually stabilize. But with new work patterns, hybrid work remaining in place, no question, we’re still going to see a fairly strong tailwind long term, but we do have to adjust to normal. And that’s one of the things as I was alluding to by the way, Esam, when I said some companies, the last few quarters were good for most companies but the stocks were falling, and this quarter, it’s been more mixed, we’ve seen more alpha and struggle to grow, but actually, things are starting to rise again because in a lot of it, the outsider’s eyes are like, okay, this might be the inflection point. This is the turnover point. We’re starting to get guidance being adjusted, where your guidance by the way was terrific but a lot of the guidance is starting to be like, okay, we’re going to guide towards more normal.

And now, the investors don’t like uncertainty so now they’re starting to get to feel, okay, what is normal going to look like going forward? What is normal demand for PCs going to look like? What does real growth look like for data center, for servers? How strong is the automotive market as production starts to ramp up, as people’s personal balance sheets start to go down? Are people going to still buy cars? You and I love cars. Are they going to buy them for 20, 30, 40% over sticker just to get one? Or at some point, are we going to see supply and demand start to find more equilibrium? And so those are all the sort of macros, and I won’t bang on you too much to weigh in on that because-

Esam Elashmawi: But those are really good points, and what you’re saying also, and I totally subscribe to this and we’ve been saying this for years, is there’s always going to be demand for chips, and there’s going to be these fluctuations like you talk about where, okay, maybe there is an uptick for a particular reason. Now, it gets normalized, but think about electrification in everything better use models and everything. Even the automobiles, they’re putting more electronics in automobiles. They’re putting more use cases and more electronics in PCs and notebooks and factory equipment. The demand for semiconductors and semiconductor companies and what we provide will continue. People are going to want more and more electronics in everything we do.

Daniel Newman: But semiconductors will eat the world. I quoted that in January of 2020 before the pandemic. I said that was my prediction in the top tech predictions piece I wrote on market watch. No joke, right before the pandemic. I didn’t know it was happening, nothing. I just said, this year… Cause everyone likes to say software will eat the world, but what does software run on? It runs on semiconductors. You need semis, and I said the chips will eat the world. And it actually turned out that it was a really great prediction. I’ll call it a little bit of skill and a lot of luck that I got it right and everything that happened.

But it’s interesting enough too some is that we did see just so much momentum. You talked about the automotive space, 20% of that bomb by 2030 of a vehicle is going to be semiconductors. This is humongous. It’s not only that but it’s weighing towards, it’s a whole spectrum of semis. It’s leading edge, it’s lagging edge, it’s ASICs, it’s FPGAs, it’s going to be all these things. And one of the things I said on the pod that’s really interesting, and maybe this is the last thing we’ll kind of spend some time on here, is Pat and I had a little bit of a debate in the pod actually about Lattice having this really interesting ability to compete, but not necessarily being in a situation where they’re going toe to toe with a lot of the big monolithic chip makers, but really you’re working more in concert with.

You’re in concert with Intel, you’re in concert with AMD. You’re working side by side, whether that’s in a server, an FPGA in an automobile. But we also did debate, as you guys keep going up market and you keep getting stronger and you keep getting more robust, at some point, you are going to start to come head to head. So you found a niche, you’re growing into it, you’re going up market. What does that look like in your opinion? I know you can only do so much when it comes to forward looking statements but how does this story continue to evolve, and then how to continue to grow like you have been?

Esam Elashmawi: Yeah, it’s a good point. The way I see it is the need for FPGAs will never go away. They’ve been around now for 40 years. In fact, Lattice is going to be 40 years old next year. But what we’re discovering as an industry and as a market, that there are more and more applications that could actually leverage an FPGA that we did not think about before, and you take the client or PC ThinkPad application, this is new. These are new functions that are being added into laptops to provide a better user experience. These are new applications for FPGAs.

Think about our attachment servers that I talked about earlier increasing well over one. Well, why is that? It’s because we’re finding new ways for applications and users to leverage an FPGA in a system to provide a better product for their end customers. And we’re doing that on the server market as well, not just around security but around other functions as well.

And you see that also in the industrial market with displays and so many sensors that are out there, there are new things that people can leverage an FPGA for that you never thought about before, because it’s a blank canvas. It’s a blank piece of silicon. You decide what function you want it to do, you program it in there, you get that function. So I see the demand for this just increasing over time. As we electrify, as we get into more and more applications that require a better end product, there’s always going to be a place for FPGAs and that will continue to grow over time as well. So it’s exciting, exciting to be in this part of the market.

Daniel Newman: And of course, you’re getting validation. Some of the strategic purchases, the DOAMD made device IINX. I always say, sometimes when you’re a smaller player in a pond, it’s nervy to see big competitors team up, but sometimes you’re like, “Ah, we must be onto something.” And I think to some extent, that was a big validation moment, and of course, like I said, your numbers and your growth are speaking for themselves. By just staying in the lanes you’re in, focusing the seculars, 5g and telecommunication, huge tailwind and trend, that’s not going to slow. Data center, not going to slow at all. Some of the specialized technologies you have, and I still think about some of the secure technology an FPGA can offer a server to make sure that the general purpose CPU, reducing risk and stuff like that that we’ve talked about, such a big deal.

The automotive space, not going to slow, and even if the number of volume of cars sell, the growth of impact of semis in every car is going to go up. So you look at like, hey, you’ve got a tailwind at the amount per vehicle, and then you’ve got another tailwind if the demand stays high. So there’s so many things happening at once and it’s really hard not to like your prospects. And like you said, even if you just gain one or 2% market share, you’re still at that phase where you’re small enough where that’s a massive growth number. You’re working your way into crossing that billions in revenue, and it’s so opportunistic. And the overall demand for chips isn’t going to slow, and I think that’s the macro macro.

Esam Elashmawi: Yeah.

Daniel Newman: Esam, the macro macro is there’s more chips. So when people get down on semis, you always say, that’s just the… You’ve just said 30 years. This is just how this business goes. It gets a state of delight, and then it gets into a state of people thinking it’s going to somehow go away. And semi connectors are never going to go away.

Esam Elashmawi: And there’s things that we can do also to make it easy for adoption. If you look at the investments that we’re making at Lattice around our software tools and our solutions stacks, when you talk about these new applications for FPGAs, well, how do customers use that? Well, we invest quite a bit in our software tools and solutions stacks to make it easier for customers to adapt these products in new applications that they have not done before. So it helps them get to market faster, they start to leverage our software stacks within their systems, and that makes it also stickier as well. So there’s a lot we have to do also, not just from the silicon side, but also investing on the software side to make it easier for the world to start adopting these FPGAs of ours.

Daniel Newman: Absolutely. Well, you know today, NVIDIA updated their guidance. I’m not going to ask you to comment on any of it but they basically came out and said they have bad revenue. Basically, gaming fell off a cliff, a little bit similar to how Intel had that happen with client and came out and said, this is why we… Well, NVIDIA came out early to say basically… And the only reason I point that out is that we are starting to get that hard normalization on parts of the business, Esam. But overall, the demand is shown up to be really stable. And every company that’s reported, the cloud companies have all come in, strong growth in cloud, enterprise has been strong, the hybrid cloud has been strong, edge IOT applications have been strong.

So largely, like I said, it seems like there’s a sector of the space that’s going to basically… It’s kind of like when Zoom started to get whacked because you grow 400% for four straight quarters, and then that next quarter, you only grow 40. And it’s like, “Well, yeah, but we grew 40 after growing after growing 400, can we get some credit for that?” But overall, like I said, it really seems that you guys, that latches onto a really good trajectory, strong market, in the right spaces, that’s what I’ve really been beating that tom tom. And not too much exposure but a little diversification that, of course, when we do get that next supercycle of buying PCs, you’ll actually be able to capitalize on that as well.

Esam Elashmawi: We will. No one’s immune to macro issues, but clearly, you want to be in these markets that you talked about that are more robust. And then driving new greenfield opportunities, driving more attach rate helps as well, as far as the growth, even if there’s some slow down but no one’s ever immune to the global issues that are out there. But I’ll tell you one thing. One thing that this does also when there’s some slow down in key areas, it does help from a supply perspective. And you think about it. If people are buying fewer, call it, PCs or gaming electronics, you’re freeing up capacity at fabs and assembly houses that people will be able to leverage in other end markets and segments as well. And we’re seeing that ourselves. We’re seeing easing now on the supply chain, which is good for the industry and good for everyone when the supply starts to ease.

Daniel Newman: Well, of course, as it eases, now, we’re finally getting some backing. The CHIPS Act is now passed that billions are going to get spent. We’re going to have some new capacity probably in 10 years, because you got to get lumber-

Esam Elashmawi: A good innovation too. I mean, the CHIPS Acts is manufacturing capacity but also driving innovation in the industry, which is always good for everyone. It’s good for everyone.

Daniel Newman: Absolutely, and the problem with that bill, and we’re not going to go into this, we don’t have time so maybe another conversation we can have on this, is that it does immediately seemingly clearly disperse the funds for the additional manufacturing. There’s a little bit of funds for technology, leadership and innovation, and then there’s that 200 other billion dollars that basically, they just wrote it in and said, we don’t know what we’re going to do with it. We’ll appropriated over the next one to 17 years, especially if we end up in some sort of good luck after the November. Hopefully, they’ll get that figured out before November.

But all of us in this space, if you’re in semis or in tech, we’ve all become slightly politicians, policy makers, geopolitical in nature because we didn’t realize how closely tied semis are. But if the Pelosi visit to Taiwan didn’t bring attention to that, then at least hopefully, our broken supply chain did, that this is really important and this industry’s having a moment and semiconductors are here to today.
Esam, love avenue on the show. We’re going to have you back more often, so much more to talk about, but thanks for making time today.

Esam Elashmawi: I appreciate it.

Daniel Newman: Thanks for looking so sharp today. You really outdid me this time. You really outdid me this time.

Esam Elashmawi: Respect for you. Total respect for you. Appreciate your time, Daniel. Thanks for having me on too.

Daniel Newman: Absolutely. So everybody, hit that subscribe button and join us here for future episodes of the future in tech podcast. Really enjoy having you all out there. Learn more about what happened in Lattice’s earnings. We’ll put the link down below to both that Six Five segment and to our recent research note where we highlighted what happened in this last quarter for Lattice. Much more to come, keep an eye out here. Got to say goodbye for now though. We’ll see you later.

About the Author

Daniel Newman is the Principal Analyst of Futurum Research and the CEO of Broadsuite Media Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise. Read Full Bio