LATTICE SEMICONDUCTOR CORP

Previous wording

Impact of Global Economic Activity on our Business

Current wording

Impact of Global Economic Conditions on our Business

Previous wording

Increased financial market volatility, inflationary pressure, uncertainty regarding potential increases in tariffs or taxes and impacts from already implemented or announced tariffs, interest rate changes, recessionary concerns, uncertainty in the financial and banking industry, and geopolitical tension continue to impact business globally and may impact our operations by causing disruption to our customers, our supply chains, and labor markets. The extent to which increased financial market volatility, inflationary pressures, tariffs and trade disruptions, and related uncertainty will impact our business activities will depend on future developments that are highly uncertain and cannot be predicted at this time. Additionally, our business is impacted by the cyclic correction affecting the broader semiconductor industry, which has seen softened demand across our end markets.

Current wording

We depend in part on stable trade, political, geopolitical, economic, and regulatory environments in the countries where we do business. Increased financial market volatility, inflationary pressure, uncertainty regarding potential increases in tariffs or taxes and impacts from already implemented or announced tariffs, interest rate changes, recessionary concerns, uncertainty in the financial and banking industry, and geopolitical tension and conflicts continue to impact business globally and may impact our operations by causing disruption to our customers, our supply chains, and labor markets. The extent to which increased financial market volatility (including currency market volatility), inflationary pressures, tariffs and trade disruptions, and related uncertainty will impact our business activities will depend on future developments that are highly uncertain and cannot be predicted at this time. Additionally, our business is impacted by the cyclic correction affecting the broader semiconductor industry, which has seen softened demand across our end markets.

Previous wording

We are monitoring the rapidly evolving tariff and global trade policies and we are working to mitigate potential impacts on our business. The extent and duration of the tariffs and the resulting impact of general economic conditions on our business are uncertain and depend on various factors, such as negotiations between the U.S. and affected countries, the responses of other countries or regions, exemptions that may be granted, availability and cost of alternative sources of supply, and demand for our products in affected markets. Changes to U.S. tariff policy may adversely impact our supply chain as well as our supply chain strategies, both domestically and internationally, which may then have an adverse impact on our results of operations and business. See Part I, Item 1A. “Risk Factors” in our 2024 Annual Report on Form 10-K for further discussion on risks related to tariffs."

Current wording

We are monitoring the rapidly evolving tariff and global trade policies, including tariffs, retaliatory tariffs, and related trade actions announced by the U.S., China, and other countries, and we are working to mitigate potential impacts on our business. The extent and duration of the tariffs and the resulting impact of general economic conditions on our business are uncertain and depend on various factors, such as negotiations between the U.S. and affected countries, the responses of other countries or regions, exemptions that may be granted, availability and cost of alternative sources of supply, the ability to pass additional costs to customers, and demand for our products in affected markets. Changes to U.S. and other countries’ tariff policies, such as the imposition or expansion of tariffs or export bans to specific customers or countries, may reduce or limit demand for, or increase the cost of production of, our products in certain markets, and may adversely impact our supply chain as well as our supply chain strategies, both domestically and internationally, any of which may then have an adverse impact on our results of operations and business. Significant devaluation of the U.S. dollar relative to the currencies of the countries we operate in could increase our Operating Expenses. See Part I, Item 1A. “Risk Factors” in our 2024 Annual Report on Form 10-K for further discussion on risks related to tariffs.

Previous wording

Revenue from the Communications and Computing end market increased by 5% for the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024 primarily due to stronger demand in data center applications, partially offset by softer end market demand in telecommunications infrastructure deployments and from continued inventory normalization by customers.

Current wording

Revenue from the Communications and Computing end market increased by 26% for the second quarter of fiscal 2025 compared to the second quarter of fiscal 2024 and increased by 16% for the first six months of fiscal 2025 compared to the first six months of fiscal 2024 primarily due to stronger demand in data center applications, partially offset by softer end market demand in telecommunications infrastructure deployments and from continued inventory normalization by customers.

Previous wording

Revenue from the Industrial and Automotive end market decreased by 31% for the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024 primarily due to softer end market demand and from continued inventory normalization by customers.

Current wording

Revenue from the Industrial and Automotive end market decreased by 19% for the second quarter of fiscal 2025 compared to the second quarter of fiscal 2024 and decreased by 25% for the first six months of fiscal 2025 compared to the first six months of fiscal 2024 primarily due to softer end market demand and from continued inventory normalization by customers.

Previous wording

While we do not consider AI applications as a distinct end market, we expect AI-related revenue to grow over the next few years based on the growing pipeline of AI-related design wins. Our AI revenue is derived from applications across all three of our end market segments.

Current wording

While we do not consider AI applications as a distinct end market, we expect AI-related revenue to grow over the next few years based on the growing pipeline of AI-related design wins in a diverse set of applications across all three of our end market segments.

Previous wording

We have a diverse base of customers where distributors represent a significant portion of our total revenue. Our revenue by geographical market is based on the ship-to location of our customers, which can vary from time to time. Revenue in all regions for the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024 has been impacted by the global macroeconomic environment.

Current wording

We have a diverse base of customers where distributors represent a significant portion of our total revenue. Our revenue by geographical market is based on the ship-to location of our customers, which can vary from time to time. Revenue in all regions for the second quarter and first six months of fiscal 2025 compared to the second quarter and first six months of fiscal 2024 has been impacted by the global macroeconomic environment.

Previous wording

We sell our products to independent distributors and directly to customers. Distributors have historically accounted for a significant portion of our total revenue. Revenue attributable to distributors as a percentage of total revenue was 79% and 87% for the first quarter of fiscal 2025 and 2024, respectively.

Current wording

We sell our products to independent distributors and directly to customers. Distributors have historically accounted for a significant portion of our total revenue. Revenue attributable to distributors as a percentage of total revenue was 84% and 91% for the second quarter of fiscal 2025 and 2024, respectively, and 81% and 89% for the first six months of fiscal 2025 and 2024, respectively.

Previous wording

Gross margin, as a percentage of revenue, decreased 30 basis points in the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024. Reduced margins were primarily due to changes in product mix between the periods presented.

Current wording

Gross margin, as a percentage of revenue, increased 10 basis points in the second quarter of fiscal 2025 compared to the second quarter of fiscal 2024 and decreased by 10 basis points for the first six months of fiscal 2025 compared to the first six months of fiscal 2024. Changes in margins were primarily due to changes in product mix between the periods presented.

Previous wording

Research and development expense includes headcount-related costs, including cash- and stock-based compensation and benefits, R&D equipment expenses, engineering wafers, licenses, and outside engineering services. These expenditures are for the design of new products, IP cores, processes, packaging, and software solutions. The increase in Research and development expense for the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024 was primarily due to increased stock-based compensation expense, partially offset by lower costs for outside services. We believe that investing in research and development is important to delivering innovative products to our customers. We expect research and development expense to increase in the future, but to decline as a percentage of revenue.

Current wording

Research and development expense includes headcount-related costs, including cash- and stock-based compensation and benefits, R&D equipment expenses, engineering wafers, licenses, and outside engineering services. These expenditures are for the design of new products, IP cores, processes, packaging, and software solutions. The increase in Research and development expense for the second quarter and first six months of fiscal 2025 compared to the second quarter and first six months of fiscal 2024 was primarily due to the prior year reduction in stock compensation expense from the forfeiture of equity awards by departing executives. We believe that investing in research and development is important to delivering innovative products to our customers. We expect research and development expense to increase in the future, but to decline as a percentage of revenue.

Previous wording

Selling, general, and administrative expense includes headcount-related costs, including cash- and stock-based compensation and benefits, related to selling, general, and administrative employees, commissions, depreciation, professional and outside services, trade show, and travel expenses. The decrease in Selling, general, and administrative expense for the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024 was primarily due to lower legal expenses.

Current wording

Selling, general, and administrative expense includes headcount-related costs, including cash- and stock-based compensation and benefits, related to selling, general, and administrative employees, commissions, depreciation, professional and outside services, trade show, and travel expenses. The increase in Selling, general, and administrative expense for the second quarter and first six months of fiscal 2025 compared to the second quarter and first six months of fiscal 2024 was primarily due to the prior year reduction in stock compensation expense from the forfeiture of equity awards by departing executives.

Previous wording

The decrease in Amortization of acquired intangible assets for the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024 was due to the full impairment of the Mirametrix intangible assets in the fourth quarter of fiscal 2024.

Current wording

The decrease in Amortization of acquired intangible assets for the second quarter and first six months of fiscal 2025 compared to the second quarter and first six months of fiscal 2024 was primarily due to the full impairment of the Mirametrix intangible assets in the fourth quarter of fiscal 2024.

Previous wording

Restructuring activity is generally comprised of expenses resulting from workforce reductions, cancellation of contracts, and consolidation of our facilities. Details of our restructuring plans and expenses accrued under them are discussed in "Note 6 - Restructuring" to our Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q. Restructuring and other costs decreased in the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024 primarily due to minimal restructuring activity in the current year period as compared to higher costs in the prior year period for severance under the Q3 2023 Plan.

Current wording

Restructuring activity is generally comprised of expenses resulting from workforce reductions, cancellation of contracts, and consolidation of our facilities. Details of our restructuring plans and expenses accrued under them are discussed in "Note 6 - Restructuring" to our Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q. Restructuring and other costs decreased in the second quarter and first six months of fiscal 2025 compared to the second quarter and first six months of fiscal 2024 primarily due to lower costs in the current year periods for severance under the Q3 2024 Plan as compared to higher costs in the prior year periods for severance under the Q3 2023 Plan.

Previous wording

Interest income (expense) for the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024 decreased primarily due to lower interest rates between the periods.

Current wording

Interest income (expense) for the second quarter and first six months of fiscal 2025 compared to the second quarter and first six months of fiscal 2024 decreased primarily due to lower interest rates on cash and cash equivalents between the periods.

Previous wording

Other income (expense) for the first quarter of fiscal 2025 and 2024 was primarily due to foreign currency effects and was essentially flat.

Current wording

Other income (expense) for the second quarter and first six months of fiscal 2025 and 2024 was primarily due to foreign currency effects.

Previous wording

Our Income tax expense is partially offset by federal tax credits. The lower income tax expense for the current year period was primarily due to decreased worldwide income.

Current wording

Our Income tax expense is partially offset by federal tax credits. The higher income tax expense for the current year periods was primarily due to lower benefits from stock-based compensation.

Previous wording

The decrease in Adjusted EBITDA for the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024 was primarily due lower revenue, partially offset by reduced cost of revenue and lower operating expenses.

Current wording

Adjusted EBITDA increased for the second quarter of fiscal 2025 compared to the second quarter of fiscal 2024 primarily due to lower operating expenses. The decrease in Adjusted EBITDA for the first six months of fiscal 2025 compared to the first six months of fiscal 2024 was primarily due to lower revenue, partially offset by reduced cost of revenue and lower operating expenses.

Previous wording

The following sections discuss material changes in our financial condition from the end of fiscal 2024, including the effects of changes in our Consolidated Balance Sheets, and the effects of our credit arrangements and contractual obligations on our liquidity and capital resources. There continues to be uncertainty around the extent of market volatility, inflationary pressures, interest rate changes, recessionary concerns, uncertainty in the financial and banking industry, and geopolitical tension, which may impact our liquidity and working capital needs in future periods.

Current wording

The following sections discuss material changes in our financial condition from the end of fiscal 2024, including the effects of changes in our Consolidated Balance Sheets, and the effects of our credit arrangements and contractual obligations on our liquidity and capital resources. There continues to be uncertainty around the extent of market volatility, the impact of tariffs, inflationary pressures, interest rate changes, recessionary concerns, uncertainty in the financial and banking industry, and geopolitical tension, which may impact our liquidity and working capital needs in future periods.

Previous wording

As of March 29, 2025, we had Cash and cash equivalents of $127.6 million, of which approximately $49.2 million was held by our foreign subsidiaries. We manage our global cash requirements considering, among other things, (i) available funds among our subsidiaries through which we conduct business, (ii) the geographic location of our liquidity needs, and (iii) the cost to access international cash balances. The repatriation of non-US earnings may require us to withhold and pay foreign income tax on dividends. This should not result in our recording significant additional tax expense as we have accrued expense based on current withholding rates. As of March 29, 2025, we could access all cash held by our foreign subsidiaries without incurring significant additional expense.

Current wording

As of June 28, 2025, we had Cash and cash equivalents of $107.2 million, of which approximately $28.0 million was held by our foreign subsidiaries. We manage our global cash requirements considering, among other things, (i) available funds among our subsidiaries through which we conduct business, (ii) the geographic location of our liquidity needs, and (iii) the cost to access international cash balances. The repatriation of non-US earnings may require us to withhold and pay foreign income tax on dividends. This should not result in our recording significant additional tax expense as we have accrued expense based on current withholding rates. As of June 28, 2025, we could access all cash held by our foreign subsidiaries without incurring significant additional expense.

Previous wording

The net decrease in Cash and cash equivalents of $8.7 million between December 28, 2024 and March 29, 2025 was primarily driven by cash flows from the following activities:

Current wording

The net decrease in Cash and cash equivalents of $29.1 million between December 28, 2024 and June 28, 2025 was primarily driven by cash flows from the following activities:

Previous wording

Operating activities — Cash provided by operating activities results from net income adjusted for certain non-cash items and changes in assets and liabilities. Cash provided by operating activities for the first three months of fiscal 2025 was $31.9 million compared to $29.5 million for the first three months of fiscal 2024. This increase of $2.4 million was primarily driven by $10.2 million of net changes in working capital, primarily in Prepaid expenses, partially offset by $7.8 million less cash provided by net income adjusted for non-cash items.

Current wording

Operating activities — Cash provided by operating activities results from net income adjusted for certain non-cash items and changes in assets and liabilities. Cash provided by operating activities for the first six months of fiscal 2025 was $70.4 million compared to $51.4 million for the first six months of fiscal 2024. This increase of $19.0 million was primarily driven by $23.7 million of net changes in working capital, primarily in Prepaid expenses, partially offset by $4.7 million less cash provided by net income adjusted for non-cash items.

Previous wording

Investing activities — Investing cash flows consist primarily of transactions related to capital expenditures and payments for software and intellectual property licenses. Net cash used by investing activities in the first three months of fiscal 2025 was $12.1 million compared to $7.7 million in the first three months of fiscal 2024.

Current wording

Investing activities — Investing cash flows consist primarily of transactions related to capital expenditures and payments for software and intellectual property licenses. Net cash used by investing activities in the first six months of fiscal 2025 was $23.6 million compared to $18.2 million in the first six months of fiscal 2024.

Previous wording

Financing activities — Financing cash flows consist primarily of repurchases of common stock, tax payments related to the net share settlement of restricted stock units, and proceeds from the exercise of options to acquire common stock. Net cash used by financing activities in the first three months of fiscal 2025 was $28.8 million compared to $42.2 million in the first three months of fiscal 2024. This $13.4 million decrease was due to the following activities. During the first three months of fiscal 2025, we repurchased approximately 0.4 million shares of common stock for $25.0 million compared to the first three months of fiscal 2024, where we repurchased approximately 0.3 million shares of common stock for $20.0 million. Payments for tax withholdings on vesting of RSUs partially offset by employee exercises of stock options used net cash flows of $3.8 million in the first three months of fiscal 2025, a decrease of approximately $18.4 million from the net $22.2 million used in the first three months of fiscal 2024.

Current wording

Financing activities — Financing cash flows consist primarily of repurchases of common stock, tax payments related to the net share settlement of restricted stock units, and proceeds from the exercise of options to acquire common stock. Net cash used by financing activities in the first six months of fiscal 2025 was $76.6 million compared to $51.7 million in the first six months of fiscal 2024. This $24.9 million increase was due to the following activities. During the first six months of fiscal 2025, we repurchased approximately 1.3 million shares of common stock for $70.9 million compared to the first six months of fiscal 2024, where we repurchased approximately 0.4 million shares of common stock for $30.0 million. Payments for tax withholdings on vesting of RSUs partially offset by employee exercises of stock options used net cash flows of $5.7 million in the first six months of fiscal 2025, a decrease of approximately $16.0 million from the net $21.7 million used in the first six months of fiscal 2024.

Previous wording

Accounts receivable, net as of March 29, 2025 increased by approximately$3.5 million, or 4%, compared to December 28, 2024. This increase was due to the timing of when our customers want our products. We calculate Days sales outstanding on the basis of a 365-day year as Accounts receivable, net at the end of the quarter divided by sales during the quarter annualized and then multiplied by 365.

Current wording

Accounts receivable, net as of June 28, 2025 increased by approximately$4.6 million, or 6%, compared to December 28, 2024. This increase was due to the timing of when our customers want our products. We calculate Days sales outstanding on the basis of a 365-day year as Accounts receivable, net at the end of the quarter divided by sales during the quarter annualized and then multiplied by 365.

Previous wording

Inventories as of March 29, 2025 decreased $8.5 million, or approximately 8%, compared to December 28, 2024 primarily as a result of reduced wafer purchases to align with softer demand as customers continue to normalize their own inventories. Days of inventory on hand increased over the period due to lower cost of revenue.

Current wording

Inventories as of June 28, 2025 decreased $9.6 million, or approximately 9%, compared to December 28, 2024 primarily as a result of reduced wafer purchases to align with softer demand as customers continue to normalize their own inventories. Days of inventory on hand increased over the period due to lower cost of revenue.