萊迪思半導體 (LSCC) 2020 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by for Lattice Semiconductor's Fourth Quarter 2020 Financial Results Call.

(Operator Instructions) The replay number is (404) 537-3406.

The contrast ID number is 400058957.

The replay will also be accessible on Lattice website at www.lscc.com.

I would now like to turn the call over to Mr. Rick Muscha, Lattice Semiconductor's Director of Investor Relations.

Please go ahead.

Thank you, operator, and good afternoon, everyone.

With me today are Jim Anderson, Lattice's President and CEO and Sherri Luther, Lattice's CFO.

We will provide a financial and business review of the fourth quarter of 2020 and the business outlook for the first quarter of 2021.

If you have not obtained a copy of our earnings press release, it can be found at our company website in the Investor Relations section@latticesemi.com.

I would like to remind everyone that during our conference call today, we may make projections or other forward-looking statements regarding future events or the future financial performance of the company.

We wish to caution you that such statements are predictions based on information that is currently available, and the actual results may differ materially.

We refer you to the documents that the company files with the SEC, including our 10-Ks, 10-Qs and 8-Ks.

These documents contain and identify important risk factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements.

This call includes and constitutes the company's official guidance for the first quarter of 2021.

If at any time after this call, we communicate any material changes to this guidance we intend that such updates will be done used in a public forum, such as a press release or a publicly announced conference call.

Some financial information that we present during the call will be provided on both a GAAP and a non-GAAP basis.

By disclosing certain non-GAAP information, management intends to provide investors with additional information to permit further analysis of the company's performance and underlying trends.

Management uses non-GAAP measures to better assess operating performance and to establish operational goals.

For historical periods, we provided reconciliations of these non-GAAP financial measures to GAAP financial measures that can be found on the Investor Relations section of our website at latticesemi.com.

Before we get started, I'd like to let everyone know that we will be hosting a virtual Investor Day in May.

We would be sharing more details over the coming months and hope you can all join us.

Let me now turn the call over to Jim Anderson, our CEO.

Thank you, Rick, and thank you, everyone, for joining us on our call today.

I want to start by thanking the Lattice team and as well as our partners and customers for their strong support and execution in 2020.

I'm pleased with the progress that we made last year, and I'm even more excited about the opportunities ahead of us in 2021.

Let me now cover a few highlights from 2020.

We grew revenue double digits year-over-year in our 2 largest segments of communications and computing in industrial and automotive.

We expanded non-GAAP gross margin by 170 basis points year-over-year, closing Q4 at 61.6% as we continue to execute on our strategy of pricing optimization and product cost reduction.

We expanded profitability with non-GAAP net income increasing 20% year-over-year.

On our hardware road map, our team executed on time and launched 2 new products based on our Nexus platform.

We also launched 3 new software products focused on embedded vision applications, platform security and embedded system design.

Let me now provide an overview of our business by end market for 2020.

In the communications and computing market, revenue increased 12% year-over-year, which is the second consecutive year of double-digit revenue growth in this segment.

The increase was driven by growth in servers, client computing and 5G infrastructure.

In servers, growth was driven by expansion in both attach rates and ASPs year-over-year.

In plain computing, growth was driven by the ramp of new client computing platforms, including a new platform ramp that began production in Q4.

In 5G infrastructure, we saw strong growth year-over-year, reflecting our higher content in 5G versus 4G.

We continue to see communications and computing as a long-term growth driver given its multiple growth vectors.

Turning now to the industrial and automotive market.

Revenue increased 11% year-over-year despite some end market softness due to the global pandemic.

Our business grew across a number of applications, such as industrial automation, safety and robotics, where Lattice solutions provide significant competitive advantages for our customers.

As the need for industrial and automotive electronics continues to increase, the Lattice product portfolio is well positioned for long-term growth.

Turning now to consumer.

Revenue declined 40% in 2020 due to weaker demand caused by the global pandemic as well as the expected mix shift in our business.

We saw this segment stabilize towards the end of the year with a sequential revenue increase from Q3 to Q4.

The quality of this revenue stream has improved over the last 2 years as we've targeted higher-value, multi-generational designs that better leverage our FPGA portfolio.

I'll now provide some highlights of our recent product road map execution.

I'm very pleased with our team's execution in 2020.

When we launched our Nexus FPGA platform in December of 2019, we committed to releasing 2 additional Nexus-based products in 2020.

Both products were launched on time as promised to our customers.

In June, we launched Certus-NX, which is focused on general purpose FPGA applications.

And in December, we launched MachX, our second-generation security FPGA we continue to be pleased with the broad market adoption of our Nexus platform across all of our market segments, and I look forward to sharing more information at our upcoming Investor Day about additional new products on our road map.

Another key element of our R&D strategy is to develop a broader portfolio of software solutions to make it fast and easy for our customers to design our products into their systems and get to market quickly.

During 2020, we significantly strengthened our software portfolio.

In the first half of the year, we launched Envision, our embedded vision software stack as well as Lattice Propel, our embedded system design environment.

And in the second half, we launched Century, our platform security software stack.

In summary, I'm very pleased with the progress we made in 2020.

We significantly strengthened our product portfolio as we accelerated the cadence of new products and continued to execute towards our long-term financial model.

Our 2 largest market segments grew double digits year-over-year, and we expanded our net income by 20%.

As we begin 2021, customer engagements across all our markets are extremely strong, and our team is energized and focused on executing our strategy for sustained revenue growth and increased profitability.

I'll now turn the call over to our CFO, Sherri Luther.

Thank you, Jim.

We are pleased with our full year 2020 results.

In a challenging environment, we delivered significant profit expansion, continued to strengthen our balance sheet and ended the year in a net cash position for the first time in 6 years.

Let me now provide a summary of our results.

Fourth quarter revenue was $107.2 million, up 4% sequentially from the third quarter and up 6.9% year-over-year.

Revenue growth came primarily from our 2 largest segments, communications and computing and industrial and automotive.

The consumer market segment grew sequentially in Q4 but was down year-over-year, and IP revenue was lower.

Full year 2020 revenue was $408.1 million, up 1% from 2019.

Revenue growth from industrial and automotive as well as communications and computing was offset by lower revenue in consumer and IP.

Gross margin on a GAAP basis was flat at 60.5% in Q4 compared to the prior quarter, but was up 130 basis points compared to the year ago quarter.

Our non-GAAP gross margin increased 10 basis points to 61.6% in Q4 compared to the prior quarter and was up 200 basis points compared to the year ago quarter.

For the full year 2020, gross margin on a GAAP basis expanded to 60.1%, up 110 basis points from 2019.

Our non-GAAP gross margin for the full year 2020 was 61%, up 170 basis points from 2019.

The gross margin improvement in 2020 was a result of our margin improvement strategy, primarily pricing optimization and product cost reductions.

Q4 GAAP operating expenses were $47.5 million compared to $49.5 million in the prior quarter and $43.8 million in the year ago quarter.

On a non-GAAP basis, operating expenses were $37.5 million compared to $36 million in the prior quarter and $35.3 million in the year ago quarter.

For the full year 2020, GAAP operating expenses increased from $179.4 million in 2019 to $192.9 million in 2020.

On a non-GAAP basis, operating expenses for the full year 2020 remains relatively flat versus 2019 at $146.2 million as we increase spending in R&D and decreased spending in SG&A.

Specifically, as we continue to invest in our product portfolio expansion, R&D increased to 19.2% of revenue in 2020 from 18.1% of revenue in 2019.

At the same time, we reduced SG&A to 16.6% of revenue in 2020 from 17.5% for the full year 2019.

Q4 GAAP earnings per basic share was $0.12 and $0.11 per diluted share compared to $0.09 in the prior quarter and $0.10 in the year ago quarter.

Q4 non-GAAP earnings per basic share was $0.20 and $0.19 per diluted share, which was flat compared to the prior quarter and increased from $0.17 in the year ago quarter.

For the full year 2020, GAAP EPS of $0.35 per basic share and $0.34 per diluted share increased from the full year 2019 of $0.33 per basic share and $0.32 per diluted share.

On a non-GAAP basis, EPS for the full year 2020 of $0.72 per basic share and $0.69 per diluted share increased from the full year 2019 of $0.62 per basic share and $0.59 per diluted share.

Driving cash flow generation continues to be a key focus area for the company.

For the full year 2020, we generated $92 million in cash from operations.

We also repurchased approximately 400,000 shares or $15 million in stock under our stock buyback program, exiting the year with $182 million in cash, continuing our net cash positive position.

Let me now review our outlook for the first quarter.

Revenue for the first quarter of 2020 is expected to be between $106 million and $114 million.

Gross margin is expected to be 61.5%, plus or minus 1% on a non-GAAP basis.

Total operating expenses for the first quarter are expected to be between $38 million and $39 million on a non-GAAP basis.

As we begin 2021, we are focused on accelerating revenue growth and expanding profitability as we build additional value for Lattice and our shareholders.

Operator, we can now open the call for questions.

(Operator Instructions) Our first question is from Hans Mosesmann from Rosenblatt Securities.

Congratulations, guys.

Good execution.

A couple of questions.

I guess, the theme of this earnings season is supply constraints.

How is that impacting your business?

And I have a follow-on.

Thanks, Hans.

Thanks for the question.

So on supply, I think our supply chain team has done a pretty good job to make sure that our customers are being supported in terms of their demand.

Certainly, there's tightness in the supply chain for the semiconductor industry overall.

But in terms of Lattice specifically, I think we're in a pretty good position right now.

There were a couple of things that we did proactively a number of quarters ago to put us in a good position with respect to supply.

The first thing I'd point out is if you recall back in Q2 of last year, we said we were going to start to build inventory strategically to make sure that we had plenty of supply, plenty of inventory to support our customers' natural demand and then also any upside that they might see.

And so we -- and so in Q2, we built inventory.

We did build inventory again in Q3 and Q4, and we built inventory specifically on high running parts where there's significant volume and no risk about Solesence.

And then I want to make sure to point out that, that's Lattice internal inventory, that's not a channel or distributor inventory that I'm referring to.

So Lattice internal inventory.

And so I think that's put us in a really good spot in terms of supporting our customer demand.

Moving forward.

And then the second thing that we did, and this was really back in 2019 as we began working really closely with our strategic suppliers as we changed and improved our supply chain strategy, working really closely with those suppliers to make sure we were giving them long-term multiyear outlooks on our demand expectations and working with them proactively to plan out capacity over a multiyear period, including not just nominal capacity, but the potential to drive upside capacity as well.

And so I think those kind of 2 proactive actions that we took put us in a pretty good spot with respect to supply to our customers.

And then, Hans, you said you got a follow-on as well.

Yes, I did.

I'm curious, you guys grew despite having that consumer part of the business.

So from an FPGA perspective, can you give us perspective as to why -- how are you guys growing and Xilinx and Intel's Altera or programmable business were in decline in 2020?

Yes.

Thanks, Hans.

We're actually quite pleased with our results, particularly in our 2 largest market segments.

That's comms and compute and industrial auto, which, right, in Q4 accounted for roughly 85% of our revenue overall.

And we really view those as long-term growth areas for the company.

But if you look at 2020 first in comms and computing, we grew 12% year-over-year for full year.

Actually, in Q4, comms and computing grew 20%.

Year-over-year in terms of just Q4.

And so we're just -- we're seeing a number of lattice specific growth drivers within that segment.

We've talked about servers in the past.

We've seen an expansion in our server attach rate or the number of chips, Lattice ships, that are being shipped per server as well as increasing ASPs for the parts that go into servers as we brought, more content capability to servers.

We've also seen a number of new client computing platforms that began production last year, and that will ramp into full production this year, and we'll see the full benefit of or we see the benefit of a full year's worth of production.

And then 5G infrastructure was a good year-over-year growth driver for us last year as well.

And again, that falls within our comms and compute segment.

And then in industrial and auto, despite a weak end market with respect to the pandemic, we're quite pleased with, again, the performance in industrial and auto, 11% growth year-over-year.

Actually, if you look at just Q4, 16% growth year-over-year.

And really what's driving that is new platforms with our customers around industrial automation, robotics, industrial safety.

So yes, certainly, the consumer segment was pretty weak for us last year due to the pandemic as well as an expected mix shift in our business, but we're quite pleased with our execution on comms and computes and industrial and auto, and we expect those to be growth drivers moving forward as well.

Great.

Congratulations.

Yes.

Thanks, Hans.

Your next question is from Alessandra Vecchi from William Blair.

Congratulations from me as well on an amazing quarter in a challenging environment.

To that extent, just to dig a little deeper maybe in the industrial and automotive segment, in particular, can you help us understand how much impact maybe some initial revenue from the Nexus, CrossLink-NX attributed to that strength or thinking about Nexus platform being more broad-based applications?

Yes.

Thanks, Alex.

Actually, good question.

So if you recall, in December of 2019, is when we first -- we launched our first Nexus-based product, and that was Crosslink-NX.

And at that time, we had kind of set the expectation that we'd like to see first production shipments within about a year, which would have been the end of 2020, and that's exactly what we saw.

We saw initial production shipments of that first Nexus-based products product late last year.

And now we expect that product to continue to ramp into full production through this year and into following years.

And so we expect CrossLink to be a contributor to growth this year.

That initial production shipment of Nexus platforms or Nexus products is a really important milestone for us because it kind of marks the beginning of the Nexus revenue ramp.

The other product that we launched last year in the Nexus family in mid-last year with SERDES-NX, and that's our general purpose FPGA-based on the Nexus technology.

And we would expect that to start to contribute to production revenue later this year in the back half of this year.

And so yes, it's good to see that initial Nexus platform ramp happening as that ramps, the Nexus products are applicable to really all of our market segments over time, and so we expect that to be a good contributor to growth moving forward.

And then maybe just an extension to that in terms of the gross margin.

You had really nice -- if I'm doing the back-of-the-envelope math correctly, really nice improvement on the product gross margin front.

And on a total gross margin basis, you're at 61.6%.

Now you're getting close to that 62% plus.

I'm sure that will be a topic for the May Analyst Day.

But can you help us understand what additional impact as these Nexus products start to gain traction?

How much that could further lift the gross margin from these levels?

And just generally, how we should think about gross margin, especially as industrial and coms continues to gain traction?

Yes.

Certainly.

So the business model target that we put out there is for our gross margin to be over at 62%.

That's the target that we put out for ourselves in May of 2019, our last Investor Day, and I think we made really good steady progress against that goal.

Most recent quarter at 61.6% gross margin.

And what's driven the gross margin progress to date is mostly around pricing optimization and product cost reduction.

So we have put in place a strategy of pricing optimization and a strategy of product cost reductions.

We began executing that in early '19, and that's continued through last year, and we expect to continue those strategies moving forward.

So those will continue to contribute to gross margin expansion.

But you're exactly right.

The other help that we'll get on the gross margin is our new products are designed to be accretive to the overall corporate margin.

So as we ramp new products, the intention is, over time, that those would help drive gross margin expansion as well.

And yes, at our upcoming Investor Day in May, we'll talk more about gross margin and expectations moving forward.

Your next question is from Matt Ramsay from Cowen.

Jim, I wanted to ask a quick question about the consumer business.

And despite all of the COVID operational challenges, you guys grew revenue as a company and the 2 main segments of the business grew in the double -- well into the double digits and grew 20% in the fourth quarter, and you had this huge consumer headwind.

And you mentioned in your script the quality and visibility around some of those consumer revenues being much improved.

So if you could talk a little bit about your visibility in that segment going forward just as a basis for overall growth of the company.

Are we up, flat, down looking into maybe the next 12 months as you see it today?

Yes.

Thanks, Matt.

If you look at 2020, certainly, consumer was a headwind for us in 2020.

That was a combination of end market -- lower end-market demand due to the pandemic, but also an expected mix shift in our business.

But we did start to see a nice stabilization in that business in -- at the end of the year.

Consumer revenue was up sequentially from Q3 to Q4.

And then one of the things that I mentioned in prepared remarks, which you mentioned, is the underlying quality of that revenue stream has improved significantly over the last 1 to 2 years.

And what's happened is we've been transitioning the consumer revenue stream away from more, what I would call, more volatile short-term revenue streams to a much more reliable multiyear revenue stream.

So things like prosumer applications, high-end audio systems or high-end audio devices, which typically have multiyear lifetimes, typically carry higher gross margins and, frankly, a much more predictable revenue stream.

So our consumer revenue started to stabilize in the back half.

We're expecting it to be much more stable moving forward, and we'll probably give more color at the Investor Day in May on expectations for the consumer segment moving forward, but also industrial automation or industrial and auto and comms and compute.

But we still see communications and computing and industrial and auto as a primary growth drivers for us moving forward.

Although we don't see consumer providing the same headwind that it has in the past.

And so -- and we'll give a little bit more color at that Investor Day in May.

No, great.

That's really helpful.

Appreciate it.

I guess the next question I had is for Sherri.

OpEx bumped up a little bit, which I guess you would expect, given the investments you're making to launch the Nexus products.

Any thoughts about -- maybe this is an Analyst Day question as well, but any thoughts as to how you'd expect OpEx to trend going forward?

There's sort of the puts and takes of does the pandemic end if people start traveling again, you're launching new products.

But a lot of the development cost of what you're launching now are already in the run rate, I would imagine.

So any thoughts there would be helpful.

Yes.

Sure, Matt.

Thanks for the question.

So our Q4 OpEx did come in higher as we expected and for the reasons that you mentioned, that we continue to invest in our business.

We are in a growth mode, so we are specifically investing in R&D in our product road map.

Our Q4 OpEx, though, did come in at 35% of our revenue, which is at our target model.

And 2020 OpEx, I'll just note, came in -- dollars came in flat versus 2019, while at the same time, we increased our R&D spend by about 7.5% and reduced SG&A by 4.4%.

So really more just as we continue more an example of how we continue to execute toward our long-term model of 35% OpEx.

And as you can see in our guide, we're guiding to a higher OpEx, and that's because we are in a growth mode again as we continue to invest in our product portfolio road map going forward.

We put out -- laid out at our Analyst Day in 2019 that our R&D target is 20% of revenue.

So we continue to work towards that goal, while at the same time, trying to keep our OpEx at the 35% target level.

So that's how you can think about it at least over the next quarter's guide.

And certainly at our Analyst Day in May, we'll give more color than that.

Our next question is from Tristan Gerra from Baird.

I was wondering if you could elaborate a little bit on the Q1 revenue that's obviously strong.

Is that server or computing design wins that are ramping?

I know you've mentioned Nexus.

I was trying to see what the primary driver will be for the upside.

And also, when would you expect Nexus to have a material impact, a positive impact on gross margin beyond the other factors that you've mentioned, such as pricing and cost?

Yes.

Thanks.

On Q revenue, a little bit of what we're seeing by end market is -- and speaking on a sequential basis from Q4 to Q1.

Certainly, if you look at the midpoint of our guide for Q1, it's up sequentially from Q4.

Where we're expecting to see sequential growth is, again, in communications and computing as revenue growth from servers, but also from those new client computing platforms that we mentioned.

So we mentioned that another new platform started shipping in Q4 of last year, so we'll see a benefit from that in Q1.

So that will help drive some sequential growth in the comms and computing segment.

And then we are expecting to see some sequential growth in industrial and automotive as well.

Again, some of those new platforms that are growing with our customers in things like industrial automation and robotics, we expect to benefit from in Q1 as well.

We expect consumer to be sequentially -- roughly flat sequentially.

And then IP revenue, the smallest component of our revenue, we expect that to decline -- to have a modest small decline sequentially from Q4 to Q1.

And then on the second part of your question on Nexus and its gross margin impact, yes, I would expect gross margin impact from Nexus to be a little further out.

I wouldn't expect a significant impact from Nexus in gross margin this year, but maybe in follow-on years in '22 and '23.

I would expect most of our gross margin improvement that we would drive for target this year to be focused on continued pricing optimization improvements as well as continued product cost reductions.

Great.

And then for my follow-up, just wondering if the solar wind hack is driving interest for your security chips into data center, which obviously had a lot of success.

What's the potential timing of security-related server refreshes?

And also, can that chip be added to existing system?

Or does it require to be part of a brand-new server?

Yes.

Thanks.

Good question.

Certainly, what I would say is across -- gosh, virtually, all of our customers or customers across all market segments, we're seeing definitely a lot of interest in security and our security solutions.

Our customers are concerned about making sure that all of their systems are fully secure, all the way from the software level down to the fundamental hardware level.

And so the products that we brought to market now like Machx 3D or FPGA with special security processing technology are a great way to make sure that our customers are securing their hardware platform at the fundamental hardware and firmware level.

And then also the century software stack that we brought out last year, which pairs with that chip to provide a full solution stack again, seeing a lot of good customer engagement and momentum.

So certainly, customer concern around security and the security of their assistance is helping drive customer engagement in our product road map around security.

And then the -- Tristan, the second part of your question was around -- you had kind of a second part of the question.

Can you repeat that?

Yes, yes.

To know -- try to look at the potential timing or new design wins going to be for those chips, notably for the MachX.

So 3D linked to new server refreshes?

Or can it be onto existing architectures?

Thank you.

Yes.

So those are primarily targeted new server deployments.

It's -- generally, customers don't do a lot of retrofitting of existing servers that have already been deployed.

We don't see a lot of retrofitting, and so we would expect the opportunity of those chips being retrofitted into existing servers is pretty small.

And so most of the, I would say, the vast majority of growth will come from new deployments.

So we would -- and that's really what we've been focused on with our customers.

And in terms of the revenue timing, MachX 3D, first FPGA with that security technology.

That started production in Q3 of last year.

The production increased in Q4.

It ramped nicely in Q4 and would expect that to continue to ramp this year, and it would be one of the growth drivers this year because we'll see a full year's benefit of that product in revenue this year in '21.

Our next question is from Mark Lipacis from Jefferies.

I had a question on the software side.

You've been -- like you've been focusing a lot on investing in software.

And my question is, I'm trying to understand what is it getting you that you didn't have before?

To what extent is the software that you're investing in, expanding Lattice into new markets versus effectively just doing a better job and locking your customers into the existing markets?

Is it -- what was used before?

What do your customers do before you develop the software stacks?

Yes.

Thanks, Mark.

So the software stacks, which let me step back and just explain, so we've been investing in higher level software solution stacks.

And that's really all around making it very, very easy for our customers to design our products into their system and get to market quickly.

So they can use these solutions to access kind of pre-built, ready-to-go software libraries, tools and reference platforms to get to market quickly.

And we've launched 3 to date.

We -- first one was our SenseAI, artificial intelligence software stack.

Second was our envision, embedded vision software stack.

And the third was our century which was softer SEC, which was focused on security solutions.

And for -- I would characterize it in terms of the customer as 2 types of customers or customers that are very familiar with that and then customers that are kind of new to FPGAs.

For customers that are already very familiar with FPGAs, this just -- we're already familiar with our products or our competitors' products, just makes it really easy to get their system design quickly, to switch from a competitor's product to our product very quickly and get to market.

And then the other category of customer, and this is very interesting to us is customers that typically haven't used FPGAs in their designs in the past.

And these are, for instance, customers that have historically used microcontrollers, for example.

And we find that the software solution stack makes it much easier for a customer that's used a microcontroller in the past to switch over to our FPGA and again get to market quickly.

And of course, once that software is integrated into their system, that makes us very sticky in terms of future generation systems as well.

And where we're seeing some of the advantages versus, for instance, microcontroller solutions is particularly in artificial intelligence applications.

If you're doing inference at the edge of the network in an IoT or industrial IoT application, inference applications, AI applications are inherently parallel, and they just run better on an FPGA because the FPGA can be designed or can be programmed to be a parallel path, parallel data processor and can significantly outperform a microcontroller and can be reprogrammed as the artificial intelligence change over time.

And so again, that software solution stack just makes it really easy for our customers, even microcontroller customers, to get at that FPGA benefit really quick and again, get to market quickly.

Great.

That's helpful.

That's very helpful.

And then that kind of leads me to the follow-up.

I don't know if it was 10 or 15 or 20 years ago, you think about an FPGA company, having like a Blue Logic kind of a product and would be Altera or Sionyx or Lattice.

And it seems like you are moving up the value chain, so to speak, and having a higher level of value.

And if I think about your security solutions, and maybe the answer to the last question is part of that, it seems like it's not like a -- it's not a standard kind of a solution.

It seems like you have, I don't know, if it's application-specific solution.

But what's the right way to think about the markets that you're prosecuting right now, the competitive environment that you're prosecuting right now?

Is it -- it seems like it's more than FPGA.

So is it microcontrollers?

Is that kind of what effectively the right way to think about your market opportunity is where microcontrollers are right now?

If you could help us give us some framework on thinking about that, that would be helpful.

Yes.

Thanks, Mark.

We're certainly competing against our traditional competitors in the FPGA space.

And against our traditional competitors, we think we've got a great road map, particularly in the power efficient, small size FPGAs that we produce.

But yes, we are now competing against people beyond the FPGA space as well.

And I do think that part of that is because we're targeting it not just being a component supplier or, as you called it, the Blue Logic supplier, but really being a critical architectural element of the solution that we're going into with our customers.

We're trying to help our customers solve the architectural challenges and product competitiveness challenges that they're seeing in their business.

And that's really what our products, both hardware and software, are more and more tuned for moving forward.

And a great example of that, you mentioned security, that's a great example, right, of security, platform level security, firmware, security.

Very important to customers.

That's very important to our server customers, but really customers across multiple different markets.

And so that's why we've developed -- we've taken one of our well-known FPGAs and added to it security technology as well as the software on top of it to help customers solve that problem.

Artificial intelligence is another great example.

Customers across all of our market segments are trying to figure out how do I add more intelligence to my system, how do I add more decision-making capability, and FPGAs are just a natural fit.

And in particular, our low-power, very power-optimized FPGAs are a great fit for doing AI processing at the edge of the network.

And so again, with our software solution package, we're trying to provide not just Blue Logic, but some of the critical architectural elements of our customer systems.

And so yes, I would say that, that's broadening our applicability across the market, which is helping us to compete against a wider range of competitors that we've competed against in the past.

Microcontrollers is one example, but also ASSPs as well.

And so -- but for us, it's really around focusing on our customer and making sure we're solving some of the big challenges that face them moving forward.

Your next question is from Christopher Rolland from Susquehanna.

I also want to echo my congrats on the quarter.

In industrial and auto, that was most of the upside for us for our model.

I believe auto is small for you guys.

So I would assume it's mostly industrial there, but perhaps tell us if that's not right.

But if you could speak to what's driving it a little bit more specifically there.

Is it industrial automation?

Is it vision?

Is it glue logic?

Or is it, in fact, auto?

Just any more color there would be great.

Yes.

Thanks, Chris.

I think -- and I think you're referring to the Q4, the most recent quarter results, right, where we saw quite a bit of strength in industrial and auto.

So we saw it up sequentially in Q4 up 8% and up year-over-year by 16%.

And so yes, very good performance in that segment.

That is -- definitely, that's driven by industrial.

Our automotive segment is still a relatively small percentage of our industrial auto segment.

Now we do see automotive electronics as a good long-term growth opportunity for the company because our products fit well into a number of different automotive applications like ADAS and infotainment systems, and we've got a very healthy design win pipeline.

But yes, the near term, the recent revenue performance is really driven by industrial.

And what we're seeing in industrial is -- I would say a couple of things.

First of all, we did see just some end market -- the end markets strengthened in general towards the end of the year, so we benefited from that.

But more of the growth was driven by what we call Lattice-specific growth drivers, and that is specific customer platforms, new customer platforms that are ramping.

And an example, I'll give, I guess, a couple of different examples, is, one is in industrial robotics.

We're seeing a very, I would say, a quickening pace of adoption of industrial robotics and automation.

I would say prior to the pandemic, we were already seeing a tremendous amount of interest from our industrial customers on industrial automation and robotics and safety applications.

But I would say, with the experience of COVID-19 and the pandemic, that has really driven our industrial customers to adopt industrial automation or robotics and industrial safety much quicker than maybe they had originally anticipated.

And we're well positioned with a number of new platforms.

Our products are really well positioned there in industrial automation robotics, but also industrial safety applications where our devices could be used to monitor, for instance, a workspace that has both humans and robots in the same workspace and make sure that the robot and human are at safe distances.

And if our system sees any potential safety lapses, it will shut down the equipment, things like that.

And so those are some of the applications that we're excited about, both current applications and applications moving forward.

And yes, we'll give some additional color at that Investor Day in May about where we see some of the growth moving forward in that segment.

But yes, we're quite pleased with the performance in Q4.

Great.

And then perhaps a follow-up for Sherri.

Sherri, I don't know if you could force rank or just give us a rough idea of the kind of sequential movement for the segments into March.

In terms of the color on our expected markets, is that what you're asking for, Chris?

Exactly.

The sequential movement.

Yes, yes.

So strength.

Yes, sure.

Absolutely.

So from a constant compute market segment, we're expecting that to be up from Q4, industrial and automotive, we're expecting that to be up as well.

Consumer, we're expecting that to stabilize more from Q4.

And then IP, we're expecting that to be down.

If you recall, we've talked about our normal range for IP of between $3 million to $5 million per quarter and then expecting that to come down slightly over time.

So that's how you can think about the next quarter.

Your next question is from Derek Soderberg from Colliers Securities.

I want to start with new products.

The goal there was sorted to increase your FPGA market share at existing accounts.

It sounds like there's a wider range of competitors now.

But I guess, as it relates to the more traditional competitors, now that you're starting to see new products ramp and as you've had road map discussions with those customers, can you describe how that market share dynamic is playing out, I guess, maybe relative to expectations?

Yes.

Thanks, Derek.

I would say it's -- the customer engagement is very positive and a lot of customer momentum right now.

I think customers see exactly what we see in the landscape, is when you look at the FPGA landscape, our 2 traditional competitors, Intel PSG, which formerly Altera, and Sylinx are focused on making very large, very high-power complex FPGAs for primarily for data center computing applications.

And we're really focused at the other end of the spectrum.

We're making small, very power-efficient, very easy-to-use FPGAs with a lot of software content on top that can be used across just a really wide range of applications, a number of those applications that I talked about earlier today.

And so when we sit with our customers, our customers see a very fresh, innovative, expanding portfolio of products from us, and they don't see that from anyone else in the industry.

And so I think our customers are really excited about the road map they see in front of them from us.

They see us investing in the segments and in the types of solutions and products that they're -- that are important to them and they're excited about.

And I think the other thing that they see is they just see, look, over the last, say, 18 months, if you just look at the number of products that we brought out over the last 18 months, it's about 3x the number of products that we were bringing out, say, 3 to 4 years ago.

So they see Lattice investing in the road map, building out the product portfolio, trying to solve their problems.

And I think that's definitely helping drive share gain.

We believe we gained share last year, and we're certainly targeting -- continuing to gain share in the market segment that we serve moving forward.

And I think the customer momentum and engagement is definitely there, and we're really excited about it.

Great.

And then as my follow-up, I wanted to ask Sherri on buybacks.

So this is the first time you're buying back shares with this team, spent $15 million.

I guess I'm just wondering, what are your plans looking forward for additional buybacks or use of cash?

Yes, sure.

Thanks for the question, Derek.

So from a capital allocation perspective, stock buybacks are certainly one of the elements of that.

As you mentioned, we did execute and purchased $15 million in shares in Q4 back.

That was under an authorized buyback program that expired in February.

So it's -- we don't currently have an approved buyback plan right now, but it will continue to be an element of our capital allocation strategy that we'll look at as we move forward.

The other elements of our capital allocation strategy includes deleveraging our balance sheet.

We'll continue to look at that.

Our leverage ratio came in at 1.4 for the quarter.

You may recall earlier in 2020, we accelerated some of our mandatory debt payments so that we could lock in that lower interest rate here on our debt.

So we continue to be at the lowest interest rate here.

So that, again, we'll continue to evaluate on a quarterly basis, but feel pretty comfortable that we're at the lowest level as far as the interest rate goes on that.

And really the top priority from a capital allocation perspective is really investing in our product road map, so we'll continue to do that.

It's been evidenced by our 3x cadence increase in our product launches.

So we'll continue to prioritize that from a capital allocation perspective.

Your next question is from Richard Shannon from Craig-Hallum.

Jim, I had a couple of questions early regarding AI that I wanted to ask kind of follow-on and ask a slightly different angle here.

Lattice, even before your tenure, was starting to focus in that area, I think mostly from a hardware perspective.

I mean you've added the sense AI application stack, if I got the name right, I think, a couple of years ago.

I guess my 2 -- kind of a 2-part question here is, how do we think about the success you've had in AI applications so far?

Any way you can characterize or even quantify how much that's contributing to sales thus far, where you could go?

And then to the degree to which your software stack is enabled, I'd love to hear some characterization of how that's going.

Yes.

Thanks, Richard.

Yes, I would say -- I would put it in kind of 2 buckets is, first of all, the fact that we're bringing an artificial intelligence or inference processing capability, both in terms of the hardware but also the software solution, is definitely a door opener for us at customers.

So the customers that maybe we haven't engaged with in the past, that's definitely a great way to open the door and to begin to do business with them.

We have customers across, I would say, every single market that we serve that, again, are looking at, how do I add more intelligence, more capability, more decision-making to my systems.

And so for a customer that we haven't had in the past, it's a great way to initiate that customer relationship and to begin to work with them on integrating Lattice solutions into their systems.

And then even for customers that maybe we've had for many years, it's really been an opportunity for us to expand the share of wallet, right, to expand our share of their spend versus other semiconductors, whether that's our -- expanding our share versus other FPGA competitors, where we're able to offer a better solution, more power-efficient, higher performance, better software or some of the other component suppliers that I mentioned earlier.

So I think it's both a way to help us expand into new customers, but also a way to expand share of wallet with existing customers.

Okay.

Fair enough.

That's helpful.

My follow-on question here was in your client platforms wins you're starting to have some successful within computing.

I guess a 2-part question on that one.

First one is, where do you see the share potentially?

It sounds like you would characterize -- or my guess, you characterize this as a low end starting point of share.

Where can that go over time?

And then are -- these wins, are they at corporate average gross margins or with high-volume PC, things like?

I guess, I could see them being lower than average, but maybe you can characterize that as well, that would be great.

Yes.

Thanks, Richard.

So on the first part of the question, the thing that we love about the client computing market is, look, it's a huge TAM.

It's -- I don't know the -- I can't remember the exact numbers for this past year, but it's somewhere in the 250 million unit or more number of units in client computing.

And so for us, that's a tremendously big TAM and significantly bigger, for instance, than the server market, which we've had a lot of great success and progress in the server market.

And so our objective is really to grow within the client computing space, where we can provide a lot of different great capabilities in a client computing platform.

Just a few examples, as we were talking about artificial intelligence just a few minutes ago, we can provide that artificial intelligence capability in a client computing platform.

We can detect, for instance, human presence around that client computing platform.

We can detect how many people are looking at a client competing screen, for example.

And another example would be we can provide security technology that makes sure that, that platform is secure.

We can also provide signal aggregation and integration capabilities.

So a lot of different ways that we can provide value in the client computing platform and a huge TAM, and so we look at it as a great opportunity for the company moving forward.

As I've shared, we did see a number of new client computing platforms begin production in this past year and will benefit from a full year's revenue of those platforms this year and into coming years.

And as you can imagine, we've got more things that we're working on with our client computing customers.

In terms of gross margins, I would say that client continue is just part of our overall communications and computing segment.

We don't break out the subsegments of that.

But in general, communications and computing runs near our -- in the neighborhood of our corporate average, and we would expect client computing to continue to operate towards the -- around our corporate average, although our client computing gross margins have been improving along with our corporate average over time.

I'm showing no further questions at this time.

I would like to turn the call over back to Lattice's CEO, Mr. Jim Anderson.

Yes.

Thank you, operator, and thanks, everybody, for joining us on the call today.

We feel good about the progress that we made in 2020, both in terms of the financial progress as well as the progress that we made on both the hardware and software road maps.

As we've talked about today, we have very strong customer momentum, and we're really excited about path in front of us.

And we, of course, remain very focused on continuing to execute on both the business strategy as well as our product road map, and we look forward to sharing more details at our Investor and Analyst Day in May.

Operator, that concludes today's call.

Thank you, sir.

This concludes today's conference call.

Thank you for your participation, and have a wonderful day.