萊迪思半導體 (LSCC) 2013 Q4 法說會逐字稿

Good afternoon.

My name is Rachel, and I'll be your conference operator today.

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

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer session.

(Operator Instructions).

This call will also be available for replay beginning at 6:00 Eastern Standard Time today through 11:59 Eastern Standard Time on February 20, 2014.

The conference ID number for the replay is 34244513.

The number to dial for the replay is 800-585-8367.

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

You may begin your conference.

Thank you, Operator.

Welcome, everyone, to Lattice Semiconductor's fourth quarter and full year 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 email 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 first quarter of fiscal 2014.

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 will also be presented within the requirements of SEC Regulation G regarding Generally Accepted Accounting Principles, or GAAP.

At this time, I would 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.

With four consecutive quarters of revenue growth and our highest revenue levels in the past decade, 2013 was a great year for Lattice.

We created a new, fast-growing market for our innovative, low-power, low-cost FPGAs.

We diversified our customer base, while we continued to create compelling and defendable solutions in our traditional markets.

We have made the jump from being a predictably slow, 30-year-old CPLD Company, to being an agile first mover in the exciting world of the Internet of things.

We drove FPGAs in the consumer market, and executed our plan to ramp our products faster than ever before.

The consumer mobile adoption of FPGAs was a defining moment for Lattice.

Like we said, the last call, we changed the perception of FPGAs being big, expensive and power-hungry.

Our customers continue to see our tiny, affordable and ultra-low-power FPGAs as offering time-to-market advantages and lower risk than using a traditional ASIC.

The important differentiator of being reprogrammable also allows designers to quickly solve even last-minute design problems.

From smartphones, to tablets, to anything with a battery, there's a world of opportunity for FPGAs, especially in the Internet of things.

I was just in Asia last week and expect to see continued growth as we move through 2014.

The pace of innovation shows no sign of slowing, as also seen at CES last month.

All things connected is becoming many things connected to the phone.

The wearable trends are a reality, as multiple suppliers enter that market.

Smaller, lighter, zero-power, connected devices create more opportunity for Lattice.

And we don't just focus on the consumer mobile market.

It is clear that FPGAs are a perfect bridge in a world where connectivity and interfaces are critical and changing constantly.

What we deliver in the consumer mobile market is quickly being adopted in the industrial, scientific and medical markets.

From video surveillance, to human/machine interfaces, to small handheld medical devices, the opportunities abound, and all can use the same (inaudible) technology we're building for the consumer mobile market.

The communications and computing markets also remain important priorities.

Every product we have can be sold in a communication infrastructure.

Our highest-end products are squarely focused on providing solutions in the HetNet space, where once again small form factors, low power and affordability are a must.

In the computing space, the trend today also favors Lattice, with the cloud embracing all things micro.

From microservers to microserver farms, the opportunities for smaller pitch packages, lower-power FPGAs, continues to increase.

I can tell you today that we accomplished what we set out to do, and more, in 2013.

I am proud of our team's accomplishments, and thank our employees and partners worldwide.

The impact of our success is seen in our proved results.

We delivered revenue growth in each quarter of 2013, which for the full year up over 19% to $332.5 million.

Importantly, our gross margin remained very healthy at 53.6%.

We achieved a net income of $0.19 per share compared to a net loss for the full year of 2012.

Let me give you some additional data points about the year, before turning the call over to Joe.

Revenue from new products was up over 145% in 2013 to $152.4 million.

Revenue from mainstream products declined about 8% to $143 million, while revenue from the mature products declined 40% to $37.1 million.

These results are consistent with the market trends in the first three quarters, and this is also -- this also reflects the mix shift in our business.

On a geographic basis, revenue from Asia, including Japan, increased 29% and represents 74% of the total revenue.

Revenue from the Americas comprised 12% of the total revenue and was down about 5%.

Revenue in Europe accounted for a -- 14% of the total revenue, and was down 2%.

We're seeing signs of improvement, but Europe -- we expect Europe to continue to struggle in the near term.

On an end market basis, industrial and other was about 23% of total revenue in 2013, compared to 32% in 2012.

Computing was 9% of revenue in 2013 as compared to 13% in 2012.

On a dollars basis, they declined over 20% and 14%, respectively, year over year.

Communications represented 38% of revenues in 2013, compared to about 42% in 2012.

On a dollars basis, communication revenue increased more than 8% year over year.

Consumer increased to 30% of revenue in 2013 from 13% in 2012.

On a dollars basis, consumer revenue increased 180% year over year.

As noted earlier, this reflects our successful strategy of ramping our iCE and XO2 product families into a market that did not exist in the past.

That concludes my initial comments.

I will now turn the call over to Joe.

Joe?

Thanks, Darin.

Darin covered the full year highlights.

Let me quickly run through Q4 for you.

Revenue for the fourth quarter was $89.5 million, an increase of 2.7% from the third quarter and an increase of 36% from $65.9 million in the fourth quarter of 2012.

Gross margin for Q4 was 54.3% compared to 53.2% in the prior quarter and 54.2% in the fourth quarter of 2012.

Our gross margin improvement is largely driven by sustained product cost reduction.

The Fujitsu process transition initiated in Q3 had a minor negative impact to Q4 gross margin.

We expect costs associated with this transition to impact margins through the first half of 2014.

Our long-term gross margin target remains in the mid-50% range.

Operating expenses for the fourth quarter came in at $40.4 million.

This is approximately $3 million above the Q3 level and our Q4 guidance.

Our fourth quarter OpEx increase was primarily driven by variable compensation resulting from higher-than-expected revenue and gross margin.

In addition, we incurred approximately $800,000 in increased mask costs during the quarter.

I want to point out that, even with the fluctuations during the year, our total OpEx for fiscal year 2013 came in at $151 million, which is down $8.7 million from fiscal year 2012.

The OpEx average was $37.9 million per quarter in 2013.

Net income for the fourth quarter was $6.5 million, or $0.06 per basic and diluted share, as compared to net income of $8.8 million, or $0.08 per basic and diluted share in the third quarter, and a net loss of $7.2 million, or a loss of $0.06 per basic and diluted share in the year-ago period.

The Q4 2012 loss included restructuring charges of $5.4 million.

Q4 2013 financial results included approximately $1.1 million of income tax expense, resulting in an effective tax rate of 14.7% for the quarter and an annual effective tax rate of 15.7%.

For the quarter, diluted share count was approximately 117 million shares.

We repurchased approximately 830,000 shares at a cost of $3.7 million in Q4, and a total of 1.41 million shares at a cost of $6.1 million in 2013.

Operating cash flow was $56.5 million for the full year 2013, compared to $4.3 million for the full year 2012.

We ended 2013 with cash, cash equivalents and short-term term marketable securities of approximately $216 million, and continue to have no debt.

Accounts receivable at year end were $50.1 million as compared to $53 million at the end of last quarter.

Days sales outstanding were 50 days compared to 55 days last quarter.

Inventory at year end was $46.2 million compared to $42.3 million last quarter.

This increase was fully expected, and is due to increase in our XO and XP family inventory in anticipation of end-of-life orders, and an increase in ECP3 inventory related to specific future demand.

As demonstrated throughout the past year, we continue to effectively manage our lead times and forecast demand for customer programs that are ramping and ongoing.

Months of inventory now stands at 3.4 months compared to 3.1 months at the end of Q3.

We spent approximately $2.3 million on capital expenditures and incurred $5.6 million in depreciation and amortization expenses during the quarter -- during the fourth quarter, compared to $3.4 million and $5.2 million, respectively, in Q3.

This concludes the financial review portion of the call.

I'm going to turn it back over to Darin for the first quarter business outlook.

Darin?

Thank you, Joe.

In summary, Lattice exited the year on a high note, and we expect to see continued demand strength as we move through 2014.

We continue to focus on sustainable growth, driving operational cost efficiencies, improving our profitability, and increasing our shareholder value.

In terms of our specific expectation for the first quarter of 2014, we expect revenues to be flat plus or minus 2% compared to Q4.

Q1 gross margins are expected to be approximately 53% plus or minus 2 points.

Total operating expenses are expected to be approximately $38.5 million.

This concludes our prepared remarks.

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

(Operator Instructions).

Richard Shannon, Craig-Hallum.

I want to ask you, first, about the fourth quarter.

Had very nice revenue; obviously very strong in comms and industrial.

I guess I would have expected gross margins maybe a little bit better than that.

Curious whether there's any customer mix coming from large customers in comms or something, or -- help us understand why that wasn't up maybe a little bit better.

You hit it right on the head.

It's a mix in large customers and comms, that we've talked about in the past.

Okay.

And Joe, if you could repeat for us, quickly, the commentary you had, the end of your prepared remarks about the gross margin impact in the first half.

Was there also any impact there in the fourth quarter as well?

Oh, you're talking about the Fujitsu transition?

Yes.

We had a very small impact in Q4 to gross margin, and negative impact to gross margin related to that transition of that process.

And we'll expect to see some impact through the first half of the year.

Okay.

Perfect.

I -- that went by a little bit fast for me.

A couple more questions on the outlook here.

Very nice guidance; usually a down quarter for you.

Curious, though, if you can kind of give a sense of the moving parts in terms of the end markets, like consumer and communications specifically.

Yes.

Communications looks a lot stronger than what we would have forecast throughout Q4, and also in Q1.

And that's primarily due to the buildout in China, as everybody's aware of.

So, we see a lot of strength there.

People are obviously building ahead of that.

And we also expect to get a little bit of bounce-back from consumer, but not too much.

So, we're kind of looking at everything holding flat with comms being up a little bit.

Okay.

Okay.

Fair enough.

And looking out beyond the first quarter, relative to the OpEx number you just gave us, I know you've talked about, you know, gaining in operational efficiency.

Can we expect the OpEx to be at roughly similar levels, or even looking to growth that hopefully you can get to the rest of the year?

Yes.

We should maintain the levels that we're targeting for Q1 throughout the rest of the year, or slightly below.

Okay.

Perfect.

One last question from me and I'll jump on the line.

I wonder if you could kind of give us a sense, as you look out throughout this year, about your positioning with your largest mobile OEM?

I know you did -- I think you did very well with them last year.

Any sense of positioning with some important platforms you may be coming out with this year?

Yes.

I mean, it's hard to tell which platforms you win and which ones you don't.

Right?

But last year we did really well.

This year we feel very confident about everything moving into the consumer market for next year.

We obviously want to grow that market.

But we can't comment on specific customers; nor can we comment on any models that we service.

Okay.

That's fair enough then.

I will jump in the line, and then congratulations on very nice numbers.

Thanks, Richard.

Sundeep Bajikar, Jefferies.

Nice job on the quarter.

First of all, can you give us some color in terms of, what portion of the smartphone -- overall smartphone market shipments, Lattice captured last year with ultra-low-power FPGAs?

Just give us some framework, also, to think of the trajectory of that penetration as we move through this year.

Well, if you assume that we're -- there was about -- somewhere between 800 million and a billion smartphones just in that year, we're probably somewhere between about 8% and 10% of that.

And we'd expect that we should be able to grow that.

Okay.

Great.

On the communications side, can you tell us what types of Lattice products actually drove the strong sequential growth here in the fourth quarter?

And perhaps, also, just compare these Lattice products to competition, in terms of both average selling prices as well as power consumption.

Oh, it was ECP3 products -- type-products that drove the communications growth in Q4.

And clearly, they're considerably lower than competition, in terms of ASP.

We had XO2 growth there also.

So, those are the two products that we leverage our glue logic kind of aspect to what we do with comms market.

That answer what you're talking about, or do you want more details?

I think that's great.

So, I guess what I want to follow up on is back on the smartphone market, or mobile in general.

As you see penetration increasing with low-cost, ultra-low-power FGPAs, are you seeing, sort of, any noticeable impact on average prices just in that market?

Yes.

I mean, the key to that market, obviously, is, you try to take whatever features that you offered in the last go-round -- you try to harden as many as you can, and offer another product with even more capability and more features, trying to hold the ASP by providing more value.

But as you know, different smartphone models, depending if they're high-end or mid-range, ASPs will decline.

They have to offer what we call the plethora of products, from the big ones to the small ones, to the more high -- in the blended ASP, we assume, to remain about the same.

So, our goal is not only to be able to keep that blended ASP, but to increase the share of wallet in size by taking on more opportunities than just the ones that we have.

Great.

Okay.

And then just a last one from me.

I think you mentioned a number of additional new markets that you're potentially targeting with the low-power FPGAs.

Can you just give a sense of, kind of, the most exciting or sort of top two targets that you have here, going through the year?

Well, I think there's one that's obvious, right?

Which is wearables, or these super-tiny devices that are sub-1.5 millimeter squared.

Right?

They fit in nicely and they're very low power.

So, wearables is one big one.

We also find ourselves in these kind of bizarre ones, like when you swallow video cameras.

Right?

So, there's a lot of little medical centers out there, too, that are pretty interesting.

So, we're finding a lot of different customer applications that we never even thought of, for tiny and for low-power.

So, the consumer is one -- you know, consumer; consumer mobile; and then we're looking out in the medical field too.

And those are slower, but their adoption seems to be a lot quicker than it was in the past.

Great.

Thank you very much.

(Operator Instructions).

Matt Dhane, Tieton Capital Management.

I was curious, what led to your revenue outperformance in Q4 relative to your initial expectations heading into it?

A couple things.

One was a new year -- a Lunar New Year shift, where people saw Lunar New Year this year a little sooner than last year, so they actually pulled in some material through distribution, which they didn't really think about until the last three or four weeks of the quarter, which is hard for us to forecast.

The other one was just the uplift in comms, and a slight higher-than-what-we-anticipated growth rate in consumer.

So, consumer a little bit; comms, pretty significant, which we have -- traditionally, the last two years, comms has been down in Q4, so we predicted to be slightly down, and it came back and was very strong.

And then just -- in Asia was actually quite a bit stronger than we thought -- all kind of loaded up in the last couple of weeks.

Right.

I was also curious -- I've heard a lot of commentary and discussion about Chinese comms infrastructure buildout really accelerating here.

What's your expectations around that, and how do you expect that to benefit you?

Typically -- you know, we obviously don't give guidance on -- beyond Q1.

But we see it probably first-half strength in comms, because that feels like about what it did -- about the traditional growth rates it had in the past.

Beyond that, I really don't have a lot of idea.

I would expect it to fall out, but should fall down a little bit, but we haven't seen any indications whatsoever.

Nor do our customers give us any forecasts that far out.

Great.

Thank you.

All right.

Tristan Gerra, Baird.

Sorry if I missed it earlier in the call, but could you give us some granularity about the various end market trends built into your Q1 guidance?

I don't know that we -- I don't know if we gave that exactly, but comms will be -- we expect comms to continue the strength that we saw in Q4, and consumer to come back a little bit, and everything else is roughly the same.

Great.

Thank you.

All right.

Richard Shannon, Craig-Hallum.

Just to follow up on a couple of previous answers here, on -- first, on the wearable theme, would be curious if you could delineate for your -- you know, kind of, product categories you're seeing interest; when we might see that?

And when you might start shipping, and when that might possibly be material for you?

Well, yes.

We don't want to give away somebody's ramp rate, obviously.

Right?

But I would expect wearables to start shipping this year for sure.

Right?

So, that's not a next-year deal.

Probably in the middle of the year, you'd start to see some of those shipments.

And those that are still like smartphones, the adoption rate will probably be small -- slow at first, and then it'll take off as people see the value in it.

And there's all different wearables.

Right?

There's -- you've seen a lot of the traditional CES offerings that are out there.

But we're seeing stuff -- some of it can be included in clothing.

It can be included in your shoes.

There's a lot of stuff that you're seeing all over the place that's very innovative approaches.

But the question will be the adoption in the consumer -- adoption from consumers.

Do they really value a lot of the stuff?

Got it.

Okay.

And then another follow-up for me, Darin.

You've talked at times over the past year-plus about opportunities in sensor hubs in general.

What are you seeing in 2014 for next year?

Yes.

And you've got to be careful about sensor hubs.

Because there's hubs that control, you know, nine or ten different sensors and sounds, and there's also hubs that just control three or four, that become an input to something else.

You know, there's the sensor fusion aspect of it.

I think what you'll see us play is more in a smaller version of those hubs, probably in the lower-end phones, where it's not as sophisticated, and an FPGA can take over the horsepower of what maybe a microcontroller did in the past.

But our plan is not to go head to head with the big microcontroller sensor hub-type.

Okay.

That's great perspective.

That's all for me, guys.

Thank you.

All right.

(Operator Instructions).

There are no further questions at this time.

I will now turn the call over to Lattice's President and CEO, Mr. Darin Billerbeck, for any closing remarks.

Okay.

Thanks, everyone, for joining us on the call.

Obviously, 2013 was a terrific year for us.

We executed on a lot of fronts.

We made a new market for ourselves and then we executed on the volume ramps that we needed to from an operational standpoint.

We held as firmly as we could our OpEx, and this year we're really focusing a lot on that.

And we have a lot of challenges, obviously, to make 2014 better than 2013.

But we look forward to it, and we're excited about it, and we'll see what happens quarter by quarter.

So, thanks again for joining us on the call.

Ladies and gentlemen, this concludes today's conference call, and you may now disconnect.