Lattice Semiconductor's CEO Discusses Q3 2013 Results - Earnings Call Transcript

Lattice Semiconductor Corporation (NASDAQ:LSCC) Q3 2013 Earnings Conference Call October 24, 2013 5:00 PM ET

Executives

David Pasquale – IR
Darin Billerbeck – President and CEO
Joe Bedewi – Corporate VP and CFO

Analysts

Tristan Gerra – Robert W. Baird & Co.
Sundeep Bajikar – Jefferies & Co.
Ruben Roy – Mizuho Securities
Richard Shannon- Craig Hallum
David Duley – Steelhead Securities

Operator

Good afternoon. My name is Tommie and I will be your conference operator today. At this time I would like to welcome everyone to the Lattice Semiconductor Third Quarter 2013 Conference Call.

All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. (Operator Instructions).

Thank you. I would now like to turn the conference over to David Pasquale of Global IR Partners. Sir, you may begin.

David Pasquale

Thank you, operator. Welcome everyone to Lattice Semiconductor’s third quarter 2013 results conference call. Joining us today from the company are Mr. Darin Billerbeck, the company’s President and CEO; and Mr. Joe Bedewi, Lattice’s Chief Financial Officer. Both executives will be available for Q&A after the prepared comments.

If you have not yet received a copy of today’s results release please e-mail Global IR Partners using [e-mail] or you can get a copy of the release off of the Investor Relations section of Lattice Semiconductor’s website.

Before we begin the formal remarks I’ll read the Safe Harbor statement. It is our intention that this call will comply with the requirements of SEC Regulation FD. This call includes and constitutes the company’s official guidance for the fourth quarter of fiscal 2013. If at any time after this call we communicate any material changes to this guidance we intend that such updates will be done using a public forum such as a press release or publicly-announced conference call.

The matters that we discuss today, other than historical information, include forward-looking statements relating to our future financial performance and other performance expectations. Investors are cautioned that forward-looking statements are neither promises nor guarantees. They involve risks and uncertainties that may cause actual results to differ materially from those projected in the forward-looking statements.

Some of those risks and uncertainties are detailed in our filings with the Securities and Exchange Commission, including our fiscal year 2012 Form 10-K and our quarterly reports on Form 10-Q. The company disclaims any obligation to publicly update or revise any such forward-looking statements to reflect events or circumstances that occur after this call.

Our prepared remarks also will be presented within the requirements of SEC Regulation G, regarding generally accepted accounting principles or GAAP.

At this time I’d like to now turn the call over to Mr. Darin Billerbeck. Please go ahead, sir.

Darin Billerbeck

Thank you, David, and thanks everyone for joining us on the call today. Q3 was another record quarter as revenue came in ahead of our guidance. Our gross margin stayed at a healthy 52.4% as we continued to see strength from our consumer with stability in communications. Industrial and other remained sluggish. Net-net, it was a great quarter and ended up pretty much where we expected. We’re differentiating our company and outgrowing the broader semi sector as we ramp our major customer wins.

We’re also broadening our reach to the next round of key customers. Our business mantra remains expand our market share in current markets and new markets, pursue acquisitions and strategic partnerships, and defend the market we own. We are staying focused on the specific areas where we can create both an advantage for our customers and ourselves. We’ve changed the perception that FPGAs are power hungry, big, expensive, and need to be on leading-edge technology.

In our space, it’s about enabling innovative solutions while being efficient and keeping costs down, then continuing to invest in strategic capabilities to drive future growth. We remain bullish on the opportunities before us. We are gaining momentum in our business, and we continue to have a strong balance sheet with no debt.

Let me take a few minutes to give you some additional detail on Q3. Q3 revenue came in at $87.2 million, up 2.9% compared to Q2. This was above our guidance of flat to plus or minus 2% on a sequential basis. Our growth in consumer has been solid and significant even with our exceptional consumer growth in Q1 and Q2. The consumer market revenue in Q3 was up 22% over Q2 and more than 300% over a year ago. Importantly, this reflects that we are now shipping volume at two of the top three consumer mobile OEMs.

We are keeping the pedal to the metal with respect to the new product growth. We continue to grow at a very healthy pace driven by XO2 and our ICE product families. ECP3, which is up 28% year-to-date was slightly lower Q3 to Q2. Our multiple product lines allow us to tailor customer solutions at different price points based on key feature sets. In addition to our success in consumer, we continue to focus on broadening our overall footprint in industrial, medical, scientific, and communication.

The revenue mix of new, mainstream, and mature was 51%, 41%, and 8% respectively in Q3. On a year-to-date basis, revenue from new more than doubled to 46% of revenue compared to 20% in the first nine months of 2012. Mainstream was at 43% for the first nine months of 2013 compared to 56% for the same period in 2012. Mature was at 11% for the first nine months of 2013 compared to 24% in the first nine months of 2012. The shift in our revenue mix underscores the success we’ve had in executing our business strategy.

On a quarterly basis, revenue from new products was up again growing approximately 13% quarter-on-quarter. Revenue from mainstream products was essentially flat when compared to Q2. Revenue from mature products was down about 26% compared to Q2 reflecting continued softness in industrial, automotive, and other.

On a geographic basis, revenue from Asia, including Japan, increased approximately 6% on an absolute dollar basis quarter-on-quarter to around 76% of total revenue. This reflects the growth of our consumer mobile ramp.

Revenue from North America comprised 10% of the total revenue, which was down 11% on an absolute dollar basis in Q3 compared to Q2. Sluggish demand in North America was consistent with computing and industrial and other tapering off slightly. Europe was essentially flat at approximately 14% of total revenue on an absolute dollar basis. Europe declined approximately 2%, reflecting the struggles with the overall European economy.

On an end-market basis, communications represented 35% of the revenue in Q3 compared to 38% in Q2. Computing was 9% of revenue in Q3 as compared to 8% in Q2. Industrial and other was about 20% of the total revenue in Q3 compared to 23% in Q2. We have and will lay the ground work for a rebound in the auto sector where we continue to see growing demand for programmable technologies, again a market where expensive, power-hungry devices are not welcome and where we expect to achieve competitive advantage.

Consumer increased to 36% of revenue from Q3 from 31% in Q2. This is the first quarter in the company’s history where consumer revenue was bigger than comps. This reflects our successful strategy of ramping our ICE and XO2 product families into a market that did not exist in the past.

That concludes my initial comments. I will now turn the call over to Joe. Joe?

Joe Bedewi

Thanks Darin. As noted earlier, revenue for the third quarter was $87.2 million, an increase of 2.9% from the second quarter and an increase of 23% from $70.9 million in the year-ago period. Gross margin for Q3 was 52.4% compared to 53.3% in the prior quarter and 54.4% in the year-ago period. Gross margin was above the midpoint of our guidance.

Our Q3 gross margin benefits from the impact of significant product cost savings achieved in prior quarters. Compared to Q2, gross margin reflects a richer mix of consumer revenue. In addition, during the quarter in order to enable more advanced and efficient manufacturing processes, we initiated our 130 nanometer to 90 nanometer process transition at Fujitsu for certain mainstream products. This transition adversely impacted gross margins by approximately 0.5% in the third quarter. We expect costs associated with this transition to impact margins through the first half of 2014.

We expect margins to continue to fluctuate due to our increasing penetration in the consumer market. Our long-term gross margin target remains unchanged in the mid 50% range. Operating expenses for the third quarter came in at $37.5 million. This is approximately $630,000 lower than Q2 driven by decreased [mass] (ph) cost and compensation and benefit savings which were offset by facility costs associated with our site move San Jose. Q3 OpEx was approximately $560,000 above our guidance driven by higher than expected variable compensation and severance charges.

Net income for the quarter was $8.2 million or $0.07 per basic and diluted share as compared to net income of $5 million or $0.04 per basic and diluted share in the second quarter, and a net loss of $2.2 million or a loss of $0.02 per basic and diluted share in the year-ago period. Q3 ‘13 financial results included approximately $400,000 of income tax expense and $737,000 of amortization expense from acquired intangibles. Q2 ‘13 financial results included a $1.9 million or $0.02 per basic and diluted share of income tax expense and $737,000 of amortization expense. Q3 ‘12 financial results included $1.9 million or $0.02 per basic and diluted share income tax expense and $729,000 of acquisition-related expenses.

Our effective tax rate for the quarter was 4.9% compared to 27.6% in Q2. Our quarterly tax rate is based on our expected annual effective rate. Due to forecasted revenue and profitability improvements in Q3 and Q4 when compared to previous forecasts as well as a more favorable geographic mix of profitability, our expected annual effective rate has declined producing an abnormally low effective tax rate in the third quarter. We now expect our 2013 annual effective tax rate to be in the mid-to-high teens.

For the quarter diluted share count was approximately a 117 million shares, no shares were repurchased during the quarter. We ended the quarter with cash, cash equivalents and short term and long term marketable securities of $215.5 million, an increase of $36.5 million from the June quarter. We continue to have no debt.

Accounts receivable at September 28 were down $10.6 million or about 17% to $53 million as compared to $63.6 million at the end of last quarter. Day sales outstanding were 55 days compared to 68 days last quarter.

The inventory at September 28 was $42.3 million compared to $49.7 million last quarter, a reduction of $7.4 million or about 15% from Q2. We continue to effectively manage our lead times and forecast demand for customer programs that are ramping and ongoing. Months of inventory now stands at 3.1 months compared to 3.8 months at the end of Q2, 2013. We spent approximately $3.4 million on capital expenditures and incurred $5.2 million in depreciation and amortization expense during the third quarter compared to $3.8 million and $4.9 million respectively in Q2.

This concludes the financial review portion of the call. I am going to turn it back to over to Darin for the fourth quarter business outlook. Darin?

Darin Billerbeck

Thank you. Joe. In summary our team’s done a great job through the first three quarters of the year. We’ll meet our Q4 objectives so revenue will grow around 15% this year our margin trends continues to improve. Our focus this year is to be – has been to win two to three top consumer mobile OEMs and we’ve done just that. Our focus for next year to continue to ramp our existing large OEM customers and win even more. Let’s not forget about XO2 and our newly released XO3.

While XO2 clearly leads the market with key features and low cost per IO, XO3 creates additional industry leadership by pushing low cost per IO even further. XO3 adds features, improved features such as MIPI power and higher performance LVDS. Customers in the communication, industrial, automotive and scientific have responded enthusiastically over our focus on low cost low power and affordable innovation.

FPGA’s are no longer considered pricey big and power-hungry. Lattice FPGA’s get customer to market fast with compelling features at a price that fits their budgets.

In terms of our specific expectations for fourth quarter 2013 we expect revenue to be minus 5% to 9% compared to Q3. Q4 gross margins are expected to be approximately 53% plus or minus 2 points. Total operating expenses are expected to be approximately $37.5 million including about a million of mass charge.

This concludes our prepared remarks, operator. We will now be happy to take any questions.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from Tristan Gerra.

Tristan Gerra – Robert W. Baird & Co.

Last quarter you had mentioned that you had some variable SG&A expenses starting to kick in at the $81 million, $82 million revenue run rate per quarter, and it looks like excluding the mass costs, you are at $36.5 million at that level. As you eventually get to $90 million in revenue per quarter, what type of OpEx should we be looking at and maybe if you can help us quantify the percentage of SG&A that’s variable?

Darin Billerbeck

We are looking at probably this $37.5 million range when you talk of the number that you spoke. That’s pretty close, that’s where we are targeting moving into next year. That would include additional mass sets as we learned this year that we need to do quick term products. We are going to plan for that going into the next year. I don’t really have a percent of variable spending that I can give you related to SG&A. I mean our target is to get SG&A into the 17% range roughly. We are going to have probably R&D be closer to 21%, 22% as we move through the next year. Does that answer your question?

Tristan Gerra – Robert W. Baird & Co.

Yeah, that’s very useful. Thank you. And then as a follow-up, has there been any significant change for any end market in terms of the outlook since the summer in terms of either strengthening or weakening, and if you could give us some color of the end market trends embedded into the Q4 revenue guidance?

Darin Billerbeck

Yeah. So hi, Tristan it’s Darin. So, for consumer, it’s about what we thought, so we had forecasted consumer to ramp almost identically to what it did for Q2, Q3, and then into Q4, so nothing really significant has changed there. I think communications in one sense has actually done pretty well. Even though it looks like it’s flattish, some customers are doing very well and other customers aren’t, so it’s kind of specific and it’s all kind of targeted at China Mobile.

But if you look at that, we are starting to see some of the build-out in that area already. Surprisingly not everyone has seen it, but we did. But then that gets offset by some of the sluggishness in Europe. So I think comps overall for us looks flattish even though specific customers are way up and other customers are down.

Industrial auto, that’s just kind of nothing really big to ride home to, right it’ just kind of -- and that’s what we have been seeing for the whole year, so unless the European macro events significantly change, I think next year you are going to see about the same thing right. You are going to see comps move up because of the LTE build outs, you are going to see the industrial/medical stuff sit there, and our consumers based on entering a new market which helps us, right, it doesn’t matter where that grows, we’ll grow on it.

Tristan Gerra – Robert W. Baird & Co.

Great, thank you very much.

Operator

Your next question comes from the line of Sundeep Bajikar.

Sundeep Bajikar – Jefferies & Co.

Hi guys. Congratulations on picking up the second major consumer customer. In consumer during the third quarter, to what extent do you benefit from shipments into another high-end platform brand, either one of your two major smartphone customers, and how should we think about the seasonality of -- or platform transition in consumer during the fourth quarter?

Darin Billerbeck

So, there are two or three different guys out there right that are pretty big and they are all offset as you know, right? Some of them launch in the February/March timeframe, some of them launch more around September/October. So, it’s not as Christmas specific as it used to be. So, I think as we build the base, we won’t see a lot of the cyclicality out of it. This year, as we mentioned before because we were in one of the big OEMs, we are going to see a slight downtick in Q4, and as we move into Q1 that’s when the next ramp of those phones occur, and that’s just traditionally what happens is the ramp up from end of Q1 all the way through Q2, Q3, and then Q4 is down slightly. The other ones ramp at different rates.

Sundeep Bajikar – Jefferies & Co.

Okay, but did you see the new win that you mentioned contributing to your Q3 revenues or is that in front of you?

Darin Billerbeck

Yes, not substantial but yes there were material shipments in Q3, and we expect more in Q4.

Sundeep Bajikar – Jefferies & Co.

Okay, great. And then on the communications side, I guess you said there wasn’t a big change relative to your expectations, but revenues did actually kick down a little bit instead of increasing sequentially. So, how should we interpret this in terms of the mix of 3G versus LTE demand as well as Lattice specific exposure to those markets?

Darin Billerbeck

Let me change it a little bit, China is up, the rest of the world is down except for specific areas, and actually it is China is up and everything else is flattish to slightly down, and so all those flattish to slightly downs are what dragged us down.

Sundeep Bajikar – Jefferies & Co.

Okay. And then on computing, there was a slight uptick in the quarter, should we take that to mean that your customers are finally starting to grow again or is it the case that Lattice picked up new customers who are better levered to the growing portion of the market?

Darin Billerbeck

I think it’s within the noise, it’s just within the noise today until computing comes back and you get more buildouts in like server farms and those things that -- I think it’s going to stay relatively flat.

Sundeep Bajikar – Jefferies & Co.

Okay great. Thank you very much.

Operator

Your next question comes from the line of Ruben Roy.

Ruben Roy – Mizuho Securities

Thank you. Hi guys. Hey Darin just to follow up on the Q4 guidance just so I understand it sounds like on the consumer side you said your consumer is doing what you thought they would do and one of your customers potentially downtick into Q4. So if I assume the consumers driving the biggest portion of the kind of the down guidance quarter-on-quarter that will be consistent with what are saying right?

Darin Billerbeck

Yes.

Ruben Roy – Mizuho Securities

And historically last year I mean the comparison was a little tough because the consumer was around the corner of your business if you look on the year ago quarter Q1 2013 and you look ahead and traditionally consumer enhanced sets and things like that are a little bit of a seasonal headwind early in the year but it sounds like some of your customers might be ramping some new products. How are you looking at seasonality unit, traditional PLDs have been seasonally strong in Q1 and so if you have large customer ramping should we assume that seasonally the first quarter is going to be kind of the uptick from what we are seeing in Q4?

Darin Billerbeck

So firstly we can’t give you guidance out there but what I will tell you is this since I have been here for the last three years Q1, Q4 is always it’s just done every year and it’s always been worse this Q4 hasn’t really, this Q4 is down because some of the specific customer we mentioned in consumer. Q1 is usually not as strong as Q2 and Q3 and then Q4 is down at least for traditional FPGA.

We just spoke about different ramps. Last year in Q4, we had a major tablet kind of what earn in your holiday, phone tablet or tablet or whatever it took off which wasn’t a phone. So when people forget is when you are shipping to all the consumer mobile devices they ramp at different rates, because they don’t just put everything out in one day but you’ll have tablets ramp, you’ll have the smaller like notes and different things they all ramp at different rates throughout the year.

So in many cases even though there might be one big platform win that ramps heavily in two or three quarters, you also have this all this other wins that you have been working on there’s still those gaps, that you might have from that one big ramp. So as we get broader in the playing field it will start dampening that effect, because what ends up happening is one customer ramps the other one is dropping down because they are all gone for share at different times in the year.

So hopefully as we get into the bigger broader OEM base itself then you’ll see more of a stabilized base and then stuff will go on top of it. Today you are seeing as one big ramp it kind of comes down other things are filling it in and then we expect next year to have another profile that’s very similar.

Ruben Roy – Mizuho Securities

Okay. That make sense. Thanks Darin. And finally in terms of the second consumer OEM that you are now shipping into and congrats on that, I am wondering in terms of that design, who drove that design whether the customer or was it the Lattice and is it a similar application to what your current or existing customer is doing with your chip?

Darin Billerbeck

It’s a combination of things we have situations with a lot of the OEMS, there’s probably 10 majors, so there are OEMs out there mobile I don’t know consumer mobile OEMs out there. And those guys that used to kind of I don’t know and now people are calling you and we are doing design services for them which makes it sticky for us so it’s kind of a nice thing today as we are just blasting our way trying to the overall base today if we have design win to probably seven out of the 10 total but they are not all ramping because they are at various stages.

Ruben Roy – Mizuho Securities

Great. Thanks very much.

Darin Billerbeck

Thanks, Ruben.

Operator

(Operator Instructions). Your next question comes from the line of Richard Shannon.

Darin Billerbeck

Richard?

Joe Bedewi

Hi Richard

Richard Shannon- Craig Hallum

Darin and Joe how are you guys doing?

Darin Billerbeck

Good.

Richard Shannon- Craig Hallum

I guess a few questions from me. I just wanted to clarify to the extent which you are able to on your guidance you just mentioned the consumer is the big component of the reason why you are looking for down sequential. What do you think about for comp, is that something that I know in the last two, fourth quarters has not been very good for you. Sounds like it could be relatively better than that any way you can more definitively spect that out for us.

Joe Bedewi

Actually in our model, we modeled it down. So we don’t have comps going up in Q4 we modeled it down slightly. So we didn’t take a bullish look at comps.

Richard Shannon- Craig Hallum

Okay, how do you see that relative to what looked like at least some sort of ramp coming at China Mobile and China in general versus what you typically see with kind of the inventory reductions ending the year?

Joe Bedewi

I think what people do is that everyone going after those contracts so they build up inventory which they did. And always over build which they did because they don’t want to be short any unit because whoever has an order and has the supply gets the order by shipping the supply. So you built it on up and then they always do this correction in Q4 and then I expected it to go back up in Q1, Q2, Q3.

It will take time right because they always kind of bleed it down in Q4 some of it goes over little bit in Q1 and you are back on this same segregation next year. So I don’t expect them to change their behavior and there is not much we can do except ship to the demand.

Richard Shannon- Craig Hallum

Okay, fair enough. Couple of more questions for me. Your gross margin guidance for the fourth quarter is up here nicely. I think if you can kind of spect us out the puts and takes that get you there I would have thought with kind of consumer mobile being down a bit it might have been up a little bit more than 53 mid points. Is there a little bit more impact from certain comps OEM or just help us out there little bit Joe if you could.

Joe Bedewi

There is a little more impact from comps OEM and again it’s back to the specific product that we talked about, the one high end product that impacts us. The other side of it is our consumer business is not as far off where we would like it to be in terms of model. We’ve been getting nice improvements and I alluded to cost improvements from prior quarters. We’re seeing those flow through now. Volume is incredibly helpful for us in cost. We still have some more avenues to reduce those costs as we look at packaging and so forth going forward.

So comp hasn’t been as big drag as it may be perceived in the market for us. The other side is industrials are still somewhat languishing. So that makes it difficult for us also because they are typically our high end numbers. So the 53 is really an impact of volume and a slight mix change related to the comps market.

Richard Shannon- Craig Hallum

Okay. Fair enough. Question on mobile as well following up some of the other ones here. Can you give us a sense of the second customer and maybe I’ll just first is we did the design here in with the second customer, how would you see the overall volume opportunity with them, with that design compared to the obviously large design you have with your biggest customer so far?

Joe Bedewi

They always start smaller than you like and then they get bigger than you think. And so in this particular case I think it’s going to be very similar to what we saw last Q4, last Q3 and Q4 we shipped into a platform that was a nice platform for us. We’ll see some of that and then we got some other design wins out in time that we’ll see how those ramps. And again it’s getting in for platform that the challenging part that’s what we’re doing. We’re getting in the people platforms where once you get into one you are into multiple things. And for us obviously we want to win all 10 of the top 10 guys which is what we’re trying to do. So we’re off to a pretty good start.

Last year I would have said we have one with a few out there now we got design wins at seven, seven out of 10 may be even eight out of 10 which means you’ve got people in the smartphone industry saying FPGAs have a place and it’s not just a fluke at one customer.

Richard Shannon- Craig Hallum

Okay. That’s great perspective. Great, guys I’ll jump in line. Thank you very much.

Operator

(Operator Instructions). Your next question comes from the line of David Duley.

David Duley – Steelhead Securities

Thanks for taking my question. I am thinking may be another way to ask what I think people trying to figure out is could you help us understand what the growth rate in your consumer business might be in 2014. You had one big customer this year and that ramped significantly well will we see same type of growth next year or may be just try to frame it for us.

Darin Billerbeck

We hope so but that’s one of those things you have to look at. It depends on how well they do in the market, it depends on which model you are in, there is a lot of just unpredictability with the whole thing. So our goal is that we get in those platforms, we develop products that are cool and add value to what they are trying to accomplish and if they successful in the market. And we happen to get very fortunate, do a lot of hard work, couple of years to get there. We’re doing the same thing with everybody else.

So no I can’t give you guidance, all I know is that this year really like a weed. And next year we’re hoping the same things but it is unpredictable.

David Duley – Steelhead Securities

Is there a chance you – this produces another 10% customer next year?

Darin Billerbeck

There is always a chance that things like that can occur.

David Duley – Steelhead Securities

Okay. And then just when you think next year about the overall PLD space do you have an idea what you think the market’s going to grow and do you think you’ll grow faster, slower?

Darin Billerbeck

Well yes you talk PLDs by this, our FPGA PLDs, we combine all those stuff. For us the growth in consumer helps us a lot right because even as comps or everything else is sluggish or industrial, medical and automotive is sluggish like we’ve had for the last two or three years we’re able to find growth in the market that didn’t exist before.

So I think if you look at consumer today we are primarily talking about smartphone and a few tablets here and there. But if you look at consumer being bigger and broader being everything connected to the Internet and possibly connected to your wall there is lot more opportunity that what we’re servicing today.

So we are really focused not only on smartphones, tablets and everything that’s mobile we are focusing on everything just the consumer. So we are expecting to get some big bangs out of some other places as we march through our path at consumer.

The rest of the stuff it has to be fixed by macro. We have all the design wins we had them for a long time but in Europe stuff just isn’t moving as fast as you would think it would move. And the older stuff sell off faster than we thought, we are making it up with all the new products and still having the margins move up which is significant. Right because you don’t have all that old industrial medical high margin stuff to offset.

David Duley – Steelhead Securities

Unless things start to come back.

Darin Billerbeck

Yeah but if it comes back we’re in great shape but we’re not assuming it is for next year.

David Duley – Steelhead Securities

And so as consumer grows as a percentage of revenue it sounds like it’s going to be the fastest growing space next year. How will that impact the gross margin line in 2014? Can you achieve that 55% gross margin with that segment being the most rapidly growing segment or do you need the industrial stuff to come back?

Joe Bedewi

No, we can achieve that with consumer and again it’s dependent upon the mix, right how much is true consumer, consumer mobile. There is different margin models within consumer also. So we see a path to 55, we see it even with a healthy growth in consumer. Clearly it’s easier for us if we see growth in our mature markets and in the industrial space that’s helpful and comps remain stable. So but we see a way to get there and that’s why we haven’t come off that model and we’re still targeting mid-50s.

David Duley – Steelhead Securities

Right, great. Thank you.

Darin Billerbeck

Thanks.

Operator

(Operator Instructions) Your next question comes from the line of [Matt Dane].

Unidentified Analyst

Great, thank you. I was curious of the seven or eight OEMs that you have contact with and have design wins with, what’s your belief that your product will actually end up within their end products that they are selling their market share with time. Do you believe that you’ll get greater than four just trying to get a sense your confidence that this is going to lead to revenue over the next couple of years for the other wins?

Joe Bedewi

So far it’s suggests 100%.

Unidentified Analyst

I am sorry what was that?

Joe Bedewi

So far the data suggest 100%.

Unidentified Analyst

Do you like that?

Joe Bedewi

Yeah because what people do is they don’t, it’s not like comps or something else where they say hey I am going to design FPGA, I am going to design it out later, the reason is it’s there to begin with is the strategic trading of value proposition that they need or doing a good logic function that they have to have right because they are sitting here going perhaps.

So it’s not just we’re dealing really cool functions for them it’s a fact that we have people come in and say fix this and they fix it because it’s such a short life they don’t have a chance to go back into an ASIC to fix that because an ASIC then take some of those four bonds. They want to get to market.

So in the opportunities that we’ve had the only time we get moved out is that they change a feature on phone set where then they say okay, on this phone shipping to this geography I don’t want that, then they will say get out. But we kind of know that upfront that you are not going to count on the entire platform. So upfront we know which ones are in and which ones are out so that’s more of the game, I am going to replace you with an ASIC. The risk though if you don’t continue to innovate within the next model, the next year you could be out.

So our challenge is always like editing the features, creating more power smaller form factor adding more step form, hardening what we did last year and moving up forward. And if we can do that than your likelihood have been successful is really high. But where we play today it’s rare we fall out of the thing.

Unidentified Analyst

Okay. That’s helpful. Thank you.

Operator

(Operator Instructions). There seem to be no further questions at this time. I would now like to turn the call back over to CEO, Darin Billerbeck.

Darin Billerbeck

Okay, thank you very much. Just to close for everyone 2013, it’s been a solid year for Lattice. We continue to execute and grow with new products and new markets. And as always we are going to stay focused on shareholder value and focusing on getting the markets, new markets and new products in those markets. So thanks again for joining us on the call. We will talk to you guys later. Bye.

Operator

Thank you for your participation. This does conclude today’s conference call. You may now disconnect.