Jan Johannessen - CFO and Senior VP Steve Skaggs - President and CEO

Mark Edelstone - Morgan Stanley Chris Danely - J.P. Morgan David Duley - Merriman Curhan Ford Bill Dezellem - Tieton Capital Management Aalok Shah - D.A. Davidson Jin Li - Goldman Sachs

Good day and welcome to today's Conference Call. Copies of the Lattice Semiconductor Fourth Quarter ending December 30th, 2006, earnings press release may be obtained from the company's website, which is www.lscc.com. This call is being recorded and broadcast live over the internet by CCBN. A live broadcast and replay of the call will be available on the Lattice Investor Relations website, www.lscc.com. At this time I would like to turn the call over to the Chief Financial Officer, Mr. Jan Johannessen. Please go ahead.

Thank you, and good afternoon everyone. Joining me on the call today is Steve Skaggs our President and CEO. Before we begin, I would like to read a Safe Harbor statement and then give a financial review of the fourth quarter and the year and Steve will provide a business review, followed by our first quarter outlook. We will then hold a question-and-answer session. I will now read the Safe Harbor statements. This conference call may contain forward-looking statements within the meaning of the Federal Securities laws, including statements about future quarterly financial results, revenue, gross margins, customers, product offerings and the company's ability to compete. Estimates of future revenue are inherently uncertain due to the high percentage of quarterly turns business. In addition, the 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. The potential impact of the signing activity on the future revenue is inherently uncertain, because it is unknown whether or when any particular designing may ultimately result in sales of a significant volume. Actual gross margin percentage and operating expenses could vary from estimates due to changes in revenue levels, product pricing and mix, wafer, assembly and test costs, manufacturing yields, stock-based compensation charges and other factors. In addition to the foregoing, actual results may differ materially from our forward-looking statements due to the company's dependencies on its silicon wafer suppliers, technological and product development risks and other risks that are described in our filings with SEC. 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. Let me now turn the financial review. 2006 was a very good year for our company, so I would to begin my remarks by highlighting some of the key accomplishments for 2006. We returned to full-year profitability for the first time since 2000. We posted net income for year of $3.1 million as compared to a net loss of $49.1 million for 2005. On a pro forma basis, we posted net income in 2006 of $17.8 or $0.16 per share as compared to a net loss of $21 million or $0.18 per share for the prior year. We enjoyed industry leading revenue growth of 16% with strong growth in both PLDs and FPGAs. 2006 operating expenses declined by approximately $30 million from 2005, with R&D expenses representing about half of the expense reduction. This is a direct result of the restructuring plans we implemented a year ago. We continue to generate significant cash from operations in 2006, a total of $22.6 million for the year excluding the Fujitsu payments. Let me now turn to the fourth quarter results. Revenue for the fourth quarter was $61.8 million, down 2.6% sequentially from the third quarter revenue of $63.5 million, and up 15% from revenue of $54 million in the same quarter last year. As a result of the restructuring a year ago, the company realigned departments and cost centers as well as job responsibility changes and updated how will the company report its operating expenses. Amounts previously reporting prior 2006 quarterly reports have been reclassified and now better segregates between R&D, SG&A and cost for sale for improved comparability. The quarterly effect in 2006 of these reclassifications is that R&D expense has been lowered by about $700,000 to $800,000, SG&A increased by about $800,000 to $1 million and cost of sales lowered by about $100,000 to $200,000. There is no impact on previously reported net income or loss as the reclassifications offsets. Gross margin for the fourth quarter came in at 56.5%, slightly above the 56.2% we posted in the third quarter. This change in gross margin was primarily due to the product mix and lower cost. Quarterly R&D expense was $20.3 million, which includes $0.6 million in stock option expenses and was down $0.6 million from the prior quarter. The decrease in R&D expense was mainly due to lower mass cost for the quarter. Quarterly SG&A expense was $15 million including $0.4 million in stock option expense and was down $0.2 million from the third quarter SG&A expense or $15.2 million. Intangible asset amortization was $2.7 million for the quarter, the same as the prior quarter. The intangible asset amortization for the first quarter or 2007 will be flat at $2.7 million and the total for 2007 about $9.8 million. Amortization of intangible assets will be substantially eliminated by the end of 2008. Total stock-based compensation expense for the fourth quarter was $1.2 million, up from slightly from $1.1 million in the third quarter. Other income for the fourth quarter was $4.2 million, and included $0.9 million gain primarily related to the repurchase of our Zero Coupon Convertible Notes and sale of primary investments. We recorded tax provision for foreign taxes during the third quarter of $362,000 primarily related to our foreign subsidiaries. The company currently has the benefit of significant net operating loss carry forwards and therefore we do not expect to pay domestic income taxes in the foreseeable future. The December quarter net income was $0.9 million or $0.01 per share, a significant improvement over the net loss of $23 million or $0.20 per share for the comparable quarter year ago, and essentially flat with the $0.9 million net income or one penny a share we posted in the third quarter. These results include charges of $2.7 million, $15.5 million and $2.8 million respectively with amortization of intangible assets and restructuring charges. On a non-GAAP basis, which excludes the aforementioned intangible asset amortization, stock-based compensation expense and restructuring charges, we posted net income of $4.8 million or $0.04 per share, this compares to a net loss of $7.3 million or $0.06 per share posted in the comparable quarter a year ago and net income of $4.8 million or $0.04 per share posted in the third quarter. Turning now to the balance sheet, cash and short-term investments at December 31 were $233.2 million down $34.9 million from September 2006. During the quarter, we paid Fujitsu the third installment of $37.5 million for prepaid wafers. We used approximately $3.7 million to repurchase our Zero Coupon Convertible Notes and received proceeds of approximately $3.1 million for the sale of foundry investment. Operating cash flow for the fourth quarter was $5.6 million excluding the Fujitsu payments. During the fourth quarter, we met the third and fourth milestones in our Fujitsu foundry relationship. We made $37.5 million payments as previously mentioned and we will make the remaining the payment in the first quarter of 2007. Therefore in the fourth quarter we accrued $37.5 million in the balance sheet for the fourth payment. These two payments will conclude our $125 million wafer prepayment obligation to Fujitsu under our agreement. Accounts receivable remain essentially flat from $22.9 million at September 30 compared to $22.6 million at December 31. Days sales outstanding remained at 33 days, well below our target of 45 days. Inventories increased by $2.3 million from September 30 to $38.8 million at December 31, and is now slightly above four months on a cost of sales basis, close to our target range. The slight increase was due to lower than expected shipments during the quarter. Foundry investments, advances and other assets increased by $66 million from September 30, and represents the two Fujitsu prepaid milestones totaling $75 million, a reclassification of our foundry investments to current assets and the sale of a foundry investment during the fourth quarter. We spent $2.7 million on capital expenditures during the fourth quarter and a quarterly depreciation expense was $3.3 million, up approximately $100,000 from the prior quarter. Deferred income at December 31st was $6.2 million down $4 million from September 30th. The decrease was due to lower inventory at distributors and a higher credit provided to our distributors for the credit arrangements we instituted at the beginning of this year. This concludes the financial review portion of the call and I would like now to turn the call over to Steve Skaggs.

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Thanks Jan. As this conference call marks the end of our fiscal year, I want to take a moment to highlight our annual results and accomplishments prior to turning to the fourth quarter detail. Last year as Jan mentioned we grew our total revenue by 16%. We estimate the overall growth rate of the programmable logic market, not all competitors report it, as you know, but our estimates for 2006 had a growth rate of 13%. Therefore I believe its quiet safe to say that last year we accomplished our goal of gaining market share. We also will post the highest revenue growth rate of any programmable logic supplier during 2006, and I believe that this is the first time since 1992 that we have led our industry in terms of overall revenue growth. Additionally we gained market share within both of the major product categories. In the strategically important FPGA segment, our revenue grew 25% during 2006, nearly double the 13% rate we estimate the FPGA market grew last year. In the PLD segment, we grew a bit over 14% in 2006 compared to our estimate of 10% to 11% growth for that market. So, last year not only did we gain overall market share but we gained market share in both the FPGA and PLD segments and in each segments we were the fastest growing supplier last year. We also accomplished the very important goal of returning the company to profitability. We returned to GAAP profitability in the second quarter and as Jan mentioned reported an annual profit for the first time since 2000. This was made possible by the combination of our industry leading revenue growth and the operational cost reductions implemented during our restructuring at the end of 2005. And perhaps the most important particularly for the long term competitiveness of the company we continue to execute nicely on our aggressive new product road map. 2006 saw the roll out of three highly competitive 90-nanometer FPGA product family, the LatticeSC extreme performance, FPGA family featuring embedded SERDES and hard IP blocks. The low cost LatticeECP2, with the industry's best price performance and the award wining LatticeECP2M which charts new territory in the high volume FPGA market as the first low cost FPGA fabric to offer SERDES I/O and substantial memory resources. During the year we also completed two major software releases, introduce the soft 32 bit micro processor Core and brought 86 additional IP Cores to market. These software and IP solutions provide important systems level support for innovative 90-nanometer products. Our new products have been well received by our worldwide customer base and we believe they have meaningfully improved our competitive position particularly in a large and attractive FPGA segment and will allow us to continue our positive market share trends. So all-in-all 2006 was a very positive year for Lattice. Unfortunately it's ending on a downward trajectory. Like our direct competitors and several other semiconductor suppliers who were dependent on the communications equipment end market, our business weakened during the fourth quarter. In particularly our revenue level was negatively impacted by a sharp decrease in business from a handful of large customers in the communications, infrastructure end market. I attribute this weakness to merger activity in that sector and to a buildup of inventory at these select customers and their EMS partners. Last quarter as a result of these negative industry conditions, we saw our revenue decline 2.6% on a sequentially basis and our string of seven consecutive quarters of sequentially revenue growth was broken. Despite the rather abrupt change in business conditions we were able to improve our gross margin, significantly reduce operating expenses and are pleased to have preserved profitability. Let me now provide you some more detail on our business for the fourth quarter. As we continue to experience some dramatic changes in our -- mix changes in our business, on an end market geographic channel and product basis. Revenue by end market for the quarter was as follows; communications, 45% of revenue, computing 15% and the other markets 40%. The communications market shrink 15% sequentially and was the only end market to decline for us last quarter, unfortunately it's our largest end market. Four large customers, as I mention, accounted for the entire decline in the communications end market. The business of these customers has concentrated in both the wireline and wireless equipments spaces, which should be distinguish from what we call the data networking or enterprise equipment segment. My belief, as I mentioned is that the sharp fall off in our business level doesn’t reflect a change in the end demand of these customers. And as I mentioned previously is due to merger activity as well as access inventory. All other end markets were healthy last quarter. Revenue from computing grew slightly while other markets grew at a double-digit rate driven by strong growth in the industrial consumer and military markets. Geographically, during the quarter, Asia made up 56% of revenue, the Americas 23% and Europe 20%. Asia grew 5% sequentially, while North America declined 12% and Europe declined 8%. Growth in Asia was generally broad based and primarily driven by the consumer end market. Europe and North America were down due to the communications end markets. During the fourth quarter FPGA product revenue was $11.8 million or 19% of or our revenue and declined 11% sequentially, but grew 20% on a year-over-year basis. This decline in FPGA revenue was due to our first generation, a 180-nanometer XPLD and 160-nanometer FPSC products as well as a lesser extent due to our mature ORCA products. These particular product families happen to make up a significant percentage of the revenue stream we enjoy from the large communication customers, whose business was impacted by the conditions I described. Consequently these products and our FPGA revenue bore the burnt of the revenue decline from these customers. PLD revenue accounted for $50.0 million or 81% of our revenue, and was essentially flat sequentially, but grew 13% on a year-over-year basis. During the quarter, we saw strong growth from our MACH 4000 and 4000Z product families, driven by the consumer end market. However, this growth was substantially offset by declines in our more mature PLD families, and we also saw a very substantial sequential decline approximately 50% in our Power and Clock mixed signal products, which again can be directly related to conditions that are major communication customers. I should note that despite the sharp sequential or quarterly decline, revenue from these products still doubled on year-over-year basis and we believe they will grow rapidly during 2007. I really only point this out because I believe it lends credence to the opinion about the conditions within our major communication customers. These mixed several parts are relatively low price parts which have been adopted by several large OEMs in the communication space in a fairly ubiquitous fashion. That is to stay they used the standard parts on a very wide variety of boards in any systems, they are not dependent on a single product or design within those customers who have adopted the technology. Therefore, a broad inventory correction is really in my mind the only logical explanation for such a steep sequential decline in revenue from these products. During the fourth quarter, revenue from products classified as new declined 12% sequentially. These may have seen a bit alarming at first; however, this decline was entirely driven by the change in revenue level of our FPSC, XPLD, and Power and Clock mixed signal products within the communications end market. The FPSC and XPLD products have been in the market for three to four years. And accordingly, we plan to reclassify our new products category beginning next quarter to better reflect the revenue trends of our newest products. Our 130-nanometer and 90-nanometer products, which make up a subset of our new product category, grew at a single-digit rate sequentially and grew over four times on a year-over-year basis. The vast majority of this revenue stream still comes from our three families of 130-nanometer products introduced over the last two years. During 2006, as you know, we announced three new 90-nanometer product families that contain about 16 totaled devices. We are currently sampling the majority of those devices and generated last quarter for the first time meaningful prototyping revenue from those 90-nanometer products. We just announced the volume production availability of our first two 90-nanometer devices and expect to move to volume production for all remaining 90-nanometer devices during the first half of this year. And going forward, we continue to expect substantial revenue growth from 130- and 90-nanometer products during 2007. Mainstream products, which accounted for 53% of revenue last quarter, grew 3% sequentially, while mature products, which now account for 32% of revenue, declined 5% sequentially last quarter. I want now to turn to our 2007 first quarter financial outlook. We entered the first quarter with a substantially reduced backlog, and consequently, we are more heavily dependent on turns business than in the past quarters. Although the first quarter is typically the strongest calendar quarter for Lattice and for our industry, I believe we will continue to be impacted by lower demand from our major communications' customers and to a lesser extent like seasonal softness in Asia in the consumer market. Consequently, we currently estimate that our quarterly revenue will decline on a sequential basis by 2 to 7%. Our turns estimate for the first quarter is approximately 50% to 55%, up significantly from the 35% we experienced in the fourth quarter, but very much in line with historic level. For the rest of the P&L, we currently have the following expectations for the March 2007 quarter. We expect gross margin as a percentage of revenue to be approximately flat at the current level plus or minus 1 percentage point. We expect total operating expenses, excluding amortization of intangible asset, but including an estimated $1.3 million of non-cash charge for stock compensation expense, are expected to be approximately $36 million. As Jan mentioned, we expect intangible assets to be approximately -- amortization to be approximately $2.7 million and we expect approximately $3.5 million in other income and finally we expect the share count to be relatively flat. So with that, I'd now like to open the call for questions. Operator, we can start taking questions at this time.

Thank you. Today's question-and-answer session will be conducted electronically. (Operator Instructions). Let's go to Mark Edelstone for our first question. Mark Edelstone - Morgan Stanley: Hey guys, [alls well]. I guess the first question I had, it sounds like Steve you're going to may be reclassified some of the products going forward, and just want to get a sense of what you will consider that the true legacy product for the company. What percentage of revenues do that make up today, is that more than what you just articulated as 32% in the mature category?

No, I think the mature category is probably fine. We will look at reclassifying products mostly Mark in the first quarter and again we'll provide comparable data, so you can look back a year in time, is in the Mainstream and new product, and specifically looking at our first generation FPGAs which were now four years old moving those into the mainstream sector and that would be FPSC products and the first generation XPLD products, so those are products on a 180-nanometers and 160-nanometers. So that’s what we'll be looking at. In terms of new product outside of that so we’ll be focusing on obviously all the new FPGAs, the new XO product which was classified as a CPLD in the mixed signal products, we would expect those to be somewhere around the 10% level of revenue in the first quarter, but obviously we'll report on that at that time. Mark Edelstone - Morgan Stanley: Okay, very good. And, I guess when you just take a look at all of 2007, given the fact that you are going to start up here in a little bit of a whole. What do you think the prospects are for growth? Do you think the company actually can grow year-over-year that will take some decency across the comparables to get you there?

Yeah, I believe we can grow in 2007 and we plan to grow. I think you are right -- as I said during 2006 industry grew 13%, that really started strong and ended weak for everyone. 2007 will clearly start weak. Given our outlook and our largest competitors are you reported and has a down outlook, and we'll need it to finish stronger, but nonetheless I think that actually we are looking at kind of a lower growth year for the industry given those dynamics, but clearly our expectation. And we believe we have the product position to continue what we did this year which was to outgrow the industry. So, we do believe that we can grow faster than the industry and report positive growth in the current year. Mark Edelstone - Morgan Stanley: And then just lastly, as you try to lever that revenue growth, how should we be thinking about your operating expense budget as we go through '07, so for every incremental dollar that you generate in revenues what are you thinking about in terms of the need for increased operating expense?

Well, we will obviously be constraining operating expense as revenue hopefully grows, so our intension is to hold the growth of operating expense to sort of a very minimal level and to have the most of the revenue growth fall down to this bottom line throughout the year. Mark Edelstone - Morgan Stanley: Okay, thanks a lot guys.

Sure.

Chris Danely. Chris Danely - J.P. Morgan: Yes, thanks guys J.P. Morgan. Can you just follow-up on Mark's question about OpEx. If we continue to operate in this subdued environment, will you guys look at pruning some programs and perhaps reducing the OpEx?

Yes, that’s an open issue, Chris. My current belief is that this is a transitory phenomenon driven by the communication end market as I mentioned four major customers due to some transition in their business and inventory backup assuming the EMS channel. I believe it will dissipates in fact the business from those folks is already started to pickup. I don’t expect it to pickup at a rate fast enough to generate growth in the first quarter but I do expect after that to be in the more in normal business posture. That's kind of a features we're operating on today and if that's the case, we plan to really just conquer down on operating expenses and move on after that, if there is different dynamics that occurs we'll obviously have to revisit our planning features. Chris Danely - J.P. Morgan: Sure. Then how do you feel about inventory both internally and in the channel?

Inventory in the channel, the distribution channel is very healthy, I feel good. Outside of these specific customers, I believe inventory is very, very lean in the customer arena. Our internal inventory, as John mentioned, is very close to our four month goal and we feel very good about the mix of inventory between finished goods and working process and new versus sort of legacy products. So we feel from an inventory perspective that outside the issue I pointed out on these four customers, I think there are very much in balance and in good shape. Chris Danely - J.P. Morgan: Okay. Thanks, guys.

David Duley. David Duley - Merriman Curhan Ford: A couple of question from me. I guess first of all, what triggers the reclassification from new products into mainstream mature, is it when they stop growing, we move them over there or is it timeframe. What drives that decision? And then I didn’t hear what you said about outside of these older newer products that are going to be reclassified? What the grow rate was of the 130 nanometer products, which I think is towards the balance that's left there?

Right. What triggered it is David, we like to do that on a reasonably regular basis for the beginning of the year. So that provides the investment community with the best kind of visibility and comparability to prior years. David Duley - Merriman Curhan Ford: You should have done this last quarter?

Well. It -- we want to provide with the best [deliverability] to transparency of the numbers. So, I want to let people know we are going to do it and do that. The second thing is, a new products we like to have products that are really just ramping on the designing momentum as oppose to product that are really no longer been designed in. That’s really the only inputs to go into that vision. Okay, so we'll do that as the normal course for business in Q1 and I'll provide again comparable numbers going back so that people, I think, can analyze that. I did say that the 130/90 nanometer products grew at single digit sequential rates last quarter and the four times on the year-over-year basis in the fourth quarter. David Duley - Merriman Curhan Ford: Okay and this do you think in the future will you be trying to secure capacity in similar message that you secured this Fujitsu capacity, do you think that's the requirement to basically make up of our payments for future wafers or do you think now that you have enough intention from these guys that your relationship will be more normal par se?

I think it really depends on industry condition with the time that we're trying to cement a foundry partnership. In the past that's been a normal mode of operation for us and other people in the fabric space. We believe that with the Fujitsu partnership we have sufficient capacity for the next few years and that’s really when we're planning beyond that we need to reassess that position depending on the conditions with that time. So I won't want to really speculate about that it's the possibility again depending on the supply and demand balance of the industry at any given moment in time when one is trying to cement a foundry partnership. David Duley - Merriman Curhan Ford: And I think you will recollect this partnership with Fujitsu have multi-facets to it when it was manufacturing relationship, foundry relationship, but I thought there was more -- there could be a sales relationship and hopefully further the penetration of their products lines could you talk a little bit about how those some of those initiatives might be going?

Only three aspects of the partnership, one is the technology partnership, the second is the manufacturing partnership, the third is a sales and marketing partnership. And which regarded a technology partnership we co-develop an embedded flash process for XP products which is currently in production on 130 nanometer with product that we are used the last year. We are obviously actively working on finer geometry nodes 90 nanometers and beyond in that partnership and we are very pleased with the results of that and that manifests themselves as a competitive and industry leading non-volatile FPGA product. Second is manufacturing and wont talk too much about that but we are clearly in the volume production phase with our partnership there. And the final aspect of partnership is the sales in marketing partnership, we have franchised Fujitsu as distributor in the Japanese market and that's beyond and the intention of both parties is to use the sales and marketing partnership is a way to increase the penetration Fujitsu equipment company with Fujitsu manufactured products. So that's something that used play out in the future and the both companies are working very hard at achieving the mutual benefits of that third leg of the partnership. David Duley - Merriman Curhan Ford: Okay, final thing from me, is could you just gives us your opinion on, how important you believe it is for Lattice to move aggressively to 90 nanometers and then 65 nanometers. If you listen, (inaudible) a function where we are and cycle for the current industry or what not, you listened to the Xilink's conference call and they certainly start off about having 100% shares of 65 nanometers and 35% share of 90 nanometer FPGA's. Do you really think that is something that you need to be competitive in the marketplace or is that less important for you?

Well, I think it's absolutely critical to have competitive product from a density power performance and cost perspective. Advance technology gives you the opportunity to architect and scrap those products, but technology in itself doesn’t result in a product that has the best attributes on all those dimensions, by default for example our ECP2M product which is made on 90-nanometer technology which offers very high density logic capacity, very high memory capacity along with SERDES I/O. I think competes very favorably but the 65-nanometer product that Xilinx offers and kind of targeted at the same sockets. So, I think it is critical to have a roadmap to advance technologies and to use those technologies to differentiate the products, but its not necessarily critical to be the first to offer a given product on a given note if you've made other architectural decisions that allow you to differentiate your product and one of the key criteria's of customers make decision upon. David Duley - Merriman Curhan Ford: Thanks Steve.

And Bill Dezellem. Bill Dezellem - Tieton Capital Management: Hi, thank you we had a couple of questions first of all relative to those four specific telecom customers. If we understand correctly you do not view this as a structural phenomenon but temporary specifically with the inventory build that did take place and is now are coming back into -- in the line and the mergers that their customers are dealing with. Is that correct?

Yeah, very much, I also view it to be a step function change in the market or a long term issue, I view it to be a short term phenomena that impact these specific customers. Yes, that’s correct. Bill Dezellem - Tieton Capital Management: And then Steve in an answer to a prior question, you had mentioned that inventory both in the distribution channel and your direct customers excluding these four you felt was in good shape and yet in another point you had mentioned that the business of these four customers was beginning to improve from the levels that you had seen earlier. Does that -- or whether may be I should ask -- what does that imply about the inventory levels at those four customers aggregate, do you feel like they are back in line or are they still working that way? How would you characterize it, please?

I feel that the -- if you look at the bookings and billings and resale into those customers which obviously occurs because there are multi national customers through many different geographies, through many different channels but really I am starting to see some order rates come back from these customers and some growth in the billing and resale to these customers which again leads me to the conclusion that we are starting to get back to kind of a more normal business pass during inventory level. Now, that’s a process that I believe will occur -- throughout the quarter and my belief is by the end of the quarter or somewhere close to that time frame we will be back to kind of what I believe is a more balanced business level with those customers that reflects their end consumptions. The issue is that you didn’t start off at the beginning of the quarter or end last quarter at those business levels, so you have some dampening of the business in Q4 and Q1 from that impact. Bill Dezellem - Tieton Capital Management: Thank you, that’s helpful and then on a completely different topic. Programmable analog, what's the update relative to where that’s at today and opportunity that you see in the future?

We view that -- we have really focused our efforts on the power management and clock management arenas. We have two families of products that combine our programmable analog capability with essentially programmable logic capabilities, so they are really parts that address certain applications that we believe can gain the benefits of programmability and leverage our EPLD business. We have a family of products that today represents, a minority of our revenue and its 2% to 5% which we include in this EPLD space that we believe has the potential to grow overtime and to really allow us to extend the EPLD markets and increase our share there. In 2006 I mentioned we grew faster than the markets one of the reasons I believe we were able to that was the contribution of these products. So going forward we will continue to extend our portfolio in these areas and believe that we will grow that portion of the business kind of in a steady long-term fashion. Bill Dezellem - Tieton Capital Management: And as a follow-up, to that what would be the timeframe that you would hope is that that the programmable analog business would be able to achieve 5% of revenues or more?

I think it's possible exceeding or really in the kind of the first half of 2008, exceeding 2007. Bill Dezellem - Tieton Capital Management: Great. Thank you.

Aalok Shah. Aalok Shah - D.A. Davidson: Hi, a couple of quick questions for me. One is Steve, I know you don’t want to talk specifically about design wins but can you give us a sense of where, may be just a little bit of clue as to what’s design wins are starting to look like for you and can you give us a direction on some of those and than also on the FPGA side just. I want to get a sense kind of, I guess I know your kind of in that fourth year but can you just give us a sense of what do you think the next cycle could look for you guys as its going to be a, the same kind of typically cycle for you guys or is it going to be looking somewhat different over the next few years?

Sure, we had actually a good quarter in 130-nanometer and 90-nanometer FPGA designs. They continue to grow nicely and establish a new high. More of we have six families in the marketplace today, three in a 130-nanometer space and three in the 90-nanometer space. Of those six families only one family has a design activity as key and that was our first family the ECP family. All other families exhibited very good growth and they set new high records, 90-nanometer designs nearly tripled. So, at this point we have secured almost 8000 total FPGA designs from our new 130-nanometer and 90-nanometer products and about 57%, over half of those designs have come from customers who are new to Lattice. So, we are quite pleased with that level of design activities, however we are trying to focus on the revenue potential of those designs less from the quantity of designs. To remind you and everyone else, the products have not been in volume production for very long, and as many people are aware, in our industry there is very long time lag between any given customer design and in the actual revenue ramp of orders from that design. So based on the relative recent release dates of those products rolling out, entering the production order cycle, and I don’t expect the revenue from 130-nanometer products to reach peak level into perhaps five or six years from their initial volume production release. Last quarter in this form -- I gave some data regarding the status of our historic 130-nanometer design, I just have the analyst updated. The picture is essentially unchanged, they present only approximately 20% to 25% of our historic timings of entered production and most of those only recently. About 55% are in the prototyping stage and the remaining 20% to 25% have been cancelled. Hopefully, I expect the cancellation range stabilize between the third and the half of those designs. Designs can be cancelled for variety of reason, lack of funding, an upgrade of the product by the customer, the other business reasons of the customers are competitive reasons, and I don’t think those cancellation rates should be alarming. During the review, I also developed the detailed bottom-up revenue forecast, which I am not going to share publicly, but I will say that the forecast actually increase when compared to the forecast I received last quarter. So, accordingly, we still look forward to very strong future revenue growth from those products. Last year, they accounted for slightly over $10 million of our revenue, slightly under 5%, the bulk of that was, as I mentioned, prototyping revenue, but nonetheless those products alone drove 5% of the 16% of our overall revenue growth. And as I mentioned, we did grow faster than the market, so it's really due to the contributions of those products. We expect next year for them to drive much more of our growth and greater percentage of our future revenue growth. So, to kind of answer your original question about the product cycle, I expect the cycle to be stronger from these products than it was from our kind of first foray into the market four years ago which was really the products that are produced the revenue level that we enjoy today from the FPGA markets in the kind of $50 million per year level. Aalok Shah - D.A. Davidson: Great. Thank you very much.

Sure.

Next up [Jin Li]. Jin Li - Goldman Sachs: Hi, Steve, (inaudible). Thanks for taking my question. Just two questions; one, I just wanted to ask about how you looking at FreedomChip which you introduced earlier in the week, just how you are looking at the revenue opportunity and when we might expect that to contribute?

Sure, thanks for asking the question. We did announce that recently and I do think it's fairly innovative approach to a key customer need in the high end at the FPGA market. Customers really expect some form of cost reduction path for high density FPGAs, particularly those that costs hundreds of dollars. Now, we feel our FreedomChip approach is a substantial innovation. What we are really providing is a seamless cost reduction path that allows customers to migrate to a pin compatible device that we can offer with an ASIC level of test coverage. We've built capability into our tool that allows customers to utilize specific architectural features that are enhanced in our silicon user additional registers in the architecture, to transparently build through the software tool, gang chain of registers within their actual design including the routing. We can do this without a negative impact of the design either performance or utilization, and if a customer, so chooses, we can then provide a silicon device that is tested to their specific pattern, with a very high degree of test coverage, that's validated by industry standard tool, Synopsys TetraMAX. It's going to be very familiar to customers who have kind of ASIC methodology. Of course, there is one downside and the downside is that given that we have tested it to the specific pattern, we can't guarantee to feel re-programmability after, if a customer chooses to change that pattern. So, really it's an offering and capability, that's only valuable for high volume stable designs. So, we're choosing to offer it with minimum order quantities in a modest and a recharge. Fortunately, I think the business case for high volume stable designs is one, that those are the ones that need a cost reduction and prototyping effort. So it's -- we believe kind of a different path and our competitors have gone down in one that provides value to the customers. In terms of its revenue impact, really we see this as a vehicle to garner more success with SC designs and to convert customers when they reach volume production if so choose based upon the business terms of offering. So I don’t expect to really start to have a substantial number of FreedomChip designs, perhaps at the end of the current calendar year moving into 2008 as the SC designs kind of move into the volume production phase. Jin Li - Goldman Sachs: Okay. Great, and then just a question on the expense structure, we look at '07 or '06 you did a great job especially on the R&D side. But as we go into '07, how should we think about it, is there any new projects, or is it ramps of new families of products that could impact that or -- if any comments would be very helpful? Thank you. Good luck.

As I answered the first question on the call, we are going to be very judicious in managing our operating expenses as the revenue is forecasted to be down in Q1, depending on the trajectory of the recovery. Well, it would be a less on [managing] or more aggressively in managing those expenses throughout the year. It's strictly from a business camp point, a lot of the 90-nanometer expenses are kind of moving behind us. We are going to be migrating to the 65-nanometer node, but I think those R&D expenses will coincide with kind of a -- an increase in revenue towards -- after the first quarter. So, we would expect to hold the expenses reasonably tight and then to increase those for normal business reasons as well as 65-nanometer R&D in the latter half of the year. Jin Li - Goldman Sachs: Okay, thank you. Good luck.

Mark Edelstone Mark Edelstone - Morgan Stanley: Hey guys, couple of housekeeping items. One on the other income you have forecasted for the first quarter, does that also include some gains on sales securities?

Yes, market does include some debt buyback and the sales, the interest income after we make this last Fujitsu payment will be about little under $3 million. Mark Edelstone - Morgan Stanley: Okay, very good and then the on dealer sell-through what your tax rate might look like in 2008, do you continue to, I assume you are not going to be at full rate but assuming profitability it moves up nicely in a way, where do you think you have to start paying?

We are not going to pay it -- our annual is a couple of $100 million and [Marsh] we are not going to paying this state or federal income tax for the next few years. We will continue to pay a record like $200,000 in foreign taxes, but no tax for the next year, with no tax. Mark Edelstone - Morgan Stanley: Okay, so basically just keep it at that sort of a run-rate of a couple 100,000 quarter and we should be in good shape.

Yes. Mark Edelstone - Morgan Stanley: Thanks guys.

Okay.

And there are no further questions at this time. I would turn the conference back over to the speakers for any additional closing comment.

That's it from here and thanks everybody we look forward to catching up with you at a later time. Bye.

And this concludes today's conference call. You may now disconnect.

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