Lattice – Does 4.9% Growth Miss the True Potential?

The third quarter of 2025 will be remembered as the point where the worst of the cyclical pressure finally began to lift, allowing the company’s underlying structural momentum to shine through. My takeaway is Lattice has largely navigated the COVID-caused downturn in new ordering from the company’s core industrial markets, while at the same time executing a successful pivot toward data center and edge AI high-growth opportunities. That’s a success story worth noticing.

Headline 4.9% year-over-year revenue growth may be easily dismissed in a churning marketplace, but that number misses the big story. Far more critical is 7.6% sequential revenue growth, showing the highest quarter-over-quarter expansion in over four years. This is evidence that the post-COVID channel inventory correction that plagued 2024 is nearing its end. While management acknowledges they are still shipping under true demand levels, they believe they are on track to complete the flush by the end of 2025. Lattice’s strong Q4 guidance, forecasting 22% year-over-year growth by the midpoint, confirms the management team’s increased confidence in a powerful rebound and return to historic growth targets in 2026.

The linchpin in their strategy is continuing performance in the Communications and Computing segment, which hit a record high, growing 21% year-over-year. Lattice is crucial in the server and data center ecosystem, where its FPGAs are playing an increasingly important supporting role. These devices are used for essential functions like power management, hardware root-of-trust, and board management, and now, they are increasingly being deployed to offload functions for AI-optimized servers. The shift in hyperscaler capital expenditure toward AI infrastructure provides a durable, multi-year tailwind for the company. Lattice isn't chasing the massive dollar revenue of the primary AI accelerator chips, but rather securing significantly higher content on the mainboards that house them. This is a profitable and lower-risk way to capitalize on the AI investment cycle.

Equally important is the stabilization and sequential return to growth for the Industrial and Automotive segments. This market has been the primary source of drag for the past year due to inventory panic-buying by key customers during the COVID era led to customers sitting on oversupply and working them off in the quarters since. Management confirmed that they remain on track for a return to normal channel inventory by year-end, even though they are still shipping slightly behind demand. Once that oversupply is finally finished, this segment's shipments will align with true end-market demand as 2026 begins. The return to sequential growth is the first green shoots that the snow is receding, even though revenue remains below last year's levels.

From a financial health perspective, the 69.5% non-GAAP gross margin is exceptional. It’s only 110 basis points lower than the record set during the boom period, which demonstrates two things: first, the company’s disciplined gross margin expansion strategy is paying off structurally, and second, the high-value product mix (Nexus platform, security stacks, and new PQC products) leads the drive to command premium pricing, regardless of the overall market slowdown. This robust profitability gives them significant resources to invest in R&D and product development, which is critical for future growth.