Greetings, and welcome to the Lattice Semiconductor's Second Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Rick Muscha, Lattice Semiconductor's Vice President of Investor Relations. You may begin.

Thank you, operator, and good afternoon, everyone. With me today are Ford Tamer, Lattice's CEO; and Lorenzo Flores, Lattice's CFO. We will provide a financial and business review of the second quarter of 2025 and the business outlook for the third quarter of 2025. If you have not obtained a copy of our earnings press release, it can be found on 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 and the future financial performance of the company. We wish to caution you that such statements are predictions based on information that is currently available and actual results may differ materially. We refer you to the documents that the company files with the SEC, including our 10-Ks, 10-Qs and 8-Ks. These documents contain and identify important risk factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements. This call includes and constitutes the company's official guidance for the third quarter of 2025. If at any time after this call, we communicate any material changes to this guidance, we intend that such updates will be done using a public forum such as a press release or publicly announced conference call. We will refer primarily to non-GAAP financial measures during this call. By disclosing certain non-GAAP information, management intends to provide investors with additional information to permit further analysis of the company's performance and underlying trends. For historical periods, we provided reconciliations of these non-GAAP financial measures to GAAP financial measures that can be found on the Investor Relations section of our website at latticesemi.com. Let me now turn the call over to our CEO, Ford Tamer.

Thank you, Rick, and thank you, everyone, for joining us on our call today. Let me begin by saying that Q2 was a solid quarter for Lattice with results in line with expectations. We continue to execute our long-term strategy, leverage our competitive position and expand our growth opportunities. We continue to see the adoption for Lattice products increasing across our core markets, demonstrated by our record level of design wins and expanded opportunities with our partners. At a high level, we delivered Q2 revenue of $124 million, up 3% over Q1 and flat with the year ago period. Our non-GAAP gross margin remained strong at 69.3%, and our adjusted EBITDA expanded to 34.1%. We achieved these impressive results in an uncertain market, underscoring our continued discipline, execution and strength of our differentiated product portfolio. We exited Q2 with increased optimism about the market environment versus Q1. Our confidence is based on several factors. Communications and Compute demand remains strong with normalized inventory and continued growth expected through the second half and beyond. Industrial and Automotive continues to perform as expected. We believe we've passed the bottom with channel inventory levels decreasing as we continue to recognize revenue under channel point-of-sales outflows. We remain on track to be at normalized inventory levels by year-end, as we previously indicated. We expect the companion chip opportunity will become an increasingly significant growth driver for us. We are seeing impactful growth opportunities from major design wins alongside AI accelerators in cloud data centers, wired communications, industrial robotics, ADAS, infotainment and far-edge AI applications. In customer meetings throughout Q2, we're energized to see how Lattice is increasingly enabling innovations for our customer strategic applications. Of particular note was the recent successful Asia Tech Summit, where we're able to engage with over 100 customers and…

Thank you, Ford, and good afternoon, everyone. We will begin with a brief overview of our second quarter 2025 financial performance, followed by our third quarter outlook. We are pleased to report that Lattice has delivered on expectations. Revenue, gross margin, operating profit and earnings per share were all in line with our outlook for the quarter. In Q2 2025, revenue increased 3% to $124 million. This was flat compared to the year ago period. Our gross margin expanded by 30 basis points quarter-on-quarter and year-on-year to 69.3% on a non-GAAP basis. This performance continues to reflect the durability of our business model with continued growth in higher-margin new products and markets and anticipated share gain at strategic customers. Non-GAAP operating expense was slightly up to $51.8 million, roughly 1% sequential growth, but 4% lower on a year-over-year basis. We continue to invest in growth opportunities in a disciplined manner. Our non-GAAP operating margin expanded 150 basis points to 27.5%, and our EBITDA margin increased 70 basis points to 34.1%. We delivered non-GAAP EPS of $0.24, which was at the midpoint of our guidance and up from $0.22 in Q1 and $0.23 in the year ago period. GAAP net cash flow from operating activities for the second quarter of 2025 increased to $38.5 million, up from $31.9 million in Q1. GAAP operating cash flow margin of 31.1% was up from 26.5% in Q1. Free cash flow in Q2 was $31.3 million with a 25.2% free cash flow margin, up from $23.3 million and 19.4%, respectively, in Q1. This is a focus area for us, and we expect the trend of increased free cash flow margin to continue. We are expanding our cash flow while selectively investing in CapEx in support of R&D and operational improvement projects. Channel inventory continues to…

Nice to see the progress into the second half of the year, guys. Ford, I want to start with maybe a high-level question and drill in a little bit on your comments around the companion chip opportunity and some of the comments you made on data center infrastructure within the context of what's going on with hyperscale spend over the last 1.5 weeks, we've gotten increasing CapEx yet again, and it seems like that trend is going to continue into next year. So I guess when we take a step back and think about your positioning, would you say that as you speak to customers and think about some of these opportunities, certainly on the companion chip side, that Lattice is in a position to benefit as we think about exiting 2025 and into '26 as the AI infrastructure spend continues to grow? That's the first question.

Thank you, Ruben. Yes, we absolutely believe that our Comms and Compute segment grew 20% quarter-over-quarter and 26% year-on-year. And within that segment, the Server was the start of the show with Server segment growing year-on-year 85%, Q2 '25 over Q2 '24 and more than doubling first half of '25 over first half '24. So as you could see, we've got some very strong growth in the Server segment, fueling the strength in the Comms and Compute, and we expect that to continue in the second half '25 and '26. And if I were to drill down into a bit more detail, there are 4 factors driving the growth. Number one, the overall CapEx increase was post-earning expectation for the major cloud guys to be over 50% year-on-year, whereas it was like 38% pre-earnings. The second one, our attach rate continues to grow into server. The third one, our average selling price, ASP for various products continue to grow. And the last one, we continue to gain share in AI server versus traditional server. We're growing both actually, but our AI server attach rate is growing fast. So these 4 factors are contributing to the growth of our Server and hence, the growth of our Comms and Compute.

And I guess as a follow-up, how are the conversations going relative to sort of new products versus sort of -- I hate to use the word legacy, but core products at Lattice. And if we could bring Lorenzo into that discussion and think about mix into next year, potential margin -- gross margin impacts as we think about new products kind of flowing into that data center segment? That's all I had.

Thanks, Ruben. Let me address the first half of the question and then turn it over to Lorenzo to address the gross margin impact. So the first part of that question is we are on track to continue to exceed our forecast of high teens in 2025 from new products. And we're on track to get to or exceed mid-20s percent of new product revenue next year in 2026. Just -- we're also on track -- this would imply we're on track to have about a 70% growth year-on-year between '24 to '25 in new products revenue. And then let me turn to Lorenzo to discuss gross margin impact.

Right. So Ruben, what I got from your question is you want some near-term color, but really a view longer term on gross margin. Is that right?

Yes, that's right, Lorenzo and also thinking through as industrial inventories normalize, just sort of how to think about margin going into 2026, that would be helpful.

No, that's great. So we obviously saw gross margin improvement this quarter. And without going into all the detail, this is something that starts with the value we provide to our customers and the products. And as you can tell from the growth that Ford illustrated in his comments around what's going on in the server market, clearly, there's strong demand for what we have. So we are seeing that the overall balance of business that we have is supportive of the gross margins we have this quarter. And as you know, from our guide, we see an improvement into next quarter. We think that the fundamental dynamic for the longer term is supportive of these gross margin levels, though we are not giving any specific guidance about 2026 just yet. But what you said is really important. If you look at where we are today with the strength of the -- the relative strength of the Comms and Compute business and knowing that we have a coming rebound in the industrial and auto, we're very comfortable where our gross margins are. And we look to continue to drive expansion, but we're not providing specific guidance just yet. I think the key to what you said about the Industrial and Auto is right now, one thing Ford didn't hit is we're undershipping true demand in Industrial and Auto. And so we think as we go through the rest of the year, we'll start to see some significant growth there. And as you indicated, find that supportive to gross margins.

The next question is from Melissa Weathers of Deutsche Bank.

I guess for my first one, I'll also keep it pretty high level. This one is for Lorenzo. You've now been in the seat for a few months now and gotten to know the business a lot more closely. So can you just give us an update on how you're thinking about the business? What is your confidence in the business model that's been established at Lattice? And what opportunities do you see for the company going forward?

I'll try not to burn the rest of our time in answering the question. I knew coming in, looking at it from the outside that the characteristic strength of the FPGA business model was well represented at Lattice. Again, high-value product, a broad base of customers demanding that product in a broad base of sectors. So you have a lot of comfort on the durability of the top line. As you can see this past quarter, the revenue from Industrial and Auto was down, but more than offset by the fact that we have a very strong presence in the emerging Comms and Compute applications that Ford talked about. So great durability on the revenue line. And as Ruben's question indicated, as Industrial starts to manifest itself in our revenue, we should see acceleration of growth. And all this is supportive of the strong gross margins that we have. But very importantly to me, as I've become familiar with Lattice is the structure underneath the operational focus on driving profitability and our focus across the management team and through the organization on improving it. Lots of activities on price and cost at the gross margin level. But if you look just, for example, at this year, this time, our OpEx for a very similar amount of revenue than last Q2, we're lower by a couple of million. This is based on actions the team has taken to drive profitability. And what that sets us up for is near term, we're seeing expansion of all our profitability metrics. Operating income, EBITDA is up over 34%, as I said. But if you look just quarter-on-quarter, our revenue is up 3.2%, and our operating income is up 8%. So this is what we're trying to set the table for as we go forward and recapture the revenue growth across the board of the business and accelerate our profitability growth into the end of this year and through next year. So I hope that answers your question.

Yes, definitely. And we're definitely happy to have you on board. I guess for my second question and maybe a less friendly question, but I think last quarter, you guys had indicated in 2026 that you should get back to your 15% to 20% revenue growth target. It seems like things are tracking as you planned, if not maybe a little bit better on the Comms and Compute side. So is 15% to 20% still a viable target for how you guys are thinking about 2026 revenues?

Yes, absolutely. We are -- we've indicated the strength in Comms and Compute, but we also are undershipping through demand in the Industrial and Automotive, which is allowing us to continue to bring the channel inventory down and our own inventory down. So we're still very positive on that segment going back to growth in 2026. And there's a range of new applications driving it. Like for example, just in robotics, we're very excited about all the applications that were being designed in, a range of new application in robotics, for example, all the way from electronics, EV production, logistics, warehouse automation, agriculture, industrial automation, aerospace, grocery logistics, smart city, oil and gas, and last but not least, the category we're most excited about humanoids. So you could see that we're just on this one area in industrial and automotive are pretty excited about the growth prospect and believe 2026 will be a strong year, and we're past the bottom in that segment.

The next question is from Christopher Rolland of Susquehanna International Group.

So we've been examining some XPU racks at what I think is or maybe your largest hyperscale customer. And the XPU-FPGA attach seemed pretty high. It seemed like a massive opportunity for you. So I guess my first question is, could other -- first of all, did this surprise you? Secondly, could other hyperscalers in their engagements potentially rival this one? And then lastly, like how should we think about this largest XPU customer versus the GPU opportunity versus other XPU hyperscale opportunities? Like how should we size this? Or what are you most excited about, et cetera?

Yes. Thank you, Chris. We're doing actually quite well across all the hyperscaler because of our low power, small size and cost-effective solutions. If you have as many FPGAs as you're discussing, you do want the 3 attributes of power, size and cost to be adequate. And we were more than -- we're actually superior in every aspect. And this is causing us to have a leadership in server. In addition, we're also processor agnostic. So we're Switzerland from that point of view. The complexity of the board is increasing. So you're seeing more of these FPGAs per rack. Security and post-quantum cryptography are driving more attach, they're driving higher ASP. And you're seeing more servers having more cards because of this AI system. So in general, for a hyperscaler rack architecture, they range from 40 to 60 servers per rack, and we can range anywhere from 70 to 130 FPGAs per rack depending on the configuration. And so we're seeing this across the board, whether it's XPU or GPU or other AI accelerators, they're all driving that content, and they're driving strong attach rate, strong ASP and strong revenue growth for us. Does this your question, Chris?

Yes. No, I think that was some great color Ford. Maybe as a follow-up on disti inventory in particular. I saw disti was up as a percentage of total to, I think, 91%. But also -- so that means sell-in was pretty high, but you guys are also saying sell-through was even higher as you guys are burning inventory. I don't know if you're able to tell us or give us a rough idea of the difference, how much inventory was burned. It sounds like a lot of it was in I&A. How much of I&A is left? And are you guys definitely on track for that to be normalized, particularly in I&A by the end of the year?

Yes. No, thank you for the question. Our inventory in Comms and Compute, as we discussed, has already been normalized. And as you are alluding to, our inventory in Industrial and Automotive or I&A is on track to be normalized by midyear. We're making very good progress month-to-month, quarter-on-quarter. And we're not breaking out the exact number, but we continue to substantially ship over the revenue. So the point-of-sale outflows from our channel inventory -- from a channel partner is definitely continue to be higher than revenue and will continue to be so until end of the year, at which point we should be normalized in industrial automation and give us really strong growth and strong headwind -- strong tailwinds actually into 2026, given that inventory will be normalized.

The next question is from Blayne Curtis of Jefferies.

Ezra Weener on for Blayne. I guess first one would be, we've seen pretty mixed commentary from the rest of your peers in terms of Industrial and Auto. And you're talking a lot about growth next year and normalization at the end of this year. Can you just talk about what you're seeing from, I guess, a regional basis and maybe break up Industrial and Auto into what gives you that confidence on timing?

Yes, for sure. So we were actually more cautious in the last earnings call, and now we're more optimistic on this one. So it's a bit different. And then the rest of our peers that some are were flipped. And I think that what gives us that confidence is we continue to -- there are a few factors. Number one, we continue to have outflows from our channel inventory be higher than revenue. And we -- the demand is extremely strong right now. We are starting with starting backlog that are record high level, not only for Q3, but also for Q4, and we're starting to see that for Q1. So billings and backlog, including starting backlog is extremely strong. The book-to-bill is the highest it's been for a couple of years. The -- as we talked about inventory on both the channel inventory and our own inventory continue to go down and then record design wins. So I think what's also giving us confidence is we got record design wins across all segments, not only compute, but also very strong in Industrial and Automotive and very strong across the new products. So the new product funnel has almost doubled over the past 12 months with very strong wins in hyperscalers, in robotics and industrial automation. And in that segment, automotive is the smallest area. So automotive is less than 10% of that segment, so less than 5% of our overall revenue. So some of the other peers are probably talking about weakness coming from automotive. We're actually seeing automotive being strong for us, driven by China and somewhat in the rest of Europe. But really, it's not a big factor in our revenue because only less than 5% of revenue there.

The next question is from David Williams of Benchmark Company.

I guess maybe first, you've touched on the ASP trends. And just kind of curious, is that a dynamic of where you're just seeing some pricing power come back in? Or are you seeing just a mix shift in terms of your new products, more Avant or the higher-end products versus maybe some of your prior platforms?

Yes. We're definitely a mix shift, not only to products like Nexus Avant, but also within our MachXO family going from XO2 to XO3 to XO4 to XO5. So I think we're continuing to provide products that are being driven by things like security, things like post-quantum cryptography, by higher number of interfaces. So that ASP is definitely benefiting from what I just mentioned.

And then maybe secondly, just kind of thinking about Avant's contribution and the way that, that is ramping, can you give any color there around -- on the new product side, how much of that growth is driven by Avant versus some of the newer Nexus products?

Yes. So look, I mean, the short term is going to be a Nexus story, including 2026, and Avant becomes a bigger factor in '26 into '27. So that's the progression. So I would say -- and the small FPGA is really what's driving the short-term and medium-term revenue into '26. And Avant becomes a much bigger contributor as we go into second half '26 and really into '27.

[Operator Instructions] Our next question comes from Gary Mobley of Loop Capital.

At that $133 million revenue guide for Q3, approximately how much are you undershipping as you draw down the continued excess inventory in Industrial and Automotive? And then I guess, conversely, is there any sort of constraint on Communications and Compute as perhaps your inventory might be running too lean or you might have extended lead times?

I'll take the undershipping question, Gary. And sorry, I'm not going to give you a specific amount because we're just -- we're not doing that in part because it requires some estimation. But also when we do provide a forecast in the future, we will incorporate what's happened in the channel. But there are -- there's a similar amount in our Q3 forecast that we saw in Q2. And we think that's going to be consistent until about the end of the year when we should be normalized across the channel. We are seeing -- and I'll hand this over to Ford on the second part of your question. We are seeing turns in the Comms and Compute business within the quarter right now.

Yes. No, as Lorenzo said, Comms and Compute continues to be strong, and our goal is to be a good supplier to our customers and do the best we can to meet supply. Obviously, it gets challenging with some of the upsides, but...

I appreciate that color. Lorenzo, I know this wasn't your target as it was given back in 2023, but I think the long-term stated goal is to have OpEx somewhere in the range of 30% of revenue. And I know that the recent restructuring perhaps isn't necessarily under your guard as well. But to climb back to that OpEx goal, revenue has to increase from -- has to increase 35% from current levels. Is the strategy now to just remain patient and wait for the top line to recover? Or do you feel like you've got some more OpEx rightsizing to go?

So I'm glad you let me out in a way, Gary, I appreciate that. But I will say at the same time, if I'm free to define longer term, I don't think it's a bad objective. I do look at what we're doing in our OpEx investment as the driver of growth of the future. And I think that's just the inherent nature of the FPGA business. We have done, as you indicated, a significant action last year in order to get our OpEx run rate down. We continue to tune our operation structures to optimize what we're doing. We just have gone through an exercise in the middle of the year of refocusing where we're investing and trying to invest in the right things. So no, I don't think it's a bad objective or -- let me rephrase that. I think it's the right objective, but I'm not yet at the point of telling you when we think that's going to happen. Given the revenue growth that you alluded to, I do think it's feasible.

The next question is from Quinn Bolton of Needham & Company.

I guess, Ford Lorenzo, you've talked about undershipping demand in the Industrial and Automation -- sorry, Auto and Industrial segment. I'm wondering if you've actually started to see POS in that end market starting to increase? Or has POS been pretty flat and you guys are just undershipping more of a stable POS level?

In short, Quinn, POS is increasing.

Excellent. And then...

So that speaking was right.

Yes. No, that's great. I just wanted to clarify. Ford, I'm going to ask you what may be a tough question, but what Nick said we're going to get Section 232 within about the next week or so. How are you guys preparing for Section 232? Do you have sort of a sense where you think those tariffs may land? And how do you handle that uncertainty?

Number one, our understanding is the country-specific tariffs supersede 232. So we get a fair amount of our supply from Japan, South Korea and Malaysia. And so those are already in place. So no change on that front. Number two, a lot of our channel partners bring inventory from Mexico into a free trade zone and ship from there out of the U.S. So the percent that is coming to U.S. is a small percent of our business. And at this point, we haven't seen any direct impact from tariffs, and we'll wait and see, but some of these factors are going to mitigate any potential 232 impact.

Yes. Let me just leverage what Ford said. The direct impact as we see it on our business doesn't seem to be significant in terms of changing our cost structures based on the way our supply chains are oriented and the way our customer flows work. However, we do -- as everybody else, we do look out for bigger macro level impacts on the overall demand. But right now, as you see in what we've guided, we see strength in our end markets. And given what's driving that strength, if you look at, for instance, the hyperscaler CapEx, we're hoping that the direct -- the indirect impact of tariffs are minimized on us. But we have a good supply chain structure in order to deal with this flexibly, and we've been working with our customers over the past several months as this has become an issue in order to help them optimize their supply chains as well.

The next question is from Duksan Jang of Bank of America.

On Comms and Compute, Ford, I know you mentioned a lot of growth drivers, some of which are secular and some of which are more specific to Lattice. Is there any way to sort of force rank those 4 contributions that you mentioned, so say, the market growing versus your wins or your attach rate versus content, that would be very helpful.

So you'd like us to rank the 4 factors that are the overall CapEx increase that the cloud hyperscaler have indicated on the earnings call being 1, our attach rates being 2, the ASP being 3 and our attach and AI servers being 4. And these are all related and intertwined. So the number 5, I forgot to mention is the record design wins we're having with hyperscalers. And so that is a strong #5, if you wish. And number six, I think as I think about the sort of ecosystem that we use to sell into that market, we sell, if you wish, to 4 different constituents. One is the ODMs that are building for the hyperscaler and OEMs; two, we sell directly with AI accelerators; three, we sell directly with some of the related wired communication type of providers; and number four, the server OEMs directly as well. And so we've got these 4 constituents also going strong. So that's, I'm not sure there's a scientific way to break this. We have all the data, but I'm not sure we could take it offline and come back to you, but quite a few factors that are helping us grow the Comms and Compute.

Yes. Understood. And then the second question on Industrial and Auto. So I know you mentioned the strong recovery outlook. But then the channel has been elevated for quite some time, and you said you've been undershipping demand for a time as well. So do you anticipate once the inventory actually normalize, do you expect the market to go back to shipping in line with the demand? Or do you expect it to be a little bit more conservative?

I would expect it would be in line with demand. And as our design wins take hold or new design wins take hold and these products in these sectors ramp, we should have quite strong growth.

The next question is from Joshua Buchalter of TD Cowen.

Maybe following up on Quinn's earlier about the geopolitical backdrop. Maybe it's a good thing it hasn't come up, but any changes you've observed in your customers' order patterns, specifically in China over the last 90 days, given all the volatility? I think in the Q, it said China was up like 11% sequentially. So it doesn't seem like anything egregious, but we would just be curious to hear your thoughts on the geopolitical backdrop from the tariff angle.

Yes. The short answer is we have not seen anything, and we keep looking. And we're very wary of that to make sure that we are -- we understand what is true demand. But one of the things that you should put into context of that question is our growth that we're forecasting and Ford's earlier comments about where bookings are. So we -- the phenomenon you're asking for is do we see a pull-in and then are expecting a drop off. And we just don't see that in our data.

Got it. I appreciate the color there. And then as we think about the new product growth, I think you said 70% this year. Given the upside you saw in Comms and Computing this quarter, I mean, should we think about new products being more tied to Comms and Computing, faster design cycle times in that end market, too? And then I kind of squeeze in a second one from -- any outlook you can give us on sequential growth by end market in the guidance on that note?

As we indicated, we do believe that Industrial and Auto will start outperforming as we get into end of this year and into next year. And so we should see growth across both end markets, both the Comms and Compute as well as Industrial and Auto. So we're not sort of -- we're not seeing one -- we're seeing both of them grow into next year.

Our next question is from Kevin Garrigan of Rosenblatt Securities.

On the strong results. Ford, you had mentioned several Edge AI growth areas that will benefit the company. Looking at the market in your business, can you just give us a sense of what applications you see developing more in the near term that you'll benefit from? And what is more on the longer tailwind?

Yes, for sure. So on Edge AI, it's -- we're on track to achieve high teens of revenue coming from AI in '25 and expect this to grow to mid-20% of revenue in '26. So that's positive and aligned with what we had indicated in the past. And the way we break it up by end segments, we see about 60% of this AI-related revenue coming from Compute and Comms and about 40% of this AI revenue coming from the industrial, automotive and consumer type markets. By application, we see about 55% of these applications where we are a companion chip to sort of AI accelerators and GPUs and switches, et cetera. And we see about 45% that are application where we're either on the data pass or are running edge AI into our chip for like tiny AI models. So that should give you a color of that AI revenue.

Yes. Okay. That's perfect. And then you delivered another record quarter for design wins. Ford, you're coming up on your 1 year at the company. So what are you seeing at Lattice that helps with capturing design wins versus the rest of the market?

I think what's helping us is a very single-minded focus on small and midrange FPGAs, which we believe is a sweet spot of growth in the FPGA market. And we're actually clarifying our positioning to be a companion chip to AI accelerator networking chips, NIC cards, et cetera, versus our competitors trying to do this in the midrange and high -- large FPGA in a way competing with some of our customers or their customers sort of ASICs. So we are more of a pure-play FPGA in the sense that we -- this small to midrange is more of a companion chip. If we run AI on our chip, this is, as I said, less than 1 tera OPS, less than 1 watt. So a very focused type approach versus -- and we call this far-edge AI, near sensor AI as opposed to the competitors -- larger competitors with large FPGA trying to go after what they call near edge AI, which in a way competes with our customers. So we see ourselves as a companion chip, for example, to image processor AI where we can be fed input from various sensor, could be image sensor, it could be radar, it could be LiDAR, it could be infrared cameras. And many of these could be 10, 12, 15 different sensors being fed into our FPGA where we preprocess the data and sort of make that near edge AI inferencing chip more effective. And so we are -- in that companion role, we are adding value to our customers because they're spending a ton of money on these AI accelerators, and we make those AI accelerators more efficient because of our low power, small size, cost-effective solution near the sensor. We -- our customer called this contextual intelligence. So that intelligence is contextual to that sensor and helps that main AI chip.

Our last question today comes from Christopher Rolland of Susquehanna International Group.

I guess, first of all, I just want to know Ford what you meant by the country tariffs superseding the Section 232. So I guess that means you don't think there will be any additional semiconductor tariffs on top of country specific, but just wanted you to elaborate there. And then also, if you guys had any more color on Q4 or '26 based on the positive bookings backlog commentary, that would be great as well.

Sure. So on the first question, our understanding is if you look at tariffs, for example, from Japan or South Korea, where we procure wafers or Malaysia, we procure assembly and test stuff, is that those, let's say, 15% in the case of Japan and South Korea would supersede a 232 if 232 were to be higher. So let's say, a 232 comes in at 20%, our understanding is that the Japan 15% or South Korea 15% would supersede that 20% and stay valid. So that's number one. Number two, on the question on Q4 and 2026, as I said, we see strong backlog actually into Q4 now and starting into Q1 of next year. So this is way above where we have been and probably some of the best bookings and backlog for the past 3 years.

Excellent. And then Ford, maybe just a high-level technical discussion as to where you see opportunities. When we think about scale-up AI, particularly networking, just because that was your background, are there any opportunities for things like scale up or retimers or DSP or SerDes or I/O chips or anything like that? Or are these FPGAs, including Avant too small for some of these functions? I'm just wondering if there could be expanded opportunities just in your heritage of networking.

Look, today, we are getting increasingly confident in our positioning of being the companion chip to all of the above, right? So not just somebody asked about XPU and GPU and AI accelerator and switches and NIC cards and retimer and even board management controller and NIC storage, we are actually being companion chip to all of the above. And that's -- all of these chips are driving the AI infrastructure. AI infrastructure is not just the accelerator, but also all of the chips that you're mentioning that are companion chip to these AI accelerator we companion chip to these companion chips. So I think right now, we are benefiting from being Switzerland and being a support -- very important support role in all of these deployment -- and this companion chip role is going to increase because there is a tremendous amount of complexity increase in these AI. There is a tremendous amount of pressure to reduce system design cost to increase -- to increase the speed at which the system goes to market. And a lot of these functions are typically better done in FPGA. And these are not these big large FPGA power hungry expensive. These are the small to mid-range FPGAs that are going to fit in these systems when you talk about tens of FPGAs per rack. So we're happy with the role we have and feel like this can be a very big opportunity for us. End of Q&A :

This concludes our question-and-answer session. I would like to turn the floor back over to Rick Muscha for closing comments.

Yes. Thanks, everyone, for joining us today. For a copy of our earnings release, please visit us on our Investor Relations website. We'll be attending the following conferences this quarter: the Jefferies Semi, IT Hardware and Communications Tech Conference in Chicago on August 26, the Evercore Semiconductor, IT Hardware and Networking Conference also in Chicago on August 27; and the Benchmark Annual Tech, Media & Telecom Conference in New York on September 3. This completes our call. Thank you again very much for your participation.

You may now disconnect your lines at this time. Have a wonderful day.