萊迪思半導體 (LSCC) 2019 Q2 法說會逐字稿

Good afternoon.

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

At this time, I'd like to welcome everyone to the second quarter 2019 results conference call.

(Operator Instructions)

I would now like to turn the call over to our host, David Pasquale at Global IR Partners.

Sir, you may begin.

Thank you, operator.

Welcome, everyone, to Lattice Semiconductor's Second Quarter 2019 Results Conference Call.

Joining us today from the company are Mr. Jim Anderson, Lattice's President and CEO; and Ms. Sherri Luther, Lattice's CFO.

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 press release off of the Investor Relations section of Lattice Semiconductor's website.

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 third quarter of 2019.

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 a 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 Form 10-K for the fiscal year ended December 29, 2018, 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.

Some financial information presented by us during this call will be provided on both a GAAP and on a non-GAAP basis.

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

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

Non-GAAP information should not be viewed by investors as a substitute for data prepared in accordance with GAAP.

At this time, I'd like to now turn the call over to Lattice Semiconductor's President and CEO, Mr. Jim Anderson.

Please go ahead, sir.

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

I'm pleased with the strong results we had in Q2 of 2019.

We achieved the company's highest profitability level in over a decade, with a company record high in operating income percentage and significant improvement across key metrics.

While we're encouraged with the progress to date, we have more work to do as we continue to drive to the financial targets we outlined at our Investor Day this past May.

Highlights from the second quarter included: sequential revenue growth of 4%, driven primarily by our communications, computing and industrial markets; a gross margin increase of 40 basis points sequentially to 59% on a non-GAAP basis; operating profit was the company's highest in over a decade at 24% of revenue; and we achieved non-GAAP EPS expansion of 43% on a sequential basis.

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

In the communications and computing market, revenue was up 12% sequentially in Q2.

In computing, we continue to benefit from growth in our products that are used in both server and client computing platforms.

We have a strong footprint across a number of different OEM server platforms.

And as our customers continue to ramp the current generation of servers, we benefit from a higher attach rate and ASP versus the prior generation.

As with servers, Lattice devices are also a great solution for client computing platforms as we can provide support for functions such as video bridging, I/O aggregation and security in a variety of different form factors.

In the communications market, we're benefiting from early 5G infrastructure deployments.

We expect 5G to become a more material contributor to our revenue in the second half of 2019 and into 2020, as the 5G wireless infrastructure build-out progresses.

Turning now to the industrial and automotive market.

Revenue was up sequentially in Q2 by about 7%.

We continue to benefit from design win ramps in industrial and automotive applications.

We believe this segment will continue to remain a long-term growth factor for us as factory automation continues and more electronic content is added to automobiles.

Turning now to the consumer market, revenue was down sequentially in Q2 by roughly 2%.

This reflects continued softness related to macroeconomic conditions, particularly in Asia, and the expected ongoing mix shift of our business.

I'll now transition from talking about our end markets to providing a couple of recent product highlights.

We had 2 major product launches at our Investor Day in May: our MachXO3D product and our sensAI 2.0 software.

Our MachXO3D product is the first control PLD that has security features which allow it to be used as a platform root of trust.

It's typically the first device turned on in the system and the last device to be turned off, providing secure protection through the entire operation of the system.

We have achieved several important design wins with this product for next-generation platforms.

We're also excited about our new sensAI 2.0 software stack for artificial intelligence inferencing at the edge of the network.

sensAI just won its fifth major industry award, and the broad recognition this solution has received reflects the high level of interest we are seeing from our customers as well.

Before turning the call over to Sherri, I want to comment briefly on Huawei.

In mid-May, we stopped shipments to Huawei when the government order was given.

However, we resumed shipments to Huawei in late Q2 of those products that we determined to be in compliance with export restrictions.

In summary, we're pleased with our continued progress and improved results in Q2.

We're well positioned moving forward with multiple growth vectors in server and client computing, 5G infrastructure build-out, industrial automation and automotive electronics.

We remain focused on execution and driving further improvement as we unlock the full potential of Lattice.

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

Thank you, Jim.

Let me now provide a summary of our results.

We are pleased with the results for our second quarter with revenue of $102.3 million, up 4.3% sequentially from the first quarter.

Product revenue growth in communications and computing as well as in industrial and automotive offset a sequential decline in consumer and IP revenue.

This is in line with the growth vectors we outlined at our Investor Day.

We expect the mix will continue to shift to higher-margin markets as we successfully execute on our strategy.

Gross margin on a GAAP basis was 58.7% compared to 58.8% in the first quarter.

Our non-GAAP gross margin expanded to 59% from 58.6% in the prior quarter due primarily to benefits of the strategic pricing optimization and product cost reduction strategies that we initiated in Q4.

This improvement is on top of the 180 basis point improvement we achieved in Q1 and further demonstrates the margin expansion strategies we discussed at our Investor Day.

As Jim noted earlier, we are encouraged by our progress but still have a lot of work to do.

We remain committed to expanding gross margin over the long term.

On a non-GAAP basis, operating expenses were $35.5 million compared to $38 million in the first quarter.

As a percentage of revenue, OpEx declined to 34.7% in Q2 from 38.7% in Q1 on a non-GAAP basis.

SG&A was the largest contributor of this sequential reduction as we continue to execute on our target model of reducing SG&A to 15% over time.

There was also a sequential decline in R&D.

However, we expect R&D will increase sequentially in Q3.

As we noted at our Investor Day, our target model for R&D is 20%.

Q2 GAAP operating expenses were $45.7 million compared to $45.2 million for the first quarter.

Our GAAP net income for the second quarter was $8.6 million or $0.06 per basic and diluted share compared to a net income of $7.4 million or $0.06 per basic and $0.05 per diluted share in the first quarter.

On a non-GAAP basis, second quarter net income was $21.1 million or $0.16 per basic and $0.15 per diluted share as compared to $14.6 million or $0.11 per basic and diluted share in the first quarter.

This represents a 42.6% expansion in sequential non-GAAP EPS on a diluted basis.

We also made significant improvements to cash generation in Q2.

We generated $44.7 million of cash flow from operations during the second quarter, as we continue to improve overall working capital by reducing accounts receivable and inventory.

We announced at our Investor Day that we refinanced our debt, which reduced our interest rate by 250 basis points and extended the maturity by 3 years to 2024.

We also laid out our plan to actively delever the balance sheet.

During Q2, we made $40 million in discretionary debt payments.

As a result, our non-GAAP debt leverage ratio, as defined in the credit agreement, is now below 2. This is down from 4.2 a year ago.

In addition, the Q2 debt payment allowed a further step-down in the interest rate by 25 basis points for a total reduction of 275 basis points.

We expect to continue to delever through discretionary payments moving forward.

Finally, we ended Q2 with a cash balance of $122.6 million compared to $130.4 million at the end of Q1.

This is after the $40 million discretionary debt payment that we made during the quarter.

This underscores the strength of our business and our focus on improving cash flow generation.

Let me now review our outlook for the third quarter.

Revenue for the third quarter of 2019 is expected to be between $101 million and $105 million.

Gross margin is expected to be 59%, plus or minus 1% on a non-GAAP basis.

Total operating expenses for the third quarter are expected to be between $35.5 million and $36.5 million on a non-GAAP basis.

As we look forward, our priorities and focus are unchanged.

We remain committed to increasing our profitability, delevering our balance sheet and building additional value for Lattice and our shareholders.

Operator, we can now open the call for questions.

(Operator Instructions) And our first question comes from the line of Matt Ramsay at Cowen.

Congratulations on really strong results and what I imagine was a bit of a turbulent period with Huawei.

Jim, I wanted to ask, you had mentioned that you guys had suspended shipment to Huawei and then resumed it at the end of the quarter.

There's been various companies that have said they've resumed full shipment.

There's some that have said they've excluded it from Q3.

One of your FPGA competitors, Xilinx, said they're shipping partial product going forward.

Maybe you could add a little bit of context.

I know it was supposed to be mid-single digits for the year, and I'm just trying to understand how much is in or out and we can gauge, I guess, the relative magnitude of the strength of the rest of the business.

Yes.

Sure.

Thanks, Matt.

Let me start with Q2 and then I'll give a little color on Q3 as well.

So for Q2, first, just to reiterate, so clearly, we stopped shipments in mid-May when we got the government order.

And then we worked with our internal legal team and external legal counsel to do a pretty detailed analysis to examine which products we believed were compliant with export restrictions.

And so near the end of Q2, we started shipping those products that we determined were compliant with export restrictions.

And so -- and that, we restarted shipments roughly in the last couple of weeks of Q2.

But if I look at kind of where we ended up with Huawei revenue in Q2 versus what we had kind of originally assumed as part of our original Q2 guidance, it was roughly the same.

So we kind of ended up where we had expected with respect to Huawei revenue.

And then moving forward into Q3, I'd say our Q3 guidance reflects the current demand outlook that we have from Huawei, again, for those products that we've already deemed compliant with the export restrictions.

So that's factored into our Q3 guidance.

So hopefully, that's helpful, Matt.

I guess as a follow-up, a little bit unrelated, but I think it's pretty clear to see some of the strength that you guys are having in the server data center portfolio.

I'm wondering if you might give a little more color into the momentum you're seeing in that business.

I know that AMD is now ramping some server product.

There's obviously data center products going on from a number of vendors besides Intel and a little bit of movement lately on the 10-nanometer road map at Intel.

So if you could lay out for us how you're thinking about the content expansion there, if anything's changed since the Analyst Day, because it seems like the revenue's stronger there than maybe we anticipated this soon.

Yes.

Thanks, Matt.

Yes, so that's in our comms -- our communications and compute segment.

And so we did see nice sequential growth from Q1 to Q2 of about 12%.

And this is in a segment that's been a pretty strong performer for us over the recent quarters.

And a few different things going on within that segment.

First of all, we're seeing just really nice growth in our products that are used in both server and client computing platforms.

And the example that we gave at our Investor Day in mid-May was around servers going into data center.

One of the nice things that we're seeing right now is in the current generation of servers that are ramping up this year, we're seeing a very good expansion in both our attach rate and our ASPs relative to the prior generation.

So about a tripling of our attach rate and a doubling of our ASPs from prior generation to current generation, and so that's driving some nice growth for us this year.

We're also pleased with our growth and progress in client computing platforms.

And then maybe the other thing to mention is we did get a nice contribution in the communications segment for revenue from 5G infrastructure.

5G infrastructure, we started seeing initial flow of revenue late last year, Q4 of last year.

And then that incrementally grew Q4 to Q1.

We saw another nice contribution in Q2.

And so that's also been a contributor.

And looking forward on 5G, we're still expecting to see that become a more material contributor in the back half of this year and into 2020.

So in general, for comms & compute, it's been a good performer.

We see it as a long-term growth vector for the company as well.

And your next question comes from the line of Tristan Gerra from Baird.

And then it's for gross margin.

Did gross margin also benefit from mix?

And again, think of Huawei.

And does the ramp of 5G that you expect in the second half have any impact on gross margin?

Is the pricing optimization benefit continuing in the second half?

Or is gross margin going to be more exposed to mix alone after Q3?

Yes.

And thanks, Tristan.

The very first part of your question got cut off a little bit.

But I think it was -- the first part was asking about Q2 gross margin.

And then I think the second part was asking about just forward-looking in the back half of this year.

So let me start with Q2 gross margin.

We did see a nice sequential benefit of about 40 basis points from Q1 to Q2 in terms of non-GAAP gross margin expansion.

We'll note that our IP revenue actually declined from Q1 to Q2.

And so if you look at our product revenue only, we saw a really nice gross margin expansion sequentially from Q1 to Q2.

Now that's from a number of different factors, I'd say, probably 3, 3 factors.

Number one, our pricing optimization strategy, which we planned that out in Q4 of last year.

We began to implement that in Q1 of this year.

We saw some initial benefit in Q1.

We saw some more benefit in Q2, so that was a nice contributor in Q2.

Also product cost reductions.

Our operations team has been doing a nice job to drive sequential product cost reductions for us.

And then another factor in Q2 was mix across the segments with comms & compute and industrial and auto segments being up sequentially, that helped contribute to gross margin as well.

So yes, we're pleased with the progress on gross margin in Q2.

And now looking forward to Q3 -- or just in general and beyond.

If you remember from our Investor Day in mid-May, we put out a long-term target of 62% for gross margin.

We're certainly committed to continuing to make progress against that goal.

Again, that will be in 3 sort of categories that we drive improvement, those 3 categories of pricing optimization, product cost reduction and mix.

In Q3, we're -- the midpoint of our guidance is roughly flat with Q2.

What's going on there is in Q3, we do expect to see sequential improvement due to pricing optimization and product cost reduction, but that's offset by mix in Q3.

We are seeing a mix headwind in 1 particular segment within our consumer segment, actually, that's offsetting some of the progression we're expecting in pricing and product cost.

But we view that as a short-term, temporary mix headwind that would go away.

So in general, look, we're very committed to continuing to expand gross margin and driving to our long-term target of 62% or higher.

Great.

And then as a follow-up, any color you could provide in terms of direction of revenue by segment for Q3 and the second half?

Yes.

For Q3, if you look at the midpoint of our revenue guidance, it's up slightly from Q2 to Q3.

I would say at this point, kind of all segments reflect that at this point.

All segments reflect just a slight increase in revenue sequentially from Q2 to Q3.

(Operator Instructions) And our next question comes from the line of Charlie Anderson from Dougherty & Company.

My congrats on great results.

Specific shout-out on the DSO improvement.

That's just excellent, so...

Thank you, Charlie.

Sherri -- by the way, Sherri appreciates that.

She cares a lot about DSO, so she appreciates that.

Exactly.

Great.

So a question on OpEx to start.

So you seem to be tracking well ahead of schedule here in SG&A as a percent of revenue in terms of where you want to go.

I wonder, maybe you could just articulate us kind of where you are, what you did to reduce SG&A, how much headroom is left to have more efficiency there?

And then you did mention 20% is a good place to be on R&D.

We're below that now, so to the degree that there's incremental investment, if you could maybe talk to what that incremental investment would be.

And then I've got a follow-up.

Yes.

Thanks, Charlie.

So first of all, in the SG&A, yes, we had put out a long-term target of 15% of revenue.

We made some nice progress on that from Q1 to Q2.

In fact, that we made a bit faster progress than Sherri or I had anticipated, and so that was good.

We have a number of actions in place that we actually started to drive in Q1 in terms of actions to reduce SG&A expenses.

I wouldn't point to any one particular factor.

It's just a number of different things that we're driving within that category.

And there are a couple of those actions that just yielded benefit quicker than we had originally anticipated.

So that's good to see.

We remain committed to getting SG&A to that 15% level.

That will take time.

It will be a combination of direct cost reductions but also scaling into our revenue as revenue grows, we'll scale into it.

And so it's a combination of both.

But we expect to continue to make incremental progress towards that 15% goal.

And now on R&D, yes, our target is 20%.

That's our long-term target.

We are running underneath 20% right now.

The way I would characterize that is, if you look over the last few quarters, certainly, since I started last year -- late last year, and when our new Head of R&D and new Head of Marketing came on in the back half of last year, one of our areas that we focused on right away was in driving just what I would call better efficiency within R&D or better productivity, just making sure that our existing R&D spend was optimized for the best ROI.

And so that was our initial focus.

Because before we add on additional spending to R&D, we want to be convinced that the spending that we have is fully optimized.

And so we went through a lot of work over the prior quarters to trim out projects that we thought were low ROI and reinvest that investment back into projects that are high ROI.

And so that's really been our focus over the last 2 to 3 quarters.

And now that we're through with that, I would expect now R&D to start to incrementally grow from here.

And we'll do that very judiciously and carefully.

But we would expect the R&D to tick back up, for instance, from Q2 to Q3 and as we continue to invest in the road map and ensure that we've got a steady beat rate of new innovation and new products for our customers.

Hopefully, that's helpful, Charlie.

And I think you had a follow-up.

Yes, absolutely.

So just real quick, industrial, it was really nice to see an uptick there.

Been a few quarters since we've seen that.

I think you had called out in your script that maybe there were some new wins there, new opportunities.

I wonder maybe you could just expand on what's going on in industrial near term.

Yes.

In industrial, industrial is a very diversified also sort of fragmented segment.

There's a lot of customers in that segment.

And so it's never one particular thing.

What we're seeing is just really good design win ramps in -- across a number of different customers in a number of different applications.

Examples would be, just in general, industrial automation.

But robotics is a great example, motor -- precision motor control within robotic arms, for instance, which are used in factory automation.

So it's just a number of places where, look, Lattice devices, given their small size, programmability, low power, great power efficiency, just a great solution for industrial automation.

And so we're seeing some nice -- just nice growth in some of those new design wins that we've secured.

And our next question comes from the line of Christopher Rolland from SIG.

Congrats on the strong results and guidance here, it's nice to see the progress.

Thanks, Chris.

Appreciate it.

So Jim, for you.

I'm sorry, if I missed this, I didn't quite catch what you were saying about resuming full or partial shipments to Huawei.

And the reason I ask is because it was obviously a nice 3Q guide, and no one's complaining there.

But if you had no Huawei in 2Q and then you're coming on full for 3Q, and they were a 5% customer and the bump's just up, call it, $1 million sequential, how are we supposed to think about that?

Is it because it's a partial shipment?

Or are there other puts and takes in there?

And if so, maybe you can walk us through it.

Yes.

Chris, maybe I'll walk you through a couple of points I made earlier.

So let's start with Q2.

So if you look at Q2, so we were shipping to Huawei through the first half of Q2.

And it was mid-May when the government order came out.

We ceased shipments at that time, did our legal analysis, and then resumed shipments for the components that we deemed compliant with export restrictions.

We resumed that in the last couple of weeks of Q2.

When I look at where we ended up for Huawei revenue in Q2 versus what we had originally assumed in early Q2 as part of our guidance that we gave in Q2, it's roughly similar.

It was pretty close.

So we kind of ended up where we expected with Huawei for Q2 revenue as compared to our original forecast.

And then Q3, our guidance reflects Huawei's latest demand forecast that we have from them for the products, again, that are -- that we've deemed compliant with export restrictions.

Okay.

And I don't know if there's any other color there in terms of are you shipping maybe half of what they would ultimately want?

I don't know if you can judge that or not.

I don't know, any other color?

Yes.

I can't really break it down at the product level, but just to say that, look, we did a pretty detailed analysis of those products that are compliant with export restrictions, and those are the ones that we're shipping at this time.

Okay.

And then pricing optimization, perhaps talk about how far along you are at this point and whether there are any other optimizations, like manufacturing, for example?

I guess just probably one more for Sherri there.

Are there some optimizations as you move to FD-SOI or something like that, where you might be able to get a little bit extra?

Yes.

I think Chris, when you think about the target that we put out there as part of our Investor Day in mid-May, the target that we put out was to get gross margins at 62% or higher.

What I would say is that, that was a long-term plan to drive kind of continuous improvement in pricing optimization, product cost reductions, and then mix improvement over that time.

So I view us as we're progressing along that improvement plan.

I think we're making reasonable progress.

But we have a lot more work to do -- I believe we have a lot more work to do on pricing optimization, product cost improvements.

And then the third component is the business.

We are expecting the business to shift to be a higher percentage of comms & compute, industrial and auto, over time, and that mix shift benefits our gross margins as well.

So we're committed to that long-term 62% gross margin target and driving all the right actions to get there over time.

(Operator Instructions) And our next question comes from the line of Richard Shannon from Craig-Hallum.

I had a question in the comms & computing segment.

If I have done my numbers here correctly for the second quarter, you grew at about 35% year-on-year.

You've never really split up how much is from comms versus computing.

I'm assuming based on your commentary today and at the analyst event that the computing part is probably growing a little bit faster.

But relative to your comments you made today as well as the analyst event where you're tripling your content -- or tripling your attach rate and doubling your ASPs, it seems like computing should be growing quite a bit faster.

It seems like we could be seeing growth numbers even faster than that going forward.

So I wanted to test that assumption out.

And then maybe if you can add to that, when you might expect that from a year-on-year basis to peak up.

Yes.

Thanks, Richard.

So yes, certainly comms & compute has been a great growth segment for us.

The 12% sequential growth in Q1 -- from Q1 to Q2, we're pleased with that.

A number of different things going on within that segment.

As I mentioned, growth in server is one which I had touched on earlier.

So those are our products used in the server platforms but also growth in products used in client computing platforms.

And then communications also is something that we're expecting to be a long-term growth vector for us as 5G infrastructure build-outs continue to accelerate into second half of this year and into 2020 and beyond.

And so a number of different growth engines underneath there.

We believe comms & compute, as we talked about at our Investor Day in mid-May, will be a long-term growth opportunity for the company.

Okay, fair enough.

And my follow-up question in the industrial side, for the companies that have already announced earnings this quarter, we've seen kind of a smattering of some that are surviving and doing well, industrial, and some are seeing some impact from the trade situation and other things.

It sounds like you're expecting to see some amount of improvement in this third quarter.

I wonder if you can kind of qualitatively talk about what you're seeing in the industrial space, the extent which you're seeing any effects on trade or other things going on.

Yes.

I would say in terms of the general end market, certainly, the industrial and auto segment has seen some softness in end market demand due to macroeconomic trade tensions, et cetera.

And as a broad-based -- us as a broad-based supplier, we have 9,000 active customers.

No customer is above 10%, so we're highly diversified.

We're certainly subject to any broad-based macroeconomic fluctuations.

But what I would say is also in that industrial segment is, look, our products are really well positioned with respect to power efficiency, size and some of the artificial intelligence inferencing capabilities that we can bring to the market.

And we're seeing in, for instance, from Q2 -- from Q1 to Q2, we saw about 7% growth.

We're just seeing a really nice healthy ramp in a number of different applications in the industrial segment.

And then automotive, which is a small portion of that segment, we expect that to be more of a long-term growth contributor.

So as we have mentioned in the Investor Day in May, just like comms & compute, we also expect industrial and automotive to be a long-term growth category for the company.

(Operator Instructions) And our next question comes from the line of Hans Mosesmann from Rosenblatt Securities.

This is Kevin Garrigan on for Hans.

Congrats on the great quarter.

I was just kind of wondering if you could give us kind of your perspective on the competitive dynamic against other FPGA players.

Yes, sure.

I don't think there's been any significant change in the competitive landscape.

From our perspective, our traditional competitors are certainly Xilinx and Intel, Altera.

Look, if we look at our product portfolio versus our competitors, we have, I think, a great competitive position.

We really focus on small-sized FPGA, very power efficient, easy to program, easy to use.

We think we're kind of unique in the marketplace in terms of where we're focused, where we focus our innovation and our R&D.

And then that's kind of current product portfolio.

And as I look forward into the road map that we have lined up in front of us over the next 12 months or next 3 to 5 years, I'm pretty excited about the products that I see on the road map and the innovation that's in front of us.

We're very determined to deliver innovation on a regular cadence, regular beat rate to our customers and excited about some of the products we've got coming out over the next -- especially over the next 12 to 24 months.

(Operator Instructions) And our next question comes from the line of David Duley from Steelhead Securities.

Congratulations on excellent results.

I was wondering, most of my end market questions have been answered, but if you could just talk about how we should think about seasonality of your business as we move into the back half of this year and into early next year.

And then a clarification, what should the interest expense dollars be per quarter going forward now that you've paid down the debt into lower interest rate?

Yes.

Thanks, David.

I'll take the first question, and I'll let Sherri take the interest expense question.

On seasonality, as our business has shifted more and more to industrial, auto, comms & compute, our business has been -- have less of a seasonality pattern.

I would say the -- we still -- our consumer segment still exhibits seasonality, which would be, typically, Q1 would be a relatively low seasonal quarter and then Q2, Q3 would be a stronger seasonal quarter in consumer.

But the other segments, which is where roughly 70% to 80% of our revenue comes from now, don't have any really strong seasonality patterns.

And then maybe, Sherri, do you want to answer the interest expense question?

Sure.

So we ended the quarter with debt of $191.5 million, Q2.

And our interest rate after paying down to the next lowest interest rate tier is LIBOR plus 150 basis points.

And so what I would do is calculate it based on that.

But I'd also like to note that our -- during the quarter, we made a $25 million -- during Q3, we made a $25 million discretionary debt payment.

So you'll see that when we file our Q, but you can factor that into your calculation.

That's the way I would answer that question.

Okay.

And then you -- at the Analyst Day, you talked about your next-generation FPGA products or platform coming out.

I guess that's early next year.

I guess first question is are you on track for the release date that you've talked about?

And then could you just remind us about what sort of performance increases or power consumption decreases that you might have for this new platform?

Yes.

Thanks, David, and thanks for asking.

Yes, it's a -- we're really excited about that next-gen product platform.

So it's a new architecture that we've developed with new features, new capabilities.

And then it's also on new semiconductor technology.

So it's on 28-nanometer FD-SOI technology from Samsung.

We're really excited about that.

We do have first silicon back.

It looks very healthy, and so we are definitely on track for sampling in the first half of next year, which is the dates that we had talked about at the Investor Day in mid-May.

So I would say we're tracking very well to those dates.

And with respect to the -- some of the capabilities on power efficiency, one of the really nice things that FD-SOI brings is sort of the built-in power efficiency advantage.

If you compare FD-SOI to sort of standard bulk CMOS technology, there's around a 50% power improvement or power savings relative to bulk CMOS.

So that's a nice advantage for us on that platform.

And when you couple that with some of the architectural benefits that we're bringing in terms of new capabilities, new features, et cetera, we're very excited about that new product generation.

You'll hear us talk more about that as we get closer to sampling in the first half of next year.

But again, really excited about our progress there.

And just as a point of reference, the current FPGA platform is that at 40 nanometers or 65 nanometers?

What sort of process technology is used currently?

Yes.

We have products on both 65 and 40.

As we have no further questions at this time, I will now turn the call over to the Lattice Semiconductor CEO, Jim Anderson, for further comments.

All right.

Thank you, operator.

And thanks, everybody, for joining us on the call today, we appreciate it.

So in summary, in Q2, we demonstrated the leverage in our operating model with solid improvement across key metrics.

We achieved a record-high operating profit as a percentage of revenue.

And on the product side, we had a couple of major product launches in Q2 that will help us drive long-term growth for the company.

Overall, I think we're well positioned to benefit from multiple long-term growth vectors.

So we appreciate your support and look forward to continuing to update you on our progress moving forward.

Operator, that concludes today's call.

Yes, sir.

This does conclude today's conference call.

You may now disconnect.