Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Date

Monday, May 4, 2026 at 5 p.m. ET

Call participants

  • Chief Executive Officer — Ford Tamer
  • Chief Financial Officer — Lorenzo A. Flores
  • Chief Executive Officer, AMI — Sanjoy Maiti
  • Vice President, Investor Relations — Rick Muscha

Need a quote from a Motley Fool analyst? Email [email protected]

Takeaways

  • Revenue -- $170.9 million, representing 42% year-over-year growth and 17% quarter-over-quarter growth.
  • Compute and communications revenue -- Accounted for 62% of total revenue and grew 86% year over year and 15% sequentially, with records driven by data center AI demand.
  • Industrial and embedded revenue -- Grew 21% quarter over quarter, reflecting trends in factory automation, robotics, and medical applications.
  • Non-GAAP EPS -- $0.41, representing over 80% year-over-year growth and 30% quarter-over-quarter growth.
  • Non-GAAP gross margin -- 70%, exceeding previous quarter by 60 basis points and the prior year by 100 basis points.
  • Non-GAAP operating expense -- $60.8 million, increasing 8% sequentially and 18% year over year, primarily due to bonuses and commissions tied to revenue and profitability growth.
  • Non-GAAP operating margin -- 34.4%, an expansion of 370 basis points.
  • EBITDA margin -- 39.6%, up 310 basis points from the prior quarter.
  • GAAP net cash flow from operating activities -- $50.3 million, down from $57.6 million in the previous quarter, attributed to annual bonus payments and revenue linearity.
  • Free cash flow -- $39.7 million, a decrease from $44 million sequentially, with expectations for a recovery as growth continues.
  • Stock repurchases -- $15 million of stock repurchased during the quarter; cash balance at quarter-end was $140 million, with no debt.
  • Guidance for Q2 2026 revenue -- $175 million to $195 million, with the midpoint representing nearly 50% year-over-year growth and 8% sequential growth over Q1.
  • Guidance for Q2 2026 non-GAAP EPS -- $0.42 to $0.46, with the midpoint reflecting approximately 80% year-over-year growth.
  • Guidance for Q2 2026 non-GAAP gross margin -- 70% plus or minus 1%.
  • Guidance for Q2 2026 non-GAAP operating expense -- $64 million to $67 million, with most growth allocated to R&D.
  • Channel inventory -- Reduced to close to two months from three months in the previous quarter; continued reduction toward under two months targeted for Q2.
  • Backlog and bookings -- Accelerated bookings support a backlog that extends well into 2027, with improved visibility for customer demand.
  • AMI acquisition terms -- Definitive agreement signed to acquire AMI for $1.65 billion, consisting of $1 billion in cash and $650 million in equity (around 5.4 million shares based on May 1 closing price).
  • Acquisition financial impact -- Expected to be immediately accretive to gross margin, free cash flow, and EPS on a non-GAAP basis, with no dependency on cost synergies.
  • Pro forma annual revenue run rate -- With AMI, revenue expected to surpass $1 billion by the end of the year.
  • Serviceable available market expansion -- Management expects SAM to double to about $12 billion over the next three to four years, chiefly from compute and communications.
  • Server mix and AI contribution -- Approximately 38% of revenue from servers; revenue from AI customers estimated at 25% in 2026.
  • AMI revenue growth projection -- AMI anticipated to reach $200 million in revenue in 2026, with expected growth rates in the high teens and acceleration next year.
  • Supply chain position -- Backend supply is under pressure but secured; front-end supply is less challenged due to mature fabrication nodes.
  • Lock-up period for equity -- THL Partners' equity from the AMI deal is subject to a 12-month lock-up, with 25% released per quarter after closing.

Summary

Lattice Semiconductor Corporation (LSCC +3.81%) announced its $1.65 billion acquisition of AMI and expects the transaction to be immediately accretive to gross margin, free cash flow, and EPS on a non-GAAP basis, with no reliance on synergies. Management stated that AMI’s business model is complementary, involving high gross margins and structure similar to Lattice Semiconductor Corporation’s, and confirmed the combined annual revenue run rate is projected to exceed $1 billion by year-end 2026. Channel inventory dropped to close to two months, and strong bookings have created a backlog extending well into 2027, supporting visibility into long-term demand. The company is experiencing increased attach rates and higher value per design, particularly in data center, AI server, and industrial applications, with 25% of 2026 revenue expected to come from AI customers and 38% expected from servers. Investments are targeted toward R&D, and operating leverage remains a central theme, as earnings growth continues to outpace revenue growth.

  • Management stated, "We expect our total serviceable available market to double from about $6 billion currently to about $12 billion jointly with AMI over the next three to four years."
  • Non-GAAP gross margin guidance remains around 70% plus or minus 1%, reflecting continued product differentiation and pricing power.
  • Ford Tamer confirmed the AMI transaction will preserve open ecosystems and customer choice while amplifying Lattice Semiconductor Corporation's companion chip strategy in compute and communications markets.
  • Lorenzo A. Flores explained that AMI’s gross margin profile exceeds Lattice Semiconductor Corporation’s 70% run rate and that immediate accretion does not depend on cost synergies.
  • Management expects long-term gross margin structure to remain stable, even as new market opportunities become available through expanded solution offerings.

Industry glossary

  • SAM (Serviceable available market): The segment of the total addressable market that represents revenue opportunities realistically serviceable by the company’s current and foreseeable product/service offerings.
  • FPGA (Field programmable gate array): A semiconductor device that can be programmed after manufacturing to perform a wide variety of logic functions used in communications, computing, and industrial applications.
  • BMC (Baseboard management controller): An embedded microcontroller used for monitoring and controlling computers and servers, often part of system manageability solutions.
  • RackBoot: A platform firmware feature enabling simultaneous power-up and management of entire server racks, enhancing data center deployment efficiency.

Full Conference Call Transcript

Rick Muscha: Thank you, operator, and good afternoon, everyone. With me today are Ford Tamer, Lattice Semiconductor Corporation’s CEO; Lorenzo A. Flores, Lattice Semiconductor Corporation’s CFO; and Sanjoy Maiti, AMI’s CEO. We will provide a financial and business review of 2026, an overview of the AMI acquisition, and the business outlook for 2026. 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 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; 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 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 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. Lastly, we streamlined our financial reporting to better align with our strategic focus. Beginning this quarter, we will 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 have recast all prior period results so you can make a direct apples-to-apples comparison. With that, I will turn the call over to our CEO, Ford Tamer.

Ford Tamer: Thank you, Rick, and welcome, everyone, to our first quarter earnings call. Lattice Semiconductor Corporation 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 reflects our expected continued momentum across the business. This is the seventh earnings call since I joined Lattice Semiconductor Corporation, and I hope we have now demonstrated that we consistently say what we will do and do what we say. These positive factors in aggregate provide the foundation for our proposed acquisition of AMI.

This acquisition positions Lattice Semiconductor Corporation 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 in data center AI applications. 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.

Revenue from our industrial and embedded end market grew more than 20% sequentially, reflecting improving market conditions and expanding adoption of Lattice Semiconductor Corporation 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 in 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 are also witnessing improved customer visibility and healthy design-win momentum across our FPGA portfolio. Taken together, we are confident that we are in the early innings of a multiyear growth cycle and our ability to deliver sustained above-market growth for the foreseeable future. Our results also highlight the progress we have made in evolving Lattice Semiconductor Corporation into a system-level solutions company. Customers increasingly value Lattice Semiconductor Corporation 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 Semiconductor Corporation’s role within customer systems, increase attach rates, and drive higher value per design. We also continue to benefit from our everywhere companion chip strategy, positioning Lattice Semiconductor Corporation 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, IO aggregation, sensor bridging, and control.

This approach allows Lattice Semiconductor Corporation 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 and highlights the powerful operating leverage in our model and the differentiated products we bring to market.

We maintain a disciplined capital strategy and believe we will 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 Semiconductor Corporation’s low-power programmable hardware with AMI's industry-leading solutions, including BIOS, BMC, and platform security, creates the industry's most complete secure management and control platform.

Together, we will 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 Semiconductor Corporation’s long-term growth strategy. AMI's firmware is expected to remain processor- and silicon-agnostic, preserving open ecosystems and customer choice, while Lattice Semiconductor Corporation FPGAs provide a complementary hardware foundation, reinforcing our everywhere companion chip 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 2026.

We look forward to welcoming the talented AMI team to Lattice Semiconductor Corporation and expect this combination to strengthen our system-level roadmap and long-term growth profile significantly. Looking forward, we are encouraged by the continued durability of demand across our end markets, the depth of customer engagement, and the expanding role Lattice Semiconductor Corporation plays in next-generation systems. 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 Semiconductor Corporation is exceptionally well positioned for the future. With that, I will turn the call over to Lorenzo for a comprehensive review of our first quarter results. Lorenzo?

Lorenzo A. Flores: 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 $0.41, a 30% increase quarter over quarter and above the high end of our guidance.

We expect Q2 to continue this growth trend, and I will 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 noted. 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% year over year. 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 opportunity. 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 the 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 Q1 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 Semiconductor Corporation standalone. In Q2 2026, we expect revenues to be in the range of $175 million to $195 million. At the midpoint of this range, this is almost 50% growth from Q2 2025 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 million and $67 million. Most of the growth in OpEx will be in R&D and reflects disciplined investments to drive long-term sustained revenue growth. We expect income tax rate for Q2 to be between [inaudible]% on a non-GAAP basis. We anticipate non-GAAP EPS to be in the range of $0.42 per share to $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 Ford, 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 Semiconductor Corporation’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 Semiconductor Corporation’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 detail 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 Semiconductor Corporation’s strengths with those of AMI.

Finally, the Lattice Semiconductor Corporation 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.

Ford Tamer: Operator, before we jump into questions, can we introduce AMI CEO, Sanjoy Maiti? He has a few remarks. Sanjoy? Hello?

Sanjoy Maiti: Thank you. At AMI, our management team, our employees, board, investors, and I are equally excited to be joining with you and the Lattice Semiconductor Corporation team. The strategic combination with Lattice Semiconductor Corporation pairs the low-power programmable leader with the leader in the platform firmware and infrastructure manageability for cloud and AI data centers. Lattice Semiconductor Corporation and AMI share a long history of collaboration and a common vision for secure management and control platforms. Now together, we can build on that foundation, extending the reach of Lattice Semiconductor Corporation’s low-power FPGAs and AMI's trusted platform while we will maintain the open, silicon-agnostic, multivendor support our customers value.

We also share the same commitment to disciplined execution, strong margins, and focus on building value for our investors. Thank you again. I am very excited and looking forward to building a great future together.

Ford Tamer: Sanjoy, great to have you here. Welcome to Lattice Semiconductor Corporation. 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 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 Stifel. Please state your question.

Ruben Roy: Yes, thank you. Hey, guys, congratulations on the strong results and outlook and the deal announcement. I guess, Ford, to start, in the press release you talk about doubling the 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 combined solution categories that perhaps neither company could attack independently? And as part of that question, the core business is inflecting, particularly on the compute side. If you think about 2026, how are you thinking about mix of revenue from servers specifically and maybe AI overall? Thank you.

Ford Tamer: Thank you, Ruben. Good question. We expect our total serviceable available market to double from about $6 billion currently to about $12 billion jointly with AMI over the next three to four years. The main increase would come from the compute and communications sub-segment. As you pointed out, the two major indicators in that segment are the percent server and the percent AI. On percent server, that has been growing steadily for us from the teens a couple of years ago to this year, where we expect about 38% of our total revenue to come from servers.

On the percent of our revenue coming from AI, it grew from the mid-teens in 2024 to the high teens last year, to where we expect it to be about 25% of revenue in 2026. AMI plus Lattice Semiconductor Corporation will be uniquely positioned to provide solutions to customers in this compute and communications market.

Ruben Roy: Thank you, Ford. A quick follow-up for Lorenzo. It is great to see that you are flagging the deal as immediately accretive on gross margin, free cash flow, and EPS. Can you give us a framework for the gross margin profile? I know it is early, but any thoughts on the software and firmware business relative to your 70% non-GAAP gross margin run rate? How much of the accretion would be structural versus dependent on synergies?

Lorenzo A. Flores: That is a great question, Ruben, and we will get into this in more detail once we close. The way to think about this acquisition is that it is very strategic and in the midterm opens up significant growth opportunities for us. The really nice thing about it immediately is the very complementary P&L structure and 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—higher than ours—and we will share more detail on that later. They have a different structure, but at the operating margin level it is pretty close to ours.

They generate a very significant EBITDA percent of revenue, close to ours or maybe slightly above ours right now. So you can see that there is not a dependency on cost cutting. We will look at efficiencies through time, for sure, but on a go-forward basis we are able to fund the debt, cover the interest, and still show accretion immediately.

Operator: Our next question comes from Christopher Rolland with Susquehanna International Group. Please state your question.

Christopher Rolland: Hi, guys. Thank you for the question. I wanted to dig in a little bit more on the strategic value of AMI. Looking over the website, it seems like they offer firmware but also infrastructure management software. Would love to know the cross synergies here between Lattice Semiconductor Corporation FPGAs and what you are 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 of revenue in 2026, but expectations for the growth rate moving forward would be helpful.

Ford Tamer: Yes, thank you, Chris. Let me frame it with some background. I have done something similar twice before. At Broadcom, we were second in switch market share to Marvell, and by the time I left our team had done a great job becoming number one. One of the key acquisitions we did along the way was a company called Level 7 that provided protocol software. We used that to come up with reference designs for the ODMs in Taiwan, which made it much faster for customers to go to production with their switch systems. Think of that protocol software almost as hardware—very low-level. The second example was at Inphi.

When I joined, we were selling TIAs; by the time I left, we were the number one leader in optical interconnect. We decided to partner with Microsoft to deliver a DCI module—an 80-kilometer solution. That complementary addition of a system/subsystem offering was critical. We debated whether that was a departure from selling silicon and components, but it proved powerful: roughly 80% of the business remained components sold as a platform, and 20% was the module. It helped the silicon side go to market faster and better. AMI has 40 years of developing test cases and very deep knowledge of the industry from server to switch to NIC.

They are among the first to be brought up when a CPU or a GPU gets brought up, along with many systems. They are a key complementary partner to the BMC today, and we intend to continue to be a very strong partner to all of the BMC providers—ASPEED, Nuvoton, NXP, and others. This is an extremely strategic move that complements our low-power FPGA business. We expect AMI’s growth rates to be in the high teens, and we expect acceleration next year. We also expect to bring solutions to market together that will help grow our revenue faster.

We are growing revenue at about 40% and EPS at 80% now; together, we should be able to grow faster on both revenue and EPS in the 2028 timeframe as these solutions go to market. We have an investor deck on our website detailing the AMI acquisition. On slide 5, it shows the challenges data centers face today as you go from managing servers to racks to pods to the whole data center. AI adds a lot of complexity; uptime is critical; and there is huge pressure on time to market and to shift left.

On slide 11, it shows the solutions we will provide together—rack boot, power and cooling, retrofit, and plug-and-play—along with our low-power FPGAs and AMI’s platform firmware and manageability infrastructure. Very exciting future ahead.

Christopher Rolland: Thank you for that, Ford, and congrats on this deal. As a follow-up, you mentioned inventory maybe was even under two months. We should have an uplift here, and I think we can see it in the guide. More broadly, as you are no longer burning, could there be an opportunity to refill? How are you thinking about this into the future, and next quarter, are we balanced?

Ford Tamer: Good question. When I joined about a year and a half ago, channel inventory was closer to six months. We said we would get to three by the end of last year—we did. We said we would get into the twos—we are in the twos—and we said we would bring it under two, and we are on our way to under two. The last time the company was under two, we had 10 good quarters ahead in the one-point-x range. We may be entering a very strong period here. You can see our industrial and embedded business grew 22% sequentially, which is amazing.

Lorenzo A. Flores: The way to think about channel inventory right now is that it is no longer a business imperative to bring it down. We are focused on keeping the right balance of inventory at distributors across the globe and the right type of inventory so they can service customer needs. This is what I would characterize as a non-issue for Lattice Semiconductor Corporation going forward. We are really happy we managed through this. Now we have much more direct visibility into end-customer demand, so our builds are much more efficient.

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

Melissa Weathers: Hi there. Thank you so much for letting me ask a question. Congrats on the nice results and interesting deal, and to Sanjoy, looking forward to working with you in the future. For my first question, I wanted to touch on the data center side. In the past, you have given an FPGA attach rate per server, and it seems like those applications that you can use an FPGA for in the data center are growing, and those conversations with engineers are happening live. We heard Jensen talk at GTC about using more FPGAs in those racks. Can you help us with an updated framework for FPGA attach in the data center?

I am also curious on the wireline side in addition to the server side—any help on content in the data center would be helpful.

Ford Tamer: Thank you, Melissa. A couple of trends to highlight. In recent customer visits to a server OEM, we saw the unit evolve from a single all-in-one rack to four racks together: a compute rack, networking rack, a power rack, and a cooling rack. That change is profound and will allow us to increase our content in comms as well as power and cooling. In data centers now, cooling racks are attached by large pipes from the ceiling, making them harder to change; those cooling racks may have longevity needs closer to our industrial and embedded business, lasting many years versus the faster cadence on the compute side.

In the AMI presentation, we highlight RackBoot on slide 11, where cloud providers want to power up a whole rack at once rather than a server at a time—our FPGAs can enable interesting applications there. Also on slide 11, you will see retrofit of older systems for better uptime, better security, and better fault detection—another new opportunity. From a modeling point of view, we still model a 16.5 million-server market in 2026, and roughly three FPGAs per server overall. You can calculate an implied revenue using the Q1 server mix we disclosed—38% of total revenue—and derive an ASP framework. Our ASP per unit continues to increase as we find more value-added opportunities for our customers.

In the near term, demand has increased not only from AI but also traditional CPU and storage builds driven by cloud and generative coding trends. Attach rates, new applications, and new products continue to increase the server dollar content for Lattice Semiconductor Corporation.

Melissa Weathers: Thank you for all the color. A quick follow-up on supply. These growth rates seem faster than expected. Can you talk about your ability to secure supply—front end and back end—and your supplier visibility?

Ford Tamer: Our SVP of Operations, Divya Shah, has been in the industry for a long time and is very hands-on with suppliers. This strong demand is straining the supply chain, especially in the backend. We have been able to secure supply; it comes at a cost, and we are working with customers and suppliers to manage it. We are in good shape.

Lorenzo A. Flores: Unlike some other industry players, our wafers are on more mature nodes, and front-end supply is less challenged. The backend is where we see pressure. We continue to expand our backend supply chain to diversify suppliers and add capacity, and we are beginning to bring lead times down as that expanded capacity comes online.

Operator: Our next question comes from Tristan Gerra with Robert W. Baird. Please state your question.

Tristan Gerra: Hi. Good afternoon. As a follow-up to an earlier question, is there any step-function increase in the content for root-of-trust security with the upcoming cyber enablement platform? Also, is there any potential for Avant content in data center, or is that going to be in other end markets?

Ford Tamer: We are not commenting on specific platforms, but security continues to be a major factor enabling our growth. Regarding Avant and data center use cases: so far, our Nexus and pre-Nexus products have been the primary fit for data center applications. Over time, Avant may find its way there, but Avant is really focused on our industrial and embedded segment.

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

Lorenzo A. Flores: We were prudent about our gross margin outlook leading into the year because we saw supply chain cost increases coming. We have been able to work with customers on ways to offset those increases. We do expect cost pressure to continue and increase in the second half versus the first half. We have previously said an approximate range of 69.5% plus or minus 1%. This quarter, we were at 70%, a little above that range, but that is approximately the zone we see going forward. We will provide more specific guidance as we get into the second half, depending on how cost increases play out.

Operator: Our next question comes from Joshua Louis Buchalter with TD Cowen. Please state your question.

Joshua Louis Buchalter: Hi, guys. This is Manny on for Josh. Congratulations on the quarter, and congratulations on the deal as well. Focusing on the core business, you have mentioned that Lattice Semiconductor Corporation is still on track for hitting that over $1 billion run-rate in Q4 of this year. Can you clarify if that is specifically for the core business, or is that inclusive of the AMI acquisition as well, since you have given an estimated revenue for the year?

Ford Tamer: It is inclusive of the AMI acquisition.

Joshua Louis Buchalter: Thank you. As a follow-up, as it relates to AMI, what capabilities does this give Lattice Semiconductor Corporation that you did not have before? And can you talk about AMI's current go-to-market and monetization strategy and how that fits with Lattice Semiconductor Corporation’s business model as you integrate?

Ford Tamer: Together, we expect to exit the year at a $1 billion run rate at roughly 40% free cash flow margin, allowing us to de-lever quickly. From a capability point of view, AMI gives us much stronger system-level skills jointly, allowing us to bring solutions to customers much faster. We will be able to discuss further on our next quarterly call when we guide Q3 and can provide more details on AMI’s financials and go-to-market. Today, we wanted to focus on our business and introduce the acquisition. We expect to close in early Q3, and we will provide full details then.

Operator: Our next question comes from Nathaniel Quinn Bolton with Needham & Company. Please state your question.

Nathaniel Quinn Bolton: Thanks for squeezing me in, guys, and congrats, Ford. High-level question on the AMI acquisition. AMI talks about security and board management; you have historically talked about similar things for your FPGAs. Is there any place where the two businesses compete, or is it truly complementary? Does the Lattice Semiconductor Corporation FPGA root of trust protect the AMI firmware/BIOS as it resides in servers? Any direct overlap?

Ford Tamer: Great question, Quinn. We have been working together since 2019, so it has been several years of close collaboration. There is no place where we compete. This is totally complementary. It is also very complementary to our customers and should benefit our customers and partners. We are committed to remain agnostic. AMI supports all the other silicon partners, and we are partnered with the same silicon partners. It is a very complementary and beneficial combination—one plus one equals three, and hopefully more.

Nathaniel Quinn Bolton: You had a great start to the year in terms of revenue growth. We came into the year thinking the server business could be up something like 20% to 40%, and industrial/embedded up 5% to 15%. It looks like you are tracking well above that. Are you prepared to talk about growth rates for those businesses given the strong start?

Lorenzo A. Flores: For the year, it is still early, but the trend that started late last year and led to our Q1 results continues. Bookings are very strong, customers are increasing their demand, and we are booking out even longer in time. We have high confidence our growth this year will be strong and stronger than we originally thought. Compute and communications will be a key driver for the reasons we all know. Industrial and embedded is recovering, and we saw signs of that in Q1. The extremely high year-on-year growth rates for compute and server might not hold for the rest of the year, but they will remain strong. Comms will track somewhat with compute.

Industrial and embedded will continue to grow, but probably not at the rate we saw from Q4 to Q1. They grew 10% year over year in Q1, and that is a pretty good range to think about for the year.

Ford Tamer: And, Quinn, demand is strong for the foreseeable future, with bookings well into 2027.

Nathaniel Quinn Bolton: Quick clarification on the deal—will THL Partners be locked up for any period post-close on the $650 million of equity issued, or are they free to sell once the deal closes?

Lorenzo A. Flores: They have a lock-up that extends 12 months from close, with 25% released per quarter.

Operator: Our next question comes from Duksan Jang with Bank of America. Please state your question.

Duksan Jang: Hi. Thank you for taking the question, and congrats on the strong results as well. Following up on gross margin: you have been talking about bookings strong well into 2027, backlog building up, and lead times expanding. AMI margins are stronger. Is it possible that the margin structure is now more structurally higher than before? You have not really sustained 70%+ before; should we think this is more achievable now?

Ford Tamer: This opens up opportunities that we may have shied away from before across various markets. We do not intend to push gross margins much above that range. We could, but right now there are opportunities we can go after that could open up a higher top line.

Duksan Jang: Thanks. And a follow-up on broader competitiveness of the supply chain. Intel has now separated Altera as a standalone company with a different supply chain, including internal manufacturing. Does that give them an advantage in this constrained environment? If not, why?

Ford Tamer: Our suppliers have been fantastic. We are with UMC, Samsung, and TSMC on the fab side—extremely supportive—and we have strong assembly and test partners. We are adding more because backend is where shortages are. We feel very good about our supply chain and our ability to supply, so it is not an issue for us.

Operator: Ladies and gentlemen, that concludes the time we have for the Q&A session. I will now turn the call back to the company’s Rick Muscha for any closing comments.

Rick Muscha: Great. Thanks, everyone, for joining us on the call today. We will be attending the following investor events this quarter: the JPMorgan 2026 Global TMT Conference on May 19 in Boston, and the TD Cowen 54th Annual TMT Conference in New York City on May 28. This completes our call. Thank you very much for your participation, and have a good evening.

Unknown Speaker: Goodbye.

Operator: Ladies and gentlemen, the conference call of Lattice Semiconductor Corporation has concluded. Thank you for your participation. You may now disconnect your lines.