Lattice Semiconductor Corporation ($LSCC)

Ladies and gentlemen, greetings and welcome to the Lattice Semiconductor First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host for today, Mr. Rick Muscha, Vice President of Investor Relations. Please go ahead.

Thank you, operator, and good afternoon, everyone. With me today are Fouad Tamer, Lattice's CEO; Lorenzo Flores, Lattice's CFO, and Sanjoy Maity, AMI's CEO, will provide a financial and business review of the first quarter of 2026, an overview of the AMI acquisition and the business outlook for the second quarter of 2026. Both a copy of our earnings press release and the press release announcing our planned acquisition of AMI can be found at our company website in the Investor Relations section at latticesemi.com. I would like to remind everyone that during our conference call today, we may make projections or other forward-looking statements regarding future events or the future financial performance of the company. We wish to caution you that such statements are predictions based on information that is currently available and that 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 second quarter of 2026. If at any time after this call, we communicate any material changes to this guidance, we intend that such updates will be done using a public forum, such as a press release or publicly announced conference call. We will refer primarily to non-GAAP financial measures during this call. By disclosing certain non-GAAP information, management intends to provide investors with additional information to permit further analysis of the company's performance and underlying trends. For historical periods, we 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. Lastly, we've streamlined our financial reporting to better align with our strategic focus. Beginning this quarter, we'll break out revenue across 2 primary end markets: Compute and Communications and Industrial and Embedded. Our consumer business is now included within the industrial and embedded end market. For comparability, we've recast all prior period results so you can make a direct apples-to-apples comparison. With that, I'll turn the call over to our CEO, Fouad Tamer.

Thank you, Rick, and welcome, everyone, to our first quarter earnings call. That has delivered an excellent start to 2026 with results that underscore both strong market tailwinds and our disciplined execution against a clear strategy. Our first quarter performance exceeded expectations and our second quarter outlook reflects our expected continued momentum across the business. This is the seventh earnings call since I joined Lattice, and I hope we have now demonstrated that we consistently say what we do and do what we say. And these positive factors in aggregate provide the foundation for our proposed acquisition of AMI. This acquisition positions Lattice to create the industry's most comprehensive secure management and control platform and enables us to deepen our customer relationships and expand our long-term growth opportunity. Now turning to our results and outlook. Revenue for the first quarter was $170.9 million, representing 42% year-over-year growth, with strength across all end markets. Our Compute and Communications end market achieved record revenue, driven by continued momentum in data center AI application. In Q1, 62% of our revenue came from Compute and Communications products with expanding opportunities ahead. As Rick highlighted in the safe harbor, we have now merged our industrial and automotive end market with our consumer end market into what we now term industrial and embedded. The revenue from our industrial and embedded end market grew more than 20% sequentially, reflecting improving market conditions and expanding adoption of Lattice solutions. As importantly, along with increased consumption, channel inventory reduced from 3 months last quarter to close to 2 months of inventory on hand, and we expect this trend to continue to under 2 months in Q2. As we anticipated, profitability grew faster than revenue with EPS up 86% year-over-year. These results demonstrate the operating leverage in our model and our ability to scale efficiently as revenue accelerate. The main trends continue to build across AI servers, networking, industrial automation and emerging physical AI applications. We are seeing accelerated bookings which now support a strong backlog that extends well into 2027. We're also witnessing improved customer visibility and healthy design win momentum across our FPGA portfolio. Taken together, we're confident that we're in the early innings of a multiyear growth cycle. And our ability to deliver sustained above-market growth for the foreseeable future. Our results also highlight the progress we've made in evolving Lattice into a system-level solutions company. Customers increasingly value Lattice, not just for low power program and hardware, but for complete solutions, spanning connectivity, security, management and control. As system complexity increases, particularly in AI-driven and advanced computing architectures, our customers are giving the highest priority to platform that reduce integration risk, shortened development cycles and enable faster deployment at scale. These trends continue to expand Lattice's role within customer systems, increased attach rates and drive higher value per design. We also continue to benefit from our everywhere companionship strategy, positioning Lattice broadly across the ecosystem. Rather than competing with CPUs, GPUs or other processors, our low-power FPGAs enable and enhance them, providing secure boot, power sequencing, platform management, I/O aggregation, sensor bridging and control. This approach allows Lattice to participate across hyperscale data centers, communication infrastructure, industrial automation, aerospace and defense, automotive, medical and emerging physical AI applications, while remaining silicon-agnostic and ecosystem neutral. Looking to the second quarter, our revenue guidance of $185 million at the midpoint represents nearly 50% year-over-year growth. This underscores our confidence in the accelerating momentum of the business. Our midpoint EPS outlook of $0.44 reflects roughly 80% year-over-year growth. It highlights the powerful operating leverage in our model and differentiated products we bring to market. We maintain a disciplined capital strategy and believe we'll be able to consistently drive earnings growth that significantly outpaces revenue growth. And we are committed to continue to do so. Turning now to the planned acquisition of AMI we announced earlier today. We are excited to have signed a definitive agreement to acquire AMI, a leader in firmware , orchestration and system-level manageability. The combination of Lattice's low-power programmable hardware with AMI's industry-leading solutions, including BIOS, BMC and platform security create the industry's most complete secure management and control platform. Together, we'll enable customers to accelerate development, simplify system integration and bring increasingly complex platforms to market faster across AI servers, advanced compute, communication infrastructure and industrial applications. Strategically, this acquisition represents a pivotal milestone in advancing Lattice's long-term growth strategy. AMI firmware is expected to remain processor and silicon agnostic, preserving open ecosystems and customer choice, while Lattice FPGAs provide a complementary hardware foundation reinforcing our everywhere companion chip strategy. We expect this transaction to be accretive to gross margin, free cash flow and EPS on a non-GAAP basis. It also supports our trajectory toward exceeding a $1 billion annual revenue run rate by the end of 2026. We look forward to welcoming the talented AMI team to Lattice and expect this combination to strengthen our system-level road map and long-term growth profile significantly. Looking forward, we're encouraged by the continued durability of demand across our end markets, the depth of customer engagement and the expanding role of Lattice play in next-generation systems. With a differentiated strategy, a scalable financial model and an increasingly complete platform, spanning hardware, firmware, security, manageability and control, we are confident that Lattice is exceptionally well positioned for the future. With that, I'll turn over the call to Lorenzo for a comprehensive review of our first quarter results. Lorenzo?

Thank you, Fouad, and good afternoon, everyone. We will begin with an overview of our first quarter 2026 financial performance and our second quarter outlook, followed by an overview of our planned AMI acquisition. With a quarter this good and guidance this strong, it is worth repeating some of what Fouad said. Revenue reached $170.9 million, growing 42% year-over-year and 17% quarter-over-quarter. Earnings performance was even stronger as Q1 non-GAAP EPS demonstrated the leverage in our model. EPS grew more than 80% year-over-year to $0.41, a 30% increase quarter-over-quarter and above the high end of our guidance. We expect Q2 to continue this growth trend, and I'll detail our guidance in a few moments. Back to Q1. Revenue growth was driven by a record performance in Compute and Communications, up 86% year-over-year and 15% sequentially. We continue to benefit from strong data center growth, as Fouad told you. Additionally, our industrial and embedded end market grew 21% quarter-over-quarter, primarily driven by increased demand in factory automation, robotics and medical applications. Q1 non-GAAP gross margin was a little better than expected at 70%, up 60 basis points quarter-over-quarter and 100 basis points year-over-year. Our gross margin continues to reflect the value and differentiation our products provide for our customers. Non-GAAP operating expense was $60.8 million, up roughly 8% sequentially and 18% on a year-over-year basis. Much of the sequential increase is from performance-based bonuses and commissions as our revenue and profitability are exceeding expectations. We also continue to invest in order to capitalize on our near- and long-term opportunities. Our Q1 non-GAAP operating margin expanded 370 basis points to 34.4%, and our EBITDA margin increased 310 basis points to 39.6%. Both were a little better than expected. Q1 cash flow was impacted by last year's annual bonus payout as well as revenue linearity in the quarter associated with our rapid growth. GAAP net cash flow from operating activities for the first quarter of 2026 was $50.3 million compared to $57.6 million in Q4. Free cash flow trended with operating cash flow. In Q1, free cash flow was $39.7 million, down from $44 million in Q4. We expect a strong recovery of cash flow as we continue to grow. During Q1, we repurchased $15 million of stock. We ended the quarter with $140 million in cash and no debt. Now for our guidance. We are targeting closing the AMI acquisition in Q3, so this guidance reflects expectations for Lattice stand-alone. In Q2 2026, we expect revenues to grow in the range of $175 million to $195 million. At the midpoint of this range, this is almost 50% growth from Q2 '25 and 8% over Q1. We expect gross margin to be 70% plus or minus 1% on a non-GAAP basis. We expect non-GAAP operating expense to be between $64 million and $67 million. Most of the growth in OpEx will be in R&D and reflects disciplined investments to drive long-term sustained revenue growth. We expect income tax rate for Q2 to be between 4% and 6% on a non-GAAP basis. We anticipate non-GAAP EPS to be in the range of $0.42 per share and $0.46 per share. At the midpoint of this guidance, we expect that we would again exceed 80% year-over-year earnings growth as we continue to demonstrate the leverage in our model. Turning now to the AMI transaction. I am just as excited as Fouad, our Board of Directors and our leadership team that we have entered into a definitive agreement to acquire AMI. AMI is a leader in platform firmware, secure boot, device management and system control software. This acquisition represents a strategic expansion of Lattice's capabilities to deliver system-level solution, further accelerating our growth. The total consideration of the deal is expected to be $1.65 billion with $1 billion of cash and $650 million of equity. This is approximately 5.4 million shares based on the closing price on May 1. We expect the acquisition to be equally compelling from a financial perspective. With AMI, we expect our revenue to exceed an annual run rate of $1 billion by the end of this year. We anticipate AMI's software-centric asset-light model will further enhance Lattice's already strong business model. We expect that the transaction will be immediately accretive to gross margin, free cash flow and EPS on a non-GAAP basis. We will cover our pro forma expectations in more details after we close the transaction. In closing, we are truly excited about our organic growth and financial performance. We are all very enthusiastic about the opportunity to combine Lattice's strengths with those of AMI. Finally, the Lattice team remains focused on execution and taking advantage of the expanding growth opportunities ahead. We are well positioned to drive continued short- and long-term revenue growth, expand our operating margin, increase free cash flow and grow earnings faster than revenue. Operator, that concludes our formal remarks. We can now open the call for questions.

Operator, before we jump into questions, can we introduce with us today AMI's CEO, Sanjoy Maity, who has a few remarks. Sanjoy?

Hello. Thank you, Fouad. At AMI, our management team, our employees, Board, investors and I, we are equally excited to be joining with you and the Lattice Semiconductor team. The strategic combinations with Lattice Semiconductor pairs the low-power programmable leader with the leader in the platform firmware and infrastructure manageability for cloud and AI data centers. Lattice and AMI, we shared a long history, a collaboration and a common vision for secure management and control platform. Now together, we can build on that foundation, extending the reach of Lattice's low-power FPGAs and AMI's trusted platform. While we will maintain the open silicon-agnostic multi-vendor support our customers value. We also share the same commitment to disciplined execution, strong margins and focus on building values for our investors. Thank you again. I'm very excited and looking forward to build a great future together.

Sanjoy, great to have you here. Welcome to Lattice. And operator, we can now take questions.

[Operator Instructions] Our first question is from Ruben Roy with Stifel.

Congratulations on the strong results and outlook and the deal announcement. I guess Fouad to start, in the press release, you talked about doubling the SAM opportunity here. Can you talk about how we should think about that expansion? How much is incremental addressable opportunity from AMI and their existing firmware installed base versus you talked about combined solution categories, et cetera, that perhaps neither company could attack independently. Can you help us with that? And I guess as part of that question, the core business is inflecting, particularly on the compute side. If you think about 2026, how are you thinking about mix of revenue from servers specifically and maybe AI overall?

Thank you, Ruben. Good question. So yes, we expect our total -- the served or serviceable available market to us to double from about what we think was about $6 billion currently to about $12 billion jointly with AMI over the next 3 to 4 years. And that main increase will come from this Compute and Communications subsegment. And as you pointed out, the 2 major indicators in that segment are the percent server and the percent AI. And so these are a good follow-on question on the percent server that has been growing steadily for us from sort of the teens a couple of years ago to this year, expected to be in about 38% of our total revenue coming from server. And the second facet to the question in this Compute and Communications market or subsegment is the percent of our revenue coming from AI. And again, it grew from the mid-teens in '24 to the high teens last year to where we expect it to be about 25% of revenue in 2026. And AMI plus that is going to be uniquely positioned to be able to provide solutions to customers in this Compute and Comms market.

That's great. If I could ask a quick follow-up for Lorenzo. It's great to see that you're flagging the deal is immediately accretive on gross margin, free cash flow EPS. Can you give us a framework for the gross margin profile? I know it's early, Lorenzo, but any thoughts on the software and firmware business relative to your 70% non-GAAP gross margin run rate at this point? How much of the accretion as you look ahead would be structural versus maybe dependent on synergies, revenue or otherwise?

Yes. So I'm going to actually -- that's a great question, Ruben, and we'll get this, again, in more detail once we close. The way to think about this acquisition, as Fouad said, is it's very strategic and in the midterm, opens up really significant growth opportunities for us. But the really nice thing about it immediately is thinking about this deal strategically and looking at the very complementary P&L structure and operating model that AMI has is we are not dependent upon synergies to make the deal accretive. In fact, AMI's business is very high gross margin. It's higher than ours, and we'll share some more detail on that later. And then they have a different structure, but at the operating margin level, it's pretty close to ours. And so they generate a very significant EBITDA percent of revenue, and that's close to ours or maybe slightly above ours right now. So if you think about it that way, you can see that there is not a dependency on cost cutting. We'll look at efficiencies through time for sure. But on a go-forward basis, we're able to fund the debt and cover the interest and still show accretion immediately.

Our next question comes from Christopher Rolland with Susquehanna International Group.

So yes, I just wanted to dig in a little bit more on the strategic value of AMI. So I just looked over the website, and it seems like they offer firmware, but also like infra management software. Would love to know just kind of the cross synergies here between Lattice FPGAs and what you're going to do with this software. And perhaps if you could also talk about the growth rate for AMI. I know you talked about $200 million revs in '26, but that growth rate expectation moving forward would be very helpful for us as well.

Yes. Thank you, Chris. So let me start in trying to explain this. Let me start going to my background where I've done this twice already. So this is the third time that I do something very similar. So it was at Broadcom we were actually second on the switch market share to Marvell. And by the time I left, our team had done a great job becoming #1. And one of the key acquisitions we did along the way was a company called Level 7 that provided us with protocol software. And what we're able to do is to use that to come up with reference design for the ODMs in Taiwan that made it much faster for customers to go to production with their switch system. And so this is number one that was successful and very relevant to discussion we're having. And again, this protocol software, don't think about as software, think about it as hardware. So this is very low-level stuff. And then the second one was at Inphi, where we were -- actually, when I joined, we're selling a TIA. By the time I left, we were the #1 leader in optical interconnect. And in that journey, we decided along the way to have a partnership with Microsoft to deliver a DCI model for Microsoft for between data center, 80-kilometer at the time was called colors and some of you on the line know it very well. And that sort of complementary addition of a system or subsystem skill, if you wish, with module was very critical. We debated at length whether this was going to be a departure from selling silicon and components. But it made -- and it was about almost 80%-20%. 80% of the business ended up being these components that we're selling as a platform. And 20% of the business was this module that we're selling to -- it started with Microsoft, eventually became the whole market. And today, it's very standardized across the whole market. But the addition of that module system, subsystem skills were very critical in the success because these folks had the folks on the silicon side go to market faster and do a better job. So the history of AMI has 40 years of developing these test cases and very deep knowledge of the whole industry from server to switch to [indiscernible] they're the first one to be brought up when a CPU gets brought up. They're the first one to be brought up when a GPU gets brought up. They're the first one to be brought up along with a lot of systems. They're a very key complementary partner to the BMC, the board management controller today. And we intend to continue to be a very strong partner to all of these board management controllers, the HPE, the Nuvoton, the NXP, the others in the market. And so it's an extremely strategic move for us that complements our FPGA, low-power FPGA business. And the growth rates are going to be in the high teens, and we expect next year to be actually accelerating. And we do expect to come to solutions to market together that will end up growing our revenue faster than you could see we're growing at 40% on the revenue. And by the way, as you noticed, we grew 80% on EPS, and we should be able to grow faster on both revenue and EPS together in the '28 time frame as these solutions go to market. Solutions are being seeded today in discussions today. We had many discussions with many customers about the solutions. They're very excited about it. And it's going to be a very exciting growth. Now we've got a presentation, investor deck on our website. And if you could turn to it, please, that details the AMI acquisition. And on Slide 5, it shows you the challenges that the data center face today as you go from managing servers to racks to cost down the whole data center, this modularity becomes extremely important. AI is adding a lot of complexity. Uptime, these components, GPU switch are very expensive. Uptime is very key, and there is a huge pressure on time to market and ship left as shown on Slide 5. And then if you jump to Slide 11. Slide 11 shows -- I'm sorry, Slide -- yes, 11. It shows the solutions that we are providing together to these challenges. And so things like rack both, power and cooling, retrofit and plug-and-play are going to be solutions that we provide together along with our low-power FPGA and the platform firmware and manageability infrastructure that AMI provides. So very exciting future ahead.

Excellent. congrats on this deal. I guess maybe as a follow-up, if you could talk about -- I think you said you guys said inventory maybe was even under 2 months at this point in time. I mean we should have an uplift here. I think we can see it in the guide. But if you want to talk about it more broadly, just as you are no longer burning and could there potentially even be an opportunity to refill? How are you guys thinking about all this into the future? And next quarter, will that be balanced?

Yes. Good question. So look, I mean, we're very excited about it. And what I would say, Chris, is this is part of telling you what we're going to do and do what we say. So I told you when we joined -- when I joined now about 1.5 years ago, this is my seventh quarterly call that we're going to bring this under control. When I joined the numbers were closer to 6. And we told you we'd be at 3 by end of last year, and we did by end of '25, we got to 3. I told you we're going to be in the 2s. We are in the 2s. And I told you actually, we'll bring it under 2, and we're on our way to under 2. The last time the company was under 2, we had 10 good quarters ahead than 1x. And so we may be entering a very strong period here. And you can see our Industrial and Embedded business grew 22% sequentially, which is amazing, amazing. And hopefully, more to come. Lorenzo, you want to add to this?

Yes. No, I think the way to think about channel inventory right now is it's no longer business imperative to bring it down. What we're really working on is keeping the right balance of inventory at distributors across the globe and the right type of inventory so that they can service their customer needs. So I think this is what I would characterize as a nonissue for Lattice going forward. And we're really happy that we were able to manage through this. And now what we get is much greater visibility, much more direct visibility into what end customers are demanding. So our build is much more efficient.

Our next question comes from Melissa Weathers with Deutsche Bank.

Congrats on nice results, an interesting deal. And Sanjoy, I'm looking forward to working with you in the future. I guess for my first question, I wanted to touch on the data center side of things. In the past, you guys have given like an FPGA attach rate per server, and it seems like those applications that you can use an FPGA for in the data center is growing massively and those conversations with engineers are happening live. We heard Jensen talk at GTC about using more FPGAs in those racks. So can you help us -- I don't know if there's an updated framework that we can think about in terms of FPGA attach in the data center. I'm also really curious on the wireline side in addition to the server side. So any help on, I guess, content in the data center would be helpful.

Yes. Thank you, Melissa. So the couple of trends that I'll highlight in the recent customer visits, I had to a server OEM, and they showed me how the unit of rack has now gone from where they had all in one rack to now 4 racks together, a compute rack, a networking rack, a power rack and a cooling rack. And so that's one change that is pretty profound and is going to allow us to increase our content in the comms as well as power and cooling. The second one, when you go visit these data centers is you realize now these cooling racks are actually attached by these big pipes coming from the ceiling. It's going to be much harder to change the cooling rack. And so the cooling rack may have a longevity need that's actually closer to our Industrial and Embedded business that may last for many years as opposed to the faster cadence of moving on the compute side. In the presentation that we have about AMI, we are highlighting rack boot on Slide 11, where now some of these -- this is, again, a new application where the cloud would like to not just power up a server at a time, they'd like to power up the whole rack at one point. And we could have some very interesting application FPGA in that new application. And so that's pretty exciting. The third bullet there on Slide 11, you could see that of that AMI application, you can see that people want to go and retrofit some of their older systems for better uptime and better security, better for detection. And again, that's another new opportunity. And so we're finding opportunities all the time. And from a modeling point of view, we still have this forecast of about 16.5 million server in 2026. We're roughly saying about 3 FPGA per server on overall, okay? That gives you a number of total FPGA. And we're roughly saying our you can calculate the percent -- you can calculate the business, right? We just gave you today what we don't typically do, but we give you a breakdown of that server business in Q1. So you could take that 38% I just gave you and you've got our number for Q1, you can see how much revenue we have and gives you a bit of an ASP. So that gives you all you need, I think, Melissa.

By the way, our ASP is continuing to increase on a per unit basis through this progression. We keep finding more value-added opportunities for our customers.

Yes. So as we said in the past, Melissa, what's helping us number of server increasing, AI increasing, actually, even shorter term, we've seen a big demand increase, not just only from AI, but traditional CPU and storage because of things like cloud and other agentic type of coding have driven not just the AI, but also the traditional CPU and storage. The attach rate to continue to find new applications new ASP with new product, ASP continues to increase, hence, increasing that server dollar amount.

Perfect. And then maybe just a quick follow-up. I mean, these growth rates seem to be a lot faster than maybe what we were expecting coming into the year. So from a supply perspective, can you just talk about your ability to secure supply? It seems like your customer visibility is increasing, but what about your supplier visibility? Do you have the front end? Do you have the back end? Just anything there that we should...

We do...Our Senior VP of Operations, Divyesh Shah has been in the industry for a long time. He lives on a plane and lives at the supplier. And we've had many calls to our supplier. Definitely have are strained or this definitely is straining us and -- we're working hard on it, though, and we have been able to secure supply. It comes at a cost. So we are -- the comps are challenging, but we're working with our customers and our suppliers to deal with this, and we're in good shape.

Yes. I think unlike some other industry players, our wafers are more legacy node wafers. And so our supply there is less challenged. The back end is where we see pressure, and we keep expanding our supply chain in that area to provide a diversity of suppliers and additional capacity. And we're actually beginning to bring our lead times down as we get that expanded supply.

Our next question comes from Tristan Gerra with Robert W. Baird.

Just as a follow-up to an earlier question, is there any step function increase in the content for root trust security with the upcoming cyber and payment platforms? And also, is there any potential for event content in data center? Or is that going to be in other end markets?

Yes. We're not commenting on specific platform, but our security continues to be a major factor in allowing us to grow our business here. And the second question?

Was regarding Avant and whether there is any data center potential opportunities for the higher density FPGA that's coming out.

Yes, absolutely. Absolutely. Can you -- I'm not sure -- can you be a bit more specific? We -- what -- can you -- I'm not sure we understand the question. Go ahead.

Yes. I was just wondering what type of use cases you see for Avant and whether there's any data center applications, potentially DataPath or anything else outside of root of trust security or even for root of trust security for Avant.

Okay. I'm sorry.

I get it now. So you're asking whether our midterm range FPGA Avant platform has application in data center. And so far, it's been mostly our pre-Nexus and Nexus product is what is applicable for data center. As time goes by, Avant may find its way there, but Avant is really focused on our Industrial and Embedded Platform segment.

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

Yes. So we've talked about this a few times, especially leading into the year where we thought that the -- we should be prudent about our outlook in gross margin because we saw the supply chain increases coming. And what we have been able to do is continue to work with our customers on ways to offset the cost increases we're seeing. We do also, though, expect that the cost pressure will continue and increase relatively in the second half of this year versus the first half. So we haven't gone, we're just -- given where we are in the year, we are not going to give very precise guidance about the second half of the year. But we are in the range, I said before, 69.5% plus or minus 1%. This quarter, we happen to be 70%, a little bit higher than that. But this is going to be the approximate range we see going forward. And we will provide you more specific guidance as we get into the second half of the year on how the cost increases are playing out.

Our next question comes from Joshua Buchalter with TD Cowen.

This is Lannie on for Josh. Congratulations on the quarter, and I'll extend my congratulations for the deal as well. Focusing on the core business really quickly, you mentioned that Lattice is still on track for hitting that over $1 billion run rate in the fourth quarter of this year. Can you clarify if that's specifically for the core business? Or is that inclusive of the AMI acquisition as well since I know you've given kind of an estimated revenue for the year?

It is inclusive of the AMI acquisition.

Got it. And then specifically kind of -- was there a follow-up to that? Sorry, I had a follow-up question afterwards, but is there additional thoughts?

Go ahead. Go ahead.

Yes. So as it relates to AMI, I'm curious to know what kind of capabilities does this give Lattice that you didn't have before? And if you could talk about AMI's current go-to-market and monetization strategy and how that fits in with Lattice's business model currently and then going forward as you integrate together?

Yes. Thank you. So first, as you said, we together expecting to exit the year at this $1 billion run rate at this roughly 40% free cash flow. So you could see we'll be able to delever pretty fast from there. So that's what we think is a beautiful business. The combination is going to be very strong financially. And then from a capability point of view, it gives us much stronger system skills jointly and allow us to bring these solutions to customers much faster. So it's a capability that we will be adding. We'll be able to discuss further at our next quarterly call. So when we get in front of you to discuss Q2 and guide to Q3, we'll be able to give you a lot more details on some of the AMI business and go into a bit more of the detail on their financials. But today, we want to focus on our business, introduce the acquisition, and it's going to take us a couple of months to close expected in early Q3. And then at that time, we'll be able to fully give you all the details on their business.

Our next question comes from Quinn Bolton with Needham & Company.

I'll also add my congratulations. Fouad, maybe just a high-level question on the AMI acquisition. AMI talks about security, board management. You've historically talked about similar things for your FPGAs. And so can you just spend a minute, is there any place where the 2 businesses compete? Or is it truly complementary? Does the Lattice FPGA root of trust protect the AMI for -- my BIOS as it resides in the servers? Just is there any sort of direct overlap between the 2 businesses?

Yes. Great question, Quinn. We have been working together since 2019. So it's been 7 years of close collaboration. There is no place where we compete. This is totally complementary and it's actually very complementary to our customer and should really benefit our customer and partners. And we are committed to remain agnostic. They support all the other silicon partners, and we are partner to the same silicon partners. So we see it very complementary and beneficial to our -- not only the customers, but also the partners. And so it should be very strong, 1 plus 1 equal 3. And Sanjoy is sitting with me today. He both plans for 4, 5 and 6, hopefully, and he's laughing here.

Excellent. Excellent. And then obviously, you guys had a great start to the year in terms of revenue growth. I think we came into the year thinking the server business could be up something like 20% to 40% in industrial and now, I guess, the embedded business up 5% to 15%. It looks like you're tracking well above that. I don't know if you're prepared to perhaps talk about growth rates for those businesses given the strong start to the year, but I figured I would ask?

Well, so for the year, it's still early. I would say that the trend that started late last year and has led to our results in the first quarter continues, and that trend is our business continues to book in very, very strong. The customers are continuing to increase their demand, and we are booking out even longer in time. So at this point in time, we have high confidence that our growth this year will be strong, will be stronger than we originally thought at the beginning of the year. Comms and compute as an end market will be the key driver of that for the reasons we all know. Industrial and Embedded, though, is recovering, and we saw signs of that in the first quarter. I would say the extremely high year-on-year growth rates might not hold for the rest of the year for the compute and the server, but we'll be pretty pretty strong. And the comms business will be aligned. It kind of goes up and down relative to the compute growth rate, but it's still going to be pretty high. And like I said, Industrial and Embedded will continue to grow, but probably not at the rate that we saw in Q1 versus Q4 of last year. It did grow 10% year-over-year, Industrial and Embedded, and that's a pretty good range to think about the year.

And Quinn, right now, as Lorenzo was saying, the demand is strong for the foreseeable future and bookings well into '27.

Got it. And can I ask a quick just clarification on the deal. Will THL Partners be locked up for any period of time post close on that $650 million of equity issued? Or are they free to sell once the deal closes?

Yes, they have a lockup that extends through the year. It's 25% per quarter.

12 months from close.

Yes, 12 months from close for a year, not through the year.

Our next question comes from Duksan Jang with Bank of America.

Congrats on the strong results as well. Just following up on some of the earlier gross margin questions. You've been talking about bookings a strong well into '27. Backlog is building up. The lead times are expanding, that the AMI margins are stronger. So is it possible that the margin structure now is more structurally just higher than before. I think you're touching into untouched territories. I think you haven't really sustained 70-plus before. But now should we think this is something more achievable at this point?

Duksan, this opens up opportunities for us that we may have been shied away from before and across the various markets. So we don't intend to go much above that. And we can be sure we can. But I think right now, there are opportunities for us that we haven't gone after that we could go after. So it could potentially open up a higher top line.

Got it. And then one follow-up is just on broader competitiveness of the supply chain. And I ask this because clearly, Intel has now divested Altera and it's now a stand-alone company. We haven't heard much since from them, but they clearly have a much different supply chain with the internal manufacturing team. So do you think that gives them a lot more advantage in this supply-constrained environment? And if not, could you explain why?

Yes. Look, our supplier have been fantastic. We are with UMC, Samsung and TSMC on the fab side. And extremely supportive. And we have strong assembly and test partners. We're adding more because this is where the shortages are. And so, so far, we feel very good about our supply chain, our ability to supply. So it's not an issue for us.

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

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

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