Lattice Semiconductor Reports Third Quarter Results - Revenue Up 19%

HILLSBORO, OR - October 26, 2006 - Lattice Semiconductor Corporation (NASDAQ: LSCC) today announced financial results for the third quarter ended September 2006.

For the third quarter, revenue was $63.5 million, an increase of 19 percent from the $53.4 million reported in the same quarter a year ago and an increase of one percent from the $62.7 million reported last quarter.

Quarterly revenue from PLD products was $50.2 million, or 79 percent of total revenue, an increase of 16 percent year-over-year and one percent sequentially. Quarterly revenue from FPGA products was $13.3 million, or 21 percent of total revenue, an increase of 30 percent year-over-year, and two percent sequentially.

Net income for the third quarter was $0.9 million ($0.01 per share), a significant improvement compared to a net loss of $7.1 million ($0.06 per share) in the same quarter a year ago but lower than the net income of $2.1 million ($0.02 per share) reported in the previous quarter. The third quarter income includes charges of $2.7 million for the amortization of intangible assets (currently expected to be substantially eliminated by the end of 2008) and $1.1 million for stock-based compensation expense. Excluding these charges, the Company posted net income for the third quarter of $4.7 million, or $0.04 per share. The Company believes exclusion of these charges more closely approximates its ongoing operational performance.

A reconciliation of non-GAAP net income (loss) to GAAP net income (loss) accompanies the financial tables in this earnings release.

“Last quarter we once again experienced strong growth from our New products, which drove sequential growth in our total revenue during a seasonally slow quarter for our industry. We remain optimistic about our expanding FPGA product portfolio and the prospect for these products to drive continued market share gains,” said Steve Skaggs, President and Chief Executive Officer.

Third Quarter Business Highlights:

• Introduced the LatticeECP2M™ device family, the industry’s first high-volume, low-cost FPGA family with embedded high speed SERDES I/O. Devices from this five device 90 nanometer product family are now sampling;
• Released the LatticeMico32™ IP core, a 32-bit soft microprocessor core optimized for Lattice’s new FPGA families. Marking another industry first, the LatticeMico32 processor, various peripherals and a selected development tool kit are being offered to FPGA designers via an innovative open source format; 
• Released a full rate SPI4.2 soft intellectual property core optimized for the LatticeECP2™ high-volume, low-cost FPGA family. Taking advantage of the exceptional pre-engineered high-performance source synchronous I/O capability in the LatticeECP2 family, only Lattice can offer customers the ability to implement this popular parallel interface in a low-cost FPGA family; 
• Introduced the ispPAC®-POWR607, an ultra low cost programmable power management solution, priced at sub-$1 levels and targeted at high volume applications;
• Announced the Lattice Automotive (LA)-ispMACH™ 4000Z, the industry’s lowest power automotive CPLDs certified to meet the AEC-Q100 standard as defined by the Automotive Electronics Council (AEC). This family joins the previously announced, and AEC qualified, LA-ispMACH4000V and LA-MachXO™ product families to provide designers of automotive electronics a broad and compelling programmable product portfolio.

Business Outlook - December 2006 Quarter:

• Sequential quarterly revenue growth is expected to be approximately 0%-4%;
• Gross margin percentage is expected to be flat, plus or minus 1%;
• Total operating expenses are expected to be approximately $36 million, including an estimated $1.1 million of stock-based compensation expense (inclusion of stock-based compensation in operating expenses adds significant uncertainty to our estimates of expenses due to the effect of the volatility in our stock price, which we cannot predict); 
• Intangible asset amortization is expected to be approximately $2.7 million; and
• Other income is expected to be approximately $3.5 million.
  

Discussion of Non-GAAP Financial Measures:

Management evaluates and makes operating decisions using various performance measures. In addition to our GAAP results, we also consider adjusted net income (loss), which we refer to as non-GAAP net income (loss). This measure is generally based on the revenue of our products and the costs of those operations, such as cost of products sold, research and development, sales and marketing and general and administrative expenses, that management considers in evaluating our ongoing core operating performance. Non-GAAP net income (loss) excludes amortization of intangible assets, stock-based compensation and restructuring charges.

Intangible assets relate to assets acquired through acquisitions and consist of technology purchased in connection with the acquisitions. Stock-based compensation charges are related to the adoption of SFAS No. 123(R) effective January 1, 2006, and include expense for items such as stock options granted to employees, purchases under the employee stock purchase plan and deferred stock compensation issued in connection with acquisitions (prior quarters have been reclassified to be consistent with the current quarter presentation). Restructuring charges consist of expenses incurred under our corporate restructuring plan, and include items such as separation packages, costs to vacate space under long-term lease arrangements, the cost to write-off an intellectual property license and other related expenses.

Non-GAAP net income (loss) is a supplemental measure of our performance that is not required by and not presented in accordance with GAAP. Moreover, it should not be considered as an alternative to net income (loss), operating loss or any other performance measure derived in accordance with GAAP, or as an alternative to cash flow from operating activities or as a measure of our liquidity. Investors and potential investors are encouraged to review the reconciliation of non-GAAP financial measures contained within this press release with our net income (loss), which is our most directly comparable GAAP financial result. For more information, see the consolidated statement of operations contained in this earnings release.

On October 26, 2006, Lattice will hold a telephone conference call at 2:00 pm (Pacific Time) with financial analysts. Investors may listen to our conference call live via the web at http://www.lscc.com/. Replays of the call will also be available at www.lscc.com. On December 14, 2006, we plan to publish a “Business Update Statement” on our website. Our financial guidance will be limited to the comments on our public quarterly earnings call and these public business outlook statements.

• Consolidated Financial Statements
• Supplemental Historical Financial Information

The foregoing paragraphs contain forward-looking statements that involve estimates, assumptions, risks and uncertainties. With respect to particular forward-looking statements in the Business Outlook - December 2006 Quarter section of this release, Lattice believes the factors identified below in connection with each such statement could cause actual results to differ materially from the forward-looking statements.

Estimates of future revenue are inherently uncertain due to the high percentage of quarterly “turns” business. In addition, revenue is affected by such factors as pricing pressures, competitive actions, the demand for our products, and the ability to supply products to customers in a timely manner. Actual gross margin percentage and operating expenses could vary from the estimates contained herein on the basis of, among other things, changes in revenue levels, changes in product pricing and mix, changes in wafer, assembly and test costs, variations in manufacturing yields, and changes in stock-based compensation charges due to stock price changes.

In addition to the foregoing, other factors that may cause actual results to differ materially from the forward-looking statements herein include the Company’s dependencies on its silicon wafer suppliers, technological and product development risks, and the other risks that are described from time to time in our filings with the Securities and Exchange Commission. The Company does not intend to update or revise any forward-looking statements, whether as a result of events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Lattice Semiconductor Corporation provides the industry’s broadest range of Programmable Logic Devices (PLD), including Field Programmable Gate Arrays (FPGA), Complex Programmable Logic Devices (CPLD), Mixed-Signal Power Management and Clock Generation Devices, and industry-leading SERDES products.

Lattice continues to deliver “More of the Best” to its customers with comprehensive solutions for system design, including an unequaled portfolio of high performance, non-volatile and low cost FPGAs.

Lattice products are sold worldwide through an extensive network of independent sales representatives and distributors, primarily to OEM customers in communications, computing, industrial, consumer, automotive, medical and military end markets. For more information, visit http://www.latticesemi.com