Okay.
All right. I think we can probably get started. If folks can find seats, that'd be great. My name's Anand Agarwal. I'm with JP Morgan. I am joined here today by Lorenzo Flores, CFO of Lattice , and Ford Tamer, CEO. Again, thank you for joining us today. We have about 30 minutes for this fireside chat, and maybe at the end, we'll leave a couple of minutes for just some Q&A. Maybe to kick things off, Ford, would you like to give the audience here a brief overview of the business, market overview, competitive positioning, any recent business updates that you have? Would love to get those.
Yeah, no, that's great. I'm going to start with an overview of the FPGA market and recent trends, and then go into the positioning and competitive nature of stuff. The way I think about it is a spectrum all the way from, call it on the left, ASICs that are going to be very focused, custom built for the application, is going to be the highest performance, the best power, the best cost per unit. You can do that if you've got $100 million - $200 million to spare on designing and producing that ASIC. All the way to, on the other side of the spectrum, microcontrollers that are going to be more general purpose, easier to program. You could do it in C and is pretty flexible. We're in between. We would be higher performance than a microcontroller.
We would be more flexible than an ASIC. If you've got an application like security, where the requirements are still evolving, you'd be better doing this in an FPGA because you could change the requirements over time. We're going to be good on power, on size. The FPGA is this in between. I describe it sometimes as the Swiss Army knife. You can make that Swiss Army knife look like whatever you'd like for that application, a bottle opener or a knife or a scissor. We serve multiple SKUs in that same silicon. If you look at the applications, pick a new application, like a humanoid as an example. It has many motors, many image sensors in a humanoid. A microcontroller typically would be good if you've got a one-to-one, like a microcontroller would help you to do a motor, an image sensor.
If you're trying to do many motors, it would be a better fit. If you're trying many image sensors, it would be a better fit. If you're trying to do something like a multimodal type of application, image and voice, we could be a better fit. A lot of our customers today are using us between the analog feed and the AI processor, where we could be a bridge from the analog world. We do sensor fusion on many sensors. You could bring, for example, in a car, you could bring a LiDAR and a radar and an image sensor and in-cabin type stuff into these FPGAs that could help you do the fusion and spare some of these cycles in that AI chip to do what's best for those AI chips. Over the past few years, we see a few tailwinds that are helping this FPGA market grow.
Number one, there is an increased focus on trying to get that system design cycle to be shorter. On the AI side, leaders like NVIDIA are pushing to go from a two-year cycle between design to closer to one year. That is putting more pressure on some of these auxiliary functions as opposed to being in an ASIC to not be left better done outside in an FPGA. The process nodes end up continuing to be more expensive. As you go to 2 nm, 3 nm , it is expensive to put these functions in an ASIC. You are better off leaving them outside an FPGA. As I said, some of these security applications, the requirements keep changing. Again, you are better off doing some of these outside an FPGA.
At a high level, the market today, call it, is $7.5 billion, to give you a rough view. This is, again, very rough. $4.5 billion, call it Xilinx, $1.5 billion Altera, and $0.5 billion each for Microchip, RCF, and the four major Chinese serving the China market. You could see this is the market share we've got today is $500 million out of $7.5 billion. We focus on the small and mid-range FPGA market, which we believe are going to be faster growing than the large FPGA and SoC. Our goal is to be the leader in the small FPGA and the mid-range FPGA market. In the small FPGA market, we've got a product line called Nexus that is going to be growing and will continue to grow.
We see the inflection point, our growth there in 2026. We have got a new product line called Avant that is focused on the mid-range, and we see an inflection point there being in 2027. We serve four major markets, the industrial, automotive, comprising about, call it 45% of revenue, and comms and compute are the other two that comprise, again, 45%, with consumer being about 9%. Under industrial auto, we put aerospace, defense, medical, some test and measurement in those industrial automotive type of markets. When you think of our product line, we have got silicon, we have got tools, we have got IP, we have got solutions on top to make it easier for customers to program these. We go to market 85% through channel, 15% direct. High-level view of the market.
Great. That was great. Thanks so much for that. Maybe double-clicking into one of the verticals that you talked about, the compute and infrastructure vertical. What is your exposure to general-purpose servers and also AI servers? How should we think about the attach rates and the opportunity there for Lattice?
Yeah. No, great question. On the comms and compute, we have in the past clarified that market for us being, call it, two-thirds compute, one-third comm. In that two-thirds that's compute, we have in the past discussed the fact that we got upward of 50 FPGAs per rack. On the AI side, it's higher. On the enterprise side, it's on the lower side. It is a significant opportunity for us. We characterize the opportunity being between $300-$500 of content per rack. We have a broad range of function we supply. We are a companionship to some of these AI processors. We work closely with NVIDIA, Habana, all of the cloud accelerator. We also design in with some of the pieces of infrastructure that go along with some of these, like the switches from Broadcom or Marvell or the NIC card, the storage card.
We supply a variety of functions such as on security, root of trust, boot, post-quantum cryptography, PQC is a recent application, bridging, I/O expansion, all kinds of functions that we provide on a variety of cards in the rack.
Great. This next one is for Lorenzo. Given you're fairly new to the firm, I don't want to say new anymore. Give me a break.
I'm still new, but go ahead.
Would love to get your perspective on the business. Would love to get your near-term priorities, your long-term priorities. What attracted you to Lattice? It would be great to kind of get your perspective on the firm.
Yeah, sure. So my approach, wherever I've been at Lattice now is, what are we doing as a management team to drive shareholder value? What are the options we have to accelerate the growth in shareholder value? When I put that mindset in the frame of Lattice, I'd say, I came here and I have a good feel for the business. My time at Xilinx, and I looked at Lattice actually from the outside at first. I said, there might not be much left to do, because they kind of addressed their problems, had great revenue growth, all stuff that I know took years to do from my experience. I wasn't all that excited until I met Ford. You move to the, well, how do you accelerate or what are the options you have to accelerate the growth in shareholder value?
That is where Ford and I spent a lot of time and got very aligned on using this really great franchise, building on it, continuing the execution focus that we have to have every day, every day, every day. Nothing is easy in this business. Looking creatively around that franchise for ways to grow it not just incrementally, but in step functions so that we can have a more strategic platform from the view of our customers and have the opportunity to do the classic one plus one equals three in the business. What I most appreciated about the conversations I had with Ford is we share the same objective in the end, but we also have the same mindset on being extremely disciplined about what we are doing in that frame.
We know the value of doing smaller things that might not be even visible to the world. Using our technology platform as a place for tuck-ins to accelerate our tools or our IP offerings, we can grow the business that way. We are looking at the spectrum, which is quite exciting. We have the same disciplined mindset on what we want to do in the end. The last part of it is after I met Ford, I met the rest of the team. It is a really, really good team and really a place where we are on the same mission working together quite well. It is kind of the whole thing. Like I said, I really like the FPGA business because you see all the interesting stuff first in a lot of ways in the industry.
Yeah, that's true. It's always good to hear when a CEO and a CFO see eye to eye on a number of different things, the businesses align and the different functions align. Speaking of growth, you talked a little bit about growth. You've been investing in software for a fairly long time now. Could you maybe talk a little bit about your software strategy, what it's comprised of historically, and maybe provide a little bit of a future perspective on what you think are the areas that you're going to continue to invest in, things of that nature?
Yeah. Look, the biggest barrier to entry and acceleration today is the tools. Compared to, for a micro, that's easier to program in C, right? We had one of our investors last night say, look, you could maybe think of yourself to the micro as to what the GPU was to the CPU. I mean, in a way, CUDA overcame the difficulty because they brought value. If we can bring value in an offering, could we attract a larger following? The software is very key because you have to program an FPGA at a much lower level in hardware-like type terms as opposed to a micro that's a higher level. Our focus is going to remain on three things: tools, IP, and now solutions on top. I think that's what you're referring to.
On top of tools and IP that we share with NVIDIA, with Xilinx, and Altera, we have an incremental layer of software we call solution that is pretty unique to us. We got these six solutions: SenseI for edge AI, Sentry for security, Automate for industrial automation, Drive for automotive, ORAN for wireless, and mEnvision for vision. These six solution sets are intended to speed up a customer time to market. We are going to remain very focused on those solutions.
From a software perspective, are these solutions largely how should people think about attach rates of the software solutions in conjunction with the hardware?
Yeah. I think obviously the tools is 100% attach rate. From an investment point of view, that continues to be where the bulk of the investment would be. The second layer on the IP is going to be less than 100%. This is all the various IP that people need for connectivity and et cetera. We have another layer, which is reference design and boards and enablement documentation that, again, is taking investment. The last layer being this solution is we haven't broken up the percent attach rate. We have to continue to invest in solution, but keep in mind that the tools is what's 100%, IP is the next layer. Eventually we've got some money left for solutions. As we scale, we put more into solutions.
We would love to put more in solution we're putting today, but we've got to be mindful of the other layers being important as well.
It basically increases ease of adoption, essentially, right? I have to bring this up because it's very topical. Given the recent investment into Altera by Silver Lake, if you can call it an investment, how in your view, and would love to get both of you to weigh in on this if that's possible, how do you view what are the impacts to the industry, to the broader FPGA industry? What do you see are the impacts to Lattice?
Yeah. I mean, for us, it does not change our strategy. Our strategy is going to be dictated by customers. I mean, I have always built a strategy around customers, around markets that are interesting, not around competition. If we build our strategy around competition, we lose. We want to be leaders. If you want to be leaders, you lead. If you look at my background at Inphi or Broadcom, I have always led. I have always led by innovative solutions, innovative value that is driven and given to the customer. That is how you build a successful and big company. Ken Howe and Raghib Hussain are both very capable and are good friends and wish them the best. We will compete with them in the marketplace. I do not think it changes our strategy. We remain very focused on the strategy as we had defined it and execute on that.
Yeah. What I would add to that is from a day-to-day operational perspective, what we are using the situation as best we can to our advantage, right? Talking to customers about their concerns. The question you ask is probably more generalized and more acute in the customer base. Like, well, what's going to happen next? We do not know what's going to happen next. We will tell you what we bring to the table, as Ford said, with a customer focus and what is the best value proposition you can get. That includes not just the products we have, but the commitment to the longevity of the products that we have, which is really, really important in our space, and the commitment to supporting the customers through the process.
That's, I think, some of the areas where we think right now customers are looking at the field and saying, well, Lattice is probably the best solution. We want to take advantage of that in the near term.
Great. My next question is a really hard one to answer. The reason for that is it's a constantly evolving situation. Tariffs are basically moving around all over the place, left, right, and center, depending on the time of the day occasionally. What do you see as the perceived impact of tariffs to your business? Are there any other things that you are doing to mitigate potential impacts from those tariffs, right? From a CEO perspective, also from a CFO perspective, I think would be helpful too.
Yeah. Look, every crisis is an opportunity. I think the good news for us is Lorenzo, myself, the rest of the management team have been through these cycles many times before, whether it is dot-com or the financial meltdown in 2008 or COVID. Been there, done that. You pay for having an experienced management team that has lived through this and not fazed by it. What we tell people is, look, keep your head down, keep executing. Focus on, again, what creates value. Do not worry about the stock price. Now, having said this, COVID was a huge opportunity for Lattice Semiconductor. We took advantage of it. I remember in April when everybody was running for the hills, I published a white paper.
I don't know if you remember it, Sanjay, where we detailed all the how COVID was going to be a huge boon for the rest of the industry, right? It ended up being a huge boon. We took advantage of it. I think in a crisis, strong companies get stronger. I think we will take care of, I think we'll take advantage of the situation. Now, having said this, we've got to be mindful of a supply chain that is going to be bifurcated for the foreseeable future. I don't think that goes back to one supply chain. We have a non-China, non-Taiwan supply chain. We have a China for China supply chain. We're working on a U.S. for U.S. supply chain. The supply chain diversification and split is going to be something that will be with us. It's great to see the recent progress.
We remain focused on understanding sectoral tariff and be mindful of this. On April 1st, April 2nd, I was at the Semiconductor Industry Association in Washington. We left the hill at 3:00 P.M. Liberation Day was at 4:00 P.M. that April 2nd. We aligned as a unified SIA with a unified message to saying, look, extend and expand. Extend the ITC tax credit for the manufacturers and expand it to R&D tax credit. The semiconductor industry is a 70% export and trade type of industry. We have got to be mindful that we have got to align with partners. Do you want to take it from there?
Yeah. From my perspective, I would start by reflecting back on your question, which is it's an uncertain environment. We do not have consistent and clear direction. We are doing probably what everybody else is doing, I would expect everybody else is doing, which is continue to monitor the environment. We have internal experts who are working with external experts to make sure we understand what the current rules are and what directions they may likely evolve given the different high-level directions that we see coming from the White House. In parallel, from an operational perspective, we have a good handle on our supply chain. I think we have talked a lot about the fact that all of our supply chain is outside of the U.S. Wafers come from Taiwan, Korea, and Japan. The back end is in Taiwan and Malaysia primarily.
We have a way to service China. And we have about 20%-ish of our revenue coming into the United States. Now, we do that through a distribution partner. And so we think we can figure out ways to mitigate the effect of any tariffs so that it's not an economic disruption to our direct customers. But we are concerned, as everybody is, like, well, what about the bigger picture indirect impacts on our business? And so we're continuing to watch that. We think we saw some of that, in fact. We see some of that, in fact, in industrial and auto in our business in the slowdown. But we'll see. We'll see how these particular rules get implemented. We're also watching, as you all are aware of, the potential for sector-based tariffs. And that remains out there, not resolved yet.
We have scenarios we've planned against, and we have options to mitigate the impact. We haven't implemented anything yet because the guidance is not yet definitive.
Also, consumers are a very small piece of your business, which is a great thing, I guess, in this environment. Ford, you have a very strong record of growing businesses organically and inorganically. Here at Lattice, what are some of the kinds of inorganic opportunities that you would look at to potentially accelerate growth, to potentially accrete margin? What are some of the things that you could potentially do?
Yeah. I think the way we like to answer the question is our shareholder pays us to look at everything. Our shareholder pays us to stay very disciplined, right? Like Lorenzo likes to say, we've got a very broad lens, but a very narrow aperture. We're going to be very picky on what is going to fit and keep the very high bar on what we do. If you look at the offering, the platform that we have is silicon tools, IP solutions, and then reference board and various partnerships around that platform. You could imagine all of the above being potential inorganic opportunities. At the developer conference we had in December that was attended by 6,000 people registered, we had outlined three vectors to focus on: security, vision, and edge AI. Again, those three could be areas for us to grow inorganically.
We are into many verticals, such as industrial, automotive, comms, and compute. Again, those four could be areas for us to grow. You could see that we have a broad.
Lens.
Lens. We are going to stay, as Lorenzo liked to say, focused from an aperture and discipline, financial discipline on what makes sense to make sure that what we do, the one plus one, will equal to better than what we could do on our own growth.
Sure. This one's for you, Lorenzo. Given the current environment, your gross margins have been extremely resilient. How do you think about gross margin trends in the long run? Can you maybe even talk a little bit about the growth versus margin trade-off, right, and how you think about that?
Sure. That's a really important way to get into the business model, a very easy way to get into the business model question. Because gross margin is a primary indicator of the value we provide to our customers. We work with a broad set of customers across a broad set of applications and in different spaces. That's a portfolio number, if you will. It is important to look down the P&L and look at the investment we're making in the R&D and in the sales support organization because that's also reflected in the value. It's not just the silicon. It's all of the value we bring to the customer. When you think about the gross margin and the gross margin %, one, it's not easy to be where we are. That takes continual work.
Two, to move it up, the math starts to get very hard, right? You say you go from 69% to 70%. It's not one percentage point of price increase or cost. It's actually 3x that when you do the math. So it's actually real work. And we keep working at it from the cost side very, very rigorously. And we keep doing our best on the pricing side to sell value to the customers. When you look at the opportunities that come to us, we don't have this, oh, it's that corporate gross margin cutoff. We look at it how it fits into the overall strategy. We look at can we use it in conjunction with the overall business model to grow operating profit growth disproportionately faster, right? Because we're looking for a return on the investments we make. That return is primarily in R&D, right?
That is the way we look at it. We have managed in the past, and obviously, personally, in my Xilinx experience, managed to keep at that gross margin level while we grow. We do not have any concerns about maintaining it as we look forward to our new product ramps and their fit in the portfolio. I will tell you, we do not take it for granted. We work really hard to grow aggregate profit dollars, so.
Got it. Maybe shifting gears from the growth versus margin discussion to essentially drivers of growth. What do you see as the short-term, long-term drivers of the business? Also, what are some of the end markets where you see a bunch of your demand coming from in 2025 and maybe 2026?
Yeah. So look, the driver of growth is going to be the ramp of our new product. Nexus is the small FPGA. Avant is the medium-sized FPGA. And we've broken that up as percent new product from revenue and past public statement saying in 2023, 9% of revenue came from new product. 2024 was 14%, expected to go in high teens, and 2025 expected to be in the mid-20s in 2026. If you do the math, if you do 7% off $500 million in 2024, that's about $70 million, seven-zero. If you take the mid 25% of the consensus for next year, it'd be more than double that number above $150 million. You could see that new product is growing, doubling in a matter of less than two years. We'll continue to focus on this. On the segments, the strength now is coming from comms and compute.
We expect sequential growth every quarter for the remainder of the year and into 2026. Comms and compute will continue to be very strong and expect that to continue. We do expect the industrial and auto to regain its strengths and growth as we get out of the inventory situation. We said that we're now looking to get inventory back to regular business by the end of this year.
Got it. No discussion around end markets would be complete without talking about end market recovery. Given where we've been over the last several years or several quarters, at least, have you seen it? Have you seen the recovery pan out the way you'd expect to? Also, what are your expectations for the rest of the year?
Yeah. Let me turn it over to Lorenzo. We said we are at the bottom. We're at the bottom of that U. We said it's a U-shaped recovery. We're at the bottom. We still, on the comms and compute, are shipping to true demand. There's no more inventory issue in the channel for comms and compute. Comms and compute has recovered, is growing nicely, and is expected to continue to grow. On the industrial auto, again, we are at the bottom. We are under shipping true demand. We are continuing to decrease inventory in the channel consciously every quarter and expect to do so for the remainder of the year. Lorenzo?
Actually, I think that's pretty much it.
Good. Okay. I think we have a couple of minutes left. If there's any questions from the audience, happy to take those. Yeah, go ahead.
Thank you. Ford, one thing that's really piqued my interest with your company is the burgeoning motion control opportunity. You could do motion control with MCUs or CPUs, but that's serial. You guys offer the ability to do it in parallel. You can cover a much bigger, a broader swath of motion control devices. Can you talk about that as you look forward at that market? Is there any additional IP you need to support that? How should we think about growth in that market?
Yeah. No, good question. Motion control has been an area that is a strength of ours. As you mentioned, parallel processing gives us performance advantages compared to serial processing. There are many other advantages. Latency is very important because if there is an obstacle in the way, the robot has to be able to stop pretty quick. Latency is much better in FPGA. Fast boot time. We could boot much faster than any other solution on the market today. Compared to other FPGA vendors, we are an order of magnitude faster boot time. That is very important. Power is extremely important. We, again, are very focused on power. Small size is very important. We are very focused on small size. We are a deterministic solution. We are much more accurate. If you are trying to do things like screwdriving, accuracy becomes very important. We are multi-sensor.
If you want to bring multi-sensor and mix voice and video together, we're going to be a much better solution. We're multi-motor. If you want to do one motor, then a macro is fine. If you want to control many motors, an FPGA, we could put 10 motors on one FPGA. If you want to synchronize all these motors together, if you've got many motors and you want to synchronize them together, we've got 1588 that allows you to have very accurate synchronization of all the motors together, okay? We are bringing different connectivity to the Ford. We could do Ethernet, but we currently have we've been approved for EtherCAT. We were at Embedded World in Munich in March. There, Beckhoff approved us for EtherCAT, which is going to be very big in those types of applications.
We also have other variety of proprietary communication protocol that our customers have done for motor control that we're working with them on. We have a whole array of partners on the sensor side. We have many types of motors that we're currently focused on in our partnership ecosystem. Very similar equation to the rest of the ecosystem. If you look at the ecosystem of partners we have, beyond motors, we would have image sensor and LiDARs and radar, infrared, proximity, thermal, et cetera. We have a partnership that today ships tens of billions of different sensors and motors worldwide. I think you touched on a very good and differentiated point for us.
We've probably got time for one last question. If there are none, I will thank Lorenzo and Ford for their time. Thank you all for joining us today.
Thank you so much.
Thank you, everybody.
How many firesides are you doing today?
We have about 10.
Today?
10 tomorrow.
Great. Thank you. Good afternoon, everyone. I'm Samik Chatterjee, and I cover the hardware and networking companies at JP Morgan. For the next session, I have the pleasure of hosting Lattice Semiconductor. And from Lattice Semiconductor, I have Jim Anderson, who's the President and CEO, as well as Lorenzo Flores from Finance and Investor Relations.