Lattice Semiconductor Corp

NASDAQ:LSCC

Earnings Call Transcript 2022-Q2

[Operator]

Greetings. Welcome to the Lattice Semiconductor Second Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded.

I will now turn the conference over to your host, Rick Muscha, you may begin.

[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, who will provide a financial and business review of the second quarter of 2022 and the business outlook for the third quarter of 2022. If you have not obtained a copy of our earnings press release, it can be found on 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 or 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 that 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 third quarter of 2022. If 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.

We will refer primarily to non-GAAP financial measures during this call. 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. 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 & Chief Executive Officer]

Thank you, Rick, and thank you everyone for joining us on our call today. We delivered strong results in Q2, with record quarterly revenue, which grew 28% year-over-year and non-GAAP net income growth of 68% year-over-year.

Growth continues to be led by our largest end markets of communications and computing and industrial and automotive. Our growth in these strategic markets is fueled by growing demand for our rapidly expanding product portfolio and continued strong customer momentum.

Let me touch on a few additional highlights from Q2. In addition to the strong revenue growth, we expanded non-GAAP gross margin by 700 basis points year-over-year to a record 69.1%. We achieved record non-GAAP operating profit of 38.1%, which was an increase of 900 basis points year-over-year. And we further expanded our product portfolio with the launches of our MachXO5-NX device and our Lattice 5G ORAN solution stack.

Let me now provide an overview of our business by end market. In the communications and computing market, revenue increased 13% sequentially and 35% on a year-over-year basis. We're on track to deliver our fourth consecutive year of double-digit growth for this segment.

In data center, our dollars of content per server continues to increase due to our growing attach rate which is now well over 1x and increasing ASPs. In client computing, where we have a large greenfield growth opportunity, new customer systems began production in Q2, including the new platforms that were announced with Lenovo and LG over the past quarter. Lastly, in 5G infrastructure, we're benefiting from ongoing global deployments with strong revenue growth, both sequentially and year-over-year.

Turning now to the industrial and automotive market. Revenue increased 7% sequentially and was up 30% on a year-over-year basis. Revenue growth was driven by new customer platforms, where Lattice has either displaced competitors or brought new functionality and capabilities to the system. Lattice's market-leading power efficiency, in combination with the software content that we provide, has been a key driver for customers adopting Lattice products. We continue to be very excited about the growing customer opportunities, for Lattice products in the Industrial and Automotive segment.

Turning now to consumer. Revenue declined 17% sequentially and was down 1% year-over-year, reflecting macroeconomic softness in the consumer electronics end market. Because consumer represents less than 10% of our overall revenue, the consumer demand softness was more than offset by growth in our other core strategic markets.

I'll now provide some product road map highlights. We introduced MachXO5-NX, the fifth device family built on the Lattice Nexus platform. This device family enhances system monitoring and control in multiple applications, across our strategic markets, with class-leading power efficiency and reliability. Overall, we continue to be pleased with the broad adoption of our Nexus platform, across all our market segments.

We're also pleased with the revenue ramp of our Nexus products, which we expect to continue to ramp over multiple years. In addition, to the continued portfolio expansion of Nexus, we're excited this year to be further expanding our product portfolio, with the launch of our Lattice Avant platform. Avant will have 5x the capacity of Nexus, which will double our addressable market and will allow us to address mid-range FPGA applications.

Customer engagement and momentum is very healthy and continues to grow. And we believe Avant will create an important new revenue stream for Lattice, when it ramps into production. Execution remains on track for launch, in the second half of this year. And as we previously mentioned, we expect to hold a public launch event for our bond customers and partners, in Q4 of this year.

Turning now to our software strategy. As we've discussed over the past few years, we've been increasing investment in our software portfolio. These investments are focused on making it easy for our customers to adopt Lattice products, and get to market quickly.

During the quarter, we launched the Lattice 5G ORAN solution stack, which is the fifth software solution stack in our portfolio of software solutions. The 5G ORAN solution stack, provides customers with the ability to secure data and accelerate network functions.

Over half of our new silicon design wins, are now enabled by at least one of our five software solution stacks, which increases the value that we're delivering to our customers and the long-term stickiness of our products.

In summary, we believe Lattice is well positioned in the right strategic growth markets, with a rapidly expanding product portfolio and accelerating customer momentum. We're pleased with our first half results, and we expect to have a strong second half as well.

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 financial results in Q2, as we continued to deliver double-digit revenue growth, significant gross margin expansion and record profitability. We generated strong free cash flow while investing in our long-term product road map. We also returned cash to our shareholders, through share buybacks.

Let me now provide a summary of our results. Second quarter revenue was a record $161.4 million, up 7% sequentially from the first quarter and up 28% year-over-year. Revenue grew double digits year-over-year in our communications and computing and industrial and automotive market segments, with strong sequential growth as well.

Revenue from our consumer market segment was down sequentially and year-over-year reflecting macroeconomic weakness, in the consumer electronics market.

Our non-GAAP gross margin increased 140 basis points to a record 69.1% in Q2 compared to the prior quarter and was up 700 basis points compared to the year ago quarter. Both the sequential and year-over-year increases in gross margin continued to be driven by strong execution of our gross margin expansion strategy, which we began to execute in early 2019.

Non-GAAP operating expenses were $49.9 million compared to $47.2 million in the prior quarter and $41.5 million in the year ago quarter. Both R&D and SG&A expenses increased sequentially as we continue to invest in the long-term growth of our business, however, both declined sequentially as a percentage of revenue.

Our non-GAAP operating margin increased 180 basis points to a record 38.1% in Q2 compared to the prior quarter and was up 900 basis points compared to the year ago quarter. We continue to benefit from the gross margin expansion strategy that we began executing at the beginning of 2019.

Q2 non-GAAP earnings per diluted share was $0.42 compared to $0.25 in the year ago quarter, which represents a 68% year-over-year growth. Driving strong cash flow generation continues to be a key focus area for the company and through the first half of 2022, we have driven a 31% year-over-year increase in operating cash flow.

We ended the quarter with $118 million in cash after repurchasing approximately 735,000 shares or $35 million of stock under our existing buyback program. Q2 was our seventh consecutive quarter of executing share buybacks.

Let me now review our outlook for the third quarter. Revenue for the third quarter of 2022 is expected to be between $161 million and $171 million. Gross margin is expected to be 69%, plus or minus 1% on a non-GAAP basis. Total operating expenses for the third quarter are expected to be between $50 million and $52 million on a non-GAAP basis.

In closing, we are pleased with our strong first half results and expect a strong second half of the year. We remain focused on driving sustained revenue growth and profit expansion through the strength and differentiation of our leadership product roadmap.

Operator, we can now open the call for questions.

[Operator]

Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Mark Lipacis with Jefferies. Please proceed with your question.

I'm sorry our first question comes from the line of Hans Mosesmann with Rosenblatt. Please proceed with your question. Hans are you there?

[Hans Mosesmann, Rosenblatt]

Sorry about that. I was muted. But congratulations to Jim and the team for great execution. What you've done over the past several years is just very impressive. Besides execution to the strategy in terms of gross margins, in terms of new products and the software stacks what is driving this strength in the midst of a pretty tough environment?

[Jim Anderson, President & Chief Executive Officer]

Yeah. Thanks for the question. We were quite pleased with the growth that we saw in first half of this year overall, but in Q2 as well. And both from a market standpoint and from a product standpoint, from a market standpoint growth has really been driven by our big strategic market segments which are communications and computing in industrial and automotive.

If you look at Q2 in comms and compute we grew 35% year-over-year. We're really pleased with that growth, continued expansion in for instance servers, for the data center where we continue to see expansion of our attach rate now well over 1x ASPs nice growth in 5G wireless infrastructure as well in Q2.

And PC's client computing continues to remain a large Greenfield growth opportunity for us in that market, also really pleased with the results in Industrial and Automotive. We had quite a strong Q1 in industrial and automotive. But followed that in Q2 with 30% year-over-year growth we continue to see good strong growth in new design wins in things like industrial automation, robotics, automotive, electronics.

We're either displacing competitors or we're bringing some new capabilities to customers. So, quite pleased with growth in that market. We did see some softness in our smallest market which is consumer electronics. We saw a little bit of end-market softness there. But consumer represents in Q2 about 8% of our revenue. So 90% of our revenue is in those other growth strategic segments that I talked about.

And then, from a product perspective, we're pleased with the Nexus ramp. We have a lot of new product cycles that are happening right now. Nexus we launched our fifth new Nexus device in Q2, we now have four of the five are in production, our fifth device which we just launched that will enter production next year.

So we have a kind of a layering effect of new products as they ramp into revenue. And Nexus we expect to continue to ramp over the course of multiple years, so good growth in -- both from a market standpoint but also from product standpoint. We are certainly cognizant of the macroeconomic climate. And we're cautious around some of the recessionary pressures that exist out there certainly monitoring demand signals very closely.

But we're very bullish on the latter specific growth drivers that we have whether that's the market growth drivers I just talked about or the new product cycle. So again, pleased with first half results. And we are looking forward to a strong second half as well.

[Hans Mosesmann, Rosenblatt]

Hey Jim just very quickly, what -- I understand all that and that's great execution. But maybe much of the momentum is coming from just taking share from your traditional FPGA small players -- small FPGA players, and/or taking share from non-traditional competitors like microcontrollers.

[Jim Anderson, President & Chief Executive Officer]

Yeah. I think it's a combination of both those. We certainly are gaining share versus our traditional FPGAs competitors. We're certainly -- we can definitely see that we're taking share there in the small FPGA space.

But we are also converting microcontroller sockets over the FPGAs as well. So it's really a combination of those two, as well as there are cases where we're bringing just brand-new functionality and capability that hasn't existed in platforms before.

For instance in the Lenovo platform that we had announced earlier this year that's completely new functionality that didn't really exist in that platform before. So, it's really a combination of all those factors.

I think it's interesting, when I look at the growth that's been -- that we've been driving for instance in the first half of this year and you look at well what is the source of that growth. Vast majority of that growth is driven by new revenue streams that we've created just within the last say, 12 to 18 months.

So that means new platforms at existing customers, so expanding our footprint have existing customers or bringing on new customers to the Lattice family. So we're quite pleased with the freshness of that revenue growth in terms of -- we're at the beginning of new revenue growth cycles that should last for multiple years.

[Hans Mosesmann, Rosenblatt]

Great. Very helpful. Congrats.

[Jim Anderson, President & Chief Executive Officer]

Thanks.

[Operator]

Our next question, now comes from the line of Mark Lipacis with Jefferies. Please proceed with your question.

[Mark Lipacis, Jefferies]

Hi, thanks for taking my question. I had a question for Sherri and then one for Jim if I may. Sherri on the gross margins, you talked about the programs that have been driving the expansion. As you look into next quarter you have higher revenues, but you're expecting flattish gross margins. Could you just review kind of what the puts and takes are?

And then maybe at a higher level you're above -- I guess, you have an open-ended gross margin kind of target -- operating target longer term at some point after you hit so many quarters in a row above your target do you kind of think about reassessing that? And I had a follow-up for Jim if I may? Thank you.

[Sherri Luther, Chief Financial Officer]

Thanks Mark, for the question. So, we're really pleased with the results of our gross margin for Q2 at 69.1%, that's another record for us and representing a 140-basis point sequential improvement and 700 basis points year-over-year. And you may recall that, we've been executing on our gross margin expansion strategy now for four years as we laid it out in 2019.

And the elements of that, as we described it our pricing optimization and higher gross margins from our newer products really driving some of that sequential, as well as year-over-year increase. Since the end of 2018, we've actually driven an increase in gross margin of 1200 -- nearly 1200 basis points. So, we're really pleased with that progress.

And gross margin expansion continues to be a focus area for the company. And when you look at -- you mentioned our gross margin target and kind of how we're thinking about that and it's really just continuing to focus on gross margin. We've been doing it now for four years and we'll continue to focus on that to drive profitability for the company.

[Mark Lipacis, Jefferies]

Fair enough. And a follow-up for Jim, if I may? Jim, you had mentioned to the previous question that you're aware of the macro pressures that they don't seem to be manifesting in your business. And it seems to me on a lot of these earnings calls for other semiconductor companies. You hear -- it seems like a lot of people talk about what is the concern out there, but companies continue to do seem to be reporting really nice results with the odd exception here and there.

So, I'm wondering Jim is this like the most well anticipated downturn that hasn't happened yet in your kind of career as an executive in the semiconductor industry? And does it change how you manage the risk in your business in terms of managing your operations or even giving -- if I -- given guidance, if I look over the last six quarters, you kind of hit the top end of your guidance.

If not slightly above the top end over the last six quarters and the previous couple of years you were -- seem to be right in the middle. So, it seems like there's a little bit more of a cautionary angle, perhaps, as a out of respect for what macro pressures there might be. If you could just share your thoughts on that I think that would be helpful. Thank you.

[Jim Anderson, President & Chief Executive Officer]

Yes, certainly. Thanks Mark. Yes, I think when we look at the macro economy and we look at potential inflationary pressures, recessionary pressures, especially as we go into next year. Yes, we just want to be cognizant of that macro climate as we're thinking about the business moving forward and just cautionary or cautious about those potential influences on the business. And so that's something that is in front of our mind. We're watching our demand signals very, very carefully. Of course, we always watch that carefully. But, we're being very careful about monitoring all demand signals.

But with that said, with that sort of cautionary backdrop, we are quite -- we feel quite strongly and quite good about the latter specific growth drivers that we have that are sort of unique to Lattice, whether those are some of the market-specific growth drivers that I talked about a little earlier; whether it's growth in servers where we still believe we have opportunity to expand our attach rates, our ASPs; whether that's growth in new greenfield areas like PC or the great growth that we've seen in things like industrial automation robotics and automotive electronics. So, we see a lot of opportunity in the different markets.

And then, we're simply going through new product cycles as well. If you look at Lattice, we're now just at the beginning of the Nexus ramp. We're only in the second full year of revenue for Nexus. We see multiple years of growth in the Nexus product line. And then, we have Avant, which we'll launch in the second half of this year as well. And as Avant enters production in future years, that creates an entirely new revenue stream for the company. So, I would say, we're cautionary on the macro climate, but bullish on the latter specific growth drivers that we see in front of us.

[Mark Lipacis, Jefferies]

Very helpful. Thank you, Jim.

[Jim Anderson, President & Chief Executive Officer]

Thanks Mark.

[Operator]

The next question comes from the line of Alessandra Vecchi with William Blair. Please proceed with your question.

[Alessandra Vecchi, William Blair]

I echo the congratulations on the strong results in the tough environment. Jim, if we can maybe delve a little bit deeper into some of the greenfield opportunities, and what's been driving the content gains there? I mean you mentioned PC, which you've been talking about for the last few quarters, and had some really nice announcements this quarter with LG as well as two sockets in Lenovo.

And then, similarly with automotive, if you could just talk a little bit again about if the gains are against the microcontrollers, how we should be thinking about ramps into the back half and next year? And then also, how we should be thinking about those greenfield opportunities as a percentage of revenue on total as we look out a couple of years going forward?

[Jim Anderson, President & Chief Executive Officer]

Yes. Thanks Ales. So, you mentioned both automotive and PCs, maybe I'll touch on both of those. Let me start with automotive. Automotive electronics, we just see as a great long-term growth area for the company. No doubt, the average electronic content for auto will continue to rise moving forward, and we're certainly participating in that. Our products are just a great fit for automotive electronics. The flexibility, the software content that we provide, the power efficiency, there's just a number of different places, whether it's ADAS, or infotainment systems, where Lattice products are getting designed in.

We have a robust design win pipeline and our automotive revenue continues to grow very well, and again, grew very strong in Q2 as well. And so we're quite pleased with that. And we look forward to good long-term growth in that segment. So that's one area, because that's a realty -- automotive electronics is a relatively small portion of our revenue today, but we expect to be a good growth contributor over time. That's one area that we see as a relative greenfield opportunity for us given the potential growth opportunity there over time.

And then in the PC market, our revenue there today is relatively small. But if you look at the PC market overall that's a very large system TAM. And there's a lot of new capabilities new features that we can bring to a PC that add a tremendous amount of value to the end user experience. And so we've now announced a couple of different systems with Lenovo that are now in production, ThinkPad system, which we announced at the beginning of the year. We recently announced Chromebook system, we announced a new system with LG as well.

And so this just represents a tremendous amount of large unit system TAM, and great greenfield growth area for us over time. And so these will continue to -- we expect to grow, and contribute to not just growth in the second half of this year. As I said, we expect to have a second -- a strong second half relative to first, but we expect that to continue to grow in the coming years as well.

[Alessandra Vecchi, William Blair]

Great. That's really helpful. And then not to harp on gross margin, but if I back out, the pure gross margin royalty revenue over the last couple of quarters. From a product standpoint, the underlying gross margin has been tremendously strong, as we've alluded to. How do we sort of -- how do we think about the structural gross margin a few years out? You're starting to approach Xilinx levels from before they got acquired by AMD, which seems like an achievable level. And then similarly, if we do go into a downturn even given your secular drivers, it seems to me like your gross margin should be relatively robust even at these elevated levels. Is that a fair statement?

[Jim Anderson, President & Chief Executive Officer]

Yeah. We believe there's good durability in our gross margin, just based on kind of the drivers underneath, and as we look forward as well. As Sherri mentioned in her comments earlier, so first of all, just as a reminder, we began our gross margin expansion strategy at the beginning of 2019. So we're in our fourth year of executing on that gross margin expansion strategy that had three different elements in it. It had pricing optimization product cost improvements, and then mix improvement in the business over time. We're pleased at the progress we've made over the past years. Certainly, Sherri's pleased, I know that. And so -- but it continues to be a focus area for us moving forward.

And we do see continued opportunity in gross margin. One of the areas that Sherri alluded to was new product ramps. Our new products are designed to be accretive to the overall company margin. And so we see that as beneficial to the company moving forward whether it's Nexus ramping or Avant in the future.

And then also I would say that another thing that we've seen in the business over the last 6 months to 12 months is we're seeing a high attach rate of our software solutions to our new hardware design wins. So if you look at design wins for Lattice Silicon over the last say 12 months, the majority of those design wins have a software attach, meaning, they're enabled in some way by one of our five software solution stacks.

And generally, when we attach software to our silicon and the solution sale we see higher ASPs in that too. And so that's another upward or tailwind on our gross margin. So we do see additional opportunity moving forward and durability in the gross margin.

[Alessandra Vecchi, William Blair]

That was extremely helpful. Thank you so much. I’ll jump back into queue.

[Jim Anderson, President & Chief Executive Officer]

Thanks, Alex.

[Operator]

Our next question comes from the line of Matt Ramsey with Cowen. Please proceed with your question.

[Matt Ramsay]

Yes. Thank you very much. Good afternoon. Jim, I think, it's I don't know kind of consensus that one of the areas in digital semis where we see still see a pretty wide supply/demand gap is in FPGAs. And I -- obviously with some of the things happening in the PC market and the smartphone market some of those supply-demand gaps in other parts of the industry are starting to close a bit. But I wonder if you might give a few comments just on the FPGA market in general and how you feel supply is relative to demand out there? And has that gap started to shrink at all in your markets? Or it's still pretty consistently wide? Thanks.

[Jim Anderson, President & Chief Executive Officer]

Thanks, Matt. You know, I can mostly just comment on our business. And what I would say is that I feel like we've done a good job of supporting our customers. Certainly, the supply chain the overall semiconductor supply chain remains tight. I think it will continue to remain tight through the end of this year into next year. But we are seeing some signs of improvement.

We have recently over the last quarter or two see some incremental supply from our suppliers, incremental capacity beyond what they have committed to us for this year. So we see that as a as a positive sign for the second half of this year and into next year.

We do feel like relative to some of our competitors we've done a good job supporting our customers. And I think our customers recognize that and I think that's helped accelerate in some cases transitions from our competitors towards Lattice. And so that has been helpful. It's not that we're immune to the supply chain crisis at all.

Certainly, we're affected by the same supply chain tightness. But I think overall we've done a good job navigating that and supporting our customers overall. And so -- but we do see some good signs of improvement over the -- like I said over the last couple of quarters and we expect supply to continue to improve into next year.

[Matt Ramsay]

Thanks. Thanks for that Jim. Just as a follow-up question for Sherri. Maybe you could talk to us a little bit about OpEx growth. I know I have conversations with some of your peer companies about inflationary costs on wages.

Obviously, as Jim just mentioned in his comments the supply chain remains tight and you guys aren't immune. So just investments you're making hiring wages just how should we think about OpEx, sort of, trending or just kind of staying within the band that you're in as a percentage of revenue? Thanks.

[Sherri Luther, Chief Financial Officer]

Yes. Thanks Matt. So when we -- if you look at our OpEx actually grew 20% year-over-year, and where that came from was majority in R&D. So we're investing 24% growth year-over-year in R&D and our product road map for the long-term growth of our company. And so you've seen that we've been doing that for some time now and we definitely have a bias for investing, and we want to do it in a very controlled and disciplined way, but investing for the long-term growth of our company.

You've seen our product launches, our fifth device as well as our 5G ORAN solution stack that we announced in Q2. Avant coming out in the second half, as Jim mentioned. So we continue to invest in our product road map. That's our -- that's one of our top priorities.

And then when you look at -- you mentioned inflation some of that's a little bit hard to kind of separate out, but we are continuing to hire. I think you see in a lot of our LinkedIn social profiles, all of that you see there's a lot of hiring going on in R&D. And again, that's to continue to make sure that we've got the right focus and developing the right products that we have. So you can continue to see that bias to we're investing within SG&A as well, you see that there is a sequential increase there. That's where we're investing in our customer support and our demand creation. That's very important as well. So we are continuing to invest in the company.

[Matt Ramsay]

Thank you very much you both. Congrats on the results.

[Sherri Luther, Chief Financial Officer]

Thank you.

[Jim Anderson, President & Chief Executive Officer]

Thanks, again, Matt.

[Operator]

Our next question comes from the line of Chris Rolland with SIG. Please proceed with your question.

[Chris Rolland, SIG]

Hey, guys. I echo the congrats. And I guess my question is -- and I get this from investors quite a bit, people would love to know what kind of products were legacy products as a percentage of sales? And what are -- as a percentage of sales are the products that have been launched under your management tenure? Is there any rough kind of idea of what the split might be at this point?

[Jim Anderson, President & Chief Executive Officer]

Yes. Thanks for the question, Chris. So we don't break out product line specific revenue, but what we can say is we kind of think about it as Nexus products and pre-Nexus products. And we can say is both categories have continued to grow.

You would expect Nexus products to continue to ramp and grow, those products are new. As we've mentioned, we've launched five products, four of the five are in production. The fifth which we just launched will go into production next year. And you can expect us to continue to additional Nexus products moving forward. And those products will ramp over the course of multiple years.

But even the pre-Nexus products, we've seen very good growth in the pre-Nexus products new design wins, new applications that those are getting designed into. We believe that our software solution stacks in particular have been helpful in getting our pre-Nexus products designed into new applications that we may not have been able to support in the past. And so we're seeing growth in both of those areas. And frankly, we want both pre-Nexus and Nexus products to continue to grow.

And then moving a little further out as we launch Avant in the second half of this year and bring that into production in future quarters that will add an additional revenue stream that's completely additive to the company, because it's in a different part of the FPGA market that we don't address today, it addresses mid-range FPGA application. So Avant will double our addressable market create a new revenue stream for the company out in time. And so, we feel good about the growth of kind of all of those categories moving forward.

[Chris Rolland, SIG]

Great. Thank you, Jim. And then either, Jim or Sherri, looking out, maybe next quarter or even beyond, I don't know if you could force rank the segments for us in terms of growth or just some broad strokes between the three segments, but even breaking it down into comms versus compute or something like that? And I guess also, do we get a bounce back in consumer? Or do you think those trends continue as well?

[Jim Anderson, President & Chief Executive Officer]

Yes. Thanks, Chris. I'll give a little bit of color on the Q3. So if you look at the midpoint of our guide for Q3 relative to Q2, we're guiding sequentially up in Q3. We do expect growth in -- sequential growth in communications and computing and industrial and automotive. On consumer, we expect consumer to be roughly flat from Q2 to Q3. We are a little bit more cautious about that segment, given the kind of broader consumer electronics softness that the industry has seen. But we do expect again sequential growth in our large strategic market segments of comms and compute and industrial auto.

[Chris Rolland, SIG]

Perfect. Thanks, and congrats again guys.

[Jim Anderson, President & Chief Executive Officer]

Thanks, Chris.

[Operator]

[Operator Instructions] Our next question comes from the line of Tristan Gerra with Baird. Please proceed with your question.

[Tristan Gerra, Baird]

Hi. Good afternoon. My first question is about backlog and pricing. So you've mentioned your expectation for the market to remain tight through end of this year and part of next year. How far is your backlog extending currently? And how does that compare earlier this year? And also, are you able to still provide the same type of price optimization over the next, let's say a couple of quarters as what you've done in the past as we start seeing lead times coming down a bit for some products.

And generally, we're seeing pricing stable overall in semis, but not rising every quarter like we saw last year. So, any commentary you may have on not so much your new products, which you mentioned are basically going to be ASP accretive. But on your existing product, what's your ability to continue on the path of higher pricing?

[Jim Anderson, President & Chief Executive Officer]

Yes. Thanks, Tristan. So on the first part of your question around backlog, and I think you're asking backlog now versus I think you said earlier this year. I would say that our backlog has remained pretty stable in sort of total backlog that we've had earlier this year versus now. Obviously, we have been servicing the backlog, but at the same time, our new bookings have been healthy. We continue to see healthy levels of bookings. And so, yes stable levels of backlog and healthy booking levels is what I would say.

And then, on pricing, over the next couple of quarters, I think -- if you look back, remember, we started our pricing optimization strategy back in 2019. So we're in our fourth year of that. So we've gained pretty good understanding and a pretty good system of how we do our pricing optimization.

I do think there's beyond just new product ramps, there continues to be opportunities to optimize pricing in our business kind of irrespective of kind of the rest of the market. I think there continues to be areas where we can better optimize pricing. And really that's about making sure that our products are priced correctly for the value that they're bringing to our customers and the end markets.

And maybe to tie in one of the comments that I made earlier is even on existing products, let's call them pre-Nexus products, we were able to attach software to those products. Where we're not just selling the hardware device, but we're selling along with that the software portfolio solution whether that's sensAI or that's our newest 5G ORAN solution stack or any of the other three software stacks in our portfolio of five that's us bringing more value to our customers, bringing more of the solution.

And so when we bring more of the solution, that's valuable to our customers that's something that we tend to get paid a higher ASP for. And so that's another area where we can continue to optimize ASPs is by just bringing more value through our software.

And of course, that also -- that software has the other nice side effect of -- it helps our customers convert designs away from our competitors towards Lattice more quickly. It helps them get to market more quickly. And then it all creates we believe stickiness for our products moving forward as well. And so for a variety of reasons that software strategy is an important part of the value that we create for our customers moving forward.

[Tristan Gerra, Baird]

That's great. And then my second question which I guess is related to what you just mentioned. If you could talk about product stickiness, you've been for example now really successful in servers for quite some time with your worth of trust chip. And I know there is competition out there with MCU or ASIC solutions, but looks like you continue to gain some traction. Is that a function of performance? And also, do you expect your ramp in PC to be sticky for more than just a couple of years. As such you're not concerned about those design wins eventually reverting to a non-FPGA socket?

[Jim Anderson, President & Chief Executive Officer]

Yeah. So I think you first were asking about servers and then secondly PCs. So in servers, let me start there. Yeah, we're just really pleased with the growth that we've been able to drive in servers that go into data centers whether those are hyperscale data centers or traditional enterprise data centers, really pleased with the growth we've driven over the past year.

So it's again a combination of -- we've driven attach rates higher which is effectively us finding new places with our customers for Lattice devices to get designed into server systems. And our attach rate is now well over 1x which means on average a server ships with more than one Lattice piece of silicon in terms of global server shipments. We do can see continued opportunity for more sockets that -- more capability that Lattice can bring to servers in the future.

And then of course, we've continued with each new generation bring just more capability, more functionality which has helped us continue to improve ASPs over time. And the combination of attach rates and ASPs has driven a very nice healthy growth in our dollars of content per server. And we continue to focus on growing that further moving forward. And we do believe that that is a sticky position because it's not just the hardware that we provide the chip that we provide, but in many cases we're providing layers of software underneath that as well.

And then in PCs, very similar is that, it's not just the chip that we're providing, but it's a layer of software on top of that. So for instance, in those new platforms that we have announced with Lenovo, for instance earlier this year. That's not just the chip that we're providing, but there's layers of software underneath there and -- or above the chip that support the full solution stack.

And so I think that's part of the stickiness that we create on a multigenerational basis. And then, frankly, the flexibility that our FPGAs provide is a big value to our customers. Whether you're a server customer, a PC, or an industrial, or automotive customer the flexibility of an FPGA is a big benefit in their system design, because they know that they're going to need to add new features, new system capabilities over time and the ability to add that by just simply reprogramming the FPGA versus having to do a whole do hardware design, or a new ASIC design. That's a big benefit. That's a big time-to-market benefit, that's a big strategic flexibility benefit.

And so for a number of our customers across our markets, the flexibility, power efficiency of our FPGAs is one of the main reasons, that they get designed into the systems initially and remain designed in over a multigenerational basis.

[Tristan Gerra, Baird]

Great. that’s very useful. Thanks so much for taking the time on that question.

[Jim Anderson, President & Chief Executive Officer]

Thanks, Tristan.

[Operator]

Our next question comes from the line of David Williams with Benchmark. Please proceed with your question

[David Williams, Benchmark]

Hi. good afternoon and congrats on the success and the wins here. First question, I guess was -- is really about the Lenovo design win. That seems to be moving down, maybe migrating from what we would have thought to be kind of the enterprise segment, into the Chrome books and the lower tier segment. So just kind of curious, how you see that and what that opportunity looks like if you think out maybe two to three years?

[Jim Anderson, President & Chief Executive Officer]

Yes. Thanks, David. We did see initial adoption of our designs, in more of the enterprise class systems like the Lenovo ThinkPad. We also announced as you said, the Lenovo Chromebook, we really see opportunity for our devices to be used in all sorts of PCs, whether those are enterprise or more consumer-oriented PCs. Again, for us it's a large greenfield growth opportunity roughly 300 million systems a year in PCs, and we believe that the capabilities and features that and really the end user experience that we're able to bring to the PC, is certainly relevant in the enterprise context, but also relevant in consumer context as well.

There's many features, that we can bring that are important to a consumer. There's a tremendous usage model that we bring where we can say, help save a significant amount of battery power. And that's helpful to both enterprise users, as well as consumers. So we really see the whole PC segment as potential TAM, over time. And so whether it's a Chromebook system, or a think pad system, we're happy to add content to those systems and to ramp those over time. So we see it as just a good long-term greenfield growth area.

[David Williams, Benchmark]

Thanks for the color. And then just kind of thinking about the data center, you've talked about the server attach rate strong. Just curious, if you're seeing anything specific within the data center in terms of demand, or any changes in maybe customer behavior there?

[Jim Anderson, President & Chief Executive Officer]

Yes. Thanks, David. In data center, we continue to see very strong demand from our data center server customers. Again, most of our growth remember is, it's not so much driven by the end market growth itself, the growth in the data center. Our growth is much more driven by the dollars of content that, we've seen increasing in each new generation so -- which is, of course, driven by our increasing attach rate in ASPs. That's been a much bigger factor in our growth. But we continue to see a very strong demand from our server customers.

And then the other thing that, I would note is, just a reminder that, our solutions are CPU agnostic. So -- and this is actually really important to our customers. Our server customers really value the fact that, the Lattice hardware and software solutions that we provide are agnostic to the CPU of flavor.

So, whether that's, an x86 processor, or that comes from Intel or AMD or potentially an ARM processor, as well we support all flavors of CPUs, we're in production, of course, across all those -- both ARM, as well as x86 processors. And so to the extent that, there is share shift that happens among the CPU vendors were buffered from that share shift, because we're supporting our customers across multiple CPU flavors and platforms.

[David Williams, Benchmark]

Thank you.

[Operator]

[Operator Instructions] And our last question comes from the line of Richard Shannon with Craig-Hallum. Please proceed with your question.

[Richard Shannon, Craig-Hallum]

Hi, Jim and Sherri. Thanks for taking my question. I guess, I got just two of them. First one, Jim you mentioned half of your current hardware designs have software attached to them. Obviously, they're going to roll out over a couple of years after the wind here, but it kind of helps us think about the contribution of software to your overall revenue stream, which haven't really quantified in the past, maybe you can help us with that today.

And so my question on that topic is, of these designs, where you have software attached how do we think about the amount of content adder the software has to it? Anyway you can quantify or arrange it? I mean, is this just 5% of that hardware or 25% or somewhere in the middle just kind of my personal guess is? But any way you can characterize that for us?

[Jim Anderson, President & Chief Executive Officer]

Yeah. Thanks, Richard. We haven't given a specific number. The reason is it can depend a lot on the application. What we are seeing is where we get software attached there generally is a higher ASP. Now that additional ASP can be a significant range depending on the type of applications. Some applications -- the value of that software content is valued very significantly. And it's a significant, ASP uplift in some other applications, it may be less. But on average, we're definitely seeing, an ASP uplift, when we get a software attached.

And then on the first part of your question, you're absolutely right that those -- I was talking in terms of new design wins over the last 12 months. As those new design wins now transition into revenue, they layer in over the coming years, and those new design wins with the software attach and the higher ASPs are beneficial to us over time.

So it's -- another way of saying it is, as we look to the revenue growth, the new revenue growth moving forward, the majority of that new revenue growth is enabled by software attach, which generally has a higher ASP moving forward.

[Richard Shannon, Craig-Hallum]

Okay. Fair enough. My second question, was following-up on an earlier one around Nexus, and the contribution there, and haven't given us any way to think about the contribution from Nexus versus pre-Nexus, but is there a point in time, or a percentage of revenues above, which you'll start disclosing that, because I think I agree it would be very helpful to people to think about. I'm assuming it's a fairly low percentage today, but is there a point where you'd commit to providing that sort of a number so we can start to do those splits?

[Jim Anderson, President & Chief Executive Officer]

Yes. We'll look to potentially sharing that in the future. Just as a reminder is, NEXUS is still early in its ramp, right? We are in just the second year of -- the full year of revenues. Sine our 2022 will be the second year of a full year of revenue from Nexus. We expect the Nexus product lines to ramp over multiple years and to continue to grow as a percentage of revenue over multiple years. And so breaking that out separately maybe something that we do in the future we'll take that into consideration.

[Richard Shannon, Craig-Hallum]

Okay. Perfect. That’d be great. And that's all the questions. Thank you.

[Jim Anderson, President & Chief Executive Officer]

Thanks, Richard.

[Operator]

And we have reached the end of the question-and-answer session. I'll now turn the call back over to CEO, Jim Anderson for closing remarks.

[Jim Anderson, President & Chief Executive Officer]

All right, operator, and thanks everybody for joining us on the call today. So, overall, I'm quite pleased with the execution that we saw from the company in the first half of this year. I very pleased with the strong financial results that we delivered in the first half, and we do expect the company to have a strong second half of the year as well. And of course, we'll always look forward to giving you further updates on our next earnings call. So, operator, thank you and that concludes today's call.

[Operator]

And again, this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.