Lattice Semiconductor (LSCC)

Hillsboro, Oregon-based Lattice Semiconductor Corporation (LSCC) is a fabless original equipment manufacturer (OEM) of programmable logic devices (PLDs), including in-system programmable (ISP) devices. Lattice also provides related software development tools and other programmable analog and mixed-signal devices. The company has entered the high-growth FPGA market through the acquisition of Agere's FPGA division. Management expects to make significant inroads into the low-end, high-volume segment of the FPGA market.

Semiconductor devices are broadly divided into three categories analog, digital and radio frequency (RF). Analog semiconductors condition and regulate real world information such as light, temperature, speed, pressure, power and electrical currents. Digital logic semiconductors process information in only two states. Mixed-signal semiconductors combine both analog and digital technology into a single device. Typically, an analog sensor samples real world information, and then converts the input into an electronic analog signal, which is converted into a digital format for further digital processing. The analog and mixed-signal markets tend to be more varied and specialized, with customized products that have longer life cycles than those in the digital industry segment. There is an ongoing drive to decrease the number of discrete devices, lessen power requirements and shrink the size of the existing devices, which correspondingly increase performance and reliability. Consequently, a greater amount of functionality is being consolidated into increasingly smaller devices.

According to data submitted by the World Semiconductor Trade Statistics (WSTS), semiconductor sales were $255.6 billion in 2007, up 3.2% from 2006 levels. The SIA has lowered its growth expectations for 2008. It now expects semiconductor sales growth of around 4.3% in 2008, down from its previous forecast of 7.7%. The lower expectations for 2008 were attributed to the continued pricing pressure of memory chips, excluding which, sales are expected to be up 7.4%. The programmable logic component was a $3.5 billion market in 2007, according to market research firm iSuppli. The market is expected to grow at a CAGR of 8% from 2007 through 2010. FPGA ($2.9 billion market in 2007) and PLD ($0.6 billion market in 2007), the two sub-segments within programmable logic are expected to grow at a CAGR of 9% and 6%, respectively. Lattice Semiconductor's products cater to both portions of the programmable logic market. The company reports revenue along these two segments, each of which represents a distinct architectural approach. The revenue contribution from PLDs was 77% in 2007, compared to 80% in 2006 and 82% in 2005. The share of FPGA revenue has continued to increase in-line with management's plans, accounting for the remaining portion of total revenue in each of the last three fiscal years.

A semiconductor-based electronic system uses digital logic to control and enable interaction between different functional electronic modules within a system. An electronics system designer can either piece together multiple off-the-shelf components or opt for a single application specific integrated circuit (ASIC) chip. While most ASICs are hard-wired, or non-modifiable customized devices, FPGAs are more complex ASICs that can be modified, and consequently, have higher production costs. Usually, the flexibility benefit of an FPGA isn't worth the incremental cost of a hard-wired ASIC, especially within a production system that most likely will not require any future changes. Typically, a designer uses a FPGA in the pre-production system and then switches to a hard-wired ASIC in the production system. The lower per unit cost is the primary reason that the hard-wired ASIC market is 10x as large as the programmable ASIC market.

As a fabless OEM, Lattice outsources most of its manufacturing operations to companies such as Seiko Epson and Fujitsu of Japan, Chartered Semiconductor of Singapore and UMC of Taiwan. The manufacture of products by external sources has lowered capital investment requirements, allowing LSCC to dedicate internal resources on the research and development process instead.

Lattice's customers are original equipment manufacturers (OEMs) primarily in the communications and computing markets, although it also serves applications in the industrial, automotive, medical, consumer and military end-markets. The revenue contribution by end market in 2007 was communications 51% (down -3.7% from 2006 levels), computing 11% (down -36.8%), industrial & other 26% (down -0.8%) and consumer and automotive 12% (up 11.7%). Geographically, the company generated 19% of revenue from the U.S. (down -14.7% from 2006 levels), 20% from Europe (down -18.1%), 22% from the Asia Pacific region excluding China and Japan (down -0.4%), 13% from Japan (down -3.0%), 23% from China (up 26.8%) and 4% from other regions (down -52.6%).

Lattice is already a fabless company and management is taking steps to transfer most of the domestic R&D activity to its Shanghai center, which would further reduce costs.

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