Lattice Semiconductor Corp

NASDAQ:LSCC

Earnings Call Transcript 2021-Q1

[Operator]

Welcome everyone to that Lattice Semiconductor 2021 Conference Call. I would now turn the call over to Rick Muscha, Director of Investor Relations.

[Rick Muscha, Director, Investor Relations]

Thank you operator and good afternoon everyone. With me today are Jim Anderson, Lattice’s President and CEO; and Sherri Luther, Lattice’s CFO. We will provide a financial and business review for the first quarter of 2021 and the business outlook for the second quarter of 2021. If you have not obtained a copy of our earnings press release it can be found at our company website in the investor relations section at latticesemi.com.

I would like to remind everyone that during our conference call today we may make projections or other forward looking statements regarding future events for the future financial performance of the company. We wish to caution you that such statements are predictions based on information that is currently available and actual results may differ materially. We refer you to the documents that the company files with the SEC including our 10-Ks, 10-Qs and 8-Ks. These documents contain and identify important risk factors that could cause the actual results to differ materially from those contained in our projections or forward looking-statements.

This call includes and constitutes the company's official guidance for the second quarter of 2021. 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. Some financial information that we present during the call will be provided on both the GAAP and in non-GAAP basis. By disclosing certain non-GAAP information management intends to provide investors with additional information to permit further analysis of the company's performance and underlying trends.

Management uses non-GAAP measures to better assess operating performance and to establish operational goals. For historical periods we provided reconciliations of these non-GAAP financial measures to GAAP financial measures that can be found on the Investor Relations section of our website at latticesemi.com.

Let me now turn the call over to Jim Anderson, our CEO.

[Jim Anderson, President and CEO]

Thank you, Rick and thank you everyone for joining us on our call today. I'm very pleased with our strong results in Q1 as we continue to execute our strategy, drive product leadership and deliver shareholder value.

Let me start by covering a few highlights from Q1 of 2021. We grew revenue 19% year-over-year with continued double digit year-over-year growth in our two largest segments of Communications and Computing and Industrial and Automotive which represent over 80% of our total revenue. We also grew revenues sequentially by 8% with sequential growth in each of our key market segments. In particular, we're pleased to see a second quarter of sequential growth in our Consumer segment.

We expanded non-GAAP gross margin by 190 basis points year-over-year as we continue to execute on our gross margin expansion strategy. We achieved record non-GAAP operating profit of 28%, while non-GAAP net income increased 52% year-over-year. And we delivered sequential growth from our latest Lattice Nexus with our second device family Certus-NX entering production in the quarter.

Let me now provide an overview of our business by end market. In the Communications and Computing market, revenue increased 7% sequentially and 28% on a year-over-year basis. Our key growth drivers remain data center servers, client computing and 5G infrastructures. In servers, growth was driven by expansion of both attach rates and ASPs as we continue to drive an increase in Lattice’s dollar content per serve.

In client computing as we've discussed in prior earnings calls, we continue to ramp new client computing platforms that began production in 2020. In 5G infrastructure, we're benefiting from 5G infrastructure were benefitting from ongoing deployments with higher revenue, both sequentially and year-over-year. We continue to see communications and computing as a long-term growth driver given its multiple growth factors.

Turning now to Industrial and Automotive market, revenue increased 9% sequentially and was up 20% on a year-over-year basis. Q1 growth in the Industrial segment reflects consistently strong customer adoption in a broad range of applications including industrial automation and robotics. As a digital transformation in industrial and automotive applications continues to accelerate, the Lattice product portfolio is well positioned for sustained long-term growth.

Turning now to consumer, revenue increased 14% sequentially, our second consecutive quarter of sequential growth and was down 6% year-over-year. The revenue base in consumer has begun to reflect the results of our strategic shift in applications with multiyear revenue streams and higher margins and where our solutions are enabling customers to differentiate their products.

I'll now provide some product roadmap highlights. I continue to be very pleased with our team's execution. Since the launch of Nexus at the end of 2019, we've launched three device families based on the platform. Crosslink-NX, the first device family from Nexus platform achieved first revenue in Q4 2020 within 12 months after launch and grew sequentially in Q1.

Also Certus-NX, the second device family from the Nexus platform began production in Q1 and our third Nexus device family, Mach-NX, which launched at the end of last year remains on track to generate revenue towards the end of this year. We continue to be pleased with the broad adoption of our Nexus platform across all our market segments where the power efficiency and faster performance are helping our customers differentiate their applications and systems.

Software remains an integral part of our strategy as well. And we continue to develop a portfolio of higher level software solutions that make it easy for our customers to adapt Lattice products and get to market quickly.

During the quarter, we expanded the capabilities and the performance of two of our award winning software stacks mVision focused on embedded vision applications and Century for platform security applications. In summary, we're very pleased with the strong revenue growth and profit expansion and continued execution of our product roadmap. We're excited to be entering a new growth phase for Lattice and look forward to sharing more of our future plans at our Investor Day next week.

I'll now turn the call over to our CFO, Sherri Luther.

[Sherri Luther, Chief Financial Officer]

Thank you, Jim. We are pleased with our strong Q1 financial results as we continue to execute to our financial model. We drove sequential revenue growth, gross margin expansion and record profitability while continuing to invest in our leadership product roadmap. Through strong cash generation and a focus on working capital, we have a healthy balance sheet and continue to grow our net cash positive position.

Let me now provide a summary of our results. First quarter revenue was $115.7 million, up 8% sequentially from the fourth quarter and up 19% year-over-year. Revenue grew double digits year-over-year and our communications and computing and industrial and automotive market segments and was also strong sequentially. Revenue from our consumer market segment grew for the second consecutive quarter and IP was down slightly sequentially.

Gross margin on a GAAP basis was up 50 basis points to 61% in Q1 compared to the prior quarter and was up 190 basis points compared to the year ago quarter. Our non-GAAP gross margin increased 10 basis points to 61.7% in Q1 compared to the prior quarter and was up 190 basis points compared to the year-ago quarter. Gross margin improvement continues to be driven by our margin expansion strategy, primarily in pricing optimization and product cost reductions.

Q1 GAAP operating expenses were $49.9 million compared to $47.5 million in the prior quarter and $47.8 million in the year-ago quarter. On a non-GAAP basis, operating expenses were $38.9 million compared to $37.5 million in the prior quarter and $36.1 million in the year-ago quarter. Our R&D expenses increased sequentially as we continue to invest in the expansion of our product portfolio, while SG&A expenses were roughly flat sequentially as we continue to drive as SG&A efficiencies.

Q1 GAAP earnings per basic share was $0.14 and $0.13 per diluted share compared to $0.12 and $0.11 in the prior quarter and $0.06 in the year-ago quarter. Q1 non-GAAP earnings per basic share was $0.23 and $0.22 per diluted share which increased from $0.20 and $0.19 in the prior quarter and increased from $0.15 in the year ago quarter. We remain focused on cash generation and generated $29 in cash from operations in Q1. We also repurchased approximately 300,000 shares or $15 million in stock under our stock buyback program. Our cash balance increased to $185 million, growing our positive net cash position.

Let me now review our outlook for the second quarter. Revenue for the second quarter of 2021 is expected to be between $116 million and $124 million. Gross margin is expected to be 62% plus or minus 1% on a non-GAAP basis. Total operating expenses for the second quarter are expected to be between $40.5 million and $41.5 million on a non-GAAP basis. We are looking forward to our Investor Day next week, when we will share our plans of how we continue to build long-term shareholder value.

Operator, we can now open the call for questions.

[Operator]

[Operator Instructions] Our first question in queue comes from the line of Alessandra Vecchi from William Blair. Alessandra, your line is now open.

[Alessandra Vecchi, William Blair.]

Thanks, everyone. Congratulations on the stellar results, especially in such a dynamic quarter with supply constraints. And can you maybe, Jim, update us on how we should be thinking about your exposure to a supply constraints? I know you guys did a tremendous job starting in Q2 and in building up inventories, but those now appear to have come down a little bit. If you could just give us a little bit of a framework on that front and then a follow on?

[Jim Anderson, President and CEO]

Yeah. Thanks, Alex. Appreciate it. Yeah, so in terms of supply chain, if you look across the semiconductor industry, certainly the supply chain is tight as everyone knows. I would say that from our perspective, from the Lattice perspective, I think the team is doing a really good job managing the supply chain and making sure that we're delivering to our customers’ needs. In fact, I actually, I'd like to take an opportunity to just say thanks to my supply chain operations team for the great job that they're doing thank to my supply chain operations team for the great job that they’re doing.

A few things that we’re doing to make sure that we manage the situation and meet our customer needs is one which you already mentioned, which is actually about a year ago this time we started to build inventory -- Lattice inventory. And we did that proactively and strategically to make sure that we’re in a good inventory position because we are anticipating some supply chain tightness. So we built inventory in Q2 and Q3 and Q4. And we're really glad that we did that. And even if you look at where we ended inventory in Q1, our most recent quarter has more inventory than we were carrying, say, a year ago. And so we're in a very good inventory position.

And then beyond that we've been working very carefully and closely with our customers, especially our big strategic customers, make sure we fully understand their demand and that we've got a demand picture for the coming quarters, and then working very closely with our supply chain partners as well to make sure that we're matching that demand with the right capacity in the supply chain and working very closely with them to make sure that we can continue to support our customers. But I think at this point we're pleased with the level of inventory that we have and also the ability to support our customers. I think we've been doing a good job at that.

And then, Alex, I think you said you have a follow-up question.

[Alessandra Vecchi, William Blair.]

Yeah. Just, I was looking for a little more color. I mean the upside to the quarter was quite strong. You highlighted industrial but the 20% sequential growth in industrial off of what were already some very strong comps in the back half. Can you maybe tell us how much of that upside or how much of the upside in Q1 in general was from the full quarter of Nexus CrossLink? And that beginning to ramp, how we should think about the contribution there and potentially going forward?

[Jim Anderson, President and CEO]

Yeah. Definitely. So let me start with the first part of your question around just in general what can -- what’s driving the upside for Q1. We saw strength across all of our market segments which we we’re quite pleased to see. Communications and computing for example which has been very strong growth driver for us last two years in a row that's grown double digits. We saw 28% year-over-year growth in comms and compute. As you mentioned industrial and auto grew 20% year-over-year. And then consumer as well which was a headwind for us the last couple years but really started to stabilize at the end of last year. We've seen now two quarters of sequential growth in consumer as well which we're pleased to see.

So yeah, I would say all three of those segments contributed to the upside in Q1. And then as you kind of the second part of your question around Nexus. Yeah, certainly Nexus was a contributor to that growth as well. If you remember we just started shipping Nexus into production revenue at the end of last year. And so that Nexus revenue which is on the first device that we launched the CrossLink-NX device that grew sequentially in Q1 versus Q4. We're really pleased with that growth that we saw.

And then the other good piece of news is that we put our second Nexus device family into production in Q1 as well. And that's the Certus-NX family that began production in Q1 as well. And then our third device which is Mach-NX which we launched at the end of last year that's still tracking for revenue before the end of this year. So we still see that or expect that to ramp in the second half of this year. So yeah, really good progress on Nexus as well and yeah we're quite pleased with Q1 results.

[Alessandra Vecchi, William Blair.]

Great. That was tremendously helpful. With that I'll go back in the queue.

[Jim Anderson, President and CEO]

Thanks Alex.

[Operator]

Your next question in queue comes from the line of Mark Lipacis from Jefferies. Your line is now open, Mark.

[Mark Lipacis, Jefferies]

Hi. Thanks for taking my questions. Maybe for Jim, are the gross margins were the highest I think in 20 years and you're guiding them to be 62% which I believe was the target you said at your Analyst Day. So now that you hit that target where do you go from here with the gross margins? And maybe as part of that maybe you can remind us what has driven the gross margins 500 basis points since you took the helm and which are those drivers are still in play?

[Jim Anderson, President and CEO]

Yeah. Thanks, Mark. Yeah. Thanks. And so, on gross margin just kind of the progress and let me start with some of the progress that we've made over the last few years. Yeah. It’s really the gross margin progress which you did as you mentioned is almost 500 basis points over, I think since if you use 2018 as the baseline it's about 450 basis points to the most recent quarter. And really what drove that gross margin expansion was to two things, two main drivers.

Number one was our pricing optimization strategy which we built out at the end of 2018 and we started putting that in place at the beginning of 2019 and that had both short and long-term drivers to it. We continue to execute on that strategy and that's certainly been a big part of the gross margin improvement. And we continue to execute on that strategy moving forward as well.

And then the other big contributor was our product cost reduction strategy and that was a multi-year roadmap that we worked with our key suppliers on drive product cost reductions over a multi-year period and that's certainly been a contributor as well. The other factor is there's been a little bit of a mix benefit as well but the two primary factors where the pricing optimization strategy and product cost reduction strategy. And then, yeah, you're exactly right.

The target that we had put out a couple of years ago at our Investor Day in May of 2019 was to get gross margins to 62% or higher. Very close to that target in the most recent quarter and our midpoint of our gross margin guidance is at 62%.So in terms of the target moving forward, we have an Investor Day next week, so we'll talk more about next week in terms of what might be the right business targets for the business moving forward. But we're certainly really pleased with the gross margin expansion over the last couple of years.

[Mark Lipacis, Jefferies]

Excellent. A follow-up, if I may. Can you talk about, you introduced a number of software stacks for your products. Can you talk about how that – how is that being bundled together with your products? To what extent or do you charge for the software separately versus as part of a larger bundle or license fees? Can you separate out for us like, with the software component of your revenue mix is versus that chip side? Is there an ability to do that? And that's all I had. Thank you.

[Jim Anderson, President and CEO]

Thanks, Mark. So let me first start with software again as we talked about back a couple of years ago at our Investor Day, software is a very key part of our strategy. And we talked about how we were going to invest more in software. And we've certainly done that over the last couple of years. And we've really built out our software portfolio. The one particular area that we wanted to invest in was application-specific software solution stacks. And so these are software solutions stacks hat are built for a purposeful application.

And what they do is they really make it very easy for our customers to adopt our products, our devices into their systems and it makes it really easy for them to get to market quickly as well. And so the side benefit for us is it helps us get to revenue quicker and also helps us be much more sticky on a multigenerational basis. We built out three of those second quarter stacks to-date, the sensAI software stack which is around artificial intelligence, embedded vision, processing stack, and a security software stack. And as you might imagine, there's kind of more to come down the pipe.

But in terms of how we monetize that today, that's really bundled with our hardware sale with our device sale. And it really is enabling that silicon or total solution sale. And what I would say is in terms of existing customers, it is really helped us expand our share of wallet at a number of existing large customers. But the other thing that it's done is it's really helped accelerate new customer acquisition. So we've had some of the highest rates of new customer additions over the last say 6 to 12 months that we've ever seen in the company's history. And I attribute that a lot to the software solutions that we're providing.

I think maybe in the future sometime, we may try to – there may be some opportunity to monetize the software independent of the hardware. But for today, we're focused on a solution sale, the combination of the software and hardware sold together.

[Operator]

Your next question comes from the line of Tristan Gerra from Baird. Please go ahead. Tristan, your line is now open

[Tristan Gerra, Baird]

Hi, good afternoon. Could you – and perhaps it's too early for that but I'll try anyway. Could you give us a sense of where you think Nexus could be as a percent of revenue exiting the year and when potentially you think you're going to be able to reach crossover to 28 milimeter versus acquire notes?

[Jim Anderson, President and CEO]

Yeah. I think it's probably a little early to give a guidance view on that, Tristan. But what I will say is we do believe with the company started to move into a higher growth phase this year in 2021 and certainly Nexus is a contributor to that. Nexus just started revenue at the very end of last year and we're ramping that into full production this year there's more Nexus device and that will enter production at the end of this year with Mach-NX. And so Nexus is certainly a contributor to the top line growth both this year and in the years to come.

But the other thing that I would point out is we still are driving growth on pre-Nexus products as well. So there are products that preceded Nexus that we continue to drive growth on as well. So it's not like the prior products are tailing off, we want to continue to drive growth on both the pre-Nexus products, as well as Nexus moving forward.

[Tristan Gerra, Baird]

Okay, that's great color. And then on the consumer side, it's now the second quarter of consumer stabilizing. Any color in terms of segments driving that growth? Is it smart speakers? Do you still have some presence in China smartphone? And what's the level of confidence that the difficulty comps are behind in consumer?

[Jim Anderson, President and CEO]

Yeah. Good question, Tristan. Thank you. So we are pleased to see two quarters in a row now of sequential growth in consumer and whereas consumer has been a headwind for us in the past, we don't anticipate it being a headwind, for instance, this year in 2021.

One of the things that's really changed over the last couple of years in consumer and we had talked about this at our Investor Analyst Day back in 2019, was that we were going to rebuild the revenue base of consumer and shift the revenue base of consumer towards more multi-year revenue streams, higher margin revenue streams, applications that are less volatile and are more multi-year. And so, we really don't have any handset business that's within consumer, that consumer segment.

Now, the revenue is really based on longer-term revenue streams. Things like prosumer applications, home automation applications, applications that really live more than just 12 months but live multiple years. And so we feel like we've rebuilt that foundation such that it's much more stable. And we don't expect consumer to be a headwind for us moving forward. And I think there's the potential to see some modest growth with consumer as well.

Now we still expect the primary growth drivers for the company to be Communications and Computing, and Industrial and Automotive. Those segments are our largest segments that contribute over 80% of our revenue. Those are the segments that have been growing consistently for us over the last few years. And we expect those segments to be the primary growth drivers for the company moving forward.

[Tristan Gerra, Baird]

Great. Thanks for the color.

[Jim Anderson, President and CEO]

Thanks, Tristan.

[Operator]

Your next question comes from the line of Christopher Rolland from Susquehanna. Your line is now open.

[Christopher Rolland, Susquehanna]

Thanks, guys and congrats on the quarter here. I guess the first one is probably for Sherri, but Jim if you want to chime in. I have in terms of typical seasonality, I think there’s some anomalies in here but I got a really [indiscernible] two and four Q, traditionally typically. You guys are clearly on a strong growth projection or rate this year. Maybe if you could just give us some broad strokes on how we should feel about the third and fourth quarters of this year? And are my seasonality numbers right or is there a slowdown traditionally in the back half? Are you guys really growing through this? Thanks.

[Sherri Luther, Chief Financial Officer]

Yeah. Thanks, Chris. I think on seasonality historically the part of our business that had the strongest seasonality was our consumer segment, right. And as consumers become a smaller percentage of our overall revenue our business has been less affected by seasonality as the other segments are I think have less seasonality patterns. And so I think that's one thing to factor in. I also think there are some Lattice-specific sort of seasonality aside there's some Lattice-specific growth drivers that have been kicking in that have kind of been superseding the seasonality.

Just as one example in communications and computing in client computing we had a couple new client computing platforms began production last year and those continue to ramp up and see a full-year’s benefit of those platforms this year. So I think that's helping drive above what is normal seasonality. And I think in terms of you ask a little bit about the second half. I think for first half we feel like we're off to a really good start for the year. And we're certainly seeing a good strong demand. We don't provide annual guidance for the year but we do see good demand continuing I think through the remainder of the year as well.

[Christopher Rolland, Susquehanna]

Okay. Fair enough. Thanks for the answer there. And Jim I'm going to get you back on this one for a second time. So we’re obviously in some interesting times, people can't build cars because they can't get a $2 microcontroller. One of the great things about FPGA is their flexibility. And so I'm wondering if you're seeing anything today? Are you seeing the cause of any of these shortages in any other areas of the market? Are you finding people that are coming over whether they're replacing an ASSPs as you mentioned or even some microcontrollers or small kind of ASIC you name it. Are they finding that they can use FPGAs to do that? And if so is some of that are you guys a near-term beneficiary of this change? And if you're not a near-term beneficiary do you expect to be if this persists? Thanks.

[Jim Anderson, President and CEO]

Yeah. It’s a great question Chris. I would say, yeah, definitely I think we're doing a good job supporting our customers and our customers see that and they appreciate that and they definitely factor that in to their decisions moving forward on what parts and what companies they're going to rely on moving forward. So, I think we will see some benefit further out in time. And then I also do think that there's advantages that FPGAs have given their power efficiency, their flexibility, their ease of all the software content that we have built that make a compelling for a customer that's used an ASSP or a microcontroller in the past to switch over to our FPGA is we can usually offer them better power efficiency and better performance, as well as I mentioned the complete software stacks. So, I think there's opportunities there as well.

You mentioned automotive in particular, we're happy to see any of our automotive customers switch from their $2 microcontrollers over to the Lattice FPGA. We're happily, we will happily facilitate that switch. And I would say, yeah, we are having discussions with customers like that. I think that's not a near-term benefit that we'll see because it does take time for customers to switch over from one device to another. But that is something that we can see a benefit from in the future quarters. And I definitely do think that customers take that into account. And I think we'll see some benefit moving forward.

[Christopher Rolland, Susquehanna]

Thanks, Jim, and congrats to you and your team again.

[Jim Anderson, President and CEO]

Yeah. Thanks again, Chris.

[Operator]

Your next question comes from the line of Hans Mosesmann from Rosenblatt Securities. Your line is now open.

[Hans Mosesmann, Rosenblatt Securities]

Great. Thank you. Congrats, guys. Fantastic execution. Sherri or Jim, in terms of the outlook, are you constraint? Is there sales – are there sales that you are leaving on the table?

[Jim Anderson, President and CEO]

So we think, Hans, that we're doing a good job supporting our customers. I think the supply chain team did a good job supporting them in Q1. And I'm anticipating they do the same great job in Q2 as well. I think it helped as I had mentioned earlier, I think it helped a lot that we built inventory last year and we kind of got ahead of the curve in terms of supply chain tightness. And we exited last year in a good inventory position. And to the most recent Q1, we have higher levels of inventory exiting Q1 than we did a year ago. And I think that combined with the work that we're doing with our customers in terms of planning demand, as well as with our suppliers, making sure that we have the right capacity, I think we feel good about supporting our customers moving forward.

[Hans Mosesmann, Rosenblatt Securities]

Okay. So does that mean that your lead times have not changed?

[Jim Anderson, President and CEO]

Yeah. Our lead times. Good question. Our lead times have been relatively stable for the vast majority of our parts. There may be some particular parts that happen to be a particular silicon package combination where we're seeing a little bit longer lead time than normal, but vast majority of our parts are within the kind of normal lead times. And I think, again, more importantly we're working very clear, carefully with our -- especially with our big strategic customers to make sure that we understand their demand needs going forward, and we're matching that to the supply to make sure we've got capacity.

[Hans Mosesmann, Rosenblatt Securities]

Okay. And then and one last one, maybe for Sherri, your expenses are growing a bit faster than top line in Q2. Is that a function of costs that are maybe going up? Some players have been talking about costs that have been going up for supplies of certain products or packaging.

[Sherri Luther, Chief Financial Officer]

Yeah. Thanks, Hans. So from an OpEx perspective, I'll kind of give you a perspective on that and then I'll come back to costs at the end of that. So our OpEx was up sequentially versus Q4 as we expected towards the higher end of our guide. But if you note there, the areas where it's higher, it's in R&D. Our R&D spend increased 7% sequentially as we continue to invest in our product portfolio. And so you're going to continue to see more of that as you see our guide for Q2, which is up again at the midpoint versus Q1. And, again, that increase is due to investment in R&D.

I have mentioned last quarter that we're in a growth mode. So that's really reflective of that as well as we continue to invest in the long-term growth of the company. The other thing in OpEx I'll just point out is that our guide – or rather our target that we put out at our 2019 Investor Day was 35%.And for Q1, we're still below that. So while we're investing in the business, we're still managing our SG&A to our target of 15%. We're just a tad bit above that but we're managing to that target.

And then separately with respect to costs, our costs, we are hearing a lot about that in the industry. In general, our costs are relatively stable. Then we might have seen a little bit of increase in areas like shipping costs for example and the supply chain. But where we’re able to manage that is through our pricing optimization programs for example that Jim talked about earlier, where we've been able to really get the value for our product.

And as you've seen in Q1, we increased our gross margin by 10 basis points. And year-over-year, that was an increase of 190 basis points. So, we'll continue to execute on our pricing optimization program and really utilize our key relationships with our suppliers to help make sure that we can continue to increase our gross margin to the midpoint of our guide for Q2 which is 62%.

[Hans Mosesmann, Rosenblatt Securities]

Fantastic. Thank you.

[Operator]

Your next question comes from the line of Matt Ramsay from Cowen. Your line is now open.

[Matt Ramsay, Cowen]

Thank you very much. Good afternoon. I think this question is probably for both you guys. Different companies in the semiconductor supply chain right now are obviously facing demand outstripping supply. And some have chose to keep more inventory on books versus the channel. Some of, chose I guess to support the channel versus sort of draining their own books’ inventory. If you look across both of those metrics, Sherri, how are you guys thinking about the inventory levels both that you have and that you have in the channel versus target levels and what that might mean for visibility of revenue as you look forward into the back half? Thanks.

[Jim Anderson, President and CEO]

Yeah. Thanks, Matt. I think. let me take that one, and I can ask Sherri to add if she has something to add. But we talked a little bit already about the Lattice inventory and the fact that we had chosen to build kind of proactively build Lattice inventory last year and we're in a good inventory position end of this most recent Q1 versus a year ago. In terms of distributor inventory, I would say on distributor inventory, if you look at where we ended Q1, it was within the range of what we've seen over the last few years, so the normal range of what we've seen, but on the lower end. So our distributor inventory is sitting on the lower end of our range, right? So I think that where we've chosen to make sure we have the inventory is more on the Lattice side to give us the flexibility to allocate the supply and direct the supply where we see demand. And so hopefully that answers your question, Matt.

[Matt Ramsay, Cowen]

Yeah. Jim, that's great. Thanks. Obviously there's a lot of questions that will get answered next week at the Analyst Day, but I wanted to ask about a recent partnership announcement that you guys announced with Rambus for sort of sharing technology around security in a number of end markets. Jim, if you could give us a little bit of detail into what that partnership entails? What IP you might be supplying and what you might be getting? And what that partnership may do to enhance the security piece features of the portfolio as you go forward? Thanks.

[Jim Anderson, President and CEO]

Yeah. Thanks, Matt. Yeah, we were really happy with that announcement. We're happy to be partnered with Rambus. We view Rambus as an IP partner for us, so both an IP supplier to us, but also to our customers and so that partnership is specifically around IP related to security.and we've been as you certainly know we've been investing in our own products and capability around security both in a hardware perspective but a software as well. We've launched two devices to date that are sort of security optimized, our MachXO3 3D product and our Mach-NX product. So two generations of security optimized FPGAS.

And then we've also been developing software stack on top of that. And there's some additional IP that Rambus has that that we want to make sure that IP runs on Lattice devices as well so that if our customers choose to use some of that Rambus security IP that that runs seamlessly on Lattice devices as well. So it's really about making sure that our customers have everything they need to build out the really secure system. And we'll probably talk. we can talk a little bit more about it next week during the Investor Analyst Day as well.

[Matthew Ramsay]

Thanks Jim, appreciate it. Look forward to next week.

[Operator]

Your next question in queue comes from the line of Sam Peterman from Craig-Hallum Capital. Your line is now open.

[Sam Peterman, Craig-Hallum Capital]

Hi guys, Sam on for Richard here. I want to ask quick about your industrial and auto an auto segment. You had another quarter where industrial automation drove a lot of strength. And obviously you've seen that over the last year the pandemic accelerated digital transformation kind of across the board. I'm curious now that we've lapped a year that strong growth in that area in particular. What's your read on demand and industrial automation going forward? Is it still growing but maybe we should expect the rate of growth to slow to a more normalized rate beyond this quarter? Or how should we think about that?

[Jim Anderson, President and CEO]

Yeah. We see industrial and automotive segment as one of our Automotive segment as one of our key growth drivers for the long term as well. If you look at for instance, last year, for 2020 Industrial and Automotive grew I think it was 11% year-over-year, so it was good growth contributor last year. Most recent quarter, Q1, grew 20% year-over-year. What we're seeing within that segment and what's been in particular driving it for Lattice is things like industrial automation and robotics. Latticed devices and along with the software that go on top of our devices, are just a really good natural fit for industrial automation and safety and robotics. The combination of the power efficiency, the flexibility, the performance just make us a great fit, and so we've got a number of good systems that were already designed into in a very healthy design win pipeline as well.

And I think the interesting thing is pre-pandemic, we were already seeing high levels of engagement and around industrial automation and robotics. But I think that the experience of COVID-19 and that pandemic has really accelerated our end customers’ plans in terms of driving faster automation of their industrial facilities, more usage of robotics, etcetera. And that's great, right? And we're really well positioned to benefit from what I think is a long-term secular growth trend. And so we do see Industrial and Automotive as a long-term growth driver for the company as well.

[Sam Peterman, Craig-Hallum Capital]

Okay, that's great. And one more quick one for me. You said before you got a healthy design win pipeline in automotive, haven't given a ton of color on that. Is there any way you characterize I guess where the car, those design wins are in? And when auto might become a more material portion of that Industrial and Auto segment?

[Jim Anderson, President and CEO]

Yeah. Thanks, Sam. So we were pleased with our Automotive segment in Q1, it did grow sequentially

and year-over-year. That is still within that segment a relatively small portion of the Industrial and Automotive segment. But as you mentioned, we said before, we do have a very healthy design win pipeline. We will next week talk a little bit more in detail about what are some of the specific automotive applications that were both designed into today that are growing, but also some of the ones that are in the pipeline as well. So expect to hear more about that next week at our Analyst Day.

[Operator]

[Operator Instructions] Your next question comes from the line of Derek Soderberg from Collier Securities. Your line is now open.

[Derek Soderberg, Colliers Securities]

Hi, everyone. Congrats on the results. Just one question for me. Jim, I'm curious sort of high-level, to what degree are some of the product enhancements you bring to market helping expand the unit opportunity out there in the industry? Clearly, there are opportunities with higher ASPs, bundling software. But what – sort of what – to what degree is should some of that growth start to come from just unit volume? Just trying to get a sense for how the industry is growing. Thanks.

[Jim Anderson, President and CEO]

Yeah, that's a good question. I think we do see some significant unit volume opportunities. Let me point out one or two. One in particular that I would point out is client computing. Client computing is, that's a really large market. It's roughly 300 million units a year. When in client computing, we include laptops and tablets and desktop computers. Big market, big unit

opportunity and we had a couple of platforms in that segment start to ramp last year and ramp into good healthy volume. And that will help contribute to growth this year. But we see a lot more opportunity in that segment for Lattice products. We can bring some really interesting functionality to those devices whether that's human presence detection, gesture recognition, signal aggregation. And so we're pretty excited about that segment as an opportunity for unit volume moving forward.

And then I think there's also segments in parts of industrial that we see some good unit opportunity growth with, for instance, robotics, etcetera. But the other thing that I would point out is beyond unit volume growth, which we're always happy to see, we have been driving ASP growth as well. Our ASPs have had steady growth over the last couple of years. And so we're really focused on both driving higher ASPs as well as unit growth.

[Operator]

There are no further questions in queue. I will turn back the call to Lattice CEO, Jim Anderson, for closing remarks.

[Jim Anderson, President and CEO]

Yeah. Thank you operator and thanks everybody for joining us on today's call. As you can tell, we're really excited about the progress that we've made, but even more excited about where we're headed from here in the future of Lattice and some of the opportunities ahead of us. So we look forward to talking to all of you next week at the Investor Day. And thanks again for the time. Operator, that concludes today's call.

[Operator]

Thank you so much. This concludes today's conference call. Thank you for participating. You may now disconnect. Presenters, please stay.