Lattice: When Semiconductors and Auction Rate Securities Collide

Correction:

Many companies were previously advised to park their cash in auction rate securities. Now Lattice has to contend with industry glut, shrinking margins and illiquid ARS.  From Lattice Semiconductor Corp.’s Q3’08 Conference Call:

 

Rob O’Brien, interim CFO:

Not included in the just mentioned $163 million [of company cash], we have auction rate securities... on our books at a fair value of $27.4 million, which represents a 30% discount to our par value.

...During this last quarter we [sold] $5.7 million in auction rate securities at par. We moved money market funds accounts to governmental agency investments. We reduced our commercial paper exposure and sold our remaining shares that we held in UMC.

...There is some indication of cautious optimism, we are seeing a movement back into higher paying money market funds, some movement in the commercial paper markets, bond prices increasing, and the cost of credit default swaps coming down. Hopefully, this will continue and will bode well for our auction rate securities.

...I have seen various large banks come forward and offer to come in and retire auction rate securities. Unfortunately, we do not have banks that are doing that right now… We are not forced into decision where we have to sell [our ARS’s] right now. So, we can be a bit patient... These continue to be investment grade.

 

Comments

[Thomas61:]

Judy,

Why is LSCC being singled-out for having illiquid ARS? LSCC is an extremely liquid company even if it has to completely write off these securities. Also, the
"shrinking margins" are the indirect result of a very good thing that is happening at LSCC. Namely, the margin drop is caused by the initial lower margins of their latest chips whose sales were up over 111% yoy and 42% sequentially. These new chips now comprise over 30% of sales.

2008 Nov 01 04:06 PM