Lattice Semiconductor (NASDAQ:LSCC) released first-quarter financial results and hosted an earnings call on Monday. Read the complete transcript below.

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Summary

Lattice Semiconductor Corp reported a strong Q1 2026 with revenue of $170.9 million, marking a 42% year-over-year growth, driven by momentum in data center AI applications.

The company announced a planned acquisition of AMI, aiming to create a comprehensive secure management and control platform, enhancing long-term growth opportunities.

Guidance for Q2 2026 indicates revenue of $185 million at the midpoint, representing nearly 50% year-over-year growth, with EPS expected to grow by 80% year-over-year.

Operational highlights include a reduction in channel inventory from three months to close to two months, and a strategic focus on compute and communications markets.

Management expressed confidence in sustained above-market growth, highlighting strong demand trends across AI servers, networking, and industrial automation, with a robust backlog extending into 2027.

Full Transcript

OPERATOR

Ladies and gentlemen, greetings and welcome to The Lattice Semiconductor first quarter 2026 earnings conference call. At this time, all participants are in the listen only mode. A brief question and answer session will follow the formal presentation. If anyone requires operator assistance during the conference, please signal an operator by pressing Star and zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your Host for today, Mr. Rick Mushe, Vice President of Investor Relations. Please go ahead.

Rick Mushe (Vice President of Investor Relations)

Thank you Operator and good afternoon everyone. With me today are Ford Tamer, Lattice CEO Lorenzo Flores, Lattice's CFO and Sanjoy Maite, AMI CEO will provide a financial and business review of the first quarter of 2026, an overview of the AMI acquisition and the business outlook for the second quarter of 2026. Both a copy of our earnings press release and the press release announcing our planned acquisition of AMI can be found at our Company website in the Investor Relations section at latticemi.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 second quarter of 2026.. 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. 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 [email protected] lastly, we've streamlined our financial reporting to better align with our strategic focus. Beginning this quarter, we'll break out revenue across two primary end markets, compute and Communications and industrial and embedded. Our consumer business is now included within the Industrial and embedded end market. For comparability, we've recast all prior period results so you can make a direct apples to apples comparison with that I'll turn the call over to our CEO Borg Tamer.

Ford Tamer (CEO)

Thank you Rick and welcome everyone to our first quarter earnings call. Lattice has delivered an excellent start to 2026 with results that underscore both strong market tailwinds and our disciplined execution against a clear strategy. Our first quarter performance exceeded expectations and our second quarter outlook reflect our expected continued momentum across the business. This is the seventh earnings call since I joined Lattice and I hope we have now demonstrated that we consistently say what we do and do what we say and these positive factors in aggregate provide the foundation for our proposed acquisition of AMI. This acquisition positions Lattice to create the industry's most comprehensive secure management and control platform and enables us to deepen our customer relationships and expand our long term growth opportunity. Now turning to our results and outlook, revenue for the first quarter was $170.9 million representing 42% year over year growth with strength across all end markets. Our compute and communications end market achieved record revenue driven by continued momentum and data center AI application. In Q1, 62% of our revenue came from compute and communications products. With expanding opportunities ahead, as Rick highlighted in the safe harbor, we have now merged our industrial and automotive end market with our consumer end market into what we now term Industrial and Embedded. The revenue from our Industrial and Embedded end market grew more than 20% sequentially, reflecting improving market conditions and expanding adoption of Lattice solutions. As importantly, along with increased consumption channel inventory reduced from three months last quarter to close to two months of inventory on hand and we expect this trend to continue to under two months and Q2. As we anticipated, profitability grew faster than revenue. With EPS up 86% year over year, these results demonstrate the operating leverage in our model and our ability to scale efficiently. As revenue accelerates, demand trends continue to build across AI servers, networking, industrial automation and emerging physical AI applications. We are seeing accelerated bookings which now support a strong backlog that extends well into 2027. We're also witnessing improved customer visibility and healthy design win momentum across our FPGA portfolio. Taken together, we're confident that we're in the early innings of a month to year growth cycle and in our ability to deliver sustained above market growth for the foreseeable future. Our results also highlight the progress we've made in evolving Lattice into a system level solutions company. Customers increasingly value Lattice not just for low power programmable hardware, but for complete solutions spanning connectivity, security, management and control. As system complexity increases, particularly in AI driven and advanced computing architectures, our customers are giving their highest priority to platforms that reduce integration risk, shorten development cycles and enable faster deployment at scale. These trends continue to expand Lattice's role within customer systems, increase attach rates and drive higher value per design. We also continue to benefit from our everywhere companionship strategy, positioning Lattice broadly across the ecosystem. Rather than competing with CPUs, GPUs, or other processors, our low power FPGAs enable and enhance them, providing secure boot power sequencing, platform management, I O aggregation, sensor bridging and control. This approach allows Lattice to participate across hyperscale data centers, communication infrastructure, industrial automation, aerospace and defense, automotive, medical and emerging physical AI applications while remaining silicon agnostic and ecosystem neutral. Looking to the second quarter, our revenue guidance of $185 million at the midpoint represents nearly 50% year over year growth. This underscores our confidence in the accelerating momentum of the business. Our Midpoint eps outlook of $0.44 reflects roughly 80% year over year growth. It highlights the powerful operating leverage in our model and differentiated products we bring to market. We maintain a disciplined capital strategy and believe we'll be able to consistently drive earnings growth that significantly outpaces revenue growth and we are committed to continue to do so. Turning now to the planned acquisition of AMI we announced earlier today, we are excited to have signed a definitive agreement to acquire AMI, a leader in firmware, orchestration and system level manageability. The combination of Lattice's low power programmable hardware was AMI's industry leading solutions including BIOS, BMC and Platform Security create the industry's most complete secure management and control platform. Together we'll enable customers to accelerate development, simplify system integration and bring increasingly complex platforms to market faster across AI servers, advanced compute, communication infrastructure and industrial applications. Strategically, this acquisition represents a pivotal milestone in advancing Lattice long term growth strategy. AMI's firmware is expected to remain processor and silicon agnostic, preserving open ecosystems and customer choice, while lattice FPGAs provide a complementary hardware foundation, reinforcing our everywear companionship strategy. We expect this transaction to be accretive to gross margin, free cash flow and EPS on a non GAAP basis. It also supports our trajectory toward exceeding a $1 billion annual revenue run rate by the end of 2026. We look forward to welcoming the talented AMI team to Lattice and expect this combination to strengthen our system level roadmap and long term growth profile significantly. Looking forward, we're encouraged by the continued durability of demand across our end markets, the depth of customer engagement and the expanding role Lattice plays in next generation system with a differentiated strategy, a scalable financial model and an increasingly complete platform spanning hardware, firmware, security, manageability and control. We are confident that Lattice is exceptionally well positioned for the future. With that, I'll turn the call over to Lorenzo for a comprehensive review of our first quarter results.

Lorenzo Flores (CFO)

Lorenzo thank you Ford and good afternoon everyone. We will begin with an overview of our first quarter, 2026 financial performance and our second quarter outlook, followed by an overview of our planned AMI acquisition. With a quarter this good and guidance this strong, it is worth repeating some of what Ford said. Revenue reached $170.9 million, growing 42% year over year and 17% quarter over quarter. Earnings performance was even stronger as Q1 non GAAP EPS demonstrated the leverage in our model. EPS grew more than 80% year over year to 41 cents, a 30% increase quarter over quarter and above the high end of our guidance. We expect Q2 to continue this growth trend and I'll detail our guidance in a few moments. Back to Q1 revenue growth was driven by a record performance in compute and communications, up 86% year over year and 15% sequentially. We continue to benefit from strong data center growth as Ford told you. Additionally, our industrial and embedded end market grew 21% quarter over quarter, primarily driven by increased demand in factory automation, robotics and medical applications. Q1 non GAAP gross margin was a little better than expected at 70% up 60 basis points quarter over quarter and 100 basis points year over year. Our gross margin continues to reflect the value and differentiation our products provide for our customers. Non GAAP operating expense was $60.8 million, up roughly 8% sequentially and 18% on a year over year basis. Much of the sequential increase is from performance based bonuses and commissions. As our revenue and profitability are exceeding expectations. We also continue to invest in order to capitalize on our near and long term opportunities. Our Q1 non GAAP operating margin expanded 370 basis points to 34.4% and our EBITDA margin increased 310 basis points to 39.6%. Both were a little better than expected. Q1 cash flow was impacted by last year's annual bonus payout as well as revenue linearity in the quarter associated with our rapid growth. GAAP net cash flow from operating activities for the first quarter of 2026 was 50.3 million compared to 57.6 million in Q4. Free cash flow trended with operating cash flow in Q1 free cash flow was $39.7 million, down from $44 million in Q4. We expect a strong recovery of cash flow as we continue to grow. During Q1 we repurchased $15 million of stock. We ended the quarter with $140 million in cash and no debt. Now for our guidance, we are targeting closing the AMI acquisition in Q3. So this guidance reflects expectations for Lattice stand alone in Q2 2026. We expect revenues to grow in the range of $175 million to $195 million at the midpoint of this range. This is almost 50% growth from Q2 25 and 8% over Q1. We expect gross margin to be 70% plus or minus 1% on a non GAAP basis. We expect non GAAP operating expense to be between 64 and $67 million. Most of the growth in OPEX will be in R and D and reflects disciplined investments to drive long term sustained revenue growth. We expect income tax rate for Q2 to be between 4% and 6% on a non GAAP basis. We anticipate non GAAP EPS to be in the range of $0.42 per share and $0.46 per share. At the midpoint of this guidance, we expect that we would again exceed 80% year over year earnings growth as we continue to demonstrate the leverage in our model. Turning now to the AMI transaction, I am just as excited as for our Board of Directors and our leadership team that we have entered into a definitive agreement to acquire ami. AMI is a leader in platform firmware, secure boot device management and system control software. This acquisition represents a strategic expansion of Lattice's capabilities to deliver system level solutions, further accelerating our growth. The total consideration of the deal is expected to be $1.65 billion with $1 billion of cash and $650 million of equity. This is approximately 5.4 million shares. Based on the closing price on May 1, we expect the acquisition to be equally compelling from a financial perspective. With ami, we expect our revenue to exceed an annual run rate of $1 billion by the end of this year. We anticipate AMI's software centric asset light model will further enhance Lattice's already strong business model. We expect that the transaction will be immediately accretive to gross margin, free cash flow and EPS on a non GAAP basis. We will cover our pro forma expectations in more details after we close the transaction. In closing, we are truly excited about our organic growth and financial performance. We are all very enthusiastic about the opportunity to combine Lattice's strengths with those of ami. Finally, the last team remains focused on execution and taking advantage of the expanding growth opportunities ahead. We are well Positioned to drive continued short and long term revenue growth, expand our operating margin, increase free cash flow and grow earnings faster than revenue Operator. That concludes our formal remarks. We can now open the call for questions.

Sanjoy Maite (CEO)

Operator, before we jump into question, can we introduce with us today AMI CEO Sanjoy Maite who has a few remarks. Sanjoy, hello. Thank you Ford at ami, our management team, our employees, board, investors and I, we are equally excited to be joining with you and the Lattice Semiconductor team. The strategy combinations with Lattice Semiconductor pairs the low power programmable leader with the leader in the platform, firmware and infrastructure manageability for cloud and AI data centers. Lattice and AMI shared a long history, a collaboration and a common vision for secure management and control platform. Now together we can build on that foundation, extending the reach of Lattice's low power FPGAs and AMI's trusted platform. While we will maintain the open silicon agnostic multi vendor support our customers value. We also share the same commitment to disciplined execution, strong margins and focus on building values for our investors. Thank you again. I'm very excited and looking forward to build a great future together.

Ford Tamer (CEO)

Enjoy. Great to have you here. Welcome to Lattice and Operator. We can now take questions.

OPERATOR

Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question, please press Star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star and two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset the before pressing the star key. Ladies and gentlemen, we will wait for a moment while we poll for questions. Our first question is from Ruben Roy with Stifer. Please state your question.

Ruben Roy (Analyst at Stifel)

Yes, thank you. Hey guys. Congratulations on the strong results and outlook and the deal announcement. I guess where to start? In the press release you talk about doubling the serviceable available market (SAM) opportunity. Here can you talk about how we should think about that expansion? How much is incremental addressable opportunity from AMI and their existing firmware installed base versus you talk about combined solution categories, et cetera that perhaps neither company could attack independently. Can you help us with that? And I guess as part of that question the core business is inflecting, particularly on the compute side. If you think about 2026, are you thinking about mix of revenue from servers specifically and maybe AI overall? Thank you.

Ford Tamer (CEO)

Thank you Ruben. Good question. So yes, we expect our total serviceable available market to us to double from about what we think was about 6 billion currently to about 12 billion jointly with AMI over the next three to four years. And that main increase would come from this compute and communication subsegment. And as you pointed out, the two major indicators in that segment are the percent server and the percent AI. And so these are a good follow on question on the percent server that has been growing steadily for us from sort of the teens a couple of years ago to this year expected to be in about 38% of our total revenue coming from server. And the second facet to the question in this compute and communications market or sub segment is the percent of our revenue coming from AI? And again it grew from the mid teens in 24 to the high teens last year to where we expected to be about 25% of revenue in 2026. And AMI plus lattice is going to be uniquely positioned to be able to provide solutions to customers in this compute and comms market.

Ruben Roy (Analyst at Stifel)

That's great. Thank you for if I could ask a quick follow up for Lorenzo, it's great to see that you're flagging the deal is immediately accretive on gross margin free cash flow eps. Can you give us a framework for the gross margin profile? I know it's early Lorenzo, but any thoughts on the software and firmware business relative to your 70% non GAAP gross margin run rate at this point? How much of the accretion as you look ahead would be structural versus maybe dependent on synergies, revenue or otherwise? Thank you.

Lorenzo Flores (CFO)

Yeah, so I'm going to. Actually that's a great question, Ruben. And we'll get this again in more detail once we close. The way to think about this acquisition, as Ford said, is it's very strategic and in the midterm opens up really significant growth opportunities for us. But the really nice thing about it immediately is thinking about this deal strategically and looking at the very complementary P and L structure operating model that AMI has, we are not dependent upon synergies to make the deal accretive. In fact, AMI's business is very high gross margin. It's higher than ours and we'll share some more detail on that later. Then they have a different structure, but at the operating margin level it's pretty close to ours. They generate a very significant EBITDA percent of revenue and that's close to ours and maybe slightly above ours right now. So if you think about it that way, you can see that there is not a dependency on cost cutting. We'll look at efficiencies through time for sure, but on a go forward basis we're able to fund the debt and cover the interest and still show accretion immediately.

Ruben Roy (Analyst at Stifel)

Appreciate all the detail. Congrats again. Thank you.

OPERATOR

Our next question comes from Christopher Roland with Susquehanna International Group. Please state your question.

Christopher Roland (Analyst at Susquehanna International Group)

Hi guys. Thank you for the question. So yeah, I just wanted to dig in a little bit more on the strategic value of ami. So I just looked over the website and it seems like they offer firmware but also like infrastructure management software. Would love to know just kind of the cross synergies here between lattice SDGAs and what you're going to do with this software. And perhaps if you could also talk about the growth rate for AMI. I know you talked about 200 million revs in 26 but that growth rate expectation moving forward would be very helpful for us as well.

Ford Tamer (CEO)

Yes, thank you Chris. So let me start in trying to explain this. Let me start going to my background where I've done this twice already. So this is the third time that I do something very similar. So when I was at Broadcom we were actually second on the switch market share to Marvell and we by the time I left our team had done a great job becoming number one. And one of the key acquisitions we did along the way was a company called Level 7 Systems that provided us with protocol software. And what we're able to do is to use that to come up with reference design for the ODMs in Taiwan that made it much faster for customers to go to production with their switch system. And so this is number one that was successful and very relevant to discussion we're having. And again this protocol software, don't think about it as software, think about it as hardware. So this is very low level stuff. And then the second one was at INFI where we were actually when I joined we were sending a tia. By the time I left we were the number one leader in optical interconnect. And in that journey we decided along the way to have a partnership with Microsoft to deliver a DCI model for Microsoft between data center 80 kilometer at the time was called Colors Project and some of you on the line know it very well and that sort of complementary addition of a system or subsystem scale if you wish with module was very critical. We debated at length whether this was going to be a departure from selling silicon and components, but it made and it was about almost 80, 20, 80% of the business ended up being these components that we're selling as a platform and 20% of the business was this module that we're selling to. It started with Microsoft, eventually became the whole market and Today it's very standardized across the whole market. But the addition of that module system subsystem skills were very critical in the success because these folks helped the folks on the silicon side go to market faster and do a better job. So the history of AMI has 40 years of developing these test cases and very deep knowledge of the whole industry from server to switch to NIC to. They're the first ones to be brought up. When a CPU gets brought up, they're the first ones to be brought up. When a GPU gets brought up, they're the first one to be brought up along with a lot of system. They're a very key complementary partner to the bmc, the board manager and controller today. And we intend to continue to be a very strong partner to all of these board management controllers, the hp, the nuvoton, the nxp, the others in the market. And so it's an extremely strategic move for us that complements our, our FPGA low power FPGA business. And the growth rates are going to be in the high teens and we expect next year to be actually accelerating. And we do expect to come to solutions to market together that will end up growing our revenue faster than you can see. We're growing at 40% on the revenue and by the way, you notice we grew 80% on EPS and we should be able to grow faster on both revenue and EPS together in the 28th time frame as these solutions go to market. Solutions are being feed today in discussions today we had many discussions with many customers about this solution. They're very excited about it and it's going to be a very exciting, very exciting growth. Now we've got a presentation investor deck on our website and if you could turn to it please, that details the AMI acquisition and on slide 5 it shows you the challenges that the data center face today. As you go from managing servers to racks to post. Now the whole data center, this modularity becomes extremely important. AI is adding a lot of complexity. Uptime these components, gpu, switch are very expensive. Uptime is very key and there is a huge pressure on time to market and shift left as shown on slide 5. And then if you jump to slide 11, slide 11 shows. I'm sorry, slide yes 11. It shows the solutions that we are providing together to these challenges. And so things like rack, boot, power and cooling, retrofit and plug and play are going to be solutions that we provide together along with our low power FPGA and the platform, firmware and manageability infrastructure that AMI provides. So very exciting future Ahead.

Christopher Roland (Analyst at Susquehanna International Group)

Excellent. Thank you for that, Ford. And congrats on this deal. I guess maybe as a follow up, if you could talk about, I think you guys said inventory maybe was even under two months at this point in time. I mean, we should have an uplift here. I think we can see it in the guide. But if you want to talk about it more broadly, just as you are no longer burning and could there potentially even be an opportunity to refill? You know, how are you guys thinking about all this into the future and next quarter? Will we be balanced?

Ford Tamer (CEO)

Yeah, good question. Good question. So look, I mean, we're very excited about it. And what I would say, Chris, is this is part of telling you what we're going to do and do what we say. So I told you when we joined, when I joined now about a year and a half ago, this is my seventh quarterly call, that we're going to bring this under control. When I joined, the numbers were closer to six. And we told you we'd be at three by end of last year and we did. By end of 25, we got to three. I told you we were going to be in the 2s. We are in the twos. And I told you actually we'll bring it under 2. And we're on our way to under 2. The last time the company was under 2, we had 10 good quarters ahead in 1X. So we may be entering a very strong period here. You can see our industrial embedded business grew 22% sequentially, which is amazing. Amazing and hopefully more to come. Lorenzo, you wanted to add to this?

Lorenzo Flores (CFO)

Yeah, I think the way to think about channel inventory right now is it's no longer a business imperative to bring it down. What we're really working on is keeping the right balance of inventory at the distributors across the globe and the right type of inventory so that they can service their customer needs. So I think this is what I would characterize as a non issue for Lattice going forward and really happy that we were able to manage through this. And now what we get is much greater visibility, much more direct visibility into what end customers are demanding. So our build is much more efficient.

Christopher Roland (Analyst at Susquehanna International Group)

Thank you guys. Appreciate it.

OPERATOR

Our next question comes from Melissa Weathers with Deutsche Bank. Please state your question.

Melissa Weathers (Analyst at Deutsche Bank)

Hi there. Thank you so much for letting me ask a question. Congrats on nice results, an interesting deal and Tanjoy, looking forward to working with you in the future. I guess for my first question, I wanted to touch on the data center side of things. In the past, you guys have given like an fpga attach rate per server. And it seems like the applications that you can use an FPGA for in the data center is growing massively and those conversations with engineers are happening live. We heard Jensen talk at GTC about using more FPGAs in those racks. So can you help us? I don't know if there's an updated framework that we can think about in terms of FPGAACH in the data center. I'm also really curious on the wireline side in addition to the server side. So any help on, I guess content in the data center would be helpful?

Ford Tamer (CEO)

Yes. Thank you, Melissa. So the couple of trends that highlight in the recent customer visits I had to a server OEM and they showed me how the unit of a rack is now gone from where they had all in one rack to now four racks together. A compute rack, a networking rack, a power rack, and a cooling rack. And so that's one change that is pretty profound and is going to allow us to increase our content in the comms as well as power and cooling. The second one when you go visit these data centers is you realize now these cooling racks are actually attached by these big pipes coming from the ceiling. It's going to be much harder to change these cooling racks. And so these cooling racks may have a longevity need that's actually closer to our industrial embedded business that may last for many years as opposed to the faster cadence of moving on the compute side. In the presentation that we have about AMI, we are highlighting rack boot on slide 11 where now some of these again, a new application where the cloud would like to not just power up a server at a time, they'd like to power up the whole rack at one point. And we can have some very interesting application RPGA in that new application. And so that's pretty exciting. The third bullet there on slide 11, you could see that of that AMI application, you could see that people want to go and redfit some of their older systems for better uptime and better security, better fault detection. Again, that's another new opportunity. And so we're finding opportunities all the time. And from a modeling point of view, we still have this forecast of about 16.5 billion servers in 2026. We're roughly saying about 3 FPGA per server overall. Okay, that gives you a number of total fpga and we're roughly saying you can calculate the percent, you can calculate the business. Right. We just gave you today what we don't typically do, but we gave you a breakdown of that server business in Q1 so you could take that 38% I just gave you and you've got Our number for Q1. You could see how much revenue we have and gives you a bit of an asp. So that gives you all you need I think.

Melissa Weathers (Analyst at Deutsche Bank)

Melissa, by the way, our ASP is continuing to increase on a per unit basis through this progression as we keep finding more value added opportunities for our customers.

Ford Tamer (CEO)

Yes. So as we said in the past, Melissa, what was helping us? Number of server increasing, AI increasing. Actually even shorter term we've seen a big demand increase not just only from AI, but traditional CPU and storage because of things like cloud and other agentic type of coding have driven not just the AI but also the traditional CPU and storage. The attach rate to continue to find new applications, new ASP with new product. The ASP continues to increase, hence increasing that server dollar amount. Perfect. Thank you for all the color. And then maybe just a quick follow up. I mean these growth rates seem to be a lot faster than maybe what we were expecting coming into the year. So from a supply perspective, can you just talk about your ability to secure supply? It seems like your customer visibility is increasing, but what about your supplier visibility? Do you have the front end? Do you have the back end? Is there anything there that we should. Our senior VP of operations, Divya Shah has been in the industry for a long time. He lives on a plane and lives as a supplier and we've had many calls where our supplier definitely have are strained. This definitely is training us and working hard on it though and we have been able to secure supply. It comes at a cost, so the cogs are challenging, but we're working with our customers and our suppliers to deal with this and we're in good shape.

Divya Shah (Senior VP of Operations)

I think unlike some other industry players, you know, our wafers are more legacy-node wafers and our supply there is less challenged. The back end is where we see pressure and we keep expanding our supply chain in that area to provide a diversity of suppliers and additional capacity. And we're actually beginning to bring our lead times down as we get that expanded supply.

Melissa Weathers (Analyst at Deutsche Bank)

Perfect. Thank you. Yeah. Okay,

OPERATOR

our next question comes from Trishan Guerra with Robert W. Beard. Please state your question.

Trishan Guerra (Analyst at Robert W. Baird)

Hi, good afternoon. Just as a follow up to a earlier question, is there any step function increase in the content for root trust security with the upcoming Kyber and payment platforms? And also is there any potential for event content in data center or is that going to be in other end markets? Yes, we're not commenting on specific platform, but our security continues to be a major factor in allowing us to grow our business here. So and the second question was regarding event and whether there is any data center potential opportunities for the higher density FPGA that's coming out.

Ford Tamer (CEO)

Yes, absolutely, absolutely. Can you. I'm not sure. Can you be more specific? Can you. I'm not sure we understand the question. Go ahead. Yeah, I was just wondering, you know, what type of use cases you see for events and whether there's any data center applications, you know, potentially data paths or anything else outside of root of trust security or even for root of trust security for events. Okay, I'm sorry, I get it now. So you're asking whether our mid term mid range FPGA Avant platform, has application and data center and so far it's been mostly our pre-Nexus and Nexus product is what is applicable for data center. As time goes by, Avant may find its way there, but Avant is really focused on our industrial embedded platform segment.

Trishan Guerra (Analyst at Robert W. Baird)

Okay, okay. And then just a quick follow up. You know, your gross margin starting to increase again and your lead times have been expanding, which typically is good for ASPs. I know you only guide a quarter at a time, but what's the potential for gross margin to go higher given the supply constraint and the state of demand versus supply?

Lorenzo Flores (CFO)

Yeah, we talked about this a few times, especially leading into the year where we thought that we should be prudent about our outlook in gross margin because we saw the supply chain increases coming and what we have been able to do is continue to work with our customers on ways to offset the cost increases we're seeing. We do also though expect that the cost pressures will continue and increase relatively in the second half of this year versus the first half. So we haven't gone. We're just, you know, given where we are in the year, we are not going to give very precise guidance about the second half of the year, but we are in the range I said before, 69.5% plus or minus one this quarter. We happen to be 70% a little bit higher than that. But this is going to be the approximate range we see going forward. And we will provide you more specific guidance as we get into the second half of the year on how the cost increases are playing out.

OPERATOR

Great, thank you. Our next question comes from Joshua Buchalter with TD Cowan. Please state your question.

Joshua Buchalter

Hi guys, this is Lanny on for Josh. Congratulations on the quarter and I'll extend my congratulations for the deal as well. Focusing on the core business really quickly. You mentioned that Lattice is still on track for hitting that over 1 billion run rate in the fourth quarter of this year. Can you clarify if that's specifically for the core business or is that inclusive of the AMI acquisition as well? Since I know you've given kind of estimated revenue for the year, it is

Lorenzo Flores (CFO)

inclusive of the MI acquisition.

Joshua Buchalter

Got it. And then specifically was there a follow up to that? Sorry, I had a follow up question afterwards, but is there additional thoughts? Go ahead. As it relates to ami, I'm curious to know what kind of capabilities did this give Lattice that you didn't have before and if you could talk about AMI's current go to market monetization strategy and how that fits in with Lattice's business model currently and then going forward as you integrate together. Thank you.

Ford Tamer (CEO)

Yeah, thank you. So first, as you said, we together expecting to exit the year at this billion run rate at this roughly 40% free cash flow. So you could see we'd be able to deliver pretty fast from there. So that's what we think is a beautiful business. The combination is going to be very strong financially and then from a capability point of view, it gives us much stronger system skills jointly and allow us to bring these solutions to customers much faster. So it's a capability that we'll be adding. We'll be able to discuss further at the next quarterly call. So when we get in front of you to discuss Q2 and guide to Q3, we'll be able to give you a lot more details on some of the AMI business and go into a bit more of the detail on their financials. But today we want to focus on our business, introduce the acquisition and it's going to take us a couple of months to close, expected in early Q3 and at that time we'll be able to fully give you all the details on their business.

Joshua Buchalter

Thank you very much.

OPERATOR

Our next question comes from Quinn Bolton with Needham and Company. Please state your question.

Quinn Bolton (Analyst at Needham and Company)

Thanks for squeezing me in guys. I'll also add my congratulations for maybe just a high level question on AMI acquisition. AMI talks about security board management. You've historically talked about similar things for your FPGAs. And so can you just spend a minute? Is there any place where the two businesses compete or is it truly complementary? Does the Lattice FPGA root of trust protect the AMI firmware bios as it resides in the servers? Is there any sort of direct overlap between the two businesses?

Ford Tamer (CEO)

Great question, Quinn. We have been working together since 2019, so it's been seven years of close collaboration. There is no place where we compete. This is Totally complementary and it's actually very complementary to our customer and should really benefit our customer and partners. And we are committed to remain agnostic. They support all the other silicon partners and we are partnered to the same silicon partners. So we see it very complementary and beneficial to our, not only the customers but also the partners. And so it should be very strong. One plus one equals three. And St. John is sitting with me today. He has plans for 4, 5 and 6, hopefully and he's laughing here. Excellent, excellent.

Quinn Bolton (Analyst at Needham and Company)

And then obviously you guys, great start to the year in terms of revenue growth. I think we came into the year thinking that the server business could be up something like 20 to 40% industrial and now I guess the embedded business up 5 to 15 looks like you're tracking well above that. I don't know if you're prepared to perhaps talk about growth rates for those businesses given the strong start to the year, but I figured I'd ask.

Lorenzo Flores (CFO)

Well, for the year it's still early. I would say that the trend that started late last year and has led to our results in the first quarter continues. And that trend is our business continues to book in very, very strong. The customers are continuing to increase their demand and we are booking out even longer in time. So at this point in time we have high confidence that our growth this year will be strong. It will be stronger than we originally thought. At the beginning of the year. Common COMPUTE as an end market will be the key driver of that for the reasons we all know. Industrial and Embedded though is recovering and we saw signs of that in the first, in the first quarter. I would say the extremely high year on year growth rates might not hold for the rest of the year for the compute and the server, but will be pretty strong and the comms business will be aligned. It kind of goes up and down relative to the compute growth rate, but it's still going to be pretty high. And like I said, Industrial and embedded will continue to grow, but probably not at the rate that we saw in Q1 versus Q4 of last year. They did grow 10% year over year industrial embedded and that's a pretty good range to think about the year.

Ford Tamer (CEO)

And Quinn right now, as Lawrence was saying, the demand is strong for the foreseeable future and bookings well into 27.

Quinn Bolton (Analyst at Needham and Company)

Got it. And can I ask a quick just clarification on the deal? Will THL partners be locked up for any period of time post close on that 650 million of equity issued or are they free to sell once the deal closes?

Lorenzo Flores (CFO)

Yeah, they, they Have a lockup that extends through the year. It's 25% per quarter. 12 months from close. Yeah, 12 months from close for a year, not through the year.

Quinn Bolton (Analyst at Needham and Company)

Thank you. Perfect. Okay, thank you.

OPERATOR

Our next question comes from Tukwin Jiang with Bank of America. Please state your question.

Tukwin Jiang (Analyst at Bank of America)

Thank you for taking the question and congrats on the strong results as well. Just following up on some of the earlier gross margin questions you've been talking about bookings well Strong well into 27. Backlog is building up, the lead times are expanding. You notice that the AMI margins are stronger. So is it possible that the margin structure now is more structurally just higher than before? I think you're touching into untouched territories. I think you haven't really sustained 70 plus before but now should we think this is something more achievable at this

Ford Tamer (CEO)

point Now, Daxton, this opens up opportunities for us that we may have been shied away from before and across the various markets. So we don't intend to go much above that. And we can we sure we can. But I think right now there are opportunities for us that we haven't gone after that we could go after. So it could potentially open up a higher top line.

Tukwin Jiang (Analyst at Bank of America)

Got it. And then one follow up is just on broader competitiveness of the supply chain. And I ask this because clearly intel has now divested Altera and it's now a standalone company. We haven't heard much since from them but they clearly have a much different supply chain with the internal manufacturing team. So do you think that gives them a lot more advantage in this supply constrained environment? And if not, could you explain why? Thank you.

Ford Tamer (CEO)

Yeah. Look our supplier have been fantastic. We are with umc, Samsung and TSMC on the fab side and extremely supportive and you know we have strong assembly and test partners. We adding more because this is where the shortages are. And so so far we feel very good about our supply chain, our ability to supply. So that's not an issue for us.

OPERATOR

ladies and gentlemen. That concludes the time we had for the Q and A session. I will now turn the call back to the company's Rick Mouche for any closing comments.

Rick Mushe (Vice President of Investor Relations)

Great. Thanks everyone for joining us on the call today. We'll be attending the following investor events this quarter. The JPMorgan 2026 Global Technology, Media, and Telecommunications Conference on May 19th in Boston and the TD Cowan 54th Annual Technology, Media, and Telecommunications Conference in New York City on May 28th. This completes our call. Thank you very much for your participation

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