David Pasquale - Global IR Partners Darin Billerbeck - President and CEO Max Downing - Interim CFO

Tristan Gerra - Baird Pardee Ho - Everbright Securities Christopher Longiaru - Sidoti & Company Richard Shannon - Craig-Hallum Francis Chang - 3i Debt Management Bill Dezellem - Tieton Capital Management Evan Morgan - Rosenblatt Securities David Duley - Steelhead Securities

Good afternoon. My name is Kerry and I'll be your conference operator. At this time, I’d like to welcome everyone to this Lattice Semiconductor Q1 2016 Results Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session [Operator Instructions] This call will be available for replay beginning at 9 PM Easter Standard Time today to 11:59 PM Easter Standard Time on May 23rd, 2016. The conference Id for the relay is 92383155; again the Id number for the relay is 92383155. The number to dial for the replay is 855-859-2056 or internationally, 404-537-3406. Thank you. I would now like to turn the call over to our host Mr. David Pasquale.

Thank you, Operator. Welcome everyone to Lattice Semiconductor's first quarter 2016 results conference call. Joining us today from the Company are Mr. Darin Billerbeck, Lattice's President and CEO; and Mr. Max Downing, Lattice's Interim CFO. Both executives will be available for Q&A after the prepared comments. If you have not yet received a copy of today's results press release please email Global IR Partners using lscc@globalirpartners.com or you can get a copy of the release off of the Investor Relations section of Lattice Semiconductor's website. Please note, that we have also published a PowerPoint presentation on the IR site to accompany today's call. Before we begin the formal remarks, I'll review the Safe Harbor statement. It is our intention that this call will comply with the requirements of SEC Regulation FD. This call includes and constitutes the Company's official guidance for the second quarter 2016. 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. The matters that we discuss today other than historical information include forward-looking statements relating to our future financial performance and other performance expectations. Investors are cautioned that forward-looking statements are neither promises nor guarantees. They involve risks and uncertainties that may cause actual results to differ materially from those projected in the forward-looking statements. Some of those risks and uncertainties are detailed in our filings with the Securities and Exchange Commission, including our Form 10-K for the fiscal year ended January 2, 2016 and our quarterly reports on Form 10-Q. The Company disclaims any obligation to publicly update or revise any such forward-looking statements to reflect events or circumstances that occur after today’s call. Our prepared remarks also will be presented within the requirements of SEC Regulation G regarding Generally Accepted Accounting Principles or GAAP. Some financial information presented by us during today’s call will be provided on both a GAAP and a non-GAAP basis. By disclosing certain non-GAAP information, management intends to provide investors with additional information to permit further analysis of the Company's performance for results and underlying trends. Management uses non-GAAP measures to better asses our operating performance and to establish operational goals. Non-GAAP information should not be viewed by investors as a substitute for data prepared in accordance with GAAP. If we use any non-GAAP financial measures during the call, you will find that the required presentation of in reconciliation to the most directly comparable GAAP financial measure is in the Company's earnings press release. I would like to now turn the call over to Mr. Darin Billerbeck. Please go ahead, sir.

Thank you, David, and thanks to everyone for joining us our call today. First quarter results were in line with expectations. Revenue was at the low end of our guidance range while gross margin was at the high end. I think Q1 takeaways are number one, there were no surprises in the quarter despite the softer consumer market we hit our plan. Importantly, we have increased visibility into a stronger second half and expect Q1 will represent the low point in revenue for the year. Number two. First points at the top five consumer OEMs for consumer mobile FPGAs, since we introduced our consumer mobile FPGAs five years ago, all of the key consumer mobile OEMs have embraced this products to bring leading edge innovation to the market. We have solid wins across the board and continue to see momentum in emerging consumer market. Things like virtual reality headset, drones, mini projectors and various camera technologies. Number three. We are investing to drive growth for prudent. We choose to make some additional investments in Q1 to drive easier growth. We have additional investment opportunities in Q2. We continue to receive opportunities to build products that are directly in line with our capabilities and our company. These products utilize our skill sets in imaging technologies along with our ability to lead new connectivity standards. We see these requests as both proved points and prudent risk taking to secure our more wins at larger consumer mobile OEMs long term. The bottom line is our team is executing to plan. In addition to the top five consumer OEMs embracing our capabilities we’re also working on many new growth opportunities. These growth opportunities contributed to diversified FPGA growth in Q1. What is also interesting is we’re announcing many more opportunities in consumer markets beyond smartphones. These opportunities are not as large in totality but the diversification is always good and the margins are higher. The other market realities -- is the consolidation of the industry have left many customers nervous. Customers want to ensure partner stability and they need to have someone that will invest to support their product roadmaps. They cannot afford to be disadvantage by supplier phasing out or dropping support at product lines or entry single lead times; even worse, someone that raises prices. Lattice has taken out the position in the market as reliable partner. They have proven our ability to deliver high volume, high value solutions to the world’s largest OEMs and to costumers launching innovative new products that harness the power of the smartphone, smart home and internet effects. To give you a sense of the types of opportunities we’re winning worldwide. In Japan, we were called and qualified as the premier supplier to [indiscernible] which opens up new opportunities for ASIC replacement. We also had additional wins in the 4K TV market out of Japan. It continues to gain traction in imaging with XO2 product lines. In Korea, we expect to see further XO games led by win including the state-of-the-art camera, which has started mass production and will potentially launch in the 60 countries worldwide. This is on top of the potential revenue opportunities to both 4K TV and mobile. And our founding member status in HDM consortium continues to payoff for us with recent wins including HDMI audio products. In the Asia Pacific region, we are fully entrenched that all of the top guys in consumer. They are making solid progress in a soccer replacement at a top three LED control supplier in China. This follows our displacement of a competitor solution and another China based server mainboard in back point supplier. .: Additionally, we secured WiHD wins at another customer to enable an innovative detachable micro projector. These are just some of the recent examples. We’re having the same level of high success in U.S., Europe and from our dusty [ph] channel. We have a lot of runway ahead of us as we deliver on our promise, below power, small form factor and the lowest cost for I/O solution. In that, we expanded our FPGA family of products in Q1 with the addition of the MachXO3 10k devices. These latest devices bring expanded I/O in logic support for control POD applications. Increased on memory improves picture clarity for low cost video bridging and large monitor displays. We also announced the joint venture with MediaTek in Q1 to drive 4K ultra high definition over USB Type C connectors. There is a lot of potential demand for this solution in the smartphones and accessory markets in growing 4K ultra high definition in market. The increased activity we are seeing as a positive reflection on the entire Lattice team and the value proposition we offer. The macro isn’t perfect right now, but that’s okay. We continue to gain momentum in all of our businesses which gives us confidence we can grow in the future. Let me now turn the call over to Max for details on our financial results. Max?

Thank you, Darin. As part of our press releases, we have provided detailed reconciliations of our GAAP to non-GAAP financial measures. For the first quarter of 2016, revenue was in line with our expectation at $96.5 million both on a GAAP and on non-GAAP basis. When compared to our fourth quarter, revenue declined 4.7% due to weaknesses in mobile and consumer, coupled with seasonal declines in licenses and services. These were partially offset by strength in our industrial market. Gross margin for the first quarter was 59.2% on a GAAP basis and 60% on a non-GAAP basis. Our Q1 margin benefitted from a higher margin product mix along with volume related purchase and manufacturing efficiencies. Based on the rebounding consumer revenue expected in 2016, we expect gross margin to be more in line with our long-term mid 50% target for the full year. Total non-GAAP operating expenses for the first quarter were $51.9 million excluding $5.4 million in restructuring charges, $8.7 million in amortization of acquired intangibles and $4.3 million in stock-based compensation expense. Our Q1 OpEx is slightly above our outlook due to focused investments we chose to make to pursue growth opportunities at strategic customers. In addition, we incurred higher fees for professional services. This has is currently tracking to the higher end of our OpEx plan for the year, but still within our stated range. We mentioned on the Q4 call that we had incurred an impairment charge related to [Indiscernible] which had been acquired along with the Silicon Image business. In April, we closed the sale of [indiscernible] to strategic buyer. This follows our decision to no longer pursue the data services business and is in line with our commitment to allocating resources to the core business operations that will drive Lattice’s long term profitability. The net cash proceeds from this sale will be used to pay down debt in Q2. Going forward, this will not have a material effect on our business. Income tax expense for the first quarter was $1.9 million. Cash tax expense was approximately $2.5 million for the quarter. We expect cash tax expense to be between $8 million and $10 million for the full year. Our GAAP net loss for the first quarter was approximately $19.7 million or $0.17 for basics and diluted share. On a non-GAAP basis, our net loss was approximately $1 million or $0.01 per basic and diluted share. For the quarter, basic and diluted share account was approximately 118.8 million shares. Net cash provided by operating activities was $23.1 million in the quarter. We ended the quarter with cash and short investments of approximately $116.5 million, an increase of $13.9 million over the fourth quarter, reflecting our commitment to consistently generate positive cash flows. Accounts receivable decreased to $84.4 million at the end of Q1, down from $88.5 million at end of Q4. Day sales outstanding remained flat quarter-over-quarter at 80 days. Inventory at the end of the quarter was $82.6 million compared to $75.9 million at the end of the fourth quarter. Months of inventory stands at 6.3 months compared to 4.8 months at the end of Q4. This increase in inventory was planned to support the expected ramping of customer programs in the second half of the year. We spent approximately $5.7 million on capital expenditures and incurred $17.3 million in depreciation and amortization expense during the quarter, compared to $6.6 million and $17.9 million respectively in Q4. Interest expense for the quarter was $5 million. This concludes the financial review portion of the call. I will now turn it back to Darin for our outlook.

Thank you, Max. In terms of specific expectation on a non-GAAP basis, revenue for the second quarter of 2016 is expected to be between $97 million and $103 million. Non-GAAP gross margin percentage for the second quarter of 2016 is expected to be approximately 57% plus or minus 2%. Non-GAAP operating expenses excluding acquisition or restructuring related charges are expected to be approximately $47.5 million plus or minus 3% for the second quarter of 2016. In summary, it all comes down to execution. Everything is in place for a strong second half of 2016. We delivered on our goal ramping wins at the top OEMs and are now pushing to ensure a growth beyond the coming quarters. There is a great opportunity in front of us created by the strength of our solution and our market position. Our mission is clear to work with our customers to accelerate innovation for a better connect world. This will drive our targeted revenue synergies and growth towards our operating income goal by 20%. That concludes our prepared remarks. Operator, we will now be happy to take any questions.

[Operator Instructions] Your first question comes from the line of Tristan Gerra with Baird.

Hi, good afternoon.

Hey, Tristan.

Can you talk about where was the main driver for the double digit growth year-over-year in FPGA well during the quarter? And then also if you could give us some color on what you’re seeing in wireless infrastructure and notably, near term what type of trends do you see at your large China customer?

Yeah, so the first question, I think that when we came out of Q3 and Q4 of last year you’re seeing a lot of channel decreases as far as inventory levels. And I think everybody was blinding thing quite a bit of lower. I don’t think we’re going to see double digit industrial growth as we kind of move through the second half of this year. I think that just kind of short up some of the potential issues that were caused last year. I think the macro recovered that help plus some of the opportunities that we spent in the last two and half, three years trying to increase our opportunities 30% quarter on quarter, year on year. And I think we’re starting to see some of that as we’re kind of walking through the upcoming quarters. The comps market as I said last year quarter Tristan, I thought that the comps market was not particularly going to be good this year probably flat to down and I think if you look at the via links release you’re seeing the same thing. So I expect going from this quarter to next quarter we maybe help just a little bit but that’s just because some of the artifacts in Q1 caused by some of the governmental issues impacting one of our China OEMs. So I think that step will cover a little bit but I think comps for the year is still what we thought flat to slightly down. Q1 to Q2 we think it's going to be probably flat to slightly up.

Okay. That’s useful. And then, as a follow-up, are you maintaining the full year revenue guidance that you provided on the last quarter?

So we’re not reaffirming the guidance as we kind of look at it today. We’re just looking at it this particular time as we think that there is nothing to dissuade us from thinking that that guidance is not in line with the things that we said. So I think we’re okay from the perspective Tristan, we’re right where we want to be in Q1 and Q2 to be centered enough all of our consumer mobile handset ramps throughout the year happened, we’re in good shape.

Great. Thank you.

Okay.

Your next question comes from the line of Pardee Ho with Everbright Securities.

Hello, Darin and Max. Thank you for taking my question. Now my question is about more sensitive topic from China, so given that the Uni Group [ph] and Western Digital duo didn’t get through. Now what do you think the measure hurdles are in general when a foreign company especially was the Chinese background trying to pick up a major stake at a US semiconductor company. And having said that, what’s a view on them trying to creep up your stake in your company?

So we don’t typically comment on any of the Chinese entities doing thing. We can tell you that there is governmental regulation on a lot of things as you’re for technology and things like that. But the bottom line is this we will treat Tsinghua just like as we treat all of our investors. We currently have had no communications with them but all of our large investors we talk just about every quarter and I’m sure that we’ll reach out and have the same discussion as a large shareholder to understand kind of their investment profile and also understanding what their investment needs as we walk through but it’s the same communication we would have with any of our large shareholders.

Okay. Good. Thank you. So along the lines instead of just taking over do you think that it will be easier or would it be -- would it make any difference if the foreign entity is trying to form a strategic partnership?

I mean -- that’s lot of that conjuncture, right. I mean what people want to say what’s going to happen. There are US regulations on how much stock a person can have without approval. So I think as we look at this thing its business is usual for us. We’re trying just to grow. We’re trying not to get to hung up and the different rumors were flattered by the fact that a Chinese let’s just say investment firm is investing in Lattice because they see the potential growth prospectus that we do have in the Asia region and I’m sure that they’d like to sharing the growth of the company stock.

Okay. Thank you. And finally, I like to just make sure -- so your market positioning is still different from findings in Altera in terms of doing storage and cloud computing. Is that still the case?

Yeah. We focus primarily kind of the cloud outwards. However, we do cross lines with Xilinx and Altera in the entire wired and wireless backhaul. And we also cross with them on the server platforms for controlled PLD. We think our portfolio is quite a bit stronger because of our focus on low power low cost and the movement to kind of heterogeneous network where there is more difference server application outside the require power efficiency which we lead in the FPGA market. So, we're very happy with our positioning in those markets. I mean we're also very happy the Intel Altera, we seemed to be defocusing. Some of the customers on trying to understand if there's better solutions than what head in the partners that are more stable over, which we consider ourselves wild. So, Xilinx's Altera had a little bit of overall, but mostly we're in the closer to the Internet of Things applications.

Good. Thank you so much.

Your next question comes from the line of Christopher Longiaru with Sidoti & Company.

You made two comments. I'd like to kind of jump into -- one was you talked about visibility improving, can you give you little more granularity into that? Like where were the improvements and kind of exactly how much extra time do you have into order rates or ramps? Can you give us a little color thee?

So, in every consumer mobile ramp, there's design in, there' a preproduction, there's a production, and then there's high manufacturer and then there's the end of life phases. And so when we say we have visibility and those phases moved from left to right, you began to think more impact as you move through that more certainty of some of those things. It's still always a risk with some of the big supplies, because they can make a decision at the last minute. But as Max alluded to, we're carrying inventory positioning ourselves for success with that visibility.

Great. And then the other question was just in terms of inventory and channel inventory. It's been lean, keeps getting pair down -- I mean at what point do you think it has to level that. At what point to you think that inventory is your looking, and honey it's to be some type of restocking]?

So, I think we saw some of that going forward Q1 in the industrial market. We were -- our [Indiscernible] numbers for 2015 were actually affordable after Q1. Q1 was our high was surprising because these ramps. So, we could tell that here was a lot of not restocking, but unstocking, if you can, of that stuff. And so I think as we kind of walk through the year, we were very suspicious that Q4 and Q3, they are disclosing enough inventory and then also in Q1 bounce back was the backlog and you were always thinking the same in Q2. We think we're seeing a little bit more stable than solid backlog. And so as we look at those indicators, we say they probably did run a two-lien in Q3 and Q4 of year. The question is far does it go with all the other economic indicators out there.

Got it. Okay. And then just kind of working down the income statement, you talked about kind of moving back towards you mid-term goal on the gross margin line. Gross margins were up substantially at large part as mix. But some of it is just integration of things that you have right. So, can you give us kind of an idea of how much falls into each basket? And how we should expect the gross margin to trend towards that mid-50s long-term rate?

Yeah. I would say that in terms of the first quarter, there were a couple of points related to a benefit related to the high volume manufacturing improved absorption type things. And there were a couple of point driven by the high margin product mix. Really as you look at it, the heavy focus our industrial during the quarter benefits us greatly. As you go into the second quarter, for the balance of the year, we see that trending down gradual and tell the third and fourth as did the mobile consumer revenue overtakes as a percentage of revenue.

Yeah, so think of it in terms of our consumer mobile and our imaging products are both sitting below our goal of 55%. Our communications devices are standing right about that management our industry are quite a bit above. But then you had licensing that are significantly higher. And so -- if -- an IP was actually down this quarter, which should have had a negative impact on our margins. But the manufacturing improvements offset that pretty heavily. So, you want to look at the year--

I'm sorry.

No, we just think so or the year, what you had expect is that 60% margin to drop and I would expect it to drop into the mid-50s and probably a little lower if the volumes become even higher on the multiple consumer OEMs projects balance in that?

I think you had $6 million that was kind of pushed on the IP payments from last quarter, so was that not in this quarter, did that have no effected on the gross margin?

Yeah, that had zero impact because we've resolved that and we wounded that deal when we resolve that. So, there's no impact. We didn’t that included in the 2016 financial assessment that we did earlier, because it was out of our originally projections. We do intend to pursue those particular patterns cell, so it's on IP licenses. So, yeah, there are still $7 million that we attracted from Q4 and we have not recognized any of those in the year today.

So, anything that comes in from that would be upside to current expectation basically.

Correct. That's correct.

I'll jump out. Thank you, guys.

Thanks.

Your next question comes from the line of Richard Shannon with Craig-Hallum.

Hey Darin, thank you for taking my questions. I got on the late, so I've got kind of two-part question which is manipulative order by some of our prepared comments. So, I apologize so that in advance, but if you can help me figure out couple of things here. So, I heard your response to a one of Christian's questions on the revenue guidance you gave us on last quarter's call. And then you talked about improved visibility which seemed to be opposed to some extent here. Am I misreading your comments from the question about revenue guidance for this year, i.e., you're not reaffirming it, suggesting you see greater risk in reaching that? And if so how do you resolve that with comments about greater visibility?

Yeah. We did not reaffirm our guidance. But we said if there's nothing for us to believe that we're off. So, we've been trying -- there's no reason for us to change our guidance what so ever and so -- but we don't reaffirm it. So, that's the thing. We're not in either of those positions today. So, I just didn’t want to certainly false expectations.

Okay. That's fair enough. Thanks. Thanks for clarifying that one. Second question on the mobile side, Darin, both in your press release as well as your prepared comments, I heard some mention of top five mobile OEMs that you've engaged with or shipping to. Just to clearly is that something you expect to ship to all the top five in the second half year? Or sometimes there's second half, you can say that you have historically shipped to all five. Can you help clarify that comment please?

Yeah. So, when we started five years ago, I remember, we were in Samsung and everybody said, one hit wonder. And then we started one by one single, here's the top 10 China and worldwide OEM. But we thought China would be etch-growth. Then we went after the China Inc. as we called it. Since that time, we shipped into all of the top five guys that are remaining which are completely different by the way than the top five, five years ago. And so what we've trying to do is we walk through this thing is validate that the fact that consumer mobile FPJs are real and there are ways for consumer mobile customers to bring new innovation to market. And that my point was we now have proof points everyone, suggesting that FPGA which have traditional not been used in mobile devices are for real and they are sustainable.

Okay. Fair enough. Appreciate that. And let me follow-up on that Darin by -- I've asked this question from time-to-time over the five years you've had this business. Can you give us a sense of how the used cases are broadening for your iCE products and mobile platforms in general? What areas are you seeing that are wins, which are sustaining, where do you see -- any used cases you think or can -- we can continue to serve over a multiyear period of time?

Yeah. So, I think when we started that was kind of -- and I don't mean to disrespect us. So, it was jubd if dumbass PGA that just did I/O expansion and functions like ITC. To bridge that people had or doing a simple I/O expansion. And then we migrated and starting improving and added analog mixed signals so we could do things like IR Remote, Barcode labelling, and then we started adding a little bit more feature set, so we could do cantoning, some other core thing. And in the process, also -- and we began to realize that this identification, the detection and recognition became super-important. So, we then began adding more RAM to our devices. And that RAM included also DST, so that we can not only use the RAM as the comparative function, but then also process against it. So, that we could the identifying and recognition feature? And we climbed; it's really always on always listening. And so each of our product that I do multiple features from multiple different application in different devices. And it's all based around the time of -- if you have almost no power and you can still listen, but react faster than an application process then you can win that mobile header or genius computing element, which is outside the AP. The other things that's important to remember, even with all of that stuff, we didn’t lose simple bridge in glu-logic [ph] functions, call Digital Duct Tape that FPGAs are known for.

Okay. And just a quick follow-up on that Darin. Does that suggest anything about any SP trend overall in the mobile consumer's basic that couldn’t find out or even grow at some point?

Yeah. I mean traditionally, we kind of look at it is -- and even in the old days, it's funny I feel when I have a lot of history on the sort of building material of an ASP that's within mobile devices. And you really have to focus on sitting in then, unless you're going create some rhythm [ph] innovation that nobody seen before. So, I think the ASPs and the margins -- I think we can cost reduce ourselves and still keep the ASPs where we want to and then keep the margins where we want them we do. We get ourselves; we're going to develop the next 16 gigahertz, mobile, Y-Gig solution that fits in everybody's phone. ASPs probably aren’t going to up.

Okay. That's kind of what I thought. I think it's only question to me Darin, I appreciate your thoughts.

Thanks.

Your next question comes from the line of Francis Chang with 3i Debt.

Good afternoon gentlemen. Just two questions. In terms of Q1 and your investment in new business, can you try and quantify give me a range for what that was in Q1?

As far as dollar?

Yes please.

Yeah I think dollar-wise for the year, it probably going to be about $2 million of mass that we didn’t account for in our original. In Q1 it was probably 1 million and our expectations that's what when alluded to the fact that we're probably in the high end of OpEx is there's probably $6 million of anticipated standing between maths, professional services and some business process stuff. But our plan is we're going to be tightening down the ship on things like variable spending, lower investments in mask and these other things in the second part of the year also looking at hiring and really trying to discuss on hiring and managing those processes and their overall spending. So, it's about a $1 billion in Q1, there's probably $2 million for the year, all prudent risk, all step that fits right within the ramp, faster DSPs, slower power.

Good. Thank you. And then last question. In terms of assets sales proceeds from that business, how much do you expect to get in that proceeds?

About $1.6 million.

Okay. Thank you.

Your next question comes from the line of Bill Dezellem with Tieton Capital Management.

Thank you. A couple of questions. First of all, deferred income was up about $6 million sequentially, would you please talk to that?

Yeah. That's primarily driven by inventory increases in the distributor channel.

And so coming back to the discussion earlier in the call, is that just simply distributors are moving back to a more normal level of inventory or is that giving some indication of their enthusiasm for what's coming in the second half of the year?

Probably the first one, but later on, it would be the second one. I think the first one first, the second one second. So, but right now, I think it's -- it really is driven by the fact that they were running pretty lame, people are starting to stock-up. I think you're hearing different. People say -- some people are saying, backlog is up, people are saying its down. Totally depends on what market you serve and the customers that you're serving today. But I think as the macro increases their willing to put more inventory on hand.

And then given first one first, second one second comment. Does that imply that we should anticipate deferred income going up again in second quarter as then he distributors are adjusting inventory in anticipation of higher business?

Yeah. I think it's going to remain pretty consistent between the quarters, between Q1 and Q2. If there was going to be any adjustment up, it might be in Q3 and Q4. But even then again [technical difficulty] just depends on pass-through how quick things are going from shipping-into shipping-out. So, there's a throughput there. You may see a little bit of a bump benefit potentially shift the products through volume, you won't see any adjustment.

All right, that's helpful. Thank you. And then I do want to come back to the gross margin strength. And I totally follow your reference to have drift over the course of the year as mixed shift. But this particular quarter, revenues were down or I shouldn’t say down, they were little less than your plan and yet gross margin was significantly above, is that highlighting to us the shift in the mix and how much different it was towards industrial than what you had anticipated or maybe you can dive into that into bit more detail.

Yeah. I think going into the quarter, we definitely expected a slightly different mix. We expect consumer to be higher and industrial to actually be lower. Not obviously -- it grew quite a bit, quarter-on-quarter, but we didn’t think consumer would go down that much. And so I think what happened was we saw that shift, but on the other half, as we're building inventory, as we start building the inventory for our product ramps, we get that manufacturing efficiency before we sell that product. And that has a huge impact and that was a bigger swift that was a much larger shift than the other one. So, it was just -- it's hard to always when all those benefits hit and in case, the manufacturing efficiencies benefit was much higher than we thought.

Thank you.

[Operator Instructions] Our next question comes from the line of Evan Morgan with Rosenblatt Securities.

Yeah. Hi, I just add a question -- Max I'm sure you're doing a terrific job and it’s a little bit of a choppy environment in smartphone world, but I just wanted to ask Max, you are an Interim CFO, I just wanted to ask how the -- if there is a search and how that search in full a full time, CFO. Thank you.

I'll answer that for Max. So, Max is doing great job. He wouldn't have been one of the people that we put into the CFO slide and also one of the potential candidates that we have if he wasn’t deserved. And so, yeah, we do have search going on because as the Board always kind of requires that you have potential candidates as you kind of walk through. So, Max is our internal candidate, for sure. The only internal candidate we have based on external candidates, for sure, that we'll have to go out and reach out too. And we plan on making the decision Q2 next timeframe.

Great. Thank you.

[Operator Instructions] Our next question comes from the line of David Duley with Steelhead Securities.

Thanks for taking my question. I was just curious you talked about the dollar impact of spending more operating expenses to growth opportunities. What in-markets are these newer growth opportunities that you're spending incremental dollars on?

The particular one we had in Q1 was focused primarily on the consumer mobile and it really was product that we outline earlier. It really is kind of the next-generation of iCE platform that we have put out. And we now have five or six different generations I can't keep up to, but solid product, solid opportunities as we move forward. And again, we want to diversify and also have more opportunities, so that we don't have the drop-off on 2017. We want to continue that trend as we move forward.

I think on the last conference call, you talked about second half ramp in your consumer mobile business, and that was driven by handful of design wins that you thought would ramp and I think there was one big one and bunch of other ones. Is that still the same kind of make-up of the outlook of why you expect a second half ramp or maybe talk about why you do expect a large second half ramp that would get you into the range of the numbers you expect for the year?

Yeah. And I think there's a lot of things at plan. One you saw early with industrial, because remember the industrial movement that you're seeing was really independent of the whole consumer mobile rounds that we expect in the second half. Plus it's not just that, its -- we're in a lot of designs for these gross markets which aren’t as big, but they also are meaningful. We talked about drones we talked about virtual reality headsets. And I don't know if you've used any of those devices, but they are pretty trick, and I think they are going to be bigger than people think long-term. However, I look in the range is probably two below mine, everybody is using this. So, I think we've good healthy pipeline of stuff in the consumer and industrial comps not so much which is why we said kind of flat to down. But I think we're positioned very well. And again, I'll reaffirm there's no reason for us to change our guidance or any of that stuff at this point. So, we’re sticking to what we think we can achieve both from the OpEx even though we know. On OpEx, so far we’re spending above what we thought and we still think we’re in that the high end of our range and we’ve got some work to do in the second half of the year we understand.

So I guess – the makeup of design wins in the mobile space is still very similar to what it was and I think that was the key driver to the second half revenue ramp and as I said there was – I think you mentioned before there was a handful of wins and one big one. I’m just curious as to – is that the still the same makeup of wins that will drive the second half?

Few more than we’ve been to close as a quarter moved forward. So there is couple of other opportunities we have in other OEMs that aren’t small by any means. But the key for us is have that diversification – and then I also have the diversification in this new business – we kind of mentioned this is Greenfield opportunities where this is stuff that didn’t exist two or three years ago. There is kind of lot of time doing it. So we’re focused obviously on the wins that we have today and shipping them. But again, we talked about virtual reality drones things like that. They’re going to be bigger than people think.

Thank you.

Yeah.

Your next question comes from the line of Todd Morgan with Jefferies.

Hey, guys. Thanks for taking my call. It’s actually Eric [ph] for Todd. My first question is can you just talk about the USB 3.0 rollout and how’re positioned for this? And more specifically hasn’t its unfolded as you anticipated when you did Silicon Image acquisition in financing?

Absolutely not. I think everybody in the market completely disappointed by USB Type C. I don’t know anyone that says yes, going great. But I can tell you this. All of the new devices that we’re seeing rollout in ’17 that we can see from the mobile devices are finally adopting it. That does displays the FPGAs and put it right back into the Silicon Image and one of our largest opportunities today we talk about are prudent risk taking effort has everything to do with our Imaging technology and USB Type C. And I mean there are some really good opportunities out there. But all in all for this year I think it's right about what we thought. So, I don’t think the USB is anymore but it’s not as big as what I think everybody thought going into 2015.

Okay. Perfect. And I was wondering, can you talk about the trends MHL adoption in the smartphones?

Yeah. I don’t think there is any. I think what you’re going to see and the big players today they’re going to create different solutions where you’re seeing a lot of adoptions where MediaTek and this thing became important to us which is India and the emerging companies because they’re still using it as productivity tool. The United States is so much, right. So we’re seeing – so I’ll give you the two different models that at least receive. Emerging companies MHL rocks because they only have their phone and they have a TV and they can control and use the TV for a lot of things that we don’t do because we have Tablets and Set Top Box just things like that. But then switch to drone and the reason is important to have a smartphone high definition output is because you’re going to fly a drone or use a virtual reality has set through your phone that does all of the connectivity and does all the downloading plus you can watch a movie at home through your headset. So also there is two different applications. One, needing more of a high-def video, the other needing MHL, so they’re both going to exists and automotive is another place for MHL super important. So, we’re seeing lot of traction still an automotive still an emerging companies or countries but not so much in the U.S. and not so much in Europe. So we see it kind of its fragmented between but they still both co-exists and it could be large depending on how big end they gets.

Fair enough.

Okay.

Thanks for some great color. Yeah, just one last question, would you be able to about the current levels/trends of license revenues?

Yeah, I mean we expected licensing is to go down between '15 and '16 and it has. You could see the run rates over one in today. But then also think it’s going to down gently in 2017 and then as we push to do more licensing beyond kind of the HDMI thing so there is multiple places from embedded display port to MHL. Let’s not forgot some of the other IT course that we could begin a servicing and playing more of synopsis like approach and then we also have FPGA fabrics. So we have a lot of different IP and right now we’re focused on our strategic long range plan. So we expect to go down 16, probably down little more than17 and then we expect to be comeback in 18 as we kind of reintegrate ourselves.

Perfect. Thanks for taking my questions and good luck for the rest of the year. A Yep, thanks.

We have no further questions at this time. And I'd like to turn the call back over to Lattice’s CEO, Mr. Billerbeck for closing remarks.

Okay. Thank you, Operator. And thanks again for everyone who joined us on the call today. We’re on track for great year in a pretty much mixed macro environment. We continue to execute to our plan. We control what’s within our control and to deliver excellence solutions and support the customers worldwide. We’re delivering to vision, accelerating customer innovations for better connected world which will drive growth, increase profitability and build value for our shareholders. Thanks again for joining us again today. We appreciate your support as always. Thanks.

Thank you for participating. That does conclude today's conference. You may now disconnect.