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Lattice Semiconductor CEO: we're moving into a new phase of accelerated growth

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Yahoo Finance’s Myles Udland, Julie Hyman, and Brian Sozzi speak with Lattice Semiconductor CEO, Jim Anderson, about the company’s Investor Day, Q1 earnings, and outlook.

Video Transcript


JULIE HYMAN: Lattice Semiconductor is holding Investor Day today, and this is after the company last week reported earnings that beat estimates, as well as an outlook for the current quarter that was above estimates. You see the shares being caught up in the downdraft that we're seeing generally in technology and semiconductors today. Jim Anderson is joining us now. He is the CEO and President of Lattice Semiconductor. Jim, thank you so much for being here.

Just quickly, I first want to kind of set the scene, if we will. I think a lot of people are learning more about semiconductors this year because of the shortage. You guys make programmable semiconductors. Talk to me about where you sit in the sort of semiconductor universe and whether you guys are seeing the same types of shortages in other parts of the semiconductor industry.

JIM ANDERSON: Yeah, thanks, Julie, appreciate it. So first of all, where we sit within the industry is, we make programmable logic devices, sometimes called FPGAs. And specifically, we focus on really small, power-efficient, easy to use, very flexible devices. And those go into just all sorts of very critical applications and growing applications across things like 5G wireless infrastructure, servers that go into data centers, PCs, industrial automation, robotics, automotive electronics, the list goes on. So we're used across many different industries. So really excited about some of the growth that we're seeing in our business moving forward.

But in terms of I think you were asking about some of the supply chain challenges across the industry, certainly semiconductor supply chain right now is very tight across the industry. Now Lattice in particular, I think we've done a pretty good job navigating that to date. We've been supporting our customers pretty well. We did a number of things kind of proactively to get ahead of that.

For instance, like last year we started building inventory last year to get in a good inventory position to help support our customers. We've got more inventory now than we did say, a year ago. And then we've also been working really carefully with our top customers and our suppliers to make sure we're meeting customer demand. But I think we're doing a good job navigating the situation.

BRIAN SOZZI: Jim, do you the shortage ends at some point this year or is this a 2022 thing?

JIM ANDERSON: Yeah, it's a good question. You know, when we talk to most of the people in the industry, I think the consensus that I'm hearing is that the supply chain tightness continues through most of the rest of this year, and that things start to ease probably in the first half of next year. And so I think it's a bit of a few more quarters before we start to see some easing in the supply chain.

MYLES UDLAND: You know, Jim, you guys had a slide in your presentation about how your revenue mix has changed over time. And a big increase in the industrial and the auto part of the business. And we've heard from a number of auto companies about how their supply is being stretched right now. How are you guys seeing that? And I guess I would ask also, how are you seeing that part of the business longer term as well? I mean, certainly the electrification of the auto fleet is anticipated. Do you see that growing even further as a percent of your revenue basket?

JIM ANDERSON: Yeah, definitely. So that segment of our revenue is about 40%. We love that segment. It's industrial mostly, but we do have automotive electronics in there as well. We've seen tremendous growth in industrial automation, robotics. That segment for us just in this most recent quarter of Q1, that segment grew 20% year over year. We're seeing really strong demand from our customers. And again, it's things like automation of factories and production facilities. We're seeing a lot of use of our products in robotics applications, industrial safety.

And then for us, automotive's a smaller component of that segment. But definitely a big opportunity for us moving forward. We've got a really healthy design-win pipeline. We're seeing tremendous use of electronics in all sorts of automotive applications. And our products are just kind of a naturally good fit for that, so we've got a healthy design-win pipeline, and we think that's going to be a good growth sector for the company in the future.

JULIE HYMAN: As you said, Jim, you guys have tried to manage through some of the supply chain issues at the same time you're seeing all of this demand. Have you been able to raise prices?

JIM ANDERSON: Well, I think what we've had in place for actually a couple of years, and this is something that we built out at the end of 2018 and we put in place in early 2019, is what we call a pricing optimization strategy. We've been trying to better optimize our pricing acrost our markets, acrost our customer base. And I think if you look at our gross margin expansion over the last two, three years, actually we've expanded gross margins over the last couple of years by about almost 500 basis points.

And part of that's been our pricing optimization strategy. And that's really focused around making sure that our products are priced correctly for the value that they're bringing to the market. And so that's something we've been executing to for a couple of years. We'll continue to execute to that, but that's something we've had in place for a while now.

JULIE HYMAN: And Jim, at your Investor Day yesterday, you raised your longer term guidance around gross margins and operating profits. You're now looking for 30% operating income growth. You were, that older guidance was 25% to 30%. Do you have some new products coming out next year that will drive that quicker pace of growth?

JIM ANDERSON: Yeah, definitely. Actually this year, we have a brand new product line called Nexus, that's really starting to ramp this year. We have a series of products that are coming out as part of that product platform. But that's ramping into revenue this year. We expect that to ramp for multiple years to come. So that's really helping drive accelerated top line growth for us this year and in the years to come.

And then actually we just announced yesterday a brand new product, and we announced this for the first time that will launch next year, and that's called the Bond. That's a new product line. And that'll actually double our addressable market, it'll double the addressable market to $6 billion. And that's an entirely new product line that'll help us address a whole new part of the market. So we're really excited about that.

We really think the company Lattice is really this year moving into a new phase of growth, a new phase of accelerated growth for the company on a multiyear basis. We're pretty excited about where we're headed over the coming years. I think our customers are really excited as well, and they're really excited about the expansion of the product portfolio. And then beyond revenue growth, yeah, we raised our gross margin target to 65% from the previous target of 62%. And we raised our operating income target to 30% plus. So not just driving revenue growth, but driving profitability expansion as well.

JULIE HYMAN: Jim, we look forward to keeping in touch as you guys undergo that expansion that you're talking about. Jim Anderson is Lattice Semiconductor CEO and President. Thanks for taking the time to talk to us today.