Lattice Semiconductor (LSCC) KeyBanc Capital Markets Technology Leadership Forum summary

Product and revenue growth outlook

• New product revenue grew year-over-year in the first half of 2024, with further ramps expected in the second half as new device families like Nexus and Avant begin production revenue contributions.

• Avant mid-range FPGAs, launched in late 2022, are expected to contribute 15%-20% of FPGA revenue within three to four years, with design momentum exceeding internal targets.

• The product portfolio is at its strongest, with robust hardware and software offerings and a continued focus on differentiated products.

• Long-term annual revenue growth is targeted at 15%-20%, supported by a five-year CAGR of 16% and additional growth from mid-range FPGAs.

• Server and data center networking markets are showing normalization and growth, with higher attach rates and increased dollar content per server.

Market and inventory dynamics

• Inventory normalization is progressing, with most expected to occur in the first half of 2024 and improvement signs seen in Q2 bookings and backlog.

• Distribution inventory is within the normal range, slightly at the higher end, and the company continues to under-ship demand to support further normalization.

• End customer inventory levels vary, with some holding more than needed and others less, requiring demand uptick for further normalization.

• Customers in automotive are holding more inventory than pre-pandemic, while server customers maintain previous models; industrial customers are mixed.

• Industrial market normalization varies by segment, with aerospace, defense, and healthcare more normalized, while factory automation lags.

Attach rates, product mix, and margin strategy

• Server attach rates have grown from 25% in 2019 to well above one device per server, with even higher rates in AI servers.

• Modular server architectures and AI server configurations are driving increased opportunities and attach rates.

• Software attach rates exceed 50% and are expected to increase, though not to 100%, as some customers use their own software.

• Gross margin stands at 69%, with a long-term target in the low 70s%, supported by product mix, new product ramps, software attach, and cost negotiations.

• Industrial and automotive segments offer higher-than-average gross margins, and their recovery is expected to benefit overall margin.