Good evening. My name is Jennifer, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lattice Semiconductor corporate second quarter 2008 conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator instructions) Thank you. Mr. Jan Johannessen, Chief Financial Officer, you may begin your conference

Thank you. And good afternoon everyone. Joining me on the call today is Bruno Guilmart. He is our President and CEO who joined the company on July 7. Before we begin, I would like to read the Safe Harbor statement and then give a financial review and business review of the second quarter, followed by our third quarter outlook. The Bruno will make some brief comments about his initial assessment of Lattice and what his near-term plans for the company are. We will then hold a question-and-answer session. I will now read the Safe Harbor statements. It’s our objective that this call will comply with the requirements of the SEC Reg-FD. This call includes and constitutes the company’s official guidance for the third quarter of fiscal 2008. 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 form such as a press release or publicly announced conference call. The matters that we discuss today other than historical information include forward-looking statements relating to our future financial performance and other performance expectations. Investors are cautioned that forward-looking statements are neither promises nor guarantees, but involve risks and uncertainties that may cause actual results to differ materially from those projected in the forward-looking statements. Some of those risks and uncertainties are detailed in our filings with the SEC, including our Form 10-K filed in March 2008 and our quarterly reports on Form 10-Q. The company disclaims any obligation to publicly update or revise any such forward-looking statements to reflect events or circumstances that occur after this call. Our prepared remarks will also be presented within the requirements of SEC Regulation G regarding generally accepted accounting principles or GAAP. Some financial information presented by us during the…

Thank you, Jan. First, I’d like to thank Jan for his best service and many contributions to the company over the years and wish him well in his future endeavors. We have started a search for Jan’s replacement, which we hope to complete as soon as possible. In the interim, our Corporate Controller, Rob O'Brien, will assume responsibility for our finance organization. Until we have appointed a new permanent Chief Financial Officer, I will assume responsibility for all interaction with the financial community. I have now been at Lattice 2.5 weeks and my initial impression is that Lattice is a company with outstanding potential and innovative programmable logic technologies and products that are getting strong customer momentum within the FPGA industry. The company has extremely talented and dedicated employees, a strong balance sheet, and I look forward to leading the company to its next stage of growth. In the near-term I’m focusing on product strategy, cost structure, customers and execution. I look forward to communicating a more detailed plan to the financial community within the next few months. I would now open the call for questions. Moderator, please go ahead.

(Operator instructions) Our first question comes from James Schneider. Your line is now open. James Schneider – Goldman Sachs: Good afternoon. Thanks for taking my question. And welcome, Bruno. First of all, could you address your future revenue outlook in terms of the growth or decline you are expecting by end market please?

Yes, I can do that. So we expect – in the communications markets, we expect that to continue. We saw strength in wireless and wireline, and expect that continue into Q3. However, given the state of economy and the China Olympics, we would expect that markets to be lumpy, more lumpy than usual and turns dependent. Computing, we saw strength in stores, as I said earlier, and we expect to see – Hello? Anyway, we saw strength in stores, as I said earlier, and we expect growth in data processing and service later in the year. Consumer, we expect continued growth in Q3 as we benefit from the non-vol production ramp of a major OEM as well as other new products. And industrial and military, we really don’t have enough visibility to comment, but expect industrial may be soft this quarter because of Europe’s seasonal pattern. So that’s basically what we are seeing right now. James Schneider – Goldman Sachs: Okay. Fair enough. And then secondly, could you talk broadly about the quarter patterns you are seeing from distribution across various geographies so far in the month of July here, given the slowdown you saw in June?

Yes. So – resale for the distribution in the beginning of the quarter looks reasonable. We haven’t seen a drop-off or any major pick up. It seems reasonable. Book-to-bill so far this quarter is well above 1. And bookings for the quarter is just slightly below last quarter. James Schneider – Goldman Sachs: Okay, thanks. And then finally, could you talk a little bit about the magnitude of sales from the consumer design wins you mentioned that you are expecting in the back half of this year?

We have a number of designs in the consumer space. We have one major one and that will ramp into production in Q2 – I mean, in Q3 and continue into Q4. That’s really all we can say about it, but it is the major design. We expect significant revenue from that design-in. I don’t want to go into specific amounts. James Schneider – Goldman Sachs: Okay. Thanks very much.

Our next question comes from Tristan Gerra. Your line is now open. Tristan Gerra – Robert W. Baird: Hi, good afternoon. Just going into the Q3 revenue guidance, you mentioned the push-out, how much of the guidance flat to slightly down is due to the push-out as opposed to just weakness (inaudible). And is there any change in terms of the sockets that you’ve won earlier this year?

Not significantly, Tristan. We expect the designs to start ramping in -- some of these consumer designs to start ramping in Q3 as I mentioned this major customer, and there is no change there. We also expect major design-in for an Asian – Chinese communications customer for our new FPGA products to ramp in – to start ramping in Q3 as well. Tristan Gerra – Robert W. Baird: So, is it fair to assume then that I guess the guidance cautious guidance is only based on current trends and what they slow down you saw in June specifically on the distribution side, if you can add any color on to that?

I mean, that is correct. I mean we are seeing – we are cautious about the overall macroeconomic conditions and we are cautious about Europe, we are cautious about North American and European distribution channel. That’s where we are seeing the caution. Tristan Gerra – Robert W. Baird: Okay. And in terms of new product ramp in Q3, what should we be looking for, I mean, relative to your total guidance?

As I mentioned on the call, we expect new product revenue to comprise about 25% to 30% of total revenue in Q3. And if you do the math, you will see that that’s obviously a good quarter for us in terms of new products. Tristan Gerra – Robert W. Baird: Okay. And just quick last one in terms of mature product, I mean, is there any new phase-outs, older products that we could expect in terms of more than a normal decline in terms of mature products as a result of product lines being discontinued or should we expect to stay in normal pace relative to what we’ve seen over the past couple of quarters?

A normal pace on the mature products in terms of the mainstream products. We expect a decline there because a lot of the mainstream products we shipped to China to certain communications customers and we expect a decline in that business for Q3. And beyond that, we expect that to pick up again. Tristan Gerra – Robert W. Baird: Okay, great. Thank you.

Yes.

Our next question comes from David Duley. Your line is now open. David Duley – Merriman Curhan Ford: Yes, good afternoon. Bruno, I have a question for you. I was wondering if you could talk about – I know it’s early, but as you assess the company, you mentioned you are focusing in on a couple of different things. One is cost structure. Could you talk a little bit about that? Because I think investors generally think, we would like to see a lower cost structure. I’m just wondering what you are thinking about it?

I can’t really give you any specific as far as numbers for the time being, but it is obvious that I’m looking into great detail to our cost structure so that we can improve the operating performance of the company. So in the coming months, I will come back to the financial community with more, I would say, precise plans on what the cost structure is going to be so that it can aligned with the current revenue base of the company basically. Okay? David Duley – Merriman Curhan Ford: Okay. Jan, a follow-on as far as new product growth in the upcoming quarter. Just kind of to clarify here, the other questions have been similar, but basically you said you are going to go from 25% to, what, 25% to 30% on the new products?

21% to, 25% to 30%. David Duley – Merriman Curhan Ford: Okay. So if the rest of the stuff was flat and obviously you have huge growth in this segment. It looks like it’s going to be more than 20% sequentially. Why is the growth so much stronger in Q3 on the new product front than it was in the quarter that was just reported?

A couple of things. There were push-out by a customer and there was also our programmable mixed signal business, which is classified as a new product, was flat during Q2 from Q1. So, that basically kind of deflated the growth rate somewhat in Q2. And we expect the rebound in Q3 and pretty much cash up, so we are really on track to meet our growth goal for new products in 2008. David Duley – Merriman Curhan Ford: Okay. And that’s the doubling that you’ve referred to?

That’s -- exactly. David Duley – Merriman Curhan Ford: Okay. So new products are going to have a strong performance in this upcoming quarter. What is it? I guess what you’ve answered is – I just want to clarify this, what week is US and European distribution and that’s tied to what, the landline communications business? Or what is the reason for weakness in those two distribution businesses?

It’s broad-based. We saw broad-based weakness, we expect broad-based weakness in both of those channel and also because of Europe seasonality. The other thing is the mainstream products. We ship a lot of the mainstream PLDs to China and they will take less products in Q3. So those are the main reasons for why we are expecting decline in those mainstream and mature businesses for Q3. David Duley – Merriman Curhan Ford: And what’s going on with the Chinese? One guy is attached to the 3G rollout and the other one is not, so one guy is going to take products and the other guy is not?

One customer is basically going to have a decline because of the Olympics and that’s basically the mainstream PLDs. And the other guy is ramping production in a wireless application and he is going to start taking our new FPGA products. David Duley – Merriman Curhan Ford: Okay.

And those basically – we expect those to offset each other during the quarter. David Duley – Merriman Curhan Ford: Okay. One final question from me is, I thought you took like I think a write-down on the auction rate securities. And I’m just confusion because it looks like the marketable securities went from 37 million to like 35 million on the – 34 million, but I thought you said you took like a $10 million or $12 million write-down. How did that all work?

Dave, what we did last quarter in Q1, we basically took a write-down through the balance sheet last quarter. And this time we actually took all of it through the P&L, because we did not expect it to be more than a temporary kind of impairment. So we decided to take it through the P&L. And I think that’s the right thing to do. David Duley – Merriman Curhan Ford: Okay. And could you give us an update on what’s going on in that marketplace? And you are basically part with all those auction rates. There is no auctions that are happening now or no way to redeem the money?

That is basically more and less correct. However, we do have something like auction-rate preferred. We do expect to actually be called and clear in the third quarter. About $5.7 million worth is our expectation. David Duley – Merriman Curhan Ford: And if the market continues to be frozen up, will we have to write this whole thing down?

It’s something we’ll have to monitor quarter-to-quarter and look at it and see what’s happened in the marketplace. I don’t know what’s going to happen in the financial market, then we’ll have to look at it every quarter and see what happens. David Duley – Merriman Curhan Ford: Okay. Thank you.

Our next question comes from Venk Nesamuni [ph]. Your line is now open.

Hi, good afternoon. This is Venk. Thanks for taking my call. And welcome, Bruno. So, my first question is, if you look at our normal seasonality for Lattice for the third quarter, it’s typically down about 6%. Yet your guidance is for flat to down 3%. So what gives you the confidence that you will do better in the third quarter compared to normal seasonality, especially given the macroeconomic weakness that you’ve already talked about?

I think the main reason for that is because we are expecting very strong quarter for our new product. And the rest – there are lot of weaknesses in the marketplace, but we expect strong growth for new products in Q3. And clearly now that our new products – at the end of Q3, we expect to be about the same percentage of revenue as mature product more or less. We are very close to crossover between new products and mature products. So it helps our overall growth. Of course, Q3 is – we are looking at a softness in the market than some of the businesses. So that’s why we have the guidance of flat to zero – flat to down 3%.

Okay. That’s helpful. Now is it primarily in the communications end market that you have the few production ramps taking hold and--?

It’s a combination – really a combination of communications market as well as consumer market, as well as the computing markets. We have a number of design-ins in the service and storage business. And also the industrial marketplace. So it’s really across all end markets.

Okay. And given the tradition the mature products have better gross margins compared to new products, does that impact already taken into account in your guidance?

Yes, we have taken that all into account. It’s difficult to project the gross margin that we have taken into account and we expect gross margin should be in the 55% to 56% range at this point.

Okay. And another follow-on question is, you mentioned that book-to-bill was much greater 1. Are we talking 1.1, 1.2 or is it--?

We don’t have a polity of giving out the book-to-bill ratio. It’s well above 1 so far this quarter.

And consistent with what it was last quarter?

Pardon me?

Is it consistent–?

Book-to-bill for last quarter in Q2 was just slightly above 1.

So, that doesn’t – it was last quarter. Okay. And then kind of a bookkeeping question, what do you expect your depreciation expense for the full year as well as the CapEx for the full year?

We expect -- depreciation expense for Q2 was about $3.4 million. We expect the depreciation for Q3 and Q4 to be reasonably close to Q2.

So you can – and then what about CapEx?

CapEx, we expect to be down in Q3. We’ve got $3.9 million in Q2 and that was because we had to add some manufacturing equipments for the ramp of some of our new products. So we expect to down a little bit in Q3 and Q4 for capital expenditures.

For the both quarters down? Okay.

Yes.

Perfect. Thank you very much.

Okay.

Your next question comes from Bill Dezellem. Your line is now open. Bill Dezellem – Tieton Capital Management: Thank you. We have a group of questions. First of all, relative to the cost reductions or cost realignment, Bruno, that you have referenced, does that in any way imply that your long-term view of the revenue growth of the company is different than the historic long-term view has been?

I guess my long-term view of the company as yet – again, I’ve been only 2.5 week in the job. So – but I’ve seen there is something which is very urgent to do is, is to make sure that we have a cost structure, which is aligned to our current revenue base. And obviously that’s one of the immediate priorities. Then in as part of the product strategy, when we are going to refine the product strategy, we are looking at areas where we can get some growth, capitalizing on the strengths that we have. But I know these are the only generic comments, but for the time being, I mean, that’s really all I can say. Okay? Bill Dezellem – Tieton Capital Management: That’s fair. And not to be argumentative at all, but what is your view on retaining the remaining senior people that are there? It appears as though the Board has lost touch with that issue. I’m curious what your perspective is.

Yes. I want to make sure that we have the right people in the right seats. Okay? So that’s my first priority. And I’m going through this assessment currently. Bill Dezellem – Tieton Capital Management: And then second question kind of in that vein is that the Board of Directors historically has not appeared to be thinking very seriously about shareholder value when it comes to the share buyback program. What are your thoughts relative to buyback? And in light of the fact that the share price is low, but also in light of the fact that you do hold the auction rate securities, which you certainly are going to be able to buy any shares back with those (inaudible) stock?

I guess we will explore. Okay? As you know, CEO is measured by the value, value creates to shareholders. I mean, that’s maybe not the only thing, but it’s something that is obviously a very important measurement of performance. Okay? So we will look at that issue on a regular basis. But at the same time, I think also it’s important that we keep a strong balance sheet to have the flexibility to look at other opportunities. So that would create shareholder value. So I would say, yes, share buyback is an option, but it’s not the only option. There are other ways to create shareholder value, by adding a strong balance sheet will give us the flexibility. Bill Dezellem – Tieton Capital Management: Great. Thank you. Well, welcome, Bruno, and best of luck in your next chapter.

Thanks, Bill.

Our next question comes from Dan Furkey [ph]. Your line is now open.

Hi, I have three questions. The first one, you talked about the auction rates. I assume that that’s five – am I correct to assume that that 5.7 that you think might be called is not being carried at a full 100, and so that you might actually have a gain on that?

That’s actually not correct. We carry that at 100% and we expect to be able to liquidate that.

Okay. So it is being carried there. Okay, perfect. And is there any thought, when is that supposed to happen?

I expect it to happen sometime in the next month or two based on the information I have today.

Will you disclose if and when or it won’t hit the materiality threshold.

I’ll have to check with our legal guys to see if it’s material event or not.

Okay. The second, you talked about the CapEx and depreciation and some – we are looking at what you’ve guided us to operating income. It looks like the cash flows from an operating cash flow standpoint and a free cash flow standpoint could be comparable in the September quarters. Are we looking at things the right way there?

I think the cash flow, operating cash flow has been good for the last few quarters. It was stronger in Q2 than in Q1. Q1 was 6.9 million, this was 12.5 million. Part of the reason we have good cash flow is we are getting the money back from Fujitsu. So we don’t have to pay for wafers from our family partner Fujitsu. So that kind of contributes to the strong cash flow. I expect the cash flow going forward to show this similar positive pattern.

Okay. So if we put that cash flow together with the 5.7, the existing cash on the balance sheet, take out the 40 million of converts, you are looking at somewhere between $60 million and $70 million of cash as we exit the September quarter. So one is that about right. And then by question to Bruno is, could you prioritize the uses of cash there? On the share buyback question, you talked to the other guy about acquisitions. Maybe could you just prioritize the uses of that $60 million to $70 million in cash?

Maybe I should just comment on the first part of that question. In terms of your – I think your map is reasonably correct in what the Q3 numbers look like.

Yes, so let me answer the second part of your question. I think it’s supernatural for me to give an idea of how this cash is going to be utilized. But as I’ve said, we are looking – we’re going to look at all the options to maximize shareholder value. Okay? I mean, so that’s all I can tell you at this stage.

What are those options?

Well, as I’ve said, the share buyback is an option, potential acquisitions also would be other options, investments in certain maybe intellectual property areas, and then so – right now I have not really formulated a product strategy going forward. So we will do that and obviously this is not something that can be done in a couple of weeks. Even if we had some acquisitions that we were thinking about, as you all know, this is taking time. And so as I’ve said, I think it’s also a positive thing to have the flexibility on the balance sheet to be able to keep the options open. Okay?

Okay, great. Thank you very much and good luck.

Thank you.

Our next question comes from David Duley. Your line is now open. David Duley – Merriman Curhan Ford: Yes. Just a couple clarification questions. You mentioned that the book-to-bill was positive throughout – was slightly positive last quarter and it’s been nicely positive this quarter. So that’s a little confusing versus your guidance being down. So, could you help me understand those two pieces of information?

You have to remember that the book-to-bill I said – there are two numbers of bookings and billings. If one number is lot lower then you have a positive thing. Right? So you’ve got to look at both things. And I think we are entering the quarter with slightly lower backlogs than last quarter. We are seeing good book-to-bill so far this quarter. And – David Duley – Merriman Curhan Ford: You see a good book-to-bill this quarter because orders are good?

Yes, obviously. The book-to-bill ratio is good, but it is a ratio. Remember it is a ratio. You can’t just look at the ratio, you have to look at actually numbers themselves. So based on all the numbers that we have – that’s what we think the guidance will – what we think the number is going to be for Q3 in terms of revenue. David Duley – Merriman Curhan Ford: Okay. And if your new products are going to grow strongly as you anticipate in this upcoming quarter and the new products are the ones that are using the prepayments from Fujitsu to build the products, wouldn’t you think on a normalized basis that cash flow would go up?

I don’t know about the – I’m not going to comment on what the actual cash flow will be. We expect to have good cash flow in Q3 like we had in Q1 and Q2.

And just to clarify one point. Not all the new products are using Fujitsu. Okay? We do have new products that do not use Fujitsu. So – and they are not any significant portion, by the way. David Duley – Merriman Curhan Ford: What is the current balance of the prepaid wafers?

$99.4 million at June 28. David Duley – Merriman Curhan Ford: How much?

$99.4 million. David Duley – Merriman Curhan Ford: Yes, that’s the overall. Isn’t there a current portion of that?

Yes, the current portion is $25 million and change. So balance is the long-term portion. David Duley – Merriman Curhan Ford: Okay. Thank you.

Yes.

Your next question comes from Brad Evans [ph]. Your line is now open.

Yes, thank you for taking the question. I just want to – I guess Bruno, you are in the hot seat here. It’s your first call and we aren’t being fair to you, but I think you have to recognize that – I’m sure your recognize this, that Lattice’s stock is near record low. And if you look at the enterprise value of the company today based on just the color that Jan just provided, I guess the stock is going to open a little lower tomorrow. But our enterprise value is about $125 million. And I guess if you look at this year, you might do about $130 to -- $230 million to $240 million in sales, sort of being valued about half the sales. I would just urge you to – and I think Bill’s comment about the Board resonates I think the stock price’s reflection of the market’s confidence and management as well as the Board in terms of delivering and creating shareholder value. It’s a real issue for you that you. So, all I ask of you is to – at the direction of the Board, obviously, but I’d appreciate your meeting with shareholders and getting a vein or a sense of what shareholders would like to see happen, because clearly the market is not really valuing the business for much at all of anything. That’s really the balance sheet that is supporting what’s left of your equity price. So I would just urge you to consider the voice of shareholders here that, look at the value of the company and the balance sheet is a fairly significant net, and the prospect of making large acquisitions or buying IP when in reality the market right now is not placing much of a value at all in our business. It seems somewhat counterintuitive. So that’s really not a question, but a comment, and I guess if you’d like to respond to it, I’d appreciate it.

Well, I mean – okay, let me just repeat one more time what I’ve said earlier. My number one goal is to create shareholder value. Okay? And I believe that there are a number of options that can create shareholder value. Okay? Obviously if you want to see the stock price at $10 by the end of the quarter, I doubt this is going to happen because it’s going to take this company need a business transformation, so that it can deliver consistent numbers from profitability perspective. So I mean, there are a number of things that needs to be addressed in the company. There is a good foundation, but there are a number of things that needs to be addressed. As I said, yes, we will look at all the options, including our share buyback, including other things that will deliver – always the first priority whenever we look potential, I would say, option is going to be, is this going to deliver return for the shareholder. Okay? This, I can guarantee you that this will be the process we’ll go through.

Okay. History is important aspect here and that Board – the management prior to your arrival at the direction of the Board, the message that shareholders were fully – were supposed to – the growth and the profitability of the company were supposed to be delivered through new product development. And clearly that seems to be that that has maybe not met expectations based on the fact that management has been changed. So, call me skeptical, but here – the very prospect that now that we need to make large acquisitions or many acquisitions or any acquisitions. One has to be very somewhat skeptical of that. So that’s the history that you would hear obviously.

Of course, and history is great, but I’m focusing on the future. Okay? So that’s what I’m here, is to focus on the future of this company. I have never said that we are going to make large acquisitions or whatever. I said that’s my third week in the job, please bear with me. I’m doing an assessment of the company with its strengths and weaknesses. My number one priority to raise shareholder value. Okay? As I said, there are different ways in my view of raising shareholder value, but that would be my top priority. And we will look at all the options and what’s the best way to get there. Okay? That’s all I can say for the time being.

Good luck.

Okay, thanks.

Your next question comes from Bill Dezellem. Your line is now open. Bill Dezellem – Tieton Capital Management: Thank you. We had a couple of questions. And the first one is relative to return on capital. And Bruno, would you please share with us how return on capital when it comes to new investments enters into your decision matrix?

Again, the assessment in the first few weeks that I have made within Lattice is that there is little return on investment calculation that is being made when we develop new products. Okay? As you’ve read my background. I’m coming from a capital intensive business and therefore we don’t have much CapEx in our business, but R&D is basically our CapEx. Okay? So I’m going to make sure that we do have a culture, which is going to be performance driven, and that when we decide to develop a product, we go through the right process of looking at, is this going to get the right return as opposed to spending large amount of money without having done proper study first. Okay? So that’s really something, yes, that I’m going to change in the way we look at things internally. Bill Dezellem – Tieton Capital Management: Thank you. And then the next question, circling back to the production ramps that you’ve described, there were a number different ones that were referenced. And we are curious to what degree as those production ramps that you referred to throughout the call in the backlog versus not being in the backlog and -- simply trying to understand how the dollars are counted in this case, please.

Typically the backlog that I referred to, when I talk about backlog it’s the 90-day backlog. The (inaudible) backlog for the quarter. So we have – so that’s when I talk about – you know, that’s the number I referred to. Bill Dezellem – Tieton Capital Management: And that would include the ramp-up of, say, the new consumer application or some of the other –

Yes, it includes that backlog as well as backlog for some of the other new products that we expect to sell in Q3. Bill Dezellem – Tieton Capital Management: That’s helpful. Thank you both.

Thank you.

There are no further questions in queue.

Great. Thank you everybody.

Thank you.

This concludes today’s conference call. You may now disconnect.