Good afternoon. My name is Kristen, and I'll be your conference operator today. At this time I would like to welcome everyone to the Lattice Semiconductor First Quarter 2009 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remark there will be a question-and-answer session. (Operator Instructions). Thank you. I would now like to turn the call. Over to Doug Hunter, Vice President of Corporate Marketing. Sir, you may begin your conference.

Thank you, Kristen. Good afternoon everyone. Joining me on the call today is our President and CEO, Bruno Guilmart; and our CFO Michael Potter. Before we begin, I'll read the Safe Harbor Statement. After that Bruno will provide the business review, followed by Michael giving the financial review of our first quarter 2009 results. Bruno, will then present our second quarter 2009 business outlook and we'll end with a question-and-answer session. I will now read the Safe Harbor statement. It is our intention that this call will comply with the requirements of SEC Regulation FD. This call includes and constitutes the company's official guidance for the second quarter of fiscal 2009. 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. The matters that we discuss today, other than historical information, includes 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. They 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 Securities and Exchange Commission, including our fiscal year 2008 Form 10-K filed on March 9 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 also will be presented within the requirements of SEC Regulation G regarding generally accepted accounting principles or GAAP. Some financial information presented by us during the call will be provided on both a GAAP and a non-GAAP basis. By disclosing certain non-GAAP information, management intends to provide investors with additional information to permit further analysis of the company's performance for results and underlying trends. Management uses non-GAAP measures to better assess operating performance and to establish operational goals. Non-GAAP information should not be viewed by investors as a substitute for data prepared in accordance with GAAP. If we use any non-GAAP financial measures during the call you'll find that the required presentation of and reconciliation to the most directly comparable GAAP financial measure in the company's earnings press release. I will now turn the call over to Bruno Guilmart, our President and CEO for a review of last quarter's business. Bruno?

Thank you, Doug. In the first quarter we saw strong gains in the Chinese telecom market and our new products actually grew quarter-on-quarter. However, consistent with the global economic downturn, the balance of our business experienced continued weakness. Despite the drop in revenue and our lack of profitability, we did, through careful management generate $7.5 million of cash from operations. Profitability is still our main business goal and our highest priority. We continue to work on our cost structure. As our center of gravity has continued to shift towards Asia we are increasing our focus there. We are actively working to take expense out of supply chain by becoming more Asian centric in our production and consuming, and are now reviewing expansion of our Asian operations beyond the existing R&D and customer support center, we already have in Shanghai, China. We have also settled on a product road map which we believe will reduce our R&D cost while preserving our competitiveness. Going forward, our low density business will focus on an embedded flash architecture, while our high intensity business will focus on a mid-range, FPGA architecture with low cost settings which we believe can address the great bulk of the markets, including most higher performance telecom applications. While the business level in the first quarter was disappointing, we're encouraged by the continued success of our mid-range LatticeECP2M FPGA family especially with our telecom customers. This ECP family (ph) success was especially heartening as we launched successor, the next generation LatticeECP3. The ECP3 extends on ECP2M's value proposition of chip memories, powerful DSP blocks and high data rate service in an economic package by further accommodating the market demand for low power devices. In fact, the ECP3 is the lower power service enabled FPGA in production today. Though the ECP3 represents…

Thank you Bruno. Revenue for the first quarter was 43.3 million, down 13% from revenue of 50 million in the prior quarter and down 23% from the 56.6 million reported in the same quarter a year ago. Gross margin for the first quarter came in at 52.3% which was within our guidance and higher than the gross margin posted in the fourth quarter of 48.7%. The sequential increase in gross margin was primarily due to a charge. to cost of sales for the obsolescence of selected inventory parts recorded last quarter, which did not occur this quarter. And partially offset by a decreased in gross margin due to product mix and the under absorption of overhead costs. Total operating expenses, excluding intangible asset amortization and restructuring expenses for the first quarter came in at 27.8 million, 1.6 million lower than the 29.4 million posted in the fourth quarter. Intangible asset amortization was 228,000 for the first quarter and we will be nil for the second quarter of 2009, as scheduled amortization of the underlying assets is now complete. In the other income category of our income statement, you will see a negative $500,000 and negative 7.6 million for the first and fourth quarter respectively. During the current quarter, we recorded a $700,000 impairment charge, compared to last quarter's charge of $8 million. Both of these charges where related to an other than temporary decline in the fair value of auction rate securities. I will provide more detail on our auction rate securities later during this call. The first quarter GAAP net loss was 5.8 million or $0.05 per share, as compared to the 14.4 million loss or $0.12 per share, we posted in the fourth quarter. The first quarter results include total charges of $2.1 million for an impairment charge…

Thank you Michael. I will now give you our second quarter guidance and make some closing remarks. There is still much uncertainty in the market. In the first quarter we benefited from the China telecom build out. But it is unclear how long that benefit will last. It is not clear if the rest of the world have started the recovery or is resting at a lower level. As such, we're cautiously giving our revenue guidance, down 5% to up 5% sequentially. Gross margins are expected to be in the range of 50 to 52%, which includes the impact of the restructuring of our distribution channel in Greater China. Operational expenses is expected to be approximately $27 million. In closing, let me say this. In our last call I said that Lattice's intent was to capitalize on this downturn. That has not changed. Our new products are growing. We're generating cash and our balance sheet is strong. The future is not clear, but we face it confidently. This concludes our prepared remark. Michael and I will now take your questions. Operator please give instruction for the Q&A session.

(Operator Instructions). Your first question is from the line of Tristan Gerra with Robert Braid. Tristan Gerra - Robert W. Braid & Co: Hi, good afternoon. How big was China as a percentage of your communication revenues in the quarter and what type of visibility do you have beyond Q2. There were comments from one of your competitors yesterday about potential gap in revenues in the September quarter and I would be interested in your view on this?

Tristan this Bruno. So, we don't really breakdown in percentage of communication portion of our business in China. But there is no doubt it was large. And we do not really have visibility beyond September quarter, our third quarter basically. Tristan Gerra - Robert W. Braid & Co: And is the flat guidance including a decline sequentially in orders from China?

Difficult to say at this time but not really I mean we again it all depends on how the China build up deployment is going to play. Okay right now there is no visibility on the second half, okay. That's all I can say for the time being.

I can say that another reason for the range is that we are restructuring our distribution channel in greater China. So we are trying to build in some risk as our customers switch from one distributor to another distributor. So we may have an interruption or a pause during the quarter. So that's another reason for the range. Tristan Gerra - Robert W. Braid & Co: Okay and could you remind us what 190 nanometer is as a percent of FPGA revenues. And also any sense of when it could peak because you have been ramping in volume for sometime now at 90 nanometer?

Again Tristan we don't break it down, but this is basically the ECP2, ECP2M products, okay? They have been introduced three years ago. So I think there is still some room for growth on these products. As you know, we don't play at the building edge. And we just introduced our first 65 nanometer product, which is the ECP3. And it's getting a lot traction in the market, especially in Asia. So we don't see that I mean I don't anticipate the ECP2M is going to peak anytime really soon. Tristan Gerra - Robert W. Braid & Co: Great, thank you.

Okay, thank you.

Your next question is from the line of Richard Shannon with Northland Securities.

Hi guys, how are you?

Hi, how are you?

I am doing fine, thank you. Maybe a follow-up on the topic of China. I am kind of interested in the design win activity that's going on in China and Asia in general related to the telecom and wireless. You mentioned there a comment about not sure what your visibility looks like with the current design win activity, but kind of interested in what's going on in the future there.

No, we do have I would say some visibility on what's happening on the design wins. What we do not have visibility on is what's going to happen in the second half of the year on the existing design win that we have in the current 3G department. And this tends to be a cycle of at least one year from new design win into revenue. Okay? What I can give you as a color is the new design wins in China are coming primarily from the wireless infrastructure, both in the... what we call the BBU, the basement part of the equation and also across the RRUs. Okay? And I can't really give you more color than. I think that I've told you plenty already.

Okay. Second question from me. Michael I think you just made a comment about the guidance for the second quarter, related to your new distributors. Can we expect at any -- may be I'll use the word pothole in revenues coming from these guys, would that at most one quarter impact or is that something that could potentially play out beyond the second quarter?

Well we started transition at the beginning at this quarter as we showed by the press release we released a couple of weeks ago. So, we don't anticipate there to be any major problems. We have planned that carefully here. But in the interest of caution, there always is a risk when you transfer from one distributor to another that there could be a pause or a pothole during the process. If so, I don't anticipate it going much past this quarter.

Okay good to know. My last question for you, related to operating expenses. I am kind of curious what your -- how much more room you have to cut cost, obviously I'm you're looking very closely and trying to identify certain areas where you might be able to cut. Kind of curious to your desire to look at even more cuts and how that relates to your path to getting to that cash flow breakeven revenue level, which I think is 45 million a quarter?

So, I think we still have significant room to cut in the future and we are looking at the best ways to do that while continuing to align ourselves to where our customer base is today. So, there are several projects that are underway today in the company, that will certainly bear some fruits in the future and will drive down the operating cost as best as we can. And we are not just focusing on operating cost, we are also focusing on our cost of goods as well, because we can get more efficiencies in our supply chains and in the production of our products as well.

Okay. Great, thank you. I will jump out of the line. Thanks.

Your next question comes from the line of David Duley with Steelhead Securities. (ph)

Guys, good afternoon. I have a couple of questions. First of just clarification. On the cash balance, the 71.4 million, we should add 30 million to that right now, because early in this current quarter you got that money back from Fujitsu. So really you have a 101.4 million in cash-in-hand right now, correct?

We did receive the $30 million. I actually don't have the bank statement in front of me. So I can't just add the numbers up, because I have received some cash and issued some checks since then. But, you are correct, the first payment of $30 million has been received and we do have it now.

And I'm sorry if I have, I know you said it, but I missed it. When do you get the other 30 million back?

In the fourth quarter of 2009 as we anticipated.

In October.

October.

Okay, great. Thank you. Were there any 10% customers during the quarter.

There were some 10% customers during the quarter and if you referred our 10-K you can see some of the traditional once with had. We also had a lot of strength in China, so we have some 10% customers in China as well.

Just I'm not having the 10-K open. Are the names of the customers and the percentages listed there, what is disclosed on this topic in the 10-K?

In the 10-K, I know Promaster was listed as a 10% customer.

Which happens to be the distributor, we have terminated as well.

Okay. And so there where some 10% customers, more than one then, and I'll go and look it names here in just second. But I was just wondering if there are any other names to that might recall or what the percentages where.

Yes, but we don't disclose customers on a quarter-by-quarter basis. So, I'll let you know that we had some 10% customers in China in Q1 which should be evident from the strength we have in our revenue base in China this year.

Okay. And what do you think your gross margin guidance would be if you weren't terminating and switching this distribution? Obviously, you have a sense for what kind of charge you might be going to see and I'm just wondering, what kind of percentage impact that would have on your thinking on the gross margin guidance? You did put out the charge but what was the guidance you gave?

It's approximately 2% impact on the quarter. So depending on the revenue level it would be anywhere -- somewhere like 52 to 54 in terms of the guidance. So, its about 2% impact for the quarter is what we currently anticipate.

Okay. So, okay thank you. And do you have a guess now about what you're breakeven level of revenue is for let's say GAAP breakeven?

Depending on which assumptions you use, if you just take today's loss on a GAAP basis and our gross margin percent, it should give you a pretty good indication. That with about $10 million more revenue approximately we will be GAAP breakeven. There will be a little bit less in that because gross margin is slightly above 50% and the amortization will end and you probably don't have continued impairments of the auction rate securities. Eliminate those two items, then that's about $1 million in this quarter. So take another $2 million off, so may be $8 million more from this run rate. Of course that also assumes that we don't take more costs out of operating expenses which we're planning on doing and we don't increase our gross margin by taking production, our cost of products down as well. So, it could be better than that.

Okay. Now the one thing and I was just little confused about I just want to ask it in a different way is, without the charges, it looks like the gross margin percentage would be going up rather than down?

Well we will give a range of 52 to 54 because I said there is about a 2% impact. So it also depends on what the final mix is in the quarter. We have some higher margin and some lower margin products and we don't have enough visibility today to be very specific about what it is. So it would be in the range of 52 to 54.

With the midpoint being 53, which should be up from 52. Okay, great thank you. And the final thing is I'm a little confused on the overall top line guidance, plus or minus 5%. As you know, Altera reported up 2 to 7%, they have the same, I thought you had more relative exposure to the Chinese infrastructure build than they did, may be I'm wrong about that. But they where able to guide revenue up 3.5-4% and your guidance is flat. I am wondering is there something I am missing here. Or is it just that your other segments of your business aren't as robust as the other segment of your competitors?

Let me comment on that for a minute, and then you should go through the guidance of Flemings (ph) which is very close to ours, up or down forward. I think that we've declined less in term of sequential decline then Altera. So, I think that's part of the reason.

Okay. And I guess then I would transfer the comment to your which is, you're going to see a nice uptake sequentially in their Chinese infrastructure business and the other stuff part of their businesses is probably going to be down for them, that translated into up, it sounds like it translates into flat for you?

It's a very difficult for us to comment on our competition guidance and their circumstances. So the guidance we gave for our revenue range is based on the best information we have today and that's where our guidance for what our business is expected to be during the quarter.

Okay. Well let me just ask in a slightly different way than it. for you, forget what Altera said, will the Chinese infrastructure business be up sequentially or down sequentially, or flat?

We usually don't give that amount of granularity in our guidance. I mean Bruno did say during the call that we're not certain how much longer the current extra strength from the Chinese markets is going to lap. And our visibility although is better than it's been in the recent past, is still somewhat murky. So, we've given the best information that we can so far on it.

Okay. Thank you.

Your next question is from the line of Mark Lipacis with Morgan Stanley.

Thanks for taking my question. Just going back to certain back to the China visibility question one more time, and looking past this quarter. Is -- I guess if there is uncertainty about visibility it could come from a couple of different areas, it could come from your market share, your customers or your customer market share in the market or the ramp of the market. And I'm just trying to understand if the telcos over there, if they continue to deploy infrastructure, would you expect to participate at your current market share?

So let me comment on that. I assume the uncertainty yes. But the real question mark right now is we do not know what will be the extent of the 3G deployment in the second half of this year. We know where it is in the first half of this year. It has been publicly announced by the several players in China and the service providers. So we all have visibility particularly on that. And as you know most of that deployment has been improving from the second half of the year. So we just don't know what's going to happen from a deployment perspective. The products the equipments that will be deployed and will be the same than the equipment that today are deployed in which we are designing anyway. So I can't really say more than that for the time. We just don't know.

Fair enough. Thank you very much.

Your next question is from the line of Tristan Gerra with Robert Baird. Tristan Gerra - Robert W. Braid & Co: Is it fair to assume other income is going to remain flat with the March quarter number?

I am sorry I didn't quite pick up you. It will be up -- Tristan Gerra - Robert W. Braid & Co: The other income line.

It should be up. The March quarter includes an impairment in it. So if you exclude the impairment, which I can't really predict what the credit markets are going to be, then I'd say relatively flat, yes. Tristan Gerra - Robert W. Braid & Co: Okay, great. And what's the level of inventories at distributors, approx in weeks, and also what's your target in terms of inventory days on hand?

It varies by region honestly. Some regions have come down a lot more than other regions.

I think just bit more color, if you think Japan. The inventory that rolls, our distributors there have come up or come down actually significantly. Most Asian distributors that were still, I would say the inventory levels there we are managing have been level that been that very carefully. Okay. And you should get them out of our balance sheet, our inventory levels up at one of the lowest levels ever. Tristan Gerra - Robert W. Braid & Co: Great, thank you.

Your next question is from Matt Dhane with the Tieton Capital Management.

Thanks. I was curious. Why was the decision made to change the Chinese distributor?

So the main reason for us is to try to develop a I would say a more Pan Asian side distributor. So we've appointed a Greater China distributor called Weikeng, which was already which we had already in China and he was doing a good job for us and we've also appointed Origin, which is a division of New Horizon, that has Asian wide footprint. And that also has enabled us to convert from a -- if you want a negotiated sales model into a ship and debit model which is the model we used in U.S. and Europe. So that we have more control over our pricing.

Great. Thank you.

You are welcome.

Your next question is from the line of David Nowarski with Nowarski Investments.

Good afternoon. My first question is for Bruno. You have now been at the helm of Lattice for almost a year. What is the most positive thing you've discovered about the company and, what is the most negative thing and regarding the negative thing, what actions have you taken to solve?

Well the positive thing is, actually as we've got some good technology. We've rationalized a lot of things. There is no doubt that that is turnaround, but turnaround is never easy and turnaround when you have lots of headwinds, it's even more difficult. So, it's going to take a little bit of time. I think we've got a new management team. We've got some new people on board with new ideas and we all trying despite the current economic environment to focus on the business. We are going to continue to make changes and as I've said in my earlier comments, our first priority, highest priority of this company is to make money, is to be profitable. And we'll get there, it just takes time, okay.

Okay. In your script you mentioned that you're basically going to focus on two types of products now. How did you come out of that choosing those two and regard to those products, what can you better than your main competitors regarding those products?

Okay. So we used to have a fairly large number and we still have today by the way, because we are still selling this product our architecture. And given our size we've decide that trying to compete at the leading edge with the two larger guys is not going to work, because we just have a lot of more legal resources. So we think follow the MCD business when architecture going forward, which is the fresh architecture I've talked about. And we've kind it and more focused on this existing product we have today which is MachXO. And so going forward we're going to have a road map focusing on that for low density. And for high density, we've decided that we will mainly focus on embedded SRAM with steady low power to address some very specific vertical market that we have chosen, by integrating also some half of the block of the intellectual property on this so we can target (ph) this specific market. So that's kind of the strategy if you want going forward to be a lot more application specific on chosen vertical markets.

Do you compete directly with Xilinx and Altera in both of those families?

Yes, we do, but going forward we're going to try to have different strategy. So that we even do not compete with Hedron.

All right.

The best way is that you must try to be at very advanced technology then we're not going to do that anymore.

So I guess, I am still trying to get to this question, what is that that you can do the better Altera and Xilinx in those two specific areas? You obviously chose them, because you thought you had a competitive advantage. So let me ask in another way. What's your competitive advantage in the two areas you've chosen to focus on?

We believe that we can provide at the right cost points a better total solution for our customers in the vertical markets we have chosen.

And since you've decided to basically shrink your market a little bit, will your cost come down? Is that why you are thinking -- there is some cost you can take out the company, that your CFO mentioned before?

Does it shrink what?

Well, you are kind of shrinking the size of your market, I guess you addressable market. But I think that you're leaving some areas or you're not going to pursue them anymore, is that correct?

I think in terms of your cost question, we certainly have a lot less cost in the area of R&D by reducing the number of architectures we're trying to support. So the roadmap becomes more focused than the amount of activity and the amount of resources necessary to support that roadmap, it will be smaller and trying to have a very, very broad product category. In terms of by narrowing the vertical market you serve, I think the resources we use to serve that market, in total you have a huge change, but instead of spreading ourselves very thin only poorly serving many different areas, we're focusing more closely on areas where we do have an advantage, the architecture and the characteristics of our devices in those markets suit those market very well. And in most cases where we get designs wins, our customers tell us it's better than our competitor's product even though we are competing head-to-head.

The idea is to have in children segments or market, a larger market share rather then trying to compete heads-on in a broader segment, where we have not been very successful in the past. So the idea is we want in the key markets we've chosen, end markets we have chosen, we want to achieve a dominant position.

All right. Okay, I think you have answered the questions. Thank you for the time.

Thank you.

(Operator Instructions) Your next question comes from the line of David Duley with Steelhead Securities.

Just coming back for a couple of follow-ups. Could you talk about what level of turn's business you had in the March quarter and what level of turns is the assumption to achieve the midpoint of the guidance in the June quarter?

So we always have a fair amount of turns in any quarter. I would say our first quarter our backlog was much weaker going into it than our backlog in our second quarter. So there is less turns business needed in Q2 to make the guidance then there was in the first quarter. However, we still have a fairly large portion of our business and our guidance related to turns business. And turns business is orders that we don't have at the beginning of the quarter that we get during the quarter and we deliver during the quarter. I would say it's higher than the historical norm, but because particularly in our low density products, we chose such a broad range of customers and applications, there always is going to be a fairly decent amount of turns business in our business.

So, do you have that percentage for the quarter?

We don't release that percentage normally during our calls. But it is going to be a fairly high amount during this quarter, but not as much as compared to Q1.

Okay. Was the book-to-bill positive?

We don't track book-to-bill. So, honestly I don't know the answer off the top of my head. And it's not something that we're going to publicly talk about normally in the call. So, I do know that the backlog beginning this quarter was better than the backlog beginning in Q1. But our customers, when we talk to them still say they don't have the same confidence and visibility that they had in the past. So, we are seeing still fairly decent amount of business being turns business during the quarter.

So your backlog is higher going into Q2 than it was going to Q1?

Yeah.

So that would imply the book-to-bill was positive, right?

I don't measure book-to-bill. So I honestly can't answer that question.

Okay, thank you.

And there are no further questions at this time.

Thank you all for attending today's call. If you would like a replay the call will be posted on our website lscc.com.

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