萊迪思半導體 (LSCC) 2013 Q2 法說會逐字稿

Good afternoon.

My name is Chanelle, and I will be your conference operator today.

At this time I would like to welcome everyone to the Lattice Semiconductor second quarter 2013 conference call.

(Operator Instructions)

I will now turn the conference over to David Pasquale of Global IR Partners.

Thank you, Operator.

Welcome, everyone, to Lattice Semiconductor's second quarter 2013 results conference call.

Joining us today from the Company are Mr. Darin Billerbeck, the Company's President and CEO, and Mr. Joe Bedewi, Lattice's Chief Financial Officer.

Both Executives will be available for Q&A after the prepared comments.

If you have not yet received a copy of today's results release please e-mail Global IR Partners using lscc@globalirpartners.com or you can get a copy of the release off of the Investor Relations section of Lattice Semiconductor's website.

Before we begin the formal remarks, I will review the Safe Harbor Statement.

It is our intention that this call will comply with the requirements of SEC Regulation FD.

This call includes and constitutes the Company's official guidance for the third quarter of fiscal 2013.

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

The matters that we discuss today, other than historical information, include forward-looking statements relating to our future financial performance and other performance expectations.

Investors are cautioned that forward-looking statements are neither promises nor guarantees.

They involve risks and uncertainties that may cause actual results to differ materially from those projected in the forward-looking statements.

Some of those risks and uncertainties are detailed in our filings with the Securities and Exchange Commission, including our fiscal year 2012 Form 10-K and our quarterly reports on Form 10-Q.

The Company disclaims any obligation to publicly update or revise any such forward-looking statements to reflect events or circumstances that occur after this call.

Our prepared remarks also will be presented within the requirements of SEC Regulation G regarding generally accepted accounting principles, or GAAP.

I'd like to now turn the call over to Mr. Darin Billerbeck.

Please go ahead, sir.

Thank you, David, and thanks to everyone for joining us on the call today.

This was another strong quarter for us and is a direct result of our solid executions to our strategic long range plan.

We achieved the highest quarterly revenue level in the past decade, reflecting the expansion into the consumer mobile markets and, more specifically, into Smartphone opportunity.

We also saw an improvement in the broader communications and automotive markets in both Asia and North America.

Q2 revenue was $84.7 million, up 19% from Q1.

This was at the high end of our guidance for growth of 15% to 20%.

Our margins came in above the high end of our prior guidance and we doubled our EPS compared to Q1.

Based on all financial measures this was a great quarter for us.

We remain confident entering Q3 based on existing customer backlog, our inventory levels, and the strength of our balance sheet.

Today we have design wins at multiple mobile handset companies.

Our challenge is to replicate our key wins into wins at various other OEMs, both large and small.

The mobile market is quickly moving to a cost versus performance focus.

This focus favors companies that have affordable innovations in their DNA.

At Lattice we've been living and breathing this for years, have the smallest FPGA form factors on the planet, and you can do some really amazing things for your customers.

Additionally, what we learn in the consumer mobile market can be applied to broader markets, like industrial, medical, and automotive.

The key will be taking from what we learned from our Smartphone solutions, then leverage that into all things connected.

The communications market seems to be making a comeback.

New orders in buffer stock are being put in place for build outs in markets outside the United States.

We're even seeing some slight uptick in North America in some specific targeted areas.

Automotive and industrial seem to be flat as the overall European economy and European auto market remain cool.

We were all hoping Europe would recover, but it doesn't look likely until at least 2014.

We continue to prioritize R&D spending where we believe we can support our customers or expand our market presence.

Key examples of setting ahead of the curve are the tape out of our newest consumer mobile product, along with the acceleration of our next generation MachX02 product on 40 nanometer.

We believe both products will lead in features and cost for their respective markets.

Again, we want to be number one where we play.

We are also looking at low cost package alternatives for all of our market segments.

As we have mentioned multiple times, we will spend additional R&D dollars for market opportunities or capabilities where we can lead, differentiate, and defend.

In terms of specifics for second quarter, the revenue mix of new, mainstream, and mature was 46%, 42%, and 12%, respectively in Q2.

Revenue from our new products was up again, growing approximately 41% quarter-on-quarter.

Mainstream products were up approximately 5% quarter-on-quarter.

Revenue for mature products was essentially flat when compared to the prior quarter.

On a geographic basis revenue from Asia, including Japan, increased approximately 26% quarter-on-quarter to about 74% of the total revenue on an absolute dollar basis.

This reflects our consumer mobile ramp and a slight improvement in the communications segment, noted earlier.

Revenue from North America comprised 12% of the total revenue on an absolute dollar basis, up about 13% Q2 to Q1.

Europe was approximately 14% of the total revenue.

On an absolute dollar basis Europe declined approximately 5% reflecting the continued softness in the [disti] channel.

On an absolute market basis communications represented about 38% of the revenue in Q2 compared to 39% in Q1.

This market increased on an absolute dollar basis, but declined in percentage due to our broader revenue increase.

Computing was at 8% of revenue in Q2 as compared to 10% in Q1.

Industrial and other was 23% of total revenue in Q2 compared to 26% in Q1.

Auto design wins remained a bright spot for us as we are growing demand for programmable technologies in the automotive market segment.

We recently introduced six new automotive grade FPGAs during the quarter.

Consumer increased to 31% of the total revenue in Q2 from 25% in Q1, primarily reflecting the continued ramp of our iCE family.

We expect consumer to stay at this level in Q3.

That concludes my initial comments.

I will now turn the call over to Joe.

Joe?

Thanks, Darin.

As noted earlier, revenue for the second quarter was $84.7 million, an increase of 19% from the first quarter and an increase of 19.6% from $70.8 million in the year ago period.

Gross margin for Q2 was 53.3% compared to 53.6% in the prior quarter and 52.3% in the year ago period.

Gross margin was above the high end of our guidance.

Margins continue to be strong due to volume driven cost reductions, along with mix.

As noted during prior calls, we expect margins to continue to fluctuate throughout the year due to our increasing penetration in the consumer segment.

We expect to offset some of this impact through continued cost reductions in operations.

Our long-term gross margin target remains at the mid 50% level.

Total operating expenses for the second quarter came in at $38.1 million, this included approximately $1.4 million in R&D variable costs related to program timing and $0.7 million in variable spending, primarily related to sales increases.

Our guidance for Q3 is for OpEx to come down to $36.9 million.

We remain committed to lowering costs wherever and whenever possible.

Our base line OpEx model of $35.5 million per quarter on average was initially set assuming a quarterly revenue level of $70 million to $75 million.

As we are now running closer to $85 million we will experience higher variable spending, expenses that are driven by higher revenue levels.

In addition, during Q3 we will incur a $0.8 million in expenses related to our San Jose Facility move, which occurred early in the quarter.

This move was necessitated by the impending term of our existing San Jose lease.

We will continue to invest R&D dollars on both quick turn product development as market opportunities arise and long-term product development.

Net income for the quarter was $5 million or $0.04 per basic and diluted share as compared to net income of $1.9 million or $0.02 per basic and diluted share in the first quarter and a net loss of $12.5 million or a loss of $0.11 per basic and diluted share in the year ago period.

Q2 '13 financial results included $1.9 million or $0.02 per basic and diluted share of income tax expense, $0.7 million of amortization expense from acquired intangibles.

Q1 '13 financial results included $0.7 million or $0.01 per basic and diluted share of income tax expense, $0.7 million of amortization expense from acquired intangibles, and $0.2 million of restructuring related charges.

Q2 '12 financial results included a $10.5 million or $0.09 per basic and diluted share income tax expense, $1 million of acquisition related costs and $0.1 million of restructuring related charges.

For the quarter diluted share count was 117.1 million shares, approximately.

There were no purchases under our share repurchase program during the quarter.

We ended the quarter with a cash, cash equivalent, short-term and long-term marketable securities balance of $179 million, a decrease of $4.8 million from the March quarter, driven primarily by other working capital changes related to higher revenue levels.

We continue to have no debt.

Accounts receivable at June 30 were $63.6 million compared to $56 million at the end of last quarter.

The increase was a function of the reported 19% revenue increase.

Days sales outstanding were 68 days compared to 71 days last quarter.

Inventory at June 30, 2013 was $49.7 million compared to $43.8 million last quarter.

Months of inventory now stands at 3.8 months compared to four months at the end of Q1 2013.

The increase in inventory was due to anticipated future demand, as well as strategic inventory build to optimize wafer and production costs.

We spent approximately $3.8 million on capital expenditures and incurred $4.9 million in depreciation and amortization expense during the second quarter compared to $3.1 million and $5.1 million, respectively in Q1.

This concludes the financial review portion of the call.

I'm going to turn things back over to Darin for the third quarter business outlook.

Darin?

Thanks, Joe.

In summary, we are optimistic entering Q3.

The year has gotten off to a good start with a strong first half.

We're successfully managing existing high volume programs, while gaining traction in expanding our customer base.

We are broadening our business with wins in the consumer mobile markets and wins in other broader markets.

We remain fully committed to keeping our costs in check, but as I noted earlier we'll invest R&D dollars where we can gain new capabilities to support customer roadmaps and pursue broader opportunities.

We continue to invest, but the winning formula is all about low cost, low power, affordable innovations, and small form factors.

In terms of our specific expectations for third quarter 2013 we expect revenues to be flat, plus or minus 2% compared to Q2.

Q3 gross margins are expected to be approximately 52%, plus or minus two points.

Total operating expenses are expected to be approximately $36.9 million, including approximately $0.8 million in expenses associated with our Q3 San Jose office move.

That concludes our prepared remarks.

Operator, we will now be happy to take any questions.

(Operator Instructions)

Your first question is from Ian Ing with Lazard Capital Markets.

Please go ahead with your question.

Yes, hi, good afternoon, everyone.

Hey, Ian.

How are you doing, Ian?

Yes, noticed your commentary on design wins in multiple handset companies, so congrats on that.

Could you perhaps talk about how that adds to the OEM diversity, is it diversity by application or by region or program timing or size of the OEM, things like that?

Probably all of those things.

If you think about the applications that we service today, some are specific to customers and other ones are more generic that we provide those solutions, where we do the design services and all this.

And we're finding that winning at one big OEM, which you guys are aware of, has helped us to actually take that proof of solution to other customers and then many times they'll want to customize those, and with FPGAs you can do that.

So we're really looking at expanding more than just to the specific OEMs, also in the Smartphone, but also in the tablet market, so many of the applications within that Smartphone also can apply to the tablets.

Okay, great.

And then for Joe, the gross margins pretty good for June, guided down sequentially at the midpoints, trying to understand the trend there?

It seems like the mix is pretty unfavorable already given consumer and communications is strong, but industrial is yet to ramp?

True, that's very true.

We had -- mix change is what's really going on, and we're offsetting those mix changes with cost savings, so last quarter we guided 51 plus or minus 2, this quarter it's 52 plus or minus 2. We think we're right in that ballpark still.

Cost savings continue to flow through.

Mix is our biggest issue at this point.

Are you losing any cost savings from June going into September?

I mean just trying to understand the guidance?

Actually, no, we are still holding strong on the cost savings.

Okay, I think I understand that.

And then your commentary on OpEx it sounds like, let's say for September $36.9 million, let's take out the building move, I get $36.1 million, is that sort of OpEx going forward plus some R&D dollars as needed, it sort of moves around from there, is that sort of the right framework?

That's the way to think about it.

The $36.1 million reflects the fact that we're at about $83 million revenue, if we go flat in that ballpark.

So you see some uptick from our standard run rate that we've targeted because of that, that's variable spending related.

In Q2 we obviously had the mass charges that we had talked about, as well as some other opportunistic R&D spends related to product development.

Okay, thanks a lot.

I'll re-queue.

Thanks.

Your next question is from Tristan Gerra with Baird.

Please go ahead with your question.

Hi, good afternoon, and congrats on the strong top line outlook.

I think you mentioned during your prepared remarks that consumer would be about flat, could you give us a little bit of visibility in terms of the end markets trends sequentially in your September quarter guidance?

Yes, and I think, Tristan, we're probably aligned.

I think if you look at the Smartphone industry, itself, I think it didn't grow maybe as fast as people thought through Q2, Q3 and possibly even into Q4.

I think it has slowed down a little bit, which means we would have expected if it had ramped like a [inaudible] and everybody was growing like it did the last couple of years that we would have done actually better in Q3, but I think it's softened a little bit as I think you alluded to and others have alluded to, which is why I think it's flattening out.

And what about the other end markets in Q3?

Some of them will go up, right?

I mean we would expect that [coms], for instance, is going to start moving up a little bit, and I think everybody knows why that is because there's some build outs in Asia, so I would expect that to help quite a bit.

But, again, the cyclical nature of the last two or three years has been coms has been down in Q4, so I think this is kind of bucking the trend if you really do get the build outs there.

Industrial, automotive and those things are primarily driven in North America and Europe, I don't expect those to snap back quickly, I think that'll be a long slow path out of the lows that they have today, but I would expect coms and consumer still to be fairly strong because even though consumer is softer than what I think everybody thought, still it's a big market.

Okay, that's useful.

And then one last question, any additional color you could provide on your cost reduction opportunities in operation and maybe quantify what the opportunity is?

Well, I mean the cost reductions for us are pretty straightforward, right?

It's wafer cost, that's typically driven by volumes, right?

The higher the volumes, the lower the cost, and then you can amortize.

The more units we ship the less absorption per unit kind of thing.

But I think bigger than anything is the packages are becoming a pretty big portion of the overall costs, so we're really focusing on the package, driving a lot of things to a streamlined approach so that we can get the best benefits of the economies of scale.

Great.

Thank you.

All right.

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

Please go ahead with your question.

Hi, there.

And, Joe, how are you doing?

Hi, Richard.

Good.

Maybe just a follow-up on the gross margin, so if I heard you rightly, correctly on the mix you're talking about coms and maybe even up a little bit and the consumer being flattish, I'm not sure I understand how gross margins are going to be down relative to the first quarter unless perhaps there's a mix shift going on within your communications space, can you help us understand that a little bit better?

You hit it, right there.

There's a mix shift within the communications base in terms of the volume of what we're selling to the particular customers we're selling them to.

Okay.

That's really it.

Okay, fair enough.

A follow-up question on the Smartphone topic brought up by a couple of previous questions here, I think I asked you last quarter about your goal of signing up new OEMs in the mobile space here by the end of the year, and I think you were hoping to get three of the top five -- how are you performing relative to that expectation, are you already there by now, can you just give us an update there?

I think we're making solid progress, but I want to remind everyone the first progress that we made is the biggest OEM we're serving today.

It takes time, right?

Because they have to learn how to design, and you start kind of at the derivative products outside and then you move into the center.

And so I feel very comfortable about the development and the execution of the design service we're providing, and there's some that are further along than others, but we're having some very interesting dialogue with a lot of the top OEMs now that they're starting to see the use model, the flexibility, and also the ability to add features at the last minute to some of the Smartphones.

So that's a huge benefit for us as people embrace the fact that it's a new way to create solutions.

Okay, and, Darin, to follow-up that specific comment, how does that lead into sustainability of these customers continuing to use your iCE products over time?

Yes, so let's think of what we do is we create design functions for them that enable them to have new features, and each one of the Smartphones, if you look at like the younger generation, if you will, of the Smartphone users, they're looking for the next big thing, right?

And if you look at the new offerings out there, and I won't name specific things but you can use, you know, there's visual gesturing, there's all these features that are out that are enabling us to do things that we couldn't do in the past, and that's the attraction because in the Smartphone, a lot of people have Smartphones today and the market, some people claim it's saturated, I don't think it is, but as you go through that learning, features are what differentiate.

And I think when people are halfway through that development cycle if they haven't added the features we give them that opportunity to do that at the last minute versus, oh, wow, now I have to spin another ASIC, I have to delay the entire project.

I think that's the value proposition, and the fact that our form factor being real estate on the board, the fact that most people can't figure out where our product is because we can't put our mark on it, it's kind of cool.

True.

And, Darin, specific to that last point, these R&D variable costs you refer to, are those the things you're referring to as you're helping your customers to get to that finish line quickly then?

Yes, a prime example, I'll give you a prime example of something that happened.

So we're learning and we're not experts, obviously, at the consumer mobile market today, we're learning as we go in and we're doing design services for different areas and other areas people do it themselves.

But we had one specific area where people said, hey, if you build these features and add this product that's really a good solution for us long term.

So that's where we spend additional R&D dollars was accelerating that product development.

And our expectations, at least is to sample one of those products this quarter, so that's how quick you can turn these things, and you're positioning not for something that's going to ship in Q4, you're positioning for design wins for early next year.

So that acceleration gets you into the loop of their design cycle so you have a better chance of winning.

Got it.

Okay, and you know what, guys, I'll jump out of line and re-queue here.

Thank you.

Okay.

Your next question is from Sundeep Bajikar with Jefferies.

Hi, guys, nice job on the quarter.

Back on Smartphones, can you give us some more color in terms of any additional major design wins that Lattice has secured and would start shipping or has already started shipping, in addition to the Samsung Galaxy Note2 and the Galaxy S4?

For example, we have seen pare downs from chip works showing your Lattice FPGA in the Galaxy S4 mini.

If possible, maybe tell us what that Lattice part is in the mini, and whether your Q3 guidance accounts for that opportunity?

Yes, the guidance does account for those opportunities.

And the feature sets that those provide, in some cases it's nice that when they have a platform and they do a derivative of that platform that they continue to use those solutions.

In some cases they may actually use a different product of ours, if it's a cost reduction they may move iCE product families to different versions of our family, either higher or lower.

And if it's a high end product they may use a higher density, a low end maybe use a lower density.

We do have a couple different design wins that we're expecting to ramp in the second half of this year, they won't be as big as what we're seeing today, but their first instantiation we're expanding the customer base.

Great.

I really appreciate that.

And then just you mentioned that you just taped out a new consumer mobile product, if you could share some more detail on that it would be great, if it is a cost shrink or if it's a node transition, in particular that would be interesting to know?

It's actually not a cost reduction of what we have from a silicon perspective, but it will be a cost reduction from an overall solution based on the integration of the functionality of what it will do on their board, which is one of the value propositions that we're trying to bring, which is sucking more stuff off of your board, do it in an FPGA, the overall build in material cost for you will be less, therefore, this is a better value for you.

If you take the solution that's out there, our solution, and combine them and put them into a smaller piece of real estate it will be a cost reduction to our customer.

Okay, great.

And then one question back on gross margins, if at all possible if you could give us a bridge for gross margins, changes from the first quarter to the second quarter in terms of some of the qualitative affects that you have described, I think that would be extremely helpful?

So sales margin change was a big impact or negative for us from Q1 to Q2.

It was about a point-and-a-half, and that was offset in the most part, for the most part by cost savings that we saw in assembly cost, test cost, and a little bit on wafers.

It's really that simple.

We've been driving these cost reductions, we're seeing them come to fruition, we've got continued reductions that we see happening through this next quarter coming up, it's baked into our guidance, also, and mix continues to be our biggest variable.

Great.

Thank you very much.

(Operator Instructions)

Your next question is from David Duley with Steelhead Securities.

Please go ahead with your question.

Yes, thanks for taking my question.

Just one housekeeping, did you have any 10% customers during the quarter?

We don't report 10% until annual, we do it on an annual basis in our K.

Okay, and the reason that you weren't buying stock back this quarter?

You do have a buyback in place --

Correct, we do.

-- could you just talk about what you're thinking with your buybacks?

We have a buyback in place that has specified thresholds, and we didn't hit the thresholds this quarter.

Okay, and you mentioned you're really focusing in on the cost of the package.

For Lattice what percentage of the iCE total cost is the backend test and assembly or packaging costs?

And what further opportunity is there for savings, I guess is really what I'm trying to get at?

On the bigger die it's less, on the smaller die it's more, right?

Because your silicon cost is so low to begin with, right?

And we have an internal goal that we look at, and we're just trying to really be very innovative about the approaches because big, high [IO] packages are very, very expensive the way that they're building them today.

So we're going to have to either figure out a better way to build that so that we can have cheaper IOs, because this is all small [inaudible] big IOs in the markets that we play in, right?

Because we're the low [inaudible] guy, and so that's what we're trying to accomplish as we go through this.

And so our challenge is a little bit different than some of the big guys who may be selling some of these very, very large, very innovative packages for a lot higher prices than we do, so cost is everything to us.

And does that mean you're moving away from wire bonding towards flip chip because those are more high cost or are you going to stick more, you know, moving from copper to gold or gold to copper, excuse me?

Well, yes, I mean copper is an obvious, right?

I mean everybody moves from gold to copper.

Flip chip, you've got to be careful with that because there's quite a bit of different flip chips that are out there that people are deploying, some are cheap, some are very expensive, so there's a lot of things.

But I think today wire bonding is one of the cheapest technologies you could use because the equipment sets are fully depreciated and there's a huge amount of volume running through it.

So to be innovative you're really going to have to think differently than that.

Just to be clear, we moved to copper on virtually all of our products, that was a big cost savings that we had at the end of last year.

Okay, and a final thing for me is when you look at your consumer business it's on I guess this $25 million run rate, how should we look at this on an annual basis, let's say that's $100 million run rate, what kind of growth rate should we attach to this segment of your business going forward?

Well, again, we're pretty immature in this market, if you think about it, and people will claim you're kind of a one horse wonder today, which is why we've been trying to really differentiate and push ourselves to broaden that market base, and that's what we're doing today.

So the overall consumer market isn't just Smartphones, so the consumer market, we talk about consumer we talk about two different consumers.

There's consumer mobile, which is battery powered stuff that really wants low power, they want really inexpensive types of devices, and that's Smartphones, that's tablets, that's anything connected, it could be [Car NAB], it could be all that other stuff that you have on -- GPS related bike parts, right?

So that's the kind of thing that we're doing.

In the consumer there's a whole another market which is things like your LCD TV or LCD panel or any consumer appliance, right?

So as we move through this consumer mobile you're going to start seeing connectivity between consumer mobile and consumer, so that's a big bridging and glue logic function that we believe we're well fitted to do.

Okay, and just one final one for me, as far as the customers in the handset space, you've ramped up with one big customer or are we ramped up with two customers at this point?

The primary ramp that we have today is one big customer, but we're bringing others online as we're moving through the second half of this year.

Thank you.

Yes.

Thanks.

Your next question is from Bill Dezellem from Tietan Capital Market.

Please go ahead with your question.

Hi, that's Tietan Capital Management.

I want to follow-up on that last question, and if you are bringing on additional Smartphone customers in the second half of this year, clearly that's not happening to a large degree in the third quarter with the roughly flat guidance so would it be fair to surmise that just directionally we should see a nice increase in revenue in the fourth quarter, is that the right mindset to be thinking?

You've got to be a little careful because as you look at consumer it's slightly different than coms, like coms in the past, let's call it a couple years has been really dismal in Q1 and Q4 and really nice in Q2 and Q3, and then it doesn't -- this year it seems as though coms got backend loaded because of some push outs of some infrastructure build outs, right?

So coms is kind of pushing that way.

Consumer is cyclical, depending on who you get in because everybody runs a slightly different cycle.

There's people that announce in April, there's people that announce in September, and there's people that announce whenever their phone is ready, right?

And so if you get into a big one it has a material impact on what you're doing.

If you get into smaller ones, which is kind of how we started in the big one, you start small, you start building the capability, they start to embrace the technology, the next thing you know you can go from a derivative to a platform and then you're in everything.

So as we walk through the next generation with these guys I think we're going to follow the same formula, which is they start out a little smaller than people think, but then once they understand the capability, then once they go mainstream then those ramps will hit you.

Well, I guess the follow-on question could be when would you anticipate going mainstream with the next Smartphone customer?

Again, that's like giving you forward-looking guidance, right?

But we're working on it, that's all I can tell you.

We're working aggressively to win big in some of the largest OEMs.

We're also looking at diversifying the base by winning the small guys because if you win the small guys, even though they're not as big they all add up to a lot.

And if you look at the consumer market, mobile market, specifically the handset, there's probably three or four guys that are gigantic and then there's a lot of guys that are going to either be gigantic or be gone.

And then a completely unrelated topic, inventory was about $6 million higher in the second quarter than the first quarter, and on the surface it seems as though you did have enough inventory to run at this quarter's run rate at the end of Q1, so the question is why given that are you running at a higher inventory level now than at the end of the first quarter?

It continues to be build for future demand was a large chunk of it.

We also did some opportunistic build of inventory to help on the wafer cost and the backend cost for us, so we're building because we had the opportunity to do that to get some cost reductions in there, we took it, and we are building for future demand.

And then that building for future demand, that's one indication to us that a more significant ramp is not multiple quarters in the future, how about if I phrase it that way?

That's a hard one to say because the ramps can be substantial and that inventory could get utilized within the quarter very easily.

So can't really comment on that perspective, but we are staging inventory as we said we would in the past because the dollars associated with staging that inventory are not as great as the risk of not hitting a ramp.

These are all standardized parts that are useable across multiple customers.

That's helpful.

Thank you both.

Okay.

(Operator Instructions)

Your next question is a follow-up from Ian Ing with Lazard Capital Markets.

Please go ahead, sir.

Hey, hello, again.

In the press release you've got a distribution agreement with future announced here, so is that a channel to serve some existing customers right away or do you have to get everything lined up, basically train the FAEs and then go after design wins and then get revenue?

Yes, that's -- okay, so the distribution channel has kind of been moving around a little bit I think on everyone, and the intent for that was we've known future a long time, future has a different reach than some of our current distributors, specifically in some of the industrial areas, say, lighting and automotive and all those other things.

So it's a global agreement with them, worldwide agreement, and our expectation is that it's really focused on design wins today, which is really what we call demand creation.

So that's where we're starting and, yes, we're going to have to go through that exact process.

They're not unfamiliar with FPGAs.

The nice thing for them, they signed two different companies that do programmable logic very quickly, which enables a bigger field of FAEs to help support both companies.

Okay, great.

And then, lastly, the -- could you give us a sense of the China Telecom deployments, where you're favorably exposed now because I know it's moved around a bit, like where you are and where you aren't?

I mean if you look at Altera commentary they talked about China Mobile, TDE, LTE happening second half this year, China Telecom, though, is still doing 2G and 3G deployments, and perhaps just the wireless and wire line exposure you could talk a bit about?

Yes, so a lot of people think that just because it's super high end that Lattice doesn't play and that's not necessarily true.

In fact, there's communication boards where we'll have three different suppliers on each board.

And there's reasons why that because of the functions that they're looking for and sometimes cost structure is another thing.

So we in the 2G and 3G stuff, yes, we do grow a lot with them, but we also grow with LTE because we still do glue logic and some of the bridging functions that they need in the communications.

It's typically considered control versus data, right?

Our competitors do a lot of data plane things and we do a lot of control plane, so that's why everybody kind of, everybody benefits when they do build outs, whether it's 2G, 3G, or LTE.

Okay, thanks.

Yes.

(Operator Instructions)

And at this time we have no further questions.

I'll turn the call back to Mr. Billerbeck for closing comments.

Okay, again, I just appreciate everybody for joining us on the call today.

A solid quarter for us.

Clearly you're hearing a lot about consumer mobile, which is a good thing, but I don't want you to think that that's the only thing that we're doing because we still play heavily in a broad market with broad applications with a broad portfolio of products.

We're still very committed to coms, both from a glue logic and bridging function, but also for control plane, which is what you hear, the ECP2, 3 family, and then the future products that we have.

So I just appreciate that you guys are along for the ride with us, and we're changing the Company, and we're really focused in the areas where we want to win, and we're providing products to do it.

So thanks, again.

We'll talk to you guys next quarter.

And thank you, everyone, for joining today's conference.

You may now disconnect.