Lattice Semiconductor Corp

NASDAQ:LSCC

Earnings Call Transcript 2020-Q4

[Operator]

Ladies and gentlemen, thank you for standing by for Lattice Semiconductor’s Fourth Quarter 2020 Financial Results Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. A replay will be available approximately 2 hours after the call today. The replay dial-in number is 404-537-3406. The conference ID number is 4589457. The replay will also be accessible on Lattice’s website at www.lscc.com.

I would now like to turn the call over to Mr. Rick Muscha, Lattice Semiconductor’s Director of Investor Relations. Please go ahead.

[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’ll provide a financial and business review of the fourth quarter of 2020 and the business outlook for the first 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 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 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 first 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 a GAAP and a 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 provide 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.

Before we get started, I’d like to let everyone know that we will be hosting a virtual Investor Day in May. We will be sharing more details over the coming month and hope you can all join us.

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 want to start by thanking the Lattice team, as well as our partners and customers for their strong support and execution in 2020. I’m pleased with the progress that we made last year and I’m even more excited about the opportunities ahead of us in 2021.

Let me now cover a few highlights from 2020. We grew revenue double digits year-over-year in our two largest segments of communications and computing, and industrial and automotive. We expanded non-GAAP gross margin by 170 basis points year-over-year, closing Q4 at 61.6%, as we continue to execute on our strategy of pricing optimization and product cost reduction. We expanded profitability with non-GAAP net income increasing 20% year-over-year.

On our hardware roadmap, our team executed on time and launched two new products based on our Nexus platform. We also launched three new software products focused on embedded vision applications, platform security and embedded system design.

Let me now provide an overview of our business by end market for 2020. In the communications and computing market, revenue increased 12% year-over-year, which is the second consecutive year of double-digit revenue growth in this segment. The increase was driven by growth in servers, client computing and 5G infrastructure.

In servers, growth was driven by expansion in both attach rates and ASPs year-over-year. In client computing, growth was driven by the ramp of new client computing platforms, including a new platform ramp that began production in Q4. In 5G infrastructure, we saw strong growth year-over-year reflect -- reflecting our higher content in 5G versus 4G. We continue to see communications and computing as a long-term growth driver, given its multiple growth vectors.

Turning now to the industrial and automotive market, revenue increased 11% year-over-year, despite some end market softness due to the global pandemic. Our business grew across a number of applications such as industrial automation, safety and robotics, where Lattice solutions provide significant competitive advantages for our customers. As the need for industrial and automotive electronics continues to increase, the Lattice product portfolio is well-positioned for long term growth.

Turning now to consumer, revenue declined 40% in 2020, due to weaker demand caused by the global pandemic, as well as the expected mix shift in our business. We saw this segment stabilized towards the end of the year with a sequential revenue increase from Q3 to Q4. The quality of this revenue stream has improved over the last two years as w have targeted higher value multi-generational designs that better leverage our FPGA portfolio.

I’ll now provide some highlights of our recent product roadmap execution. I’m very pleased with our team’s execution in 2020. When we launched our Nexus FPGA platform in December of 2019, we committed to releasing two additional Nexus-based products in 2020. Both products were launched on time as promised to our customers.

In June, we launched Certus-NX, which is focused on general purpose FPGA applications. And in December, we launched Mach-NX, our second-generation security FPGA. We continue to be pleased with the broad market adoption of our Nexus platform across all of our market segments and I look forward to sharing more information at our upcoming Investor Day about additional new products on our roadmap.

Another key element of our R&D strategy is to develop a broader portfolio of software solutions to make it fast and easy for our customers to design our products into their systems and get to market quickly. During 2020, we significantly strengthened our software portfolio.

In the first half of the year, we launched mVision, our embedded vision software stack, as well as Lattice Propel, our embedded system design environment. And in the second half, we launched Century, our platform security software stack.

In summary, I’m very pleased with the progress we made in 2020. We significantly strengthened our product portfolio as we accelerated the cadence of new products and continued to execute towards our long-term financial model.

Our two largest market segments grew double digits year-over-year and we expanded our net income by 20%. As we began 2021, customer engagements across all our markets are extremely strong and our team has energized and focused on executing our strategy for sustained revenue growth and increased profitability.

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 full year 2020 results. In a challenging environment, we delivered significant profit expansion, continued to strengthen our balance sheet and ended the year in a net cash position for the first time in six years.

Let me now provide a summary of our results. Fourth quarter revenue was $107.2 million, up 4% sequentially from the third quarter and up 6.9% year-over-year. Revenue growth came primarily from our two largest segments, communications and computing and industrial and automotive. The consumer market segment grew sequentially in Q4, but was down year-over-year and IP revenue was lower.

Full year 2020 revenue was $408.1 million, up 1% from 2019. Revenue growth from industrial and automotive, as well as communications and computing was offset by lower revenue in consumer and IP.

Gross margin on a GAAP basis was flat at 60.5% in Q4 compared to the prior quarter, but was up 130 basis points compared to the year ago quarter. Our non-GAAP gross margin increased 10 basis points to 61.6% in Q4 compared to the prior quarter and was up 200 basis points compared to the year ago quarter.

For the full year 2020, gross margin on a GAAP basis expanded to 60.1%, up 110 basis points from 2019. Our non-GAAP gross margin for the full year 2020 was 61%, up 170 basis points from 2019. The gross margin improvement in 2020 was a result of our margin improvement strategy, primarily pricing optimization and product cost reductions.

Q4 GAAP operating expenses were $47.5 million, compared to $49.5 million in the prior quarter and $43.8 million in the year ago quarter. On a non-GAAP basis, operating expenses were $37.5 million, compared to $36 million in the prior quarter and $35.3 million in the year ago quarter.

For the full year 2020, GAAP operating expenses increased from $179.4 million in 2019 to $192.9 million in 2020. On a non-GAAP basis, operating expenses for the full year 2020 remained relatively flat versus 2019 at $146.2 million as we increase spending in R&D and decrease spending in SG&A.

Specifically, as we continue to invest in our product portfolio expansion, R&D increased to 19.2% of revenue in 2020 from 18.1% of revenue in 2019. At the same time, we reduced SG&A to 16.6% of revenue in 2020 from 17.5% for the full year 2019.

Q4 GAAP earnings per basic share was $0.12 per diluted share and $0.11 per diluted share, compared to $0.09 cents in the prior quarter and $0.10 in the year ago quarter. Q4 non-GAAP earnings per basic share was $0.20 per diluted share and $0.19 per diluted share, which was flat compared to the prior quarter and increased from $0.17 in the year ago quarter.

For the full year 2020 GAAP EPS of $0.35 per basic share and $0.34 per diluted share increased from the full year 2019 of $0.33 per basic share and $0.32 per diluted share. On a non-GAAP basis EPS for the full year 2020 of $0.72 per basic share and $0.69 per diluted share increased from the full year 2019 of $0.62 per basic share and $0.59 per diluted share.

Driving cash flow generation continues to be a key focus area for the company. For the full year 2020 we generated $92 million in cash from operations. We also repurchased approximately 400,000 shares or $15 million in stock under our stock buyback program exiting the year with $182 million in cash, continuing our net cash positive position.

Let me now review our outlook for the first quarter. Revenue for the first quarter of 2020 is expected to be between $106 million and $114 million. Gross margin is expected to be 61.5% plus or minus 1% on a non-GAAP basis. Total operating expenses for the first quarter are expected to be between $38 million and $39 million on a non-GAAP basis.

As we begin 2021, we are focused on accelerating revenue growth and expanding profitability, as we build additional value for Lattice and our shareholders.

Operator, we can now open the call for question.

[Operator]

[Operator Instructions] Our first question is from Hans Mosesmann from Rosenblatt Securities. Your line is open.

[Hans Mosesmann, Rosenblatt Securities]

Thank you. Congratulations, guys. Good execution. Hey, a couple of questions. I get the theme of this earnings season is supply constraints. How is that impacting your business and I have a follow-on. Thank you.

[Jim Anderson, President and CEO]

Thanks, Hans. Thanks for the question. So on supply -- I think, our supply chain team has done a pretty good job to make sure that our customers are being supported in terms of their demand. Certainly, there’s tightness in the supply chain for the semiconductor industry overall. But in terms of Lattice specifically, I think, we’re in a pretty good position right now.

There were a couple things that we did proactively number of quarters ago to put us in a good position with respect to supply. The first thing I’d point out is, if you recall back in Q2 of last year, we said, we were going to start to build inventory strategically to make sure that we had plenty of supply, plenty of inventory to support our customers natural demand and then also any upside that they might see.

And so we -- so in Q2 we built inventory. We did build inventory again in Q3 and Q4. And we built inventory specifically on high running parts, where there’s significant volume and no risk of obsolescence.

And then I want to make sure to point out that that’s Lattice internal inventory. That’s not channel or distributor inventory that I’m referring to. So Lattice internal inventory. And so I think that’s put us in a really good spot in terms of supporting our customer demand moving forward.

And then the second thing that we did and this was really back in 2018 is, we began working really closely with our strategic suppliers, as we changed and improved our supply chain strategy, working really closely with those suppliers to make sure we were giving them long-term multiyear outlooks on our demand expectations and working with them proactively to plan out capacity over a multiyear period, including not just nominal capacity, but the potential to drive upside capacity as well. And so I think those kind of two proactive actions that we took put us in a pretty good spot with respect to supply to our customers. And then, Hans, you said, you had a follow on as well.

[Hans Mosesmann, Rosenblatt Securities]

Yeah. I did. I’m curious you guys grew despite having that consumer part of the business. So from an FPGA perspective, can you give us perspective as to why -- how are you guys growing in Xilinx and Intel’s Altera programmable business were in decline in 2020?

[Jim Anderson, President and CEO]

Yeah. Thanks, Hans. We are actually quite pleased with our results, particularly in our two largest market segments. That’s comms and compute and industrial and auto, which, right, in Q4 accounted for roughly 85% of our revenue overall. And we really view those as long-term growth areas for the company.

If you look at 2021, first, in comms and computing, we grew 12% year-over-year for full year, actually in Q4 comms and computing grew 20% year-over-year in terms of just Q4. And so we’re just -- we’re seeing a number of Lattice specific growth drivers within that segment.

We’ve talked about servers in the past. We’ve seen an expansion in our server attach rate or the number of chips -- Lattice chips that are being shipped per server, as well as increasing ASPs for the parts that go into servers as we brought more content or capability to servers.

We’ve also seen a number of new client computing platforms that began production last year and that will ramp into full production this year and we’ll see the full benefit of or we’ll see the benefit of a full year’s worth of production.

And then 5G infrastructure was a good year-over-year growth driver for us last year as well and again that falls within our comms and compute segment.

And then in industrial and auto, despite a week end market with respect to the pandemic, I am quite pleased with, again, the performance in industrial and auto 11% growth year-over-year, actually, if you could look at just Q4 16% growth year-over-year. And really what’s driving that is, new platforms with our customers around industrial automation, robotics, industrial safety.

So, yeah, certainly, the consumer segment was pretty weak for us last year due to the pandemic, as well as unexpected mix shift in our business, but we’re quite pleased with our execution on comms and compute and industrial and auto. And we expect those to be growth drivers moving forward as well.

[Hans Mosesmann, Rosenblatt Securities]

Great. Thank you. Congratulations.

[Jim Anderson, President and CEO]

Yeah. Thanks, Hans.

[Operator]

Your next question is from Alessandra Vecchi from William Blair.

[Alessandra Vecchi, William Blair.]

Congratulations from me as well on a -- on an amazing quarter in a challenging environment. To that extent, just to dig a little deeper maybe in the industrial and automotive segment in particular. You -- can you help us understand how impact -- maybe some initial revenue from the Nexus CrossLink-NX to be to that strength or thinking about Nexus platform being more broad based applications?

[Jim Anderson, President and CEO]

Yeah. Thanks, Alex. Actually, good question. So if you recall, in December of 2019, is when we first, we launched our first access based product and that was CrossLink-NX. And at that time, we had kind of set the expectation that we’d like to see first production shipments within about a year, which would have been the end of 2020.

And that’s exactly what we saw, we saw initial production shipments of that first Nexus based products -- product late last year and now we expect that product to continue to ramp into full production through this year and into the following years.

And so we expect CrossLink-NX to be a contributor to growth this year. That initial production shipment of Nexus platforms or Nexus products is a really important milestone for us because it kind of marks the beginning of the Nexus revenue ramp.

The other product that we launched last year in the Nexus family in mid last year was Certus-NX and that’s our general purpose FPGA based on the Nexus technology. And we would expect that to start to contribute to production revenue later this year in the back half of this year.

And so, yeah, it’s good to see that initial Nexus platform ramp happening. As it ramps the Nexus products are applicable to really all of our market segments over time and so we expect that to be a good contributor to growth moving forward.

[Alessandra Vecchi, William Blair.]

And then maybe just an extension to that in terms of the gross margin, you had really nice, if I’m doing the back of the envelope math correctly, really nice improvement on the product gross margin front. And on the total gross margin basis you have got 61.6%, now you’re getting close to that 62% plus, I’m sure that’ll be a topic for the May Analyst Day. But can you can you help us understand what additional impact as these Nexus products start to gain traction? How much that could further list the gross margin from these levels, and just generally, how we should think about gross margin especially as industrial and comms continues to gain traction?

[Jim Anderson, President and CEO]

Yeah. Certainly. So, the business model target that we put out there as for our gross margin to be over 62%. That’s the target that we put out for ourselves in May of 2019 or last Investor Day. And I think we’ve made really good steady progress against that goal, most recent quarter at 61.6% gross margin.

And the -- what’s driven the growth margin progress to-date is mostly around pricing optimization and product cost reduction. So we have put in place a strategy of pricing optimization and a strategy of product cost reductions began executing that in early ‘19 and that’s continued through last year, and we expect to continue those strategies moving forward. So those will continue to contribute to gross margin expansion.

But you’re exactly right, the other help that we’ll get on the gross margin is our new products are designed to be accretive to the overall corporate margin. So as we ramp new products, the intention is over time that those would help drive gross margin expansion as well. And yeah, at our upcoming Investor Day in May, we’ll talk more about gross margin and expectations moving forward.

[Alessandra Vecchi, William Blair.]

Perfect. Thank you so much. With that, I’ll pass it on to the next person.

[Jim Anderson, President and CEO]

Thanks, Alex.

[Operator]

Your next question is from Matt Ramsay from Cowen.

[Matt Ramsay, Cowen]

Thank you very much. Good afternoon. So, Jim, I wanted to ask a quick question about the consumer business. And despite all of the COVID operational challenges, you guys grew revenue as a company and the two main segments of the business grew in the double -- well into the double digits and grew 20% in the fourth quarter and you had this huge consumer headwind? And you mentioned in your script, the quality and visibility around some of those consumer revenues being much improved. So if you could talk a little bit about your visibility in that segment going forward just as a basis for overall growth of the company, are we up, flat, down, looking into maybe the next 12 months as you see it today? Thanks.

[Jim Anderson, President and CEO]

Yeah. Thanks, Matt. If you look at 2020, certainly consumer was a headwind for us in 2020. That was a combination of end market -- lower end market demand due to the pandemic, but also unexpected mix shift in our business. But we did start to see a nice stabilization of that business in the -- at the end of the year. Consumer revenue was up sequentially from Q3 to Q4.

And then one of the things that I mentioned in the prepared remarks, which you mentioned is, the underlying quality of that revenue stream has improved significantly over the last one year to two years. And what’s happened is, we’ve been transitioning the consumer revenue stream away from more -- what I would call more volatile short-term revenue streams to a much more reliable multiyear revenue stream.

So things like Prosumer applications, high end audio systems or high end audio devices, which typically have multiyear lifetimes, typically carry higher gross margins, and are frankly, a much more predictable revenue stream.

So our consumer revenue started to stabilize in the back half. We’re expecting it to be much more stable moving forward. And we’ll probably get more color at the Investor Day in May on expectations for the consumer segment moving forward, but also industrial automation or industrial and auto and comms and compute.

But we still see communications and computing and industrial and auto as a primary growth drivers for us moving forward. Although, we don’t see consumer providing the same headwind that it has in the past and so -- and we’ll get a little bit more color at that Investor Day in May.

[Matt Ramsay, Cowen]

No. Great. That’s really helpful. Appreciate it. I guess, the next question I had is for Sherri, OpEx bumped up a little bit with -- which I guess you would expect, given the investments you’re making to launch the Nexus products. Any thoughts about, maybe this is an analyst like question as well, but any thoughts as to how you’d expect OpEx to trend going forward? Let’s call the puts and takes of the pandemic and people start traveling? Again, you’re launching new products, but a lot of the development costs of what you’re launching now are already in the run rate I would imagine. So, any thoughts there would be helpful? Thank you.

[Sherri Luther, Chief Financial Officer]

Yeah. Sure. Matt, thanks for the question. So our Q4 OpEx did come in higher as we expected and for the reasons that you mentioned that we continue to invest in our business. We are in a growth mode. So we are specifically investing in R&D and our product roadmap.

Our Q4 OpEx though did come in at 35% of our revenue, which is at our target model and 2020 OpEx, I’ll just note, came in -- dollars came in flat versus 2019, while at the same time, we increased our R&D spend by about 7.5% and reduced SG&A by 4.4%. So really more just -- as we continue more example of how we continue to execute toward our long-term model of 35% OpEx.

And as you can see in our guide, we are guiding to a higher OpEx and that’s because we are in a growth mode again, as we continue to invest in our product portfolio roadmap going forward. We put out -- laid out at our Analyst Day in 2019 that our R&D target is 20% of revenues. So we continue to work towards that goal, while at the same time, trying to keep our OpEx at the 35% target level. So that’s how you can think about it at least in over the next quarters guide and certainly at our Analysts Day will -- in May we will give more color than that.

[Matt Ramsay, Cowen]

Thanks very much.

[Sherri Luther, Chief Financial Officer]

Thanks, Matt.

[Operator]

The next question is from Tristan Gerra from Baird.

[Tristan Gerra, Baird]

Hi. Good afternoon. I was wondering if you could elaborate a little bit on the Q1 revenue that you see strong. Is that server or computing design wins that are ramping? I know you’ve mentioned Nexus. Just trying to see what the primary driver will be for the upside? And also when would you expect Nexus to have a material impact, a positive impact on gross margin beyond the other factors that you’ve mentioned, such as pricing and cost?

[Jim Anderson, President and CEO]

Yeah. Thanks. On Q revenue, a little bit of what we’re seeing by end market is and speaking on a sequential basis from Q4 to Q1. Certainly, if you look at the midpoint of our guide for Q1, it’s up sequentially from Q4. We’re expecting to see sequential growth is, again in communications and computing as revenue growth from servers, but also from those new client computing platforms that we mentioned. So we mentioned that another new platform started shipping in Q4 of last year. So we’ll see benefit from that in Q1. So that’ll help drive some sequential growth in the comms and computing segment.

And then we are expecting to see some sequential growth in industrial and automotive as well. Again, some of those new platforms that are growing with our customers in things like industrial automation and robotics we expect to benefit from in Q1 as well.

We expect the consumer to be sequentially, roughly flat sequentially, and then IP revenue, the smallest component of our revenue. We expect that to decline -- to have a modest small decline sequentially from Q4 to Q1.

And then on the second part of your question on Nexus and its gross margin impact. Yeah, I would expect gross margin impact for Nexus to be a little further out. I wouldn’t expect a significant impact from Nexus high gross margin this year, but maybe in follow on years in ‘22 and ‘23. I would expect most of our gross margin improvement that we would drive for target this year to be focused on continued pricing optimization improvements, as well as continued product cost reductions.

[Tristan Gerra, Baird]

Great. Thanks for the color. And then for my follow up, just wondering if the following hack is driving interest for your security chips into data center, which obviously had a lot of success, what’s the potential timing of security related server refreshes and also can that chip be added to existing system updated required to be part of a brand new server?

[Jim Anderson, President and CEO]

Yeah, Thanks. Good question. Certainly, what I would say is, across virtually all of our customers or customers across all market segments, we’re seeing definitely a lot of interest in security in our security solutions.

Our customers are concerned about making sure that all of their systems are fully secure, all the way from the software level down to the fundamental hardware level. And so the products that we brought to market now, like, MachXO3D or FPGA with special security processing technology are a great way to make sure that our customers are securing their hardware platform at the fundamental hardware and firmware level.

And then, also the Century software stack that we brought out last year, which pairs with that chip to provide a full solution stack, again, seeing a lot of good customer engagement and momentum. So, certainly, customer concern around security and the security of their systems is helping drive customer engagement in our product roadmap around security.

And then the -- Tristan the second part of your question was around -- you had kind of a second part of the of the question.

[Tristan Gerra, Baird]

Yeah. Yeah. To know -- try to look at the potential timing or new design wins going to be for those chips, not only for the MachXO3D link to new server refreshes or can it be at existing architectures?

[Jim Anderson, President and CEO]

Thank you. Yes. So those are primarily targeted new server deployments. It’s -- generally customers don’t do a lot of retrofitting of existing servers that are already been deployed. We don’t see a lot of retrofitting and so we would expect the opportunity of those chips been retrofitted into existing services pretty small. And so most of the, I would say, the vast majority of growth will come from new deployments. So we would -- and that’s really what we’ve been focused on with our customers.

And in terms of the revenue timing, MachXO3D, our first FPGA with that security technology, that started production in Q3 of last year. The production increased in Q4, it ramped nicely in Q4 and we would expect that to continue to ramp this year and we’d get -- it would be one of the growth drivers this year because we’ll see a full year’s benefit of that product in revenue this year in ‘21.

[Tristan Gerra, Baird]

That’s very useful. Thank you very much.

[Jim Anderson, President and CEO]

Yeah. Thanks for the question.

[Operator]

Your next question is from Mark Lipacis from Jefferies. Your line is open.

[Mark Lipacis, Jefferies]

Hi. Thanks for taking my question. My question is on the software side, you’ve been -- you guys have been focusing a lot on investing in software. And my question is, I’m trying to understand what is it getting you that you can have for -- to what extent is the software that you’re investing in expanding Lattice into new markets versus effectively just doing a better job and lock in your customers into the existing markets? Is it -- what was used before, what is your customers do before you’ve developed the software stacks?

[Jim Anderson, President and CEO]

Yeah. Thanks, Mark. So the software stacks, which let me step back and just explain. So we’ve been investing in higher level software solution stacks and that’s really all around making it very, very easy for our customers to design our products into their system and get to market quickly. So they can use the solution stacks as kind of pre-built, ready-to-go software libraries, tools and reference platforms to get to market quickly.

And we’ve launched three to-date, we -- first one was our sensAI, artificial intelligence software stack, second was our mVision, embedded vision software stack and the third was our Century, which was -- software stack, which was focused on security solutions.

And for -- I would characterize it in terms of the customer as two types of customers, customers that are very familiar with FPGAs and then customers that are kind of new to FPGAs. For customers that are already very familiar with FPGAs, this just are already familiar with our products or our competitors products, just makes it really easy to get their system design quickly to switch from a competitor’s product to our product very quickly and get to market.

And then the other category of customer and this is very interesting to us is customers that are typically having used FPGAs in their designs in the past and these are, for instance, customers that have historically used microcontrollers, for example.

And we find that the software solution stack makes it much easier for a customer that used a microcontroller in the past to switch over to our FPGA, and again, get to market quickly. And of course, once that software is integrated into their system that makes us very sticky in terms of future generation systems as well.

And where we’re seeing some of the advantages versus, for instance, microcontroller solutions is, particularly in artificial intelligence applications. If you’re doing inference at the edge of the network and an IoT or industrial IoT application, inference applications, AI applications are inherently parallel and they just run better on an FPGA, because the FPGA can be designed or can be programmed to be a parallel path, parallel data processor and can significantly outperform a microcontroller and can be reprogrammed as the artificial intelligence algorithms change over time.

And so again that software solution stack just makes it really easy for our customers, even microcontroller customers to get at that FPGA benefit really quick, and again, get to market quickly.

[Mark Lipacis, Jefferies]

Great. That’s helpful -- that’s very helpful. Thanks for that color. And then -- and that kind of leads me to the follow up on, I don’t know if it was 10 years or 15 years or 20 years ago, you think about that an FPGA company having like a glue logic kind of a product and would be Altera or Xilinx or Lattice and it seems like you are moving up the value chain, so to speak and adding a higher level of value. And if I think about your security solutions, may be to answer the last question as part of that seems like it’s not like a -- it’s not a standard kind of a solution that seems like you have a lot of its application specific solution, but what’s the right way to think about the markets that you’re prosecuting right now, the competitive environment that you’re prosecuting right now. Is it -- it’s seems like it’s more than FPGA. So is it -- is a microcontrollers, is that kind of what effectively the right way to think about your market opportunities, what -- where microcontrollers are right now. If you could help us -- give us a framework for thinking about that, that’d be helpful? Thanks.

[Jim Anderson, President and CEO]

Yeah. Thanks, Mark. We’re certainly competing against our traditional competitors in the FPGA space and against our traditional vendors. We think we’ve got a great roadmap, particularly in the power efficient small size FPGAs that we produce. But, yeah, we are now competing against people beyond the FPGA space as well.

And I do think that’s part of -- part of that is because we’re targeting and not just being a component supplier, or as you call, the glue logic supplier, but really been a critical architectural element of the solution that we’re going into with our customers.

We’re trying to help our customers solve the architectural challenges and product competitiveness challenges that they’re seeing in their business and that’s really what our products, both hardware and software, are more and more tuned for moving forward.

A great example of that, you mentioned security, that’s a great example, right, of security, platform level security, firmware security, very important to customers. That’s very important to our server customers, but really customers across multiple different markets. And so that’s why we’ve developed, we’ve taken one of our well known FPGAs and added to a security technology, as well as the software on top of it to help customers solve that problem.

Artificial Intelligence is another great example. Customers across all of our market segments are trying to figure out how do I add more intelligence to my system? How do I add more decision making capability. And FPGAs are just a natural fit, and in particular, our low power, very power optimized FPGAs are a great fit for doing AI processing at the edge of the network.

And so, again, with our software solution package, we’re trying to provide not just glue logic, but some of the critical architectural elements of our customers systems. And so, yeah, I would say, that that’s broadening our applicability across the market, which is helping us to compete against a wider range of competitors that we’ve competed against in the past, microcontrollers is one example, but also ASPs is as well. And so but for us, it’s really around focusing on our customer and making sure we’re solving some of the big challenges that face them moving forward.

[Mark Lipacis, Jefferies]

That’s helps. Thank you.

[Jim Anderson, President and CEO]

Thanks, Mark.

[Operator]

Your next question is from Christopher Rolland from Susquehanna. Your line is open.

[Christopher Rolland, Susquehanna]

Hi, there. I also want to echo my congrats on the quarter. Industrial and auto, that was most of the upside for us for our model, I believe auto small for you guys. So I would assume it’s mostly industrial there. But perhaps tell us if that’s not right. But if you could speak to what’s driving it a little bit more specifically there, is it industrial automation, is it vision, is it glue logic or is, in fact, auto, any more color there would be great? Thanks.

[Jim Anderson, President and CEO]

Yeah. Thanks, Chris. I think -- and I think you’re referring to the Q4, the most recent quarter results, right, where we saw…

[Christopher Rolland, Susquehanna]

Yeah.

[Jim Anderson, President and CEO]

… quite a bit of strength -- yeah, quite a bit of strength in industrial auto. So we saw it up sequentially in Q4, up 8% and up year-over-year by 16%, and so, yeah, very good performance in that segment. That is -- definitely that’s driven by industrial. Our automotive segment is still a relatively small percentage of our industrial auto segment.

Now we do see automotive electronics as a good long-term growth opportunity for the company, because our products fit well into a number of different automotive applications like ADAS and infotainment systems and we’ve got a very healthy design win pipeline. But, yeah, the near-term, the recent revenue performance is really driven by industrial.

And what we’re seeing in industrial is, I would say, a couple things. First of all, we did see just some end market -- the end market strength, and in general, towards the end of the year. So we benefited from that. But more of the growth was driven by what we call Lattice specific growth drivers and that is specific customer platforms, new customer platforms that are ramping.

And an example, I’ll give a -- I guess a couple different examples is, one is in industrial robotics. We’re seeing a very quick -- I would say a quickening pace of an adoption of industrial robotics and automation.

I would say prior to the pandemic, we were already seen a tremendous amount of interest from our industrial customers on industrial automation and robotics and safety applications. But I would say with the experience of COVID-19 and the pandemic that is really driven our industrial customers to adopt and industrial automation and robotics and industrial safety much quicker than maybe they had originally anticipated.

And we’re well positioned with a number of new platforms. Our products are really well positioned there in industrial automation, robotics. But also industrial safety applications where our devices could be used to monitor, for instance, a workspace that has both humans and robots in the same workspace and make sure that the robot and human are at safe distances and if the -- if our system sees any potential safety lapses, it’ll shutdown the equipment, things like that.

And so those are some of the applications that we’re excited about both current applications and applications moving forward. And yeah, we’ll give some additional color at that Investor Day in May, about where we see some of the growth moving forward in that segment. But, yeah, we’re quite pleased with the performance in Q4.

[Christopher Rolland, Susquehanna]

Great. And then perhaps a follow up for Sherri. Sherri, I don’t know if you could force rank or just give us a rough idea of the kind of sequential demand for the segments in the March?

[Sherri Luther, Chief Financial Officer]

In terms of the color on our expected markets, is that what you’re asking for, Chris?

[Christopher Rolland, Susquehanna]

Exactly. The sequential movement? Yeah. Just a color on strength?

[Sherri Luther, Chief Financial Officer]

Yeah. So -- yeah. Sure. Absolutely. So from a comms and compute market segment we are expecting that to be up from Q4, industrial and automotive, we’re expecting that to be up as well, consumer we’re expecting that to stabilize more from q4 and then IP we’re expecting that to be down, if you recall, we’ve talked about our normal range for IP is between $3 million to $5 million per quarter and then expecting that to come down slightly over time. So that’s how you can think about the next quarter.

[Christopher Rolland, Susquehanna]

Thanks so much, Sherri. Appreciate it and thank you, Jim.

[Sherri Luther, Chief Financial Officer]

Sure. Thanks, Chris.

[Operator]

Your next question is from Derek Soderberg from Colliers Securities. Your line is open.

[Derek Soderberg, Colliers Securities]

Hi. Good afternoon. Thanks for taking my questions. I want to start with new products. The goal there was start to increase your FPGA market share, add existing accounts. It sounds like there’s a wider range of competitors now. But I guess as it relates to the more traditional competitors, now that you’re starting to see new products ramp and as you’ve had roadmap discussions with those customers, can you describe how that market share dynamic is playing out? I guess maybe relative to expectations.

[Jim Anderson, President and CEO]

Yeah. Thanks, Derek. I would say it’s, the customer engagement is very positive and a lot of customer momentum right now. I think customers see exactly what we see in the landscape is, when you look at the FPGA landscape, our two traditional competitors, Intel PSG, which formerly Altera and Xilinx are focused on making very large, very high power complex FPGAs for primarily for data center, computing applications.

And we’re really focused at the other end of the spectrum. We’re making small, very power efficient, very easy to use FPGAs, a lot of software content on top that can be used across just a really wide range of applications, a number of those applications that I talked about earlier today.

And so when we sit with our customers, our customers see a very fresh, innovative, expanding portfolio of products from us and they don’t see that from anyone else in the industry. And so I think our customers are really excited about the roadmap they see in front of them from us. They see us investing in the segments and in the types of solutions and products that they’re -- that are important to them and they’re excited about.

And I think the other thing that they see is, they just see look over the last, say, 18 months, if you just look at the number of products that we brought out over the last 18 months. It’s about 3 times the number of products that we were bringing out, say, three years to four years ago.

So they see Lattice investing in the roadmap, building out the product portfolio, trying to solve their problems and I think that’s definitely helping drive share gain. We believe we gained share last year and we’re certainly targeting continuing to gain share in the market segment that we serve moving forward. And I think the customer momentum and engagement is definitely there and we’re really excited about it.

[Derek Soderberg, Colliers Securities]

Great. And then as my follow up, I wanted to ask Sherri on buybacks, so this is the first time you’re buying back shares with this team, you spent $15 million. I guess I’m just wondering what are your plans looking forward for additional buybacks or use of cash? Thanks.

[Sherri Luther, Chief Financial Officer]

Yeah. Sure. Thanks. Thanks for the question, Derek. So from a capital allocation perspective, stock buybacks are certainly one of the elements of that. As you mentioned, we did execute on the purchased $15 million in shares in Q4 back. That was under a -- an authorized buyback program that expired in February. So it’s -- we don’t currently have an approved buyback plan right now. But it will continue to be an element of our capital allocation strategy that we’ll look at as we move forward.

The other elements of our capital allocation strategy include deleveraging our balance sheet. We’ll continue to look at that, our leverage ratio which came in at 1.4 for the quarter. You may recall earlier in 2020 we accelerated some of our mandatory debt payments so that we could lock in that lowest interest rate to on our debt. So we continue to be at that lowest interest rate Tier. So that, again, will continue to evaluate on a quarterly basis, but feel pretty comfortable that we’re at the lowest level, as far as the interest rate goes on that.

And really the top priority from a capital allocation perspective is really investing in our product roadmap. So we’ll continue to do that. That -- it’s been evidenced by our 3 times cadence increase in our product launches. So we’ll continue to prioritize that from a capital allocation perspective.

[Derek Soderberg, Colliers Securities]

Great. Thanks.

[Sherri Luther, Chief Financial Officer]

Thank you.

[Operator]

Your next question is from Richard Shannon from Craig-Hallum. Your line is open.

[Richard Shannon, Craig-Hallum]

Well, thanks, guys for taking my question. Jim you had a couple questions early regarding AI that I wanted to ask, kind of follow on and ask a slightly different angle here. Lattice even before your tenure was starting to focus in that area. I think mostly from a hardware perspective. You’ve added the sensAI application stack if I got the name, right, I think a couple years ago. I guess my two -- kind of a two part question here is, how do we think about the success you’ve had in AI applications so far? Anyway you can characterize or even quantify how much that’s contributing to sales thus far, where it could go? And then to the degree to which your software stack is enabled, I’d love to hear some characterization of how that’s going?

[Jim Anderson, President and CEO]

Yeah. Thanks, Richard. Yeah. I would say -- I would put it in kind of two buckets is, first of all, the fact that we’re bringing an artificial intelligence or inference processing capability both in terms of the hardware, but also the software solution is definitely a door opener for us and customers. So the customers that maybe we haven’t engaged with in the past. That’s definitely a great way to open the door and to begin to do business with them.

We have customers across, I would say, every single market that we serve, that, again, are looking at how to -- how do I add more intelligence, more capability, more decision making to my systems. And so for a customer that we haven’t had in the past, it’s a great way to initiate that customer relationship and to begin to work with them on integrating Lattice solutions into their systems.

And then even for customers that maybe we’ve had for many years, it’s really been an opportunity for us to expand the share of wallet, right, expand our share of their spend versus other semiconductors, whether that’s our expanding our share versus other FPGA competitors, where we’re able to offer a better solution, more power efficient, higher performance, better software or some of the other component suppliers that I mentioned earlier. So I think it’s both a way to help us expand into new customers, but also way to expand shareable with existing customers.

[Richard Shannon, Craig-Hallum]

Okay. Fair enough. That’s helpful. My follow on question here was in your clients platforms wins, you’re starting to have some success for within computing. I guess a two part question in that one. First one is, where do you see the share, potentially it sounds like you would characterize or my guess you characterize this is a start -- low and starting point of share? Where can that go over time? And then are these wins -- are they at corporate average gross margins or with high volume PC things, like, I guess I could see them being lower than average, but maybe you can characterize that as well, that’d be great?

[Jim Anderson, President and CEO]

Yeah. Thanks, Richard. So, on the first part of the question. The thing that we love about the client computing market, look, it is a huge TAM. It’s -- I don’t know the -- I can’t remember the exact numbers for this past year, but it’s somewhere in the 250 million unit or more number of units in client computing and so for us that’s a tremendously big TAM.

And significantly bigger, for instance, then the server market, which we’ve had a lot of great success and progress in the server market. And so our objective is really to grow within the client computing space where we can provide a lot of different great capabilities in a client computing platform.

Just a few examples is, we were talking about artificial intelligence just a few minutes ago. We can provide that artificial intelligence capability in a client computing platform. We can detect, for instance, human presence around that client computing platform. We can detect how many people are looking at a client computing screen, for example.

And another example would be, we can provide security technology that makes it assure that that platform is secure. We can also provide signal aggregation and integration capability. So a lot of different ways that we can provide value in the client computing platform and a huge TAM and so we look at it as a great opportunity for the company moving forward.

As I have shared -- we did see a number of new client computing platforms began production in this past year and we will benefit from a full year’s revenue of those platforms this year and into coming years. And as you can imagine, we’ve got more things that we’re working on with our client computing customers.

In terms of gross margins, I would say that, client computing is just part of our overall communications and computing segment. We don’t break out the sub segments of that. But in general, communications and computing runs near our -- in the neighborhood of our corporate average and we would expect applying computing to continue to operate towards the -- around our corporate average, although, our client computing gross margins had been improving along with our corporate average over time.

[Richard Shannon, Craig-Hallum]

Okay. Fair enough. Thank you, guys.

[Jim Anderson, President and CEO]

Thanks, Richard.

[Sherri Luther, Chief Financial Officer]

Thanks, Richard.

[Operator]

I am showing no further question at this time. I would like to turn the call over back to Lattice’s CEO, Mr. Jim Anderson.

[Jim Anderson, President and CEO]

Thank you, Operator, and thanks, everybody, for joining us on the call today. We feel good about the progress that we made in 2020, both in terms of the financial progress, as well as the progress that we made on both the hardware and software roadmaps. As we’ve talked about today, we have very strong customer moment and we’re really excited about the path in front of us. And we, of course, remain very focused on continuing to execute on both the business strategy, as well as our product roadmap and we look forward to sharing more details at our Investor and Analyst Day in May. Operator, that concludes today’s call.

[Operator]

Thank you, sir. This concludes today’s conference call. Thank you for your participation and have a wonderful day.