Lattice Semiconductor Reports Third Quarter 2009 Financial Results

HILLSBORO, OR -- (MARKET WIRE) -- Oct 22, 2009 -- Lattice Semiconductor (NASDAQ: LSCC) today announced financial results for the third quarter ended October 3, 2009.

For the third quarter, revenue was $49.1 million, an increase of 5% from the $46.9 million reported in the prior quarter, and a decrease of 15% from the $57.6 million reported in the same quarter a year ago. Third quarter 2009 revenue reflects the previously disclosed expected reduction in revenue of approximately $2.0 million due to transitioning certain distributors from the sell-in to the sell-through business model.

FPGA revenue for the third quarter was $15.2 million, a decrease of 12% from the $17.2 million reported in the prior quarter, and a decrease of 8% from the $16.5 million reported in the same quarter a year ago. PLD revenue for the third quarter was $33.9 million, an increase of 14% from the $29.7 million reported in the prior quarter, and a decrease of 18% from the $41.2 million reported in the same quarter a year ago.

Other income (expense), net, for the third quarter was an expense of $0.5 million compared to income of $0.2 million reported in the prior quarter and an expense of $1.0 million reported in the same quarter a year ago. Other income (expense) included an impairment charge of $1.1 million in the third quarter of 2009 compared to $0.5 million in the second quarter of 2009, related to an other-than-temporary decline in fair value of auction rate securities held in Long-term marketable securities. Other income (expense) for the third quarter of 2008 included an impairment charge of $1.7 million primarily related to an other-than-temporary decline in fair value of auction rate securities held in Long-term marketable securities.

Net loss for the third quarter was $4.1 million ($0.04 per share), compared to a prior quarter net loss of $2.7 million ($0.02 per share) and a net loss of $7.0 million ($0.06 per share) reported in the same quarter a year ago. The third quarter results included stock-based compensation expense, restructuring charges and an other-than-temporary impairment charge on marketable securities which totaled $4.6 million. Prior quarter and third quarter 2008 results include amortization charges, stock-based compensation expense, an other-than-temporary impairment charge and restructuring charges which totaled $1.4 million and $8.4 million, respectively. Excluding these items, non-GAAP net income for the third quarter of 2009 was $0.5 million ($0.0 per share) compared to non-GAAP net loss of $1.3 million ($0.01 per share) for the second quarter of 2009 and non-GAAP net income of $1.4 million ($0.01 per share) for the same quarter a year ago.

Bruno Guilmart, Lattice's President and CEO, commented, "We benefitted from continued strength in Asia, a recovery in our Japan business, and stabilization of our U.S. business. Importantly, our results do not fully reflect our progress given the reduction in revenue associated with the transition of certain distributors from a sell-in to a sell-through business model. These changes are part of the revamping our Asia distribution channels and were necessary as they will improve transparency and visibility at our end customers going forward.

"Overall, while the semiconductor industry is not yet back to full growth mode, we believe the worst of the downturn is now behind us and we are confident in our business entering the fourth quarter. We are moving closer to profitability with our breakeven point now approximately $50 million in revenue per quarter. We continue to see market acceptance of our XO and ECP3 products, as reflected by continuing design wins in broad-based market segments. At the same time, we are working to further reduce our cost structure through additional efficiency improvements. We are pleased with the seamless move of our warehouse to Singapore during the third quarter. We expect these actions will improve customer service and shipping times, and reduce our fulfillment costs and inventory on hand as well."

Michael G. Potter, Lattice's Corporate Vice President and Chief Financial Officer, added, "We generated $12.6 million of cash from operations in the third quarter, ending the quarter with total liquidity of $163.0 million. This is comprised of $115.1 million of cash and cash equivalents, $30.0 million of other receivables and $18.0 million advance credits (recorded in other current assets) from Fujitsu. We collected the other receivable balance shortly after the close of the third quarter of 2009, with the remaining advance credits expected to be consumed over the next 9 months. We continue to have no long-term debt giving us balance sheet strength and flexibility to execute on our strategic growth plan. Finally, recent restructuring actions taken are expected to reduce ongoing expenses by approximately $1.5 million per quarter starting in the fourth quarter 2009."

Third Quarter Product Highlights:

--  Announced that the LatticeECP3™ FPGA family is a finalist in the e-
    Legacy Awards competition and is the only programmable logic product so
    honored.  The LatticeECP3 FPGA family also is a finalist in Elektra 2009,
    the European Electronics Industry Awards competition.  Both the LatticeECP3
    FPGA family and the mixed-signal ProcessorPM™ power management device
    were separately named finalists in EDN China's prestigious Innovation
    Awards.
--  Announced that samples of the LatticeECP3-150 FPGA, the highest
    density device in its high-value, low-power ECP3 mid-range FPGA family, are
    now generally available.  Samples had already been shipping to select
    customers since July 2009.
--  Announced the immediate availability of eight new reference designs
    and two new development kits, all designed to speed customers' time to
    market.  The new development kits are ideal for prototyping high volume,
    cost sensitive, low power, space constrained applications.
--  Announced the immediate availability of Version 1.3 of its ispLEVER®
    Classic design tool suite, which includes updated support for Lattice CPLDs
    (Complex Programmable Logic Devices), including the widely popular ispMACH
    4000® CPLD family.
--  Announced the release of LCD-Pro, an advanced FPGA-based LCD video
    imaging and control solutions platform.
    

Business Outlook - Fourth Quarter 2009:

--  Revenue is expected to increase 6% to 10% on a sequential basis,
    including the expected reduction in revenue of approximately $1 million
    from changing certain distributors from a sell-in to a sell-through
    business model.
--  Gross margin percentage is expected to be approximately 53% to 55% of
    revenue.
--  Total operating expenses are expected to be approximately $26 million.
--  We expect to return to profitability.  This is based on current views
    with respect to operating and market conditions, which are subject to
    change, and the absence of any impairment charges related to an other-than-
    temporary decline in fair value of auction rate securities held in Long-
    term marketable securities.
    

Investor Conference Call / Webcast Details

Lattice Semiconductor will review detailed third quarter 2009 results on Thursday, October 22, 2009 at 5:00 p.m. EDT. The conference call-in number is 1-706-758-4489. A live webcast of the conference call will also be available on Lattice's website at www.lscc.com. Our financial guidance will be limited to the comments on our public quarterly earnings call and the public business outlook statements contained in this press release.

A replay of the call will be available approximately one hour after the conclusion of the live call through 12:00 p.m. EST on November 5, 2009, by telephone at 1-706-645-9291. To access the replay use conference identification number 34449450. A webcast replay will also be available on Lattice's investor relations website at www.lscc.com

Discussion of Non-GAAP Financial Measures:

Management evaluates and makes operating decisions using various performance measures. In addition to our GAAP results, we also consider adjusted net (loss) income, which we refer to as non-GAAP net (loss) income. This measure is generally based on the revenue from our products and the costs of those operations, such as cost of products sold, research and development, sales and marketing and general and administrative expenses, that management considers in evaluating our ongoing core operating performance. Non-GAAP net (loss) income excludes amortization of intangible assets, stock-based compensation, impairment of Long-term marketable securities (net of realized gain on sale of auction rate securities) and restructuring charges. Intangible assets relate to assets acquired through acquisitions and consist of technology purchased in connection with the acquisitions. Stock-based compensation charges include expense for items such as stock options and restricted stock units granted to employees and purchases under the employee stock purchase plan. Impairment of Long-term marketable securities relates to an other-than-temporary decline in fair value of our auction rate securities that continue to experience unsuccessful auctions. Restructuring charges consist of expenses and subsequent adjustments incurred under corporate restructuring plans that were initiated in the fourth quarter of 2005, the third quarter of 2007, the third quarter of 2008, and the third quarter of 2009 and include items such as severance costs, costs to vacate space under long-term lease arrangements, and other related expenses.

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