Lattice Semiconductor (LSCC) Q3 2025: AI Server Content Drives 80%+ Growth in Key Segment
AI server adoption and comms demand propelled Lattice Semiconductor’s compute business, offsetting persistent headwinds in legacy client and automotive lines. Management’s guidance anchors on industry CapEx trends and a measured view of industrial normalization, as the company leans into partnerships like NXP and PQC-driven security solutions. Investors face a bifurcated setup for 2026, with high-growth AI exposure counterbalanced by cyclical and channel-driven uncertainty in industrial and auto.
Summary
- AI Server Content Expansion: Lattice’s dollar content per AI server outpaces traditional systems, fueling segment growth.
- Industrial and Auto Normalization: Channel-driven under-shipment persists, with no broad-based recovery outside China auto.
- Strategic Partnerships and Security: NXP collaborations and PQC mandates position Lattice for next-gen design wins.
Performance Analysis
Compute and communications (“comms and compute”) delivered standout results, with server-related business up over 80% year-to-date and wired comms up more than 60%. The company’s AI server exposure is a clear differentiator, as management confirmed “more content in AI servers because of the segregated nature of these servers.” However, these strengths were offset by a significant decline in the legacy client business, which management described as having “pretty much disappeared now” due to headwinds from three major OEMs. This drag muted overall comms and compute growth to the mid-20s percent for the year, despite robust performance in the company’s most strategic verticals.
Industrial and automotive revenue remained stable, running at approximately $50 million per quarter, but management emphasized continued under-shipment to the channel and a lack of broad-based recovery. While China auto showed some momentum, global auto remains a “very small part” of the overall business, and management is not underwriting a near-term rebound. Gross margin remains a function of segment mix, with pricing strategy focused on long-term value rather than opportunistic moves.
- AI Server Penetration: Content per AI server is structurally higher, driving segment outperformance as industry CapEx rises.
- Client OEM Decline: The collapse of the client business offset gains, highlighting lingering exposure to legacy markets.
- Industrial and Auto Consistency: Channel-driven under-shipment continues, with management cautious on forecasting a recovery.
The business is increasingly defined by a mix of high-growth, AI-driven opportunities and cyclical, channel-dependent segments where visibility remains limited.
Executive Commentary
"We are still on track for the mid-teens in this year, 2025, going into the mid-20s by next year, 2026. And the ratio is about 60% comms and compute versus 40% industrial and automotive. On the comms and compute, we play a role of a companionship to the various ASICs and ASSP I've mentioned before. On the industrial auto, we can play a far-edge AI near-sensor intelligence, if you wish, and that's our focus."
Ford, Senior Vice President
"Our pricing strategy is obviously to price to value, as you can tell by our gross margins. And as I said earlier in the commentary around gross margin, that varies a lot between the segments and within the segments between the different design wins, depending on how the customers are going to use it."
Unknown Executive, Lattice Semiconductor
Strategic Positioning
1. AI and Compute Leadership
Lattice’s focus on AI server content and comms design wins is central to its growth narrative. The company’s FPGAs (field-programmable gate arrays, reconfigurable semiconductor devices) are increasingly designed into AI and compute systems, where “companionship” with ASICs (application-specific integrated circuits) and ASSPs (application-specific standard products) multiplies value. Management expects AI usage in its portfolio to rise from the mid-teens percent in 2025 to the mid-20s in 2026, with a 60/40 split favoring comms and compute over industrial and auto.
2. Channel and Industrial/Auto Caution
Auto and industrial segments remain stable but lack visible tailwinds, with management explicitly not underwriting a rebound until consumption trends are clear. Channel inventory and under-shipment continue to cloud true end demand, and the company is guiding to “normal demand cycles” rather than a snapback.
3. Partnership and Ecosystem Expansion
Collaboration with NXP (a leading microcontroller provider) is deepening, with joint solutions resonating in Asia and expanding across other processing partners. These efforts are designed to create “one plus one equals three” value, leveraging FPGA strengths in security, flexibility, and AI enablement adjacent to established processor ecosystems.
4. Security as a Differentiator
PQC (post-quantum cryptography) is a mandated requirement in new systems, driving design-ins across both comms and compute and industrial applications. Management believes Lattice is ahead in this area, though the company has not yet broken out PQC-driven revenue.
5. Product Portfolio Layering
Nexus (low-power FPGAs) and Avant (mid-range FPGAs) are positioned for distinct verticals but have overlapping applications, ensuring Lattice can address both data center and industrial/auto opportunities as customer needs evolve.
Key Considerations
This quarter’s results reinforce Lattice’s dual-track strategy: capturing AI-driven growth in compute while managing through cyclical and channel-driven noise in industrial and auto. The company’s approach to pricing, partnerships, and security reflects a long-term value orientation, but investors must weigh the volatility in legacy and channel-heavy segments.
Key Considerations:
- AI-Driven Design Wins: Lattice’s increasing content in AI servers and comms systems is a structural growth lever.
- Client and Legacy Drag: The collapse of the client business remains a material headwind, masking underlying segment strength.
- Channel Inventory Dynamics: Continued under-shipment and lack of industrial/auto recovery inject uncertainty into 2026 forecasts.
- Security and PQC Mandates: Regulatory-driven PQC adoption could accelerate design win momentum in sensitive verticals.
- Partnership-Driven Expansion: Collaborations with NXP and other ecosystem players are expanding addressable market and customer stickiness.
Risks
Channel inventory and cyclical swings in industrial and auto introduce forecasting risk, with management explicitly cautious on underwriting a rebound. The collapse in client OEM demand exposes the company to legacy market volatility, while competitive dynamics in AI and security could pressure future design wins. Supply chain pricing pressure persists, though Lattice’s value-based pricing strategy offers some mitigation. Investors should monitor for any deterioration in AI server momentum or delayed normalization in industrial demand.
Forward Outlook
For Q4 and into 2026, Lattice guided to:
- AI usage mix moving from mid-teens in 2025 to mid-20s percent in 2026
- Comms and compute expected to outpace industry CapEx growth of 20-30%
- Industrial and auto to return to “normal demand cycles,” with no aggressive restocking assumed
For full-year 2026, management maintained a cautious stance:
- 20-40% growth in comms and compute, anchored to industry CapEx trends
- 5-15% growth in industrial and auto, assuming no channel-driven restocking
Management highlighted several factors that shape the outlook:
- AI mix and design win momentum as critical growth levers
- Partnership expansion and PQC mandates as drivers of incremental opportunity
Takeaways
Lattice’s Q3 performance underscores a business in transition—leveraging AI-driven compute growth while navigating legacy and channel headwinds.
- AI Server Content Is a Key Growth Driver: Strong design win momentum and higher dollar content per AI server are offsetting legacy declines and positioning Lattice for above-industry growth.
- Industrial and Auto Remain Cautious: Management is not forecasting a broad recovery, instead anchoring guidance to normalized demand and continued channel uncertainty.
- Partnerships and Security Will Define Next Phase: Ecosystem collaborations and regulatory-driven PQC adoption offer new vectors for durable design win expansion.
Conclusion
Lattice Semiconductor’s results highlight the company’s growing relevance in AI-enabled compute and comms, but also the challenges of managing through legacy and cyclical segments. The strategic focus on AI, security, and partnerships is clear, yet investors must balance optimism in these areas against persistent volatility in industrial and auto demand.
Industry Read-Through
Lattice’s experience this quarter reflects broader semiconductor sector themes: AI server adoption is driving outsize gains for suppliers positioned with high-value content, while legacy client and industrial segments remain pressured by inventory dynamics and muted end-market demand. The emphasis on PQC and security solutions signals a regulatory-driven shift that could benefit other chipmakers with differentiated IP. Finally, ecosystem partnerships—especially between FPGA and processor vendors—are becoming increasingly important for capturing next-generation design wins, a trend likely to accelerate across the industry as AI and security requirements become ubiquitous.