Lattice Semiconductor - Q2 2023

Transcript

Operator (participant)

Greetings! Welcome to the Lattice Semiconductor Q2 2023 earnings call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I'll now turn the conference over to your host, Rick Muscha, Senior Director of Investor Relations. You may begin.

Rick Muscha (VP of Investor Relations)

Thank you, operator. 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 Q2 of 2023, and the business outlook for the Q3 of 2023. 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 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 Q3 of 2023. 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 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.

Srinivas Pajjuri (Managing Director and Senior Research Analyst)

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

Jim Anderson (CEO)

Thank you, Rick. Thank you everyone for joining us on our call today. We delivered strong results in the H1 of 2023, with H1 revenue growing 20% year-over-year, and non-GAAP net income increasing 29% over the same period. We're pleased with our H1 results. We're even more excited about the path moving forward as we continue to drive the largest product portfolio expansion in the company's history. Let me touch on a few Q2 highlights. We achieved record revenue growth in Q2, with growth of 18% year-over-year. Q2 was also our 13th consecutive quarter of sequential growth. We expanded non-GAAP gross margin by 140 basis points year-over-year to a record 70.5%, and non-GAAP net income increased 23% year-over-year.

Let me now provide an overview of our business by end market. In the communications and computing market, revenue was down 3% sequentially and down 11% on a year-over-year basis. The sequential decline was primarily due to softer end market demand in communications infrastructure applications, which was partially offset by sequential growth in computing, where we saw a strong demand in data center applications such as servers used for artificial intelligence. Turning now to the industrial and automotive market, revenue increased 7% sequentially and was up 55% year-over-year. Our strong growth was across multiple applications, such as industrial automation and robotics, as well as automotive ADAS and infotainment systems. We continue to deliver robust growth in this segment, and we believe our product portfolio is well positioned to drive sustained long-term growth. I'll now provide some product roadmap highlights.

At our Analyst and Investor Day in May, we detailed the broad and rapid expansion of our product portfolio. We're driving the largest product portfolio expansion in the company's history, which continues to create new revenue streams for Lattice. We've launched six device families to date based on our Nexus platform, with five of those device families in production and ramping with customers. On our new Lattice Avant mid-range FPGA platform, we launched the first device family at the end of last year and continue to expect to generate revenue from this family before the end of this year, with the revenue ramp continuing into next year and the following years. In addition, we remain on track to further expand the Avant platform offerings with the planned launch of two new Avant device families at our Lattice Developers Conference in Q4. Turning now to our software portfolio.

Software is a key component of our strategy, and it's an important part of how we enable our customers. We built a portfolio of application-specific software solution stacks, which accelerates customer adoption and enables faster time to market for our customers. We recently launched Lattice Drive, which is our sixth software solution stack and is targeted at a variety of automotive electronics applications. We believe customer adoption of our software drives long-term multigenerational stickiness for our solutions. Overall, we continue to be pleased with our execution of our portfolio expansion and the customer momentum that it's generating. While we're certainly not immune to any macroeconomic challenges impacting the industry, we believe Lattice continues to be well positioned for long-term growth and expansion. I'll now turn the call over to our CFO, Sherri Luther.

Sherri Luther (CFO)

Thank you, Jim. We are pleased with our financial results in Q2 as we continue to deliver double-digit revenue growth, record gross margin, and strong profitability. We generated strong free cash flow, returned capital to shareholders through our 11th consecutive quarter of share buybacks, and subsequent to Q2, have fully paid off our debt. Let me now provide a summary of our results. Q2 revenue was a record $190.1 million, up 3% sequentially from the Q1 and up 18% year-over-year. Q2 was the 13th consecutive quarter of sequential revenue growth. Both sequential and year-over-year revenue growth in industrial and automotive offset the revenue decline in communications and computing.

Our non-GAAP gross margin increased 20 basis points in Q2 compared to the prior quarter to a record 70.5% and was up 140 basis points on a year-over-year basis. Both the sequential and year-over-year increases in gross margin continue to be driven by consistent execution on our gross margin expansion strategy. Non-GAAP operating expenses were $58 million, compared to $54 million in the prior quarter and $49.9 million in the year ago quarter. Both R&D and SG&A expenses increased sequentially as we continue to make investments in our product roadmap as well as in demand creation. Our non-GAAP operating margin was 40% in Q2 and was up 190 basis points compared to the year ago quarter. We continue to balance operating margin with investments that will drive Lattice's long-term revenue growth.

Q2 earnings per diluted share was $0.52, compared to $0.42 in the year-ago quarter. This represents 24% year-over-year growth and is faster than our revenue growth. Driving strong cash flow generation continues to be a key focus area for the company. In Q2, we generated a free cash flow margin of 35% and returned capital to our shareholders by repurchasing $10 million in stock, or 122,000 shares, in the 11th consecutive quarter of our share repurchase program. During Q2, we also paid down $60 million in debt. Subsequent to Q2, we paid off the remaining $45 million of outstanding debt, and the company is now debt-free. We ended the quarter with $104 million in cash. Let me now review our outlook for the Q3.

Revenue for the Q3 of 2023 is expected to be between $187 million and $197 million. Gross margin is expected to be 70.5%, ±1% on a non-GAAP basis. Total operating expenses for the Q3 are expected to be between $58 million and $60 million on a non-GAAP basis. In closing, I am pleased with our financial results and continued execution, despite the continuing macroeconomic challenges impacting the industry. We remain focused on driving further revenue growth and profit expansion. Operator, we can now open the call for questions.

Operator (participant)

Thank you. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of Srinivas Pajjuri with Raymond James. Please proceed with your questions.

Srinivas Pajjuri (Managing Director and Senior Research Analyst)

Thank you. Thanks for taking my question. Jim, first one for you. Obviously, very strong quarter with 18% growth, and you're guiding for double-digit growth again next quarter on a year-on-year basis. Some of your peers have talked about potential slowdown in the H2. I'm just curious, as we, as we look through the, I guess, next few quarters, can you talk about, you know, where you're seeing continued strength and where you might be seeing somewhat of a macro slowdown in, in terms of your end markets?

Sherri Luther (CFO)

Yeah, thanks for the question, Srini. You know, first of all, really pleased with the results in the H1 of this year. If we look at H1, 20% year-over-year growth, pleased with that relative to, you know, the fact that we've had, you know, couple of years now of really strong growth, plus, you know, relative to the overall kind of broader semiconductor industry performance. Pleased with the H1, and, you know, if you look at the midpoint of our guidance, we guided up sequentially for Q3.

I think first, if you look at it from a, a customer or market perspective, if I look at, you know, what's the source of that growth in the H1, the vast majority of that growth is coming from new design wins, new revenue streams that have really just begun production and initiated within the last, say, 12-24 months. We look at that to be really positive in that those revenue streams are fresh revenue streams that are kind of early in their life cycle and ramping. They're underpinned by multiple different growth vectors, you know, growth in industrial automation, robotics. The industrial segment has been a really good performer for us. Growth in automotive electronics, you know, continued content expansion and things like data center servers, networking equipment, those are just a few examples.

We feel well-positioned in terms of the freshness of the revenue and kind of the, the growth vectors that, that, we're positioned in. Also, you can look at it from a product perspective, and we're, frankly, we're just going through so many new product cycles and product drivers. If you look first at just the portfolio we have today, it's the strongest product portfolio we've had in the company's history. I think our customers would say the same. We're in the middle of the biggest product portfolio expansion in our history, too. Also from a product perspective-

Jim Anderson (CEO)

... you know, we've got multiple new product cycle drivers. You know, Nexus is an example. Nexus, our newest platform for small FPGA, we're, you know, now have 5 different device families based on Nexus that are in production and ramping. We have a 6th that we've launched that's, that'll go into production next year. More to come on the roadmap. Nexus will, will continue to ramp, we believe, for multiple years to come. Avant, our new mid-range FPGA platform, that revenue and that revenue ramp is still ahead of us. We feel good from both a market and, and a product position in terms of our ability to continue to grow over the long term. Certainly not, you know, not immune to any end market fluctuations.

You know, we would feel that just like everybody else, but we feel well-positioned for, for growth over the long term, given the Lattice-specific growth drivers.

Srinivas Pajjuri (Managing Director and Senior Research Analyst)

Great. Thank you for that answer. I guess, as you look at your new products, and in particular, the Avant mid-range products, Jim, you talked about some of the new products ramping, you know, which were launched in the last, you know, 12 to 18 months. Just curious how, you know, Nexus design cycles compare with Avant. You know, are the Avant cycles a little longer, somewhat similar? Also, if you can talk about where you're seeing the most traction in terms of the Avant product, you know, the, the designs, you know, the, the, you know, I, I think you talked about potentially generating some revenue this year. If you can talk about which end markets, you expect the revenue from?

Jim Anderson (CEO)

Yeah. Thanks, Srini. First of all, on the design cycles, you know, in terms of the timing of the design from when, say, a design is won to when it reaches production, the Avant design cycles are very similar to Nexus in that standpoint, right? We, we look at the timing of the revenue to be very similar. The ASPs of Avant are different. ASPs of Avant are significantly higher than Nexus, about 10-20 times higher than if you look at the company's average ASP today. Significantly better ASPs, but similar cycle times in terms of time to, to revenue. Then on the second part of your question around just traction of Avant, you know, we're really pleased with the, you know, continued growth of the Avant design win pipeline.

When we launched Avant in the platform at the end of last year, we also launched the first device family in that based on that platform, Avant-E. We continue to expect the first revenue for Avant-E to begin before the end of this year. It'll be a small amount of revenue this year, but it's an important milestone for us to generate first revenue before the end of this year, and then it would continue to ramp into next year and beyond. Also remember, at our Analyst and Investor Day, we also announced that we would launch two additional device families based on Avant later this year, and those will launch, we expect, at our Developers Conference, which is scheduled for Q4 of this year.

Yeah, we feel really good about progress with Avant, and certainly stay tuned. We'll share more about, you know, our next product launches, Avant G and X, as we get closer to those that launch date in Q4.

Srinivas Pajjuri (Managing Director and Senior Research Analyst)

Thank you. That's all I have.

Operator (participant)

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

David Williams (Senior Equity Research Analyst)

Hey, good afternoon. Thanks for taking my questions, congrats on the execution and stability here. I guess my first question, Sherri, just, kind of thinking about the, the debt payoff, and, and congratulations on being debt-free. I'm curious if, if this changes your approach to the capital structure going forward, and maybe how we should think about, your appetite for leverage, down the road.

Sherri Luther (CFO)

Yeah. Thank you, David, for the question. We are really pleased that, sitting here in Q3, that we have 0 debt outstanding on our balance sheet. As I noted in my prepared remarks, subsequent to the end of Q2, we did pay off the remaining debt that we had on the balance sheet. It's really, really due to the strength of our free cash flow for the quarter. We had 35% free cash flow. I'm really pleased with the, with the strength there, that we were able to pay off our debt balance. From a capital allocation perspective, 1 priority for us is investing in our long-term product roadmap, as well as demand creation. That continues to be a priority for us.

You can see that with the rapid expansion of our product portfolio and the investments that we've been making in those areas. You can see that in our P&L. The other areas that we focus on from a capital allocation perspective is really returning capital to our shareholders. You see that in Q2, we executed on our eleventh consecutive quarter of share buybacks, where we repurchased $10 million in stock. We're really pleased with that. We do have another $110 million still outstanding on the board authorization, and that expires at the end of this year. We'll continue to focus on cash and the free cash flow and evaluating the best use for cash on a quarterly basis.

David Williams (Senior Equity Research Analyst)

Great. Thanks for the color, Sherri. Maybe, Jim, just then, you talked a little bit about the automotive industrial in the last question, just kind of curious, if you could give maybe a little more color around the industrial segment, specifically. Maybe what you're seeing there. It seems like there's some undercurrents here, where some more are thinking industrial automation is slower in robotics, it sounds like yours are, is pretty strong. Maybe just any puts or takes or what you're seeing around the industrial segment specifically. Thank you.

Jim Anderson (CEO)

Yeah. Thanks, David. Yeah, we, we continue to see good strength in the industrial, and I'll, I'll include in there automotive as well, both industrial and, and automotive. Again, in industrial, it's primarily around... industrial automation, robotics, automotive, electronics, that's really around ADAS and infotainment systems. Yeah, we continue to see good, healthy demand there. Again, I'll, I'll emphasize what I said earlier, which is, you know, a lot of those, those revenue streams that are driving growth for us, the vast majority are fresh revenue streams. If you think about the lifetime of those revenue streams, we're still early in the lifetime of those new design wins, new revenue streams that, that we've seen ramping. We feel good about, you know, continued growth in that segment.

Certainly, over the long term, we, we continue to view industrial and automotive as one of our key growth areas over the long term, as we highlighted in the Analyst and Investor Day back in May.

Operator (participant)

Our next question comes from the line of Matthew Ramsay with TD Cowen. Please proceed with your question.

Matthew Ramsay (Managing Director and Senior Analyst)

Thank you very much. Good afternoon, guys. Jim, I, I wanted to ask a little bit about, and obviously, the industrial and comms business is super strong over the last few quarters. We've been hearing a little bit about lead times potentially coming in. If you could maybe level set us on, particularly your industrials business, but comms as well, just how, how you're seeing sort of end customer demand, the channel, and lead times in that business, and how you're thinking about trends over the next couple of quarters in that segment, given the massive results you've seen in the last couple of quarters. Thanks.

Jim Anderson (CEO)

Yeah, thanks, Matt. In, in terms of lead times, in general, I think you're asking about Lattice lead times, just to clarify. When we talk about Lattice lead times, we're, we're certainly seeing our lead times return to what we'd view as normal, closer to normal lead times, sort of lead times more consistent with pre, pre-pandemic supply chain, you know, ahead before that, that supply chain crunch that we saw. Yeah, we just continue to see lead times normalize, which we view as very positive. It's that's positive for our customers, our distributors, us as well. Yeah, think about lead times continuing to normalize. In the industrial segment, as I, as I just mentioned, you know, we, we continue to see good demand. If I look at our Q3 guidance, we...

You know, if you look at the midpoint of Q3 guidance, we guided up sequentially. We would expect the industrial and automotive segment to be up, you know, sequentially or flat to sequential growth from Q2 to Q3, consistent with our overall guide. I, I think you, you mentioned comms as well, communications. Now, in Q2, we did see some softness in communications infrastructure, specifically in wireline and wireless. We saw some end market softness, related to, I think, you know, slower capital spending around 5G build-out, et cetera. We saw a little bit sequential revenue decline from Q1 to Q2, in that, in that, communications and computing segment. That was partially offset by, we saw a pickup in demand for servers, our chips going into servers that go into data centers.

Those are kind of some of the puts and takes that we saw in the Q2 timeframe. Hopefully, that's a little bit of additional color and just kind of what we're seeing by end market.

Matthew Ramsay (Managing Director and Senior Analyst)

Yeah. Thanks, Jim. I, I appreciate it. As, as my follow-up, I, I wanted to ask about, we're, we're getting really, really close to when Lattice Avant starts to contribute to revenue a bit, and you guys were kind enough to give us a little bit of insight into software attach rates for Lattice Nexus and what that might mean for, for ASPs at, at your investor meeting. As you get towards rolling out Lattice Avant's revenue, and you look over the, the pipeline over the next, I don't know, 18, 24 months, what are you seeing for Lattice Avant software attach rates at this point, relative to what you might expect and what, what you might have expected when you launched the product, almost 1 year ago? Just, just how is that software attach trending in the pipeline?

Any info you have there would be really helpful. Thanks, guys.

Jim Anderson (CEO)

Yeah, thanks, Matt. I would say the, the software attach on Avant is, is very similar to what we're seeing on Nexus, and even some of our pre-Nexus products. As we had, as we had shared, prior, we're seeing a software attach that's now over 50%, meaning over 50% of the time, when a customer selects a piece of silicon, they're using one of our software solution stacks, on top or in conjunction with that silicon. Now with the new Lattice Drive solution stack that we just launched, we now have six different solution stacks to offer customers. Those solution stacks, just as a reminder, are around making it really easy for customers to adopt Lattice silicon and solutions, get to market quickly, speeds up our time to revenue, and then also creates multi-generational stickiness.

We've also tried to make sure that customers that adopt that software, those software solutions or software on, say, a Lattice Nexus device, that they can leverage that same software infrastructure onto Lattice Avant devices as well. So, you know, we're seeing adoption rates on Lattice Avant that would be similar to what we see on Lattice Nexus. In general, over time, we would expect that adoption rate to continue to increase over time, especially as we introduce new solution stacks like Lattice Drive, which we just introduced for the automotive electronics segment.

Operator (participant)

As a reminder, if anyone has any questions, you may press star 1 on your telephone keypad to join the question-and-answer queue. Our next question comes from the line of Tristan Gerra with Baird. Please proceed with your question.

Tristan Gerra (Senior Research Analyst)

Hi, good afternoon. We've had a, a couple of companies last week mentioning how some spending in data center was redirected, redirected toward AI, and that was at the expense of the more traditional spending. Do you view yourself as a beneficiary of that trend? You know, what would be the reason why the increase of GPU-based, you know, data center board would actually benefit you as opposed to being on the other side of the, of the scale?

Jim Anderson (CEO)

Yeah, thanks, Tristan. You know, first of all, in Q2, we did see an uptick in the products that are used in servers for data centers, either kind of general purpose servers or servers that are more optimized for artificial intelligence workloads. That was a nice positive sign that we saw in Q2. I think in general, when we, when we look at, let's say, let's call it general purpose servers versus servers that are more optimized for AI workloads, usually we have about the same level of content, if not, in some cases, on the AI-optimized servers, we have higher levels of content. We view it as a net positive for us.

Certainly over the long term, we believe that, you know, just the, the tremendous amount of compute cycles that AI will drive into the data center, we view that as a, a net benefit for the industry and Lattice as well. Then just as a reminder, and we've talked about this in past, in fact, we talked about this at the last Investor Day in May, is that on the new generation of servers that's beginning to ramp, we have a significant step up in the dollars of content per server in that new generation. As that new generation ramps through the H2 of this year and into next year, that's certainly a tailwind for us as we, as we enjoy a higher level of dollars of content per, per each server.

Tristan Gerra (Senior Research Analyst)

Great, thanks for the color. Then for my follow-up, we're starting to see companies later this year, launching MCUs with native neural network, AI at the edge type of capabilities. Where should we be looking at in terms of your product pipeline, that would be playing on that trend and specifically, AI at the edge?

Jim Anderson (CEO)

We feel we continue to feel really well positioned with our product portfolio in terms of being able to support edge computing applications, specifically AI at the edge, which is most often inference at the edge of the network. You know, FPGAs are a naturally good match for those type of workloads, because if you look at AI workloads in general, inference workloads in particular, generally, those are parallel algorithms, and they can be mapped really efficiently in some cases onto, for instance, Lattice FPGAs. You can basically program your Lattice FPGA as a customized AI processor for your particular algorithm. So, there's a number of different applications where Lattice FPGA can provide really great inference performance, especially on a performance per watt basis. You know, those algorithms are evolving, right?

A lot of our customers are evolving those algorithms on a, on a pretty constant basis, and so the ability to simply reprogram your FPGA for your updated new inference algorithm is a big benefit. It, it provides some level of future-proofing as your algorithm changes over time. And then we've also tried to make sure that our customers have good software support from us as well. And so their software solution stacks, like Lattice sensAI, that we've built, that are specifically around supporting our customers for designing our products into edge, edge computing, edge artificial intelligence applications. Lattice sensAI is actually the first software stack that we launched, and we continue to see good adoption of that software stack.

yeah, we, you know, we feel really well positioned to benefit from continued growth in artificial intelligence processing at the edge.

Tristan Gerra (Senior Research Analyst)

Great. Thank you very much.

Operator (participant)

Our next question comes from the line of Christopher Rolland with Susquehanna. Please proceed with your question.

Christopher Rolland (Managing Director and Senior Equity Analyst)

Hey, guys. Thanks for the question, and congrats on the results. My first question was gonna be around 5G, and Jim, I think you kind of mentioned it, some weakness in the quarter. You know, Nokia, Ericsson were out. Things look like they're slowing quickly. All our checks kind of say the same thing around 5G infra. I know you guys are exposed there. I guess, first of all, can you update us as to what percent of comms and compute is kind of telco related, 5G related? What might fall into this bucket? Then, if these headwinds last for a while, would we see continued weakness in this area? You know, would you have negative year-over-year growth here for, for a while because of this?

Perhaps you can just tell us what the impact might be. Thanks.

Jim Anderson (CEO)

Yeah, thanks for the question, Chris. Yeah, as I mentioned in the prepared remarks, if we look at sequentially from Q1 to Q2, we definitely did see softness in the communications part of our communications and computing segment. For us, communications is both wireline and wireless, so we did see softness in both 5G wireless infrastructure as well as related wireline infrastructure. I think that definitely related to end market softness that other companies are seeing in terms of, you know, telco capital spending into infrastructure build-out. In terms of, you know, the second part of your question, what percentage of comms and compute does that account for? We don't break out comms into a separate sub-segment, but comms is the smaller portion of that segment.

Computing has grown to be the majority of that segment over time, especially given some of our growth in content and servers, and so comms is the smaller portion of that. In terms of the outlook, you know, we, we only guide current quarter, but if we look at Q3, the current quarter that we're in, you know, sequentially from Q2 to Q3, we would expect comms and computing overall to be kind of flat to sequentially up.

Christopher Rolland (Managing Director and Senior Equity Analyst)

Ah, I see. Okay. I guess that means consumer would probably be down for next quarter as well. I actually have a bigger question around AI. In your presentation, you mentioned the GPU card. Looks like you do have some content there. You mentioned power control, reporting, and throttling. Would love to know a little bit more about this. Also, if you see some additional applications you could be addressing. Really, what, what is the content here? What is the attach rate? Like in server, it's more than one. What do you think the attach rate here is, and, and, and do you think this is gonna be a meaningful needle-moving opportunity potentially going forward?

Jim Anderson (CEO)

Yeah. Thanks, Chris. We do believe AI is a net benefit driver for us in the server data center space over time. As I mentioned earlier, when we look at general purpose servers, and then I'll call it servers that are more optimized for artificial intelligence workloads, we usually see about the same level of content or sometimes higher levels of content in the AI-optimized server. Now, there's a lot of different configurations of both general purpose as well as servers that are optimized for AI. In general, what we're seeing is on those servers that are AI-optimized, equal to or greater than levels of content.

Then if we look out over the long term, yeah, we certainly see additional opportunity in those AI-optimized servers in terms of increasing our attach rate, but also increasing the capabilities, functionality that we're bringing to those servers and the ability to continue to grow our dollars of content per server. I think that actually applies to not just the AI-optimized servers, but even in general purpose servers, we see continued ability and opportunity to drive higher levels of dollars of content per server. As we've shared in the past, in that new generation of servers that's ramping, we have a significant step-up in content in that newer generation of servers.

Christopher Rolland (Managing Director and Senior Equity Analyst)

Thanks so much, guys.

Operator (participant)

Again, as another reminder, if you have any questions, pressing star 1 will allow you to join the question-and-answer queue to ask a question. Our next question comes from the line of Ruben Roy with Stifel Nicolaus. Please proceed with your question.

Ruben Roy (Managing Director)

Yes, thank you. Hi, Jim. I wanted to revisit, I think the first question that was asked on Avant, around, you know, kind of the design activity, et cetera. The way I'm thinking about it is, Lattice is a much different company right now, right? versus when you launched your first Nexus device. I would say, I would think there'd be much more awareness, customer awareness, et cetera. So can you talk about design activity, you know, six months in to Avant-E being out there, versus how, you know, you saw Nexus design activity? Can you compare how those are lining up?

Jim Anderson (CEO)

Yeah, absolutely. If we look at the same relative point in time, so if you think about, you know, Lattice Avant launching, end of last year and kind of being, you know, six, seven months from launch, and if you compare it to the same point in time, at, from the Lattice Nexus launch, the design win opportunity, for Lattice Avant is significantly larger than Lattice Nexus. We're really pleased by that. I think our customers are really pleased by what they're seeing in terms of the Lattice Avant products that we're bringing to market. Yeah, we certainly view that as a really, positive sign. We're also really excited to, to get the first device family, Lattice Avant-E, to start to generate revenue.

We expect that to start to generate a little bit of revenue before the end of this year. Obviously, a more significant contributor next year. As I mentioned earlier, also really excited to bring Avant G and X to market and launch that at the Lattice Developers Conference in Q4. I would say overall, really pleased with the progress with the customers and the continued build-out of the Lattice Avant portfolio.

Ruben Roy (Managing Director)

Appreciate it, Jim. A quick follow-up, just on general pricing environment. You know, obviously, Avant's coming out in much higher ASPs, but in terms of, you know, sort of the lead time backdrop and maybe backlog out there in distribution, you know, can you talk about pricing environment for Nexus and pre-Nexus products?

... you know, as you, as you see it, maybe this quarter and, and going forward, you know, through the end of the year?

Jim Anderson (CEO)

Yeah, certainly, I would call the pricing environment for us very stable. We believe, believe our pricing is very durable. You know, we have been doing pricing optimization for-- we're now in our, I guess, our fifth year of doing that as part of our gross margin expansion strategy. At the beginning of 2009, we kicked off that strategy. Part of that was pricing optimization. Over the last, you know, four or five years, we've built really good internal processes and muscle around pricing our products correctly in the market, making sure that we're pricing for the value that we deliver to the market. Yeah, we believe our pricing is, is very durable.

Then the, the one thing that's going on over time is as we build out the, the, the portfolio, as we widen the product portfolio, as we add newer devices that are higher capability, higher capacity, certainly those new products with higher capability, higher capacity, those come with higher ASPs. So we've seen our ASPs increase steadily over time, and, you know, we believe that'll continue as we continue to bring higher capacity, higher capability devices to market. We do expect that ASP to continue to trend up over time.

Ruben Roy (Managing Director)

Great. Thanks, Jim.

Operator (participant)

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

Jim Anderson (CEO)

All right. Thank you, operator, and thanks, everybody, for being on the call with us today. Certainly pleased with the continued execution and strong results in the H1, while we continue to execute on, certainly our biggest product portfolio expansion in the company's history. We're excited about the opportunities ahead for Lattice. Operator, that concludes today's call.

Operator (participant)

This concludes today's conference, and you may disconnect your line at this time. Thank you for your participation.