Lattice Semiconductor, the plucky FPGA player known for its focus on the small and mid-range segments, just reported Q1 2024 earnings. While the headline figures reflect the broader semiconductor industry's cyclic correction, a deeper dive into the transcript reveals a subtle yet potentially groundbreaking shift in Lattice's strategy. They're doubling down on Nexus, their small FPGA family, with a fervor that goes beyond mere market share grabbing. What's really driving this accelerated investment?

On the surface, Lattice's enhanced focus on Nexus seems logical. A major competitor recently exited the low-end FPGA market, leaving a vacuum ripe for the taking. Lattice, with its power-efficient and feature-rich Nexus devices, is ideally positioned to capitalize on this opportunity.

But something else is at play here, something that goes beyond simple market share acquisition. It's the emerging landscape of AI applications, where Lattice's hardware and software solutions are finding increasing traction. And it's within this context that Nexus takes on a new significance, potentially positioning Lattice as a key player in the rapidly evolving world of AI.

Let's analyze the evidence. Lattice explicitly stated that their AI-related revenue, across all applications, is expected to double in the next few years. This is the fastest growing use case they're seeing across all their end markets. Furthermore, they emphasized the critical role of software in enabling AI applications on their FPGAs, highlighting the high attach rate of their purpose-built software solution stacks.

Here's the crux: while Avant, Lattice's mid-range FPGA platform, is generating excitement, it's still in its nascent stage. The real AI revolution, the one happening at the edge, is fueled by low-power, highly flexible devices. This is where Nexus shines. Its power efficiency and form factor make it ideal for edge AI applications, particularly in industrial automation, robotics, and AI-enabled consumer devices.

Consider Lattice's recent win in Dell Latitude laptops. Their hardware and software are used to run AI inference algorithms for presence detection and gaze detection. This win, along with their existing partnership with Lenovo, demonstrates the viability of Nexus for edge AI processing.

Lattice's AI strategy seems to be two-pronged. Avant targets the higher-end, cloud-based AI applications with its higher connectivity speeds and processing power. Nexus, on the other hand, is the quiet workhorse, poised to dominate the burgeoning edge AI landscape.

This hypothesis is further reinforced by Lattice's decision to accelerate their Nexus roadmap, adding 'additional device options' and bringing them to market faster than originally planned. This aggressive expansion indicates a strategic focus on a specific market segment, and considering the growth trajectory of edge AI, it's highly likely that Nexus is being tailored for this space.

Lattice's Projected AI-Related Revenue Growth

The numbers, though limited, paint a compelling picture. Lattice estimates $100 million of their 2023 revenue was AI-related. If this doubles in the next few years, reaching $200 million by 2026, it could represent over 25% of their projected revenue, assuming they hit their long-term growth target of mid-teens CAGR. This substantial portion of revenue would signify the strategic importance of AI to Lattice's future.

While it's difficult to quantify the split between Avant and Nexus in driving this AI-related revenue, the timing of their product launches and the current industry trends suggest a significant role for Nexus. Avant is still in its early stages, with the G and X series expected to generate minimal revenue this year. The bulk of the near-term AI growth, therefore, is likely fueled by existing Nexus families and the newly accelerated roadmap.

Lattice's Segment Performance

This subtle shift in strategy has far-reaching implications. If Lattice can effectively position Nexus as the go-to solution for edge AI, it could unlock a massive new market and propel the company's growth far beyond its current projections. The quiet revolution brewing in Lattice's Nexus may be just beginning.

"Fun Fact: Did you know that Lattice Semiconductor chips are used in a variety of applications, from controlling LED displays in stadiums to enabling precise motion control in industrial robots? They're even used in space, playing a critical role in satellite communications. Next time you look at a dazzling light show or marvel at a robot's dexterity, remember the unseen power of Lattice's technology."