TLDR;
Okay ji, so this earnings call for Lattis Semiconductors Q2 2025 was pretty solid. They're talking about how they met expectations, are seeing growth in key areas like comms and compute, and are optimistic about the future, especially with AI applications. Plus, they're giving back to shareholders through stock buybacks.
- Q2 results were in line with expectations, with revenue at $124 million.
- Comms and compute segment is booming, especially servers.
- They're expecting strong growth in Q3, guiding for $133 million in revenue.
Introduction [0:00]
The Lattis Semiconductors Q2 2025 earnings call begins with the usual formalities. The operator sets the stage, mentioning the listen-only mode for participants and instructions for assistance. Rick Musher, the VP of Investor Relations, takes over, introducing the CEO, Ford Tamer, and CFO, Lorenzo Flores. He reminds everyone about forward-looking statements and the use of non-GAAP financial measures, pointing folks to the company website for more details.
Q2 2025 Performance Overview [2:24]
Ford Tamer starts by saying Q2 was a solid one for Lattis, meeting expectations. They're sticking to their long-term strategy and seeing increased adoption of their products. Revenue hit $124 million, up 3% from Q1, with a strong gross margin of 69.3%. They're feeling more optimistic about the market compared to Q1, with strong demand in comms and compute, and industrial/automotive performing as expected. The companionship opportunity with AI accelerators is also looking good.
Market Segments and Q3 Guidance [6:38]
In Q2, comms and computing saw a big jump, growing 20% sequentially and 26% year-over-year. Industrial and automotive dipped a bit as they worked to normalize channel inventory, but they're confident about a rebound. New products are growing strong, and they're on track to hit their 2025 goals. Looking ahead to Q3, they're expecting $133 million in revenue, a 7.2% sequential growth, with a gross margin of 69.5% and EPS of 28 cents.
Detailed Financial Review [10:27]
Lorenzo Flores gives a more detailed look at the financials. Revenue increased 3% to $124 million, with gross margin expanding to 69.3%. Operating expenses were slightly up, but operating margin expanded to 27.5%. They delivered non-GAAP EPS of 24 cents. Free cash flow also increased. Channel inventory is declining, and they're on track with their plans. They repurchased approximately $46 million of common stock during the quarter. For Q3 2025, they expect revenue to be in the range of $128 million to $138 million, with a gross margin of 69.5%.
Q&A - Companionship Opportunity and Data Center Infrastructure [14:59]
Ruben Roy from Stifel asks about the companionship opportunity and data center infrastructure. Ford confirms that their comms and compute segment is doing well, with server growth being a major driver. He mentions four factors driving this growth: overall capex increase, growing attach rate, increasing ASP, and gaining share in AI servers.
Q&A - New Products and Gross Margin Impacts [17:58]
Ruben follows up about new products versus core products and potential margin impacts. Ford says they're on track to exceed their forecast for new products, aiming for mid-20s percentage of new product revenue in 2026. Lorenzo adds that the overall balance of business supports their gross margins, and they see an improvement into next quarter.
Q&A - Lorenzo's Perspective on the Business [21:24]
Melissa Weathers from Deutsche Bank asks Lorenzo about his perspective on the business. Lorenzo says the FPGA business model is well-represented at Lattis, with a broad base of customers and sectors. He highlights the durability of the top line and the operational focus on driving profitability.
Q&A - Revenue Growth Target for 2026 [24:31]
Melissa also asks if the 15 to 20% revenue growth target for 2026 is still viable. Ford confirms that they're still positive on that segment going back to growth in 2026, driven by new applications like robotics.
Q&A - XPU FPGA Attach Rate and Hyperscaler Opportunities [26:05]
Christopher Roland from Susuana asks about the XPU FPGA attach rate at a major hyperscaler customer. Ford says they're doing well across all hyperscalers due to their low power, small size, and cost-effective solutions. He mentions that the complexity of the board is increasing, leading to more FPGAs per rack.
Q&A - Channel Inventory and Sell-Through [28:49]
Christopher follows up on dist inventory. Ford confirms that inventory in comms and compute has already been normalized, and inventory in industrial automotive is on track to be normalized by midyear.
Q&A - Industrial and Auto Growth [30:32]
Ezra Weiner from Jefferies asks about the growth in industrial and auto. Ford says they're more optimistic now, with outflows from channel inventory being higher than revenue. He mentions strong demand, record-high backlog, and record design wins across all segments.
Q&A - ASP Trends and Avant's Contribution [33:00]
David Williams from Benchmark asks about ASP trends. Ford says it's a mix shift to newer products and higher-end products. Regarding Avant's contribution, he says Nexus products are driving the short-term and medium-term revenue, with Avant becoming a bigger factor in 2026 and 2027.
Q&A - Undershipping and Constraints on Comms and Compute [35:05]
Gary Mobley from Loop Capital asks about undershipping and constraints on comms and compute. Lorenzo says they're not giving a specific amount for undershipping, but it's a similar amount in Q3 as in Q2. Ford adds that comms and compute continues to be strong, and they're doing their best to meet supply.
Q&A - Opex Goal [36:54]
Gary also asks about the long-term opex goal. Lorenzo says it's the right objective, but he's not yet at the point of telling when they think that's going to happen.
Q&A - POS Trends in Industrial Automation [38:58]
Clayton Bolton from Needaman asks if they've started to see POS increase in the industrial segment. Ford confirms that POS is increasing.
Q&A - Section 232 Tariffs [39:51]
Clayton also asks about section 232 tariffs. Ford says their understanding is that country-specific tariffs supersede 232. He adds that a lot of their channel partners bring inventory from Mexico into a free trade zone, mitigating any potential impact.
Q&A - Growth Drivers in Comms and Compute [42:16]
Duenjang from Bank of America asks about the growth drivers in comms and compute. Ford says there's not a scientific way to break it down, but there are quite a few factors helping them grow.
Q&A - Industrial and Auto Recovery [44:31]
Duenjang also asks about the industrial and auto recovery. Ford says he expects it would be in line with demand, and as new design wins take hold, they should have quite strong growth.
Q&A - Geopolitical Backdrop and China [45:26]
Joshua Buckalter from TD Cowan asks about the geopolitical backdrop and China. Lorenzo says they have not seen anything and are wary of that to make sure they understand what is true demand.
Q&A - New Product Growth and Sequential Growth by End Market [46:43]
Joshua also asks about new product growth and sequential growth by end market. Ford says they believe that industrial and auto will start outperforming as they get into the end of this year into next year, and so they should see growth across both end markets.
Q&A - Edge AI Growth Areas [47:48]
Kevin Garrian from Rosenblat asks about edge AI growth areas. Ford says they're on track to achieve high gains of revenue coming from AI in 2025 and expect this to grow to mid-20s percentage of revenue in 2026.
Q&A - Design Wins and Lattis's Positioning [49:30]
Kevin also asks what's helping Lattis capture design wins. Ford says it's a very single-minded focus on small and mid-range FPGAs, which they believe is a sweet spot of growth in the FPGA market.
Q&A - Tariffs and Q4/2026 Outlook [52:03]
Christopher Roland from Susuana asks for clarification on tariffs and the Q4/2026 outlook. Ford says their understanding is that country tariffs supersede section 232. He adds that they see strong backlog into Q4 now and starting into Q1 of next year.
Q&A - Opportunities in Scale-Up AI Networking [53:53]
Christopher also asks about opportunities in scale-up AI networking. Ford says they are getting increasingly confident in their positioning of being the companionship to all of the above, including XPUs, GPUs, AI accelerators, switches, and retimers.
Closing Remarks [56:09]
Rick Musher thanks everyone for joining and mentions upcoming conferences. The call concludes with a thank you for participation.