Lattice Semiconductor Corporation (LSCC) Earnings

Management highlights

- Overall Q2 2026 Financial Performance - Total Q2 revenue hit a record $201 million, with 18% sequential growth and 62% year-over-year growth, exceeding the high end of prior guidance. - Non-GAAP EPS was 53 cents per share, growing over 120% year-over-year and 29% sequentially, with earnings growth outpacing revenue growth as expected. - Non-GAAP gross margin was 71.7%, up 170 basis points sequentially and 240 basis points year-over-year, supported by favorable product and customer mix. - Non-GAAP operating margin expanded 390 basis points sequentially to 38.3%, while EBITDA margin reached 43%, up 340 basis points quarter-over-quarter. - GAAP operating cash flow was $88.3 million, and free cash flow was $81.3 million with a 40.4% free cash flow margin, up significantly from Q1 2026. - AMI Acquisition Strategic Update - The $1 billion cash + 5.2 million share acquisition of AMI closed successfully at the end of July 2026, one week prior to the earnings call. - The acquisition combines Lattice's low-power programmable FPGA leadership with AMI's industry-leading firmware and infrastructure manageability portfolio, doubling Lattice's total addressable market and creating the industry's most complete secure management and control platform for AI data center infrastructure. - AMI maintains its long-standing open, silicon-neutral operating model, and management has already begun integration, with positive early feedback from over 100 hyperscalers, OEMs, ODMs and ecosystem partners. - AMI is currently divesting a low-margin non-core hardware pass-through business, which will be fully exited by the end of 2026. - Core Operational Highlights - Bookings accelerated during the quarter, with backlog extending well into 2027, and design win momentum remains healthy across the entire FPGA portfolio. - Channel inventory for the FPGA business remains at the targeted 2-month range, and is no longer a core management focus relative to supply chain capacity.

Guidance

- Third Quarter 2026 Combined Revenue Guidance (including two months of AMI revenue): Expected to be in the range of $245 million to $265 million, with a midpoint of $255 million. This puts the combined business at an over $1 billion annualized revenue run rate, one quarter ahead of prior expectations. - Standalone FPGA Business Q3 2026 Guidance: Revenue is expected between $210 million and $230 million, representing approximately 65% year-over-year growth at the midpoint. Non-GAAP gross margin for the standalone FPGA business is expected to be 70% ± 1%. - Combined Q3 2026 Non-GAAP Financial Guidance: Combined gross margin is expected to be 69.5% ± 1%, impacted by transitory low-margin AMI hardware business. Non-GAAP operating expense is expected between $83 million and $90 million, driven by increased R&D investment for long-term growth. Non-GAAP EPS is expected between $0.54 and $0.58, with ~100% year-over-year growth at the midpoint. - Long-Term Growth Guidance: Lattice now expects to exit 2026 at a $1.2 billion annualized revenue run rate, and has a long-term aspirational goal of reaching $3 billion in annual revenue by 2030. AMI is expected to deliver 25% year-over-year revenue growth in 2026, with meaningful EPS accretion starting in Q4 2026. Lattice plans to reduce acquisition-related leverage to below 2x EBITDA by the end of 2027.

Segment performance

For the second quarter of 2026, Lattice Semiconductor's overall revenue was a record $201 million, growing 18% sequentially and 62% year-over-year. 1. Compute and Communications: This segment reached record revenue, growing 18% sequentially and 83% year-over-year, driven by strong momentum in data center AI applications. It accounts for the majority of Lattice's FPGA revenue, with growth fueled by expanding AI content per server, rising FPGA attach rates, and growing demand for security capabilities in disaggregated data center architectures. 2. Industrial and Embedded: This segment grew 17% sequentially and 36% year-over-year, with channel inventory at healthy levels. It contributes a smaller but growing share of overall FPGA revenue, with momentum across diverse end markets including industrial automation, aerospace and defense, medical, robotics, and emerging Physical AI applications. 3. AMI (acquired end of July 2026): AMI is expected to operate at an annual revenue run rate of over $200 million, with 60% of revenue coming from its boot firmware franchise and 40% from infrastructure manageability solutions. AMI has gross margins above 75% and EBITDA margins above 40%. In Q3 2026, AMI will contribute $33 million to $37 million in partial-quarter revenue.

Risks & headwinds

- Supply chain constraints: The industry is facing assembly capacity constraints, which could near-term impact growth if new capacity additions are delayed. - Increasing supply chain costs: Rising manufacturing costs and expedite fees are putting pressure on margins; management will absorb some cost increases but will need to pass a portion to customers. - Integration risk: The AMI acquisition is in very early stages, and revenue synergies from the combination have not yet been quantified or realized, and will take time to come to market. - Transitory margin pressure: The remaining low-margin non-core AMI hardware business will weigh on combined gross margin through the end of 2026, until it is fully exited in Q4 2026. - All forward-looking results are subject to material risk factors disclosed in Lattice's SEC filings (10-K, 10-Q, 8-K) that could cause actual results to differ materially from projections.

Analyst Q&A

• Q: FPGA attach rates, ASP, and dollar content per server have been rising in AI data centers. Can you update on these trends in 2026? /

  A: The 2026 global server forecast has been raised to 20 million units, driven by the ongoing agentic AI revolution, which is boosting demand for both AI servers and supporting traditional cloud infrastructure. Lattice participates in both segments, and FPGA attach rates continue to grow quarter-over-quarter. ASP for new products is also increasing, as new requirements for complex security, low latency connectivity, and sensor integration drive demand for higher-value Lattice solutions.

• Q: With strong demand returning, what supply constraints are you seeing, and could this limit growth in 2027? /

  A: Front-end fab and back-end testing capacity are currently in good shape, but the industry is facing broad assembly capacity constraints. Lattice has put new capacity agreements in place and is qualifying new assembly capacity, which is expected to align supply and demand by September 2026. Management expects to be well-positioned to meet demand in Q4 2026 and through 2027. Additionally, rising supply chain costs are being partially absorbed and partially passed through to customers.

• Q: AMI doubles your serviceable addressable market. What is the updated long-term growth framework for the combined business, and how will AMI accelerate FPGA growth? /

  A: Lattice's long-term aspirational goal is to hit $3 billion in annual revenue by 2030. The combined business is already hitting the $1 billion annualized run rate in Q3 2026, one quarter ahead of prior plans, and will exit 2026 at a $1.2 billion run rate, showing accelerating growth. The combination enables new joint solutions for both data center AI and industrial/embedded applications, creating cross-selling opportunities that will drive future growth above Lattice's prior standalone trajectory.

• Q: What is the current update on AI-related revenue as a percentage of total 2026 revenue, which was previously targeted at 25%? /

  A: Lattice remains on track to exceed the 25% target for AI-related revenue in 2026. Beyond direct AI server FPGA content, the AI revolution is also driving rapid growth in supporting traditional cloud infrastructure (servers, networking, storage, memory), which also lifts Lattice's overall revenue growth. Both direct AI content and supporting infrastructure growth are contributing to the firm's strong 83% year-over-year growth in the compute and communications segment.