萊迪思半導體 (LSCC) 2014 Q3 法說會逐字稿

Good afternoon. My name is Leann, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lattice Semiconductor third quarter results 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). Thank you. David Pasquale, Global IR Partners, you may begin your conference.

Thank you, operator. Welcome, everyone, to Lattice Semiconductor's third quarter 2014 results conference call. Joining us today from the Company are Mr. Darin Billerbeck, Lattice's President and CEO, and Mr. Joe Bedewi, Lattice's Chief Financial Officer.

Before we begin, we've -- actually, wait one second. Both executives will be available for Q&A after the prepared comments. If you've not yet received a copy of today's results, 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's Website. And we've also just updated the PowerPoint corporate overview on the Website. You can download that there as well.

Before we begin the formal remarks, I'll 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 fourth quarter 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 2013 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 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'd like to now turn the call over to Mr. Darin Billerbeck. Please go ahead, sir.

Thank you, David, and thanks, everyone, for joining us on our call today. We're going to try to keep our comments brief so we have time to address as many questions as possible.

There's obviously been a lot of noise throughout Q3 about the high-end smartphone market, China Inc., and the LTE buildup. The takeaway from our Q3 results is, despite of the noise, we delivered better-than-expected profitability, even with revenue coming in slightly lower than expected.

Q3 revenue came in at $86.6 million, down 12.8% from our record Q2 level. The Q3 challenges were more a reflection of the market conditions rather than specific failure of our business. After all, we've been growing steadily for the past year and a half setting records along the way.

A notable bright spot for us was our ability to execute on margins. Our focus on cost efficiencies along with strong mix helped us achieve 58.7% gross margins. This is at the high end of our long-term target.

We continue to effectively manage our business as the market goes through its ups and downs. We do not expect this external volatility to go away in the short term. At the same time, it does not change our long-term optimistic outlook for our business and tremendous potential for our low-power programmable solutions.

We continue to make progress and build on our successes in our core markets of bridging IO expansion, hardware acceleration, and glue logic. For example, in Q3, we launched the world's first programmable USB 3.1 Type C solution. The Type C is the next-generational reversible USB connector used in smartphones, tablets, and other mobile devices. It will also most likely find its way into laptops and desktops longer term. We expect volumes of the new connectors to begin ramping the middle of next year.

We also remain focused on the continued diversification of our customer base as part of our strategy. It enables us to lessen the impact of any one customer's product cycles or wins and losses in the market.

One of our latest wins was at Citizen Watch we announced in Q3. Citizen Watch has been a leader for as long as I can remember in technology advanced watches. They have an exciting vision for an ultrathin watch which'll provide precise time-based GPS satellite synching. Lattice made that vision a reality with our ICE40 solution.

We continue to work with our customers on a daily basis to make their visions and innovations a reality. With each new success, it builds momentum and opens doors for other opportunities. Let's remember, just two short years ago, an FPGA was never found in a phone. Wonder where you will find an FPGA next. This is why we continue to have the confidence that we do.

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

Revenue for the new products decreased $9.2 million or about 19% in Q3 to $40.4 million. This is primarily driven by the declines in our consumer and coms markets. Revenue from mainstream products decreased $1 million or about 3% to $37 million. Revenue from mature products declined about 21% to $9.2 million. This is primarily driven by our legacy coms market.

On a geographic basis, revenue from Asia, including Japan, was 73% of the total revenue compared to 74% in Q2 and was down 14% on a dollar basis. Within Asia, Japan revenue was flat, while China and other Asia were down 16% and 18%, respectively. The declines reflect weaker broad market trends in Q3, led by declines at large Asian OEMs.

Revenue from America comprised of 10% of the total revenue, which is flat with Q2 and down about 18% on a dollar basis. Revenue in Europe accounted for 17% of the total revenue compared to 16% in Q2 and down about 5% on a dollar basis after being up both Q1 and Q2.

On an end market basis, industrial was about 36% of the total revenue in the third quarter compared to 30% in Q2 and up 3.4% on a dollar basis. Communications represented 41% of the total revenue in the third quarter compared to 44% in the second quarter. On a dollar basis, coms revenue declined nearly 20% sequentially, reflecting the trends noted earlier.

The consumer market was about 23% of the total revenue in the third quarter compared to about 26% in Q2. On a dollar basis, consumer market revenue decreased approximately 20% quarter-on-quarter, also reflecting the trends we noted earlier.

That concludes my initial comments. I will now turn the call over to Joe. Joe?

Hey, thanks, Darin. Revenue for the third quarter was $86.6 million, a decrease of 12.8% from the second quarter, slightly below our outlook for Q3 revenue, and a decrease of 0.7% from $87.2 million in the third quarter of 2013.

Gross margin for Q3 was 58.7% compared to 55.4% in the second quarter and 53.2% in the third quarter of 2013. Gross margin came in above the high end of our expectations as we benefited from wafer and assembly pricing, a favorable product mix, and uplift from our distribution network.

Operating expenses for the third quarter came in at $40.4 million compared to $41.9 million in Q2. This was about $400,000 better than our expectation. As a percent of revenue, OpEx was 46.7% in Q3 compared to 42.1% in Q2 and 43% in Q3 2013.

Operating expenses during the third quarter include approximately $900,000 of new IP licensing expenses. We expect these costs to continue for the next four quarters.

Net income for the third quarter was $9.4 million or $0.08 per basic and diluted share as compared to net income of $11.8 million or $0.10 per basic and diluted share in the second quarter and net income of $8.8 million or $0.08 per basic and diluted share in the third quarter of 2013.

For the quarter, diluted share count was approximately 121 million shares. Operating cash flow was $15.3 million for Q3. We ended the quarter with cash and investments of approximately $257 million, an increase of $10 million over the prior quarter. We continue to have no debt.

Accounts receivable declined to $49.8 million at the end of Q3 as compared to $66.3 million at the end of last quarter. Days sales outstanding declined to 52 days compared to 60 days last quarter.

Inventory at quarter end was $65.1 million compared to $59.3 million at the end of Q2. The increase is primarily due to inventory builds in ICE40 and ICE5 Ultra in anticipation of near-term demand. Months of inventory now stands at 5.6 months compared to 4 months at the end of Q2.

We spent approximately $2 million on capital expenditures and incurred $5.2 million in depreciation and amortization expenses during the quarter compared to $2.5 million and $5.8 million, respectively, in Q2.

We repurchased approximately 227,000 shares under our share repurchase program in Q3 at a total cost of $1.7 million. We have approximately $18.3 million left of our previously authorized $20 million repurchase program under which we will continue to purchase our -- continue our purchases until the February 2015 expiration of the existing program.

On an additional note, we've indicated in the past our intention to sell the company's Hillsboro, Oregon, headquarters. This is part of our ongoing efforts to increase the efficiency and effectiveness of our headquarters operations and reduce long-term costs. We have made significant progress on the sale during Q3 and anticipate providing further updates in the coming days.

This concludes the financial review portion of the call. I'm going to turn it back over to Darin for fourth quarter business outlook. Darin?

Thank you, Joe. As we look forward into Q4, we expect to see market volatility primarily in the consumer market. As the dust has been settling in the high-end smartphone market, we have expanded into a new customer base called China Inc. The revenue from China Inc. this quarter makes the difference. But, it will not make up the shortfall we expect to see from the heightened high-end smartphone competition.

The communications market is improving, as we thought, but not to the levels of Q1 and Q2 shipments. None of these short-term customer market challenges change our business strategy or our strong long-term prospects. We're building our leadership position and continue to diversify with new wins in both new and existing customers. Our value proposition is clear, and we remain focused on long-term growth.

In terms of specific expectations for fourth quarter 2014, we expect revenues to be flat to 4% lower compared to Q3. Q3 gross margins are expected to be approximately -- sorry, Q4 gross margins are expected to be approximately 57% plus or minus 2 points. Total operating expenses are expected to be approximately flat to Q3.

In summary, we remain confident in our business prospects and continued ability to execute. The bottom line is that, despite all the market noise, we're on track to deliver double-digit revenue and EPS for the full year 2014 as compared to the prior year.

That concludes our prepared remarks. Operator, we will now be happy to take any questions.

(Operator Instructions). Jamie Viteri, Robert W. Baird.

Hi, Jamie.

Hi, this is Jamie for Tristan Gerra. Thank you for taking my call. So, I was wondering. Europe is a higher-margin business for you. Given some companies have recently talked about a slowdown along with Europe's economy slowing, are you seeing that slowdown? And if so, should we look at gross margins downside ahead? And also, are you seeing any pockets of slowdown in your business relative to your expectations a quarter ago?

Yes, so, we don't see Europe falling off I don't think as dramatically. I think Europe has been soft for a long time. And it grew for us in Q1 and Q2, and it's starting to just kind of soften a little bit. We don't anticipate anything major from Europe as far as a big drop-off.

However, on the margin side, Europe isn't the only reason why our margins are up. The reason our margins are up, obviously, is because we're shipping less to our largest OEMs which have our largest -- or have our lowest margins. So, the two or three large OEMs on specific products have lower margins. So, some of that is the mix-driven thing. And the other one, even more importantly, is our focus on cost. We've been driving the cost of all of our products down, which is helping us on the gross margin front.

Yes, and we guided to the high end of our margin, obviously, with 57% plus or minus two. That's up from prior-quarter guidance also. We're not looking at anything below 55%. We're still targeting that number going forward. So -- .

-- Thank you. That's useful. As a follow up, in which extent do you benefit from the extra 200,000 base station target from China Mobile this year, given your significant exposure to Huawei?

Obviously, any build-out upside that we see or downsides that maybe do affect us because that's part of the LTE build-out that we were watching and enjoying for the last year and a half, it seems to be coming back between Q3 and Q4. So, Q3, there was definitely -- looked like a correction, which is typical for the Chinese suppliers. They typically will do a correction either in Q3 or Q4, which they did. And we're starting to see that business come back.

And as we walked into Q3, we guided down a portion of that, or a large portion of that was coms related, as we discussed last quarter.

Thank you. And do you mind if I just squeeze one more in? What's roughly the average content you have into TD-LTE base station? Is $40 a good assumption? Thank you.

We typically don't give that information out. So -- .

-- Thank you.

Sundeep Bajikar, Jefferies.

Hi, guys. Maybe start off on the smartphone side. I know you said Q4 would continue to be volatile. But, maybe share with us your perspective on what you see happening in that market. Do you see any sign of recovery, or you sort of have no visibility? That's part one.

And then related to that, maybe just give us some more color on the design wins in China. How many of those do you think are entering production in Q4? And how many do you have in total?

Yes, if you look at the original thing, we said -- I think, originally, we were like, we're going to get 7 out of 10. And then we had to change all that because a lot of the suppliers are different.

We probably have -- I would probably -- I would equate it as 60% to 70% of China Inc. we're shipping in production today. We will see material revenue in Q4, just like we said in the last call and we've been saying for the last six months. So, we expect that. And we're already shipping to it in the first part of this quarter. So -- and those are the likes of the Oppo, Xiaomi, all of those guys, right, Coolpad.

So, those are the things that we've been kind of waiting for to diversify our customer base in consumer, specifically in the high-end handset. In the high-end handset, it really just comes down to one specific customer obviously that's having some pretty high competition in the markets that they serve.

And if you look at the next big rollout, being the Note 4, the question really becomes how fast and how big that ramps because, today, if you go back and look at it, we're in the S4, S5, Note 2, Note 3. So, it all just depends on their business bounce back and how well they do in the market and how aggressive they are and how they're going to go ahead and protect their market share.

So, if they decide to go ahead and go bigger, then we're going to have some upside in our numbers. We've tried to be fairly conservative about them. And we expect them to be down again quarter-on-quarter. So, that's kind of how we're focusing the guidance. And had that number even be then the same as we had seen in Q3, we would've actually guided up. So, we're guiding down because we believe that there'll still be continued pressure on that high-end smartphone market.

Great. That's very, very helpful. Just a quick follow up on that. If there is any way for you to compare the solution that you have in high-end handsets versus the solution that you've already started shipping in China, is there any way for us to compare the solution offering from Lattice?

Yes, absolutely. In the high-end portion of the market, we started out with an ICE product, just a standard ICE product. And we shipped that into a higher-end product. So, on the higher-end smartphones, we ship a bigger, more complex product, but it also adds more value and more feature sets.

In the Chinese market, specifically in China Inc., they almost go back to the original ICE that we shipped in the S4. So, they're shipping that type of a product with a lot less features because the Chinese phones don't have all the high-end features that, say, the two strongest smartphones suppliers do have.

So, the Chinese Inc., if you will, is kind of doing that mid-high end type of a phone. And then they drive that all the way down to the lower end. So, they may not have a full-blown sensor hub. They may not have the same feature sets that are being rolled out in the high end.

And when I talk about sensor hubs, that's where some of the FPGA technology can end up providing a sensor hub. If you only have two or three different sensors and you don't have all these nine-axis calculations that you're doing, then you can use an FPGA in those particular situations.

Okay. Great. And then one more also on smartphone and in China. So, how should we think about those design wins? Should we consider them to be platform design wins, or is it more specific to certain products that each of these vendors might be making? What's a good way to think about kind of your penetration at some of these vendors?

Think of these guys don't have a platform. They just crank out a phone. They ship about 10 million units of it. And then crank out the next one. And so, the nice thing about that is they're always spinning a new phone. So, if you win, it's great because you're the incumbent in the next phone they're going to spin. If you're out of it, you have an opportunity about every three months to get back in it.

This isn't the same thing that you see in one of the largest suppliers that takes a couple years to get a phone to market. These guys are spinning these things in, in six months.

Great. Thank you so much.

(Operator Instructions). Richard Shannon, Craig-Hallum.

Hey, Richard.

Hey, guys. How you doing?

Great. Good.

Good. Maybe I'll follow on the theme of mobile with my first couple of questions here, maybe actually dovetailing right into the last one, which is, as you look at some of these Chinese guys you're getting into or are into, have you gotten the amount of breadth across their product line that you think or expect to get or soon there, or is this going to take a while? And can you give us a sense of, while you're getting into them, how broad of an exposure you have to them?

Yes, so, let's talk about breadth. There is none, right? So, the breadth for these guys, again, it's kind of like the one-hit wonder approach, where when they've targeting kind of the mid-end smartphone, which I think is where the bigger guys are struggling a little bit in China, these guys just are going after phone after phone after phone.

And a lot of the models are they look and see what's out there. They go, those features are really cool. And then they develop a phone with those features, and they're out in six or seven months. That's how they do it. And so, there's no platform. There's no we're going to build this one and then this one. It's like they build this one. And then they go, the next one's coming out. It needs a better screen or bigger screen. It needs different molds. It needs this. Boom, they develop those things.

So, a lot of our market potential there is just the fact that they ship so many units immediately. And then it comes -- it can come crashing down in about nine months, whereas the other guys will ship for a couple of years. These guys, in 9 or 10 months, they could be done with that model and onto the next one.

Okay. Fair enough. You -- I think in your prepared remarks, Darin, you talked about diversification within your mobile consumer customer base. Clearly have one large customer today. Can you foresee a time in the not-too-distant future, meaning -- I don't know -- one, two, three quarters or so, where your big customer is no longer a majority of your mobile revenues, i.e. the rest of your customers are bigger collectively?

Yes, part of the reason why China Inc. is so attractive to us is China Inc. is probably 30% or 40% bigger than the other two big guys, right? So, that diversification has to come. Now, granted, those ASPs are a little lower because they're producing phones that are quite a bit different build of material.

So, our goal is to penetrate all three of what we call those markets. One is big guy number one. Two is big guy number two. And big guy number three that's bigger than both of those guys is China Inc.

And so, that's what we focus on. And there's a lot of other markets that we don't really talk about. But, there's still lots of millions of units. So, take Japan, for instance. There's still suppliers in Japan that shipped 30 million, 40 million units a year. That's still big. So, even though we focus on China Inc., we do focus on other markets, like Japan and those other portions of Korea. There's also portions in Taiwan, right?

And we don't talk about those a lot because everybody's kind of enamored with China Inc. because it's the fastest-growing thing. And we should. But, there are other avenues for the consumer mobile devices that we go after.

Okay. That's very helpful. A question on your guidance for gross margins in the fourth quarter, down a little bit, obviously, coming from a very good result in the third quarter. You've got your -- it sounds like you're talking about mobile coming down somewhat here, which typically mobile doesn't help your gross margins. So, would it be safe to say that you're expecting your larger -- your Chinese OEMs to be contributing a little bit more than the previous quarter? And -- .

-- Go ahead. Sorry, Richard.

And sorry, just to finish the question, how much -- or what are you expecting from distribution in the fourth quarter as well? I think that's been helping you recently, too.

Yes, disti's been a nice uplift for us the past couple quarters. We're expecting greater share definitely from China Inc. So, that'll impact margin potentially. We still guided pretty strong. We're up quarter on quarter with guidance. I keep the 2% band up or down just because of the volatility and mix. But, we expect it to be a pretty strong quarter margin wise also.

Disti should hold pretty consistent with what we've been in the past. You'll see this uptick in China Inc. You've seen some other consumer down. So, we think we're right in the ballpark.

Okay. One last question from me. Your inventory was up a little bit. I think you mentioned that it was due to lower expected results from the mobile space. Is there any risk of inventory write-downs? If unit expectations are lower, can you retask those products for other customers?

Yes, absolutely. They're all retaskable, reprogrammable parts. So, that's the good side of our inventory build.

Yes, and Richard, you have to -- in this market, it's not like you get told immediately that you're in a lot of these platforms. And so, you're expected to carry more inventory. And a couple of years ago, I remember somebody asked the question, why are you carrying so much inventory? I said, because there's people that actually force us to do some of those things.

So, some of the inventory is a correction. But, there's other inventory is your positioning for the future. And it doesn't -- in the relative standpoint, doesn't cost you a ton because these products aren't $10 ASP products. So, it's okay to carry the tens of millions of units there because, if you get those upside orders, you better be shipping it fast.

Right. Okay. Fair enough, guys. That's all of my questions. Thank you very much.

Thanks, Richard.

(Operator Instructions). Bill Dezellem, Titan Capital Management.

Thank you. This question may be negated a little bit by the fact that you do have some short lead time business potential that's sitting out there. But, would you talk in a broader sense about your design wins here this quarter and generally how the -- if we were able to create a trend line, how that trend line or wave would look over the course of the last 12 to 18 months, please?

Yes, absolutely. We use Salesforce.com, which is a pretty standard process for keeping track of design wins. We took a goal this year through distribution I think to increase our design opportunities and design wins by a pretty large percentage. And we're on track through distribution to do that. We also took some pretty hefty goals on our -- what we call really major accounts.

So, we focus on all those things in the design win. And design opportunities are right where we want them to be to grow to the goals that we've established. So, clearly, we want to grow this Company. And to do that, we have to have more traction in design wins and design opportunities than we had in the past. And that's what we're focused on.

And following up on that, do you -- are you at the point yet where you are seeing enough diversity in your design wins that the lumpiness that comes about from some of the bigger customers that you have and programs ramping up or ramping down that that will be mitigated next year, or do we still have a little longer to wait for that?

Well, I -- it already happened. So, what's interesting is, if you look at where we were two years ago, the numbers in revenue were probably in the low 70s, right? In fact, they probably started with a six at one time.

And so, you look at that, and that was really without any big consumer. And now, this last quarter, we had a pretty big dive in consumer, and the numbers still start with an eight.

So, as you kind of look at it, you have to say, okay, so distribution has grown. And so has some of the diversity and the fact that we've increased some of our share in the broader market. We've increased some of our share in communications, which helps. And then we've also increased at other consumer accounts.

So, what we've been trying to do for two years, actually as a result of what I think just happened in the last couple of quarters, right, because now, you're down substantially in consumer and down a little bit in coms. Coms is down, too. But, if you add those two things back in, you're right back to where Q2 was. So, the base itself has already grown.

And so, would you agree with the comment then -- to your point, this -- it's already happening. But, it will continue to become more diverse. And that process will continue to proliferate as time progresses.

Yes, absolutely. The goal would be, within the next couple of years, that you see that same growth. And now, we're talking about numbers that are much higher than the ones we talk with this consumer lumpiness, right? So, we've got to take the solutions that we're putting out there, like a USB 3.1 Type C, we've got to take those solutions, and we have to parlay those into some big revenue numbers.

And again, that's not all consumer because those things -- the USB connectors can fit in everything, industrial solutions, laptop, desktops, any of some of the bigger connected devices. So, that's the type of opportunity that helps broaden the base. And even if it is, even if that ends up in a smartphone, that's great. Now, you have two products.

Thanks, Darin.

Yes.

Jamie Viteri, Robert W. Baird.

Hi. This is Jamie. So, ARM talked about High Silicon planning on using ARM's architecture at the 60-nanometer FinFET node in 2016. Does this materially help Lattice position into wireless infrastructure, given High Silicon's significant ASIC push into communication, which presumably benefit your business at the expense of the high-end FPGAs from your competitor?

Absolutely. That's what we've been saying for two years, right? We said, hey, if you look at our ECP5, we said, we're going to break the rules. We're going to use 40 nanometer, and we're going to drop the die sizes down smaller than anybody else could think of. And we're going to put these things into tiny packages. And we're going to focus the highest volume at a 45K device because we think that's the sweet spot for High Silicon, and also ZTE has their own ASIC.

So, I think, as people are starting to see the LTE market start to mature, you're going to see more High Silicon kind of devices. And I've also heard of bigger companies than those guys, like Intel, which are starting to work on some of this stuff also. So, if these guys all get into it, then the FPGAs are definitely going to get smaller. And that's what we're banking on.

Thank you. Also, Nokia this year -- I'm sorry. Nokia this week and others have said that there's no longer any shortages of RF components into the wireless infrastructure supply chain. Do you see tightness in the TD-LTE base station supply chain, or is this not a factor for your sales into wireless infrastructure?

We haven't seen any tightness. I'm glad that Nokia said that because we do business with Nokia. And we have a lot of really good opportunities there. So -- and I did see that Nokia had a strong quarter, which I think helps us long term as we broaden our base in communications away from the Asian OEMs that we service today.

So, it's nice to have business that Ericsson, Alcatel-Lucent, Nokia -- we used to be Nokia Siemens, right? And then you also have everybody else. So, we look at that as a highlight because, again, it only helps the businesses if they have no constraints.

Thank you very much. Just last -- one last question. Do you expect your market share at Samsung to remain stable in the first half of next year?

We expect it to, although I think the market [taking] share is a little misleading because it's really ASP driven. It's bill of material and ASP driven because you can maintain your market segment share and be shipping lower revenue overall because they're really driving the bill of material down. And you've seen a lot of things with Samsung specifically talking about S4 versus S5 and the bill of materials that they're trying to drive to lower the cost.

And I think the primary target for that is they're trying to compete with China Inc. And so, I think you're seeing some of that. And then they're going to be -- they're going to have to be really innovative on the S6 as they come out. So, I think that bill of material is going to be important that you keep your market segment share. But, you're still going to have to add more value if you want the bill of material to go up. And in this environment, that's going to be tough.

Thank you.

Yes.

(Operator Instructions). Richard Shannon, Craig-Hallum.

Hey, guys. Just a couple of follow ups from me. I guess I wanted to ask a kind of a bigger-picture, longer-term question on your coms space. People have -- very well aware of the increased LTE base station opportunities that seem to be popping up in China.

Would love for you if you could characterize your coms business looking into next year. How much is it going to be driven by that versus other new opportunity as well as your new products coming in, like specifically the ECP5 and I think the XO3, kind of leading us down the path to -- is your coms business going to be a growth business, a high-growth business, a flattish business? Can you just give us a general sense of what you see next year in that, please?

Yes, I think the first half coms is going to be all about whatever the build-outs are, right? And if they have similar build-outs than they had in the first half of last year, then I think you're going to have solid revenue from the coms business.

So, that's all going to be dependent on their rollout and those things. And when I look at the second half of the year, if we had all of our ECP5 family already qualified, we'd probably have revenues starting in the Q2 time frame.

And we're working with these guys as fast as we can to get that family completely certified in their systems. So, you're probably going to see ECP5 start to ramp Q3, Q4 of next year in the lower densities, which is usually kind of the sweet spot for us, so not anywhere near some of the older technology.

So, we expect that the buildup probably is a first half event. And then after that, it's all about HetNets and connectivity and closing the gap on some of the overlap they have between the remote radio heads and some of the other signals in the city.

So, if the buildup for HetNets continues, then ECP5 does really well, begins to ramp faster than we've had any product. And that'd be the second half of next year. So, coms, it's just going to depend on that build-out because we're trying to win everything we can in everyplace that we can. But, it's all the build-outs. And then hopefully, Nokia and some of these others guys turn on, too.

Got it. Okay. That's helpful. Another question, my last one, Darin. Last call, you talked -- you kind of laid out a good profile long term for Lattice. And you talked about M&A as one of those factors getting to a $1 billion company at some point in the future.

Just want to get your latest thoughts here on opportunities, fit, and price out there, just kind of general thoughts here in the last quarter.

Yes, I don't think it's changed. What we're trying to do is be really selective and not overpay for some of these things that are out there. And there's a lot of capabilities that you can go after, from industrial opportunities to even consumer opportunities. And believe it or not, there's some coms stuff, right, because there's a new -- there's a lot of new frequencies coming out with data and bandwidth that we could dive into.

The problem that we have today is that there's either a lot of M&A activity, and people think they're overvalued, and it's not really the best use of our cash, or there's just different people that want to IPO because there's a lot of companies out there that, with the IPO big thrust that you saw in 2014, I think there's people that have irrational exuberance on how far they can actually go.

So, we just don't want to overpay. But, there's a lot of opportunity for us to look at this stuff. And I think we've done a really good job of the due diligence of not pulling the trigger on things that aren't aligned, but really focused on trying to find things that are. But, we're clearly out there. We're trying to be aggressive. But, we're not going to be stupid about how we spend our money.

Okay. Fair enough, Darin. Appreciate the thoughts once again.

Yes.

(Operator Instructions). And we have no further questions at this time. I will now turn the call back to Lattice's CEO Mr. Billerbeck for closing remarks.

All right. Thank you. Once again, I'd like to thank everybody for joining us on the call today.

As I come up on my fourth year as the CEO of Lattice, I know where the Company has been. But, more importantly, we understand where we're headed.

We've broken the FPGA rules by offering programmable solutions that are low power, small form factor, and extremely low cost. We've opened new markets that never existed for FPGAs and continue to find new opportunities every day.

Solutions like our USB 3.1 Type C are indications of the change we are making in the Company direction, fast and first to market where it matters the most.

When I look back at 2014, we've achieved everything we've said and more. We've predicted the first half strength, while being cautious about a second half slowdown. We delivered on diversification of our solutions and markets such that a possible slowdown in a market or a single customer could be mitigated.

For the year, we will grow our revenue double digits along with delivering double-digit growth on our profitability. We continue to be bullish on building the world's best programmable solutions and opening up more markets that traditionally haven't used FPGAs due to their cost, size, and power. I can't be more proud of our team, our brand, and the opportunities in front of us. We appreciate your support. Thanks much.

And this concludes today's call. You may now disconnect.