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…

Thank you. Today's question-and-answer session will be conducted electronically. (Operator Instructions). Let's go to Mark Edelstone for our first question.

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.

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.

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.

Okay, thanks a lot guys.

Sure.

Chris Danely.

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.

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.

Okay. Thanks, guys.

David Duley.

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.

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.

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.

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.

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.

Thanks Steve.

And Bill Dezellem.

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.

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.

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.

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.

Great. Thank you.

Aalok Shah.

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%…

Great. Thank you very much.

Sure.

Next up [Jin Li].

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.

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.

Okay, thank you. Good luck.

Mark Edelstone

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.

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.

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.

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.