UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

or

FOR THE TRANSITION PERIOD FROM TO

Commission file number: 000-18032

LATTICE SEMICONDUCTOR CORPORATION

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (503) 268-8000

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III of this Report, to the extent not set forth herein, is incorporated herein by reference from the registrant’s definitive proxy statement relating to the 20082009 Annual Meeting of Stockholders, which definitive proxy statement shall be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this Report relates.

LATTICE SEMICONDUCTOR CORPORATION

FORM 10-K

ANNUAL REPORT

TABLE OF CONTENTS

Forward-Looking Statements

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Any statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. We use words or phrases such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “projects,” “may,” “will,” “should,” “continue,” “ongoing,” “future,” “potential” and similar words or phrases to identify forward-looking statements.

Forward-looking statements involve estimates, assumptions, risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. The key factors that could cause our actual results to differ materially from the forward-looking statements include overall semiconductor marketglobal economic conditions and uncertainty, the compromised liquidity of auction rate securities in our long-term marketable securities portfolio, market acceptance and demand for our new products, our dependenciesreliance on export sales, the concentration of our silicon wafer suppliers,sales in the communications equipment end market, the affect of global economic conditions on the repayment of certain of our receivables, the effect of the downturn in the economy on capital markets, technology and development risks, the transition to a new executive management team, our having clearly focused our business on identifying and pursuing programmable logic opportunities where we have sustainable and differentiated market positions, the impact of competitive products and pricing, technological and product development risks, the transition to a new Chief Executive Officer and the other risks that are described herein and that are otherwise described from time to time in our filings with the Securities and Exchange Commission (“SEC”), including but not limited to, the items discussed in “Risk Factors” in Item 1A of Part I of this report. You should not unduly rely on forward-looking statements because our actual results could materially differ from those expressed in any forward-looking statements made by us. Further, any forward-looking statement applies only as of the date on which it is made. We are not required to update any forward-looking statements to reflect events or circumstances after the date on which such statements are made or to reflect the occurrence of unanticipated events.

Item 1.  Business.

Lattice Semiconductor Corporation (“Lattice” or the “Company”) designs, develops and markets high performance programmable logic products and related software. Programmable logic products are widely used semiconductor components that can be configured by end customers as specific logic circuits, and thus enableenabling shorter design cycle times and reduced development costs. Our end customers are primarily original equipment manufacturers (“OEMs”) in the communications, computing, consumer, industrial, automotive, medical and military end markets.

Lattice was incorporated in Oregon in 1983 and reincorporated in Delaware in 1985. Our principal offices are located at 5555 N.E. Moore Court, Hillsboro, Oregon 97124, our telephone number is (503) 268-8000 and our website can be accessed at www.latticesemi.com. Information contained or referenced on our website is not incorporated by reference into, and does not form a part of, this Annual Report on Form 10-K.

We report based on a 52 or 53-week fiscal year ending on the Saturday closest to December 31. Our 2003 fiscal year was a 53-week year and ended January 3, 2004. Our fiscal 2004, 2005, 2006 and 2007 years were 52-week years and ended January 1, 2005, December 31, 2005, December 30, 2006, and December 29, 2007, respectively. Our 2008 fiscal 2008year was a 53-week year and ended on January 3, 2009. Our fiscal 2009 will be a 53-week52-week year and will end on January 3, 2009.2, 2010. All references to quarterly or yearly financial results are references to the results for the relevant fiscal period.

Programmable Logic Market Background

Three principal types of digital integrated circuits are used in most electronic systems: microprocessors, memory and logic. Microprocessors are used for control and computing tasks, memory is used to store programming instructions and data, and logic is employed to manage the interchange and manipulation of digital signals within a system. Logic contains interconnected groupings of simple logical “and” and “or” functions, commonly described as “gates.” Typically, complex combinations of individual gates are required to implement the specialized logic functions required for systems.

Logic circuits are found in a wide range of today’s digital electronic equipment including communications, computing, consumer, industrial, automotive, medical, and military systems. The logic market encompasses general purpose logic semiconductor products, which include programmable logic devices, and application-specific semiconductor products, which include ASICs (devices marketed to(custom devices for a single user) and ASSPs (devices(standardized logic devices marketed to multiple users). According to research firm iSuppli¹, the general purpose logic and application-specific semiconductor product categories combined accounted for approximately 36%38% of the estimated $271$267 billion worldwide semiconductor market in 2007. 2008.

Manufacturers of electronic equipment are challenged to bring differentiated products to market quickly. These competitive pressures often preclude the use of custom-designed ASICs, which generally entail significant design risks, non-recurring costsexpenses and time delays. Standard logic products,ASSPs, an alternative to custom designed ASICs, limit a manufacturer’s flexibility to adequately customize an end system. Programmable logic addresses this inherent dilemma. Programmable logic is a standard semiconductor product, purchased by systems manufacturers in a “blank” state that can be custom configuredcustom-configured into a virtually unlimited number of specific logic functions by programming the device with electrical signals. Programmable logic gives system designers the ability to quickly create custom logic functions to provide product differentiation without sacrificing rapid time to market.

According to iSuppli², the programmable logic market was approximately $3.5$3.8 billion in 2007.2008. Within this market, there are two main segments; field programmable gate arrays (“FPGAs”FPGA”) and programmable logic devices (“PLDs”PLD”), each representing a distinct silicon architectural approach.approach to programmable logic. In 2007,2008, FPGA was a $2.9$3.1 billion market while PLD was a $0.6$0.7 billion market.² Products based on the two alternative programmable logic architectures are generally optimalbest suited for different types of logic functions, although many logic functions can be implemented using either architecture. FPGAs are characterized by a narrow-input logic cell and use a distributed interconnect scheme. FPGAs may also contain dedicated blocks of fixed circuits such as memory, high-speed input/output interfaceinterfaces or processors. PLDs are traditionally characterized by a regular building block structure of wide-input logic cells, called macrocells, and use a centralized logic interconnect scheme. More recently, hybrid PLDs, that combine FPGA, PLD, and analog features, have emerged. Although FPGAs and PLDs are typically suited for use in distinct types of logic applications, we believe that a substantial portion of programmable logic customers utilize both FPGA and PLD products.

Lattice Products

Lattice actively participates in both the FPGA and PLD segments. We strive to offermeet our customers’ needs by offering innovative and differentiated programmable solutions based on our proprietary technologythat include not only silicon devices, but also design tools and intellectual property. A brief overview of our key products follows.

FPGA Products

In 2002 we entered the FPGA market as a result of our acquisition of the FPGA business of Agere Systems, Inc. During fiscal 2007, 23%2008, 26% of our revenue was derived from FPGA products, as compared to 23% in 2007 and 20% in 2006 and 18% in 2005.2006. In the future, we plan to introduce new FPGA families in high-growth market niches where we believe that we have sustainable and differentiated positions.

LatticeECP Low-Power High-Value FPGAs

The LatticeECP family was designed for customers who need FPGAs with digital signal processing (“DSP”), a significant amount of innovative,memory, and high-speed serial communications channels, but do not want to pay the price or power premiums of high performanceend FPGAs. The key features of our newest FPGA families are described in the table below:

LatticeECP family is able to serve this mid-range market due to careful circuit design choices aimed at achieving lower cost and various architectural enhancements to reduce power consumption.

We recently introducedNow in its third generation (LatticeECP3), this family is particularly well suited for deployment in wireless infrastructure and wireline access equipment, as well as video and imaging applications. All three generations of the 90nm LatticeXP2LatticeECP family are manufactured using our foundry partner Fujitsu Limited’s (“Fujitsu”) advanced process technologies.

LatticeXP Non-Volatile FPGAs

Unlike traditional FPGAs that require an external device to load its application program, Lattice’s two generations of the non-volatile LatticeXP FPGA family. The LatticeXP2 devices combinefamily embed a Look-up Table (“LUT”) based FPGA fabric with non-volatile Flash cells in an architecture referredmemory block on-chip to store the program. This on-chip program memory offers customers several unique benefits. First, as flexiFLASH^TM. The flexiFLASH approach provides a single chip solution it enables customers to reduce their board size. Second, without the comparatively long time delay caused by loading a program externally a customer’s equipment can start up much more quickly. Finally, because the program is stored on-chip a customer’s IP is more secure from theft. While broadly used across many market segments, we believe that the single-chip, instant-on, and high-security provided by the LatticeXP FPGA family make it particularly attractive for the security, surveillance, and display markets.

Both generations of the LatticeXP family are manufactured using embedded Flash processes co-developed with benefits such as instant-on operation, on-chip storage featuring FlashBAK^TMour foundry partner Fujitsu. The use of embedded block RAM backup, accessFlash for the non-volatile memory enables the LatticeXP family to general-purpose Serial TAG memory and inherent design security. LatticeXP2 devices also support Live Updatebe re-programmable.

^TM field reconfiguration with TransFR^TM, 128-bit AES bitstream encryption and Dual Boot^TM device configuration technologies. The LatticeXP2 FPGA fabric utilizes an underlying LatticeECP2 architecture that was designed for high performance and low cost. LatticeXP2 devices support 4-input LUT-based logic, distributed and embedded memory, Phase Locked Loops (“PLLs”), pre-engineered source synchronous input/output (“I/O”) and enhanced sysDSP^TM digital signal processing blocks.LatticeSC System Level FPGAs

The LatticeSC family of FPGAs combines a high performance FPGA fabric with many advanced features in a single unique architecture. This family is fabricated using 90nm technology to provide high performance, and includes specific features to meet the needs of today’s high-speed communication system designs. These features include up to 32high-speed serial communication channels, of 3.8Gbps serializer/deserializer (“SERDES”) with an advanced embedded Physical Coding Sub-layer (“PCS”), up to 9.6 Mbits of RAM,large memories, and dedicated I/O logic to support source synchronous I/O standards such as RapidIO, HyperTransport^TM3, SPI4.2, SFI-4, UTOPIA, XGMII and CSIX. Multiple hierarchical clocking and clock management resources are provided to support programmable logic designs needed in today’s high-end system designs. High speed I/O with bandwidths up to 2Gbps per pin are designed for use with high throughput systems.high-speed IO. For low cost system level integration, the LatticeSC family offers MACO™ (Masked Array for Cost Optimization) structured ASIC blocks: up to 12 blocks per device with a variety of pre-engineered intellectual property (“IP”) cores.

The 90nm LatticeECP2 family integrates features and capabilities previously only available in higher cost/high performance FPGAs; this second generation family expands the range of applications that can take advantage of low cost FPGA products. These integrated features and capabilities include pre-engineered source synchronous I/O for implementation of double data rate (“DDR”) and double data rate two (“DDR2”) memory interfaces, enhanced configuration options, and high performance multiply, addition, subtract and accumulate digital signal processing (“DSP”) blocks.

The 90nm LatticeECP2M FPGA family serves customers who need low-cost SERDES capability for chip-to-chip and small form-factor backplane applications. The LatticeECP2M family maintains all of thekey features of the LatticeECP2 family thatselected FPGA families are required for high-volume, cost-sensitive applications, while providing increased memory capacity (ranging from 1.3 Mbits to 5.5 Mbits) and DSP resources (ranging from 24 to 168 multipliers). The five devicesdescribed in the series provide an inexpensive alternative for implementing PCI Express, Ethernet, Serial RapidIO and CPRI/OBSAI interfaces. The SERDES integrated into the LatticeECP2M devices has been engineered as a quad-based architecture with 1 to 4 quads (up to a maximum of 16 SERDES channels per device), depending on the size of the device. Each quad features 4 SERDES channels (4 complete TX and RX channels), with each channel typically operating on 100mW at full speed and supporting data rates from 270 Mbps to 3.125 Gbps. A flexible PCS layer that includes 8b/10b encoding, an Ethernet link state machine and rate matching circuitry also are built onto the chip.

The LatticeXP family, introduced in 2005, is a non-volatile FPGA family manufactured using a 130nm embedded flash process co-developed with our foundry partner Fujitsu Limited (“Fujitsu”). Unlike traditional FPGAs that require an external device to load the configuration bitstream, our non-volatile FPGA products embed a flash block on a chip to store the bitstream, which offers customers unique benefits with regard to design security, instant-on logic functionality and improved field upgradability.table below:

The LatticeEC/P, introduced in 2004, is a 130nm family. This family was designed to support high volume customer applications, which require a low cost FPGA fabric. Additionally, this family provides several important, performance-enhancing features, including built-in DDR memory support, a flexible high-performance DSP block and support for industry standard, low cost, SPI-flash boot memories.

PLD Products

During fiscal 2007, 77%2008, 74% of our revenue was derived from PLD products, as compared to 77% in 2007 and 80% in 2006 and 82% in 2005. At present,2006. Currently, we offer the industry’s broadest line of PLDs based on our numerous families of ispLSI^®, ispMACH^® and GAL^® products. The key features

ispMACH4000 CPLDs

Lattice offers seven versions of selected PLD families are described in the table below:

The MachXO family of crossoverispMACH4000 in-system programmable CPLD (complex programmable logic devices combines an optimized LUT fabric with Lattice’s non-volatile technology to providedevice) family. The most recent version, the high pin-to-pin performance and instant-on logic functionality associated with PLDs, and the flexibility of FPGAs. This low cost, infinitely reconfigurable familyispMach4000ZE, is designed to offer a cost effective alternative for applications traditionally served by PLDs or low capacity FPGAs such as bus bridging, bus interface and control.

In addition to high performance the ispMACH 4000Z familyand features an architecture optimized to ensure ultra-lowlow power consumption. Devices within this family,The ispMach4000ZE devices are offered in ultra-small, space saving packages and are targeted toward handheld and portable equipment, typically operateequipment.

MachXO PLDs

The MachXO family of versatile non-volatile reconfigurable PLDs is designed for applications traditionally implemented using 10-15 microampsCPLDs or low-capacity FPGAs. Widely adopted in a broad range of current while in standby mode.applications that require

We also

general purpose I/O expansion, interface bridging and power-up management functions, MachXO PLDs offer the industry’s broadest linebenefits of increased system integration by providing embedded memory, built-in PLLs, high performance LVDS I/O, remote field upgrade and a low power sleep mode, all in a single-device.

Designed for a broad range of low density PLDs, based on our numerous families of GAL products offered in over 200 speed, power, package and temperature range combinations. These devices range in complexity from approximately 200 to 1,000 logic gates and are typically assembled in 20-, 24- and 28-pin standard dual in-line packages and in 20- and 28-pin standard plastic leaded chip carrier packages. We offerapplications, the standard 16V8, 20V8 and 22V10 architecturesMachXO PLD family is used in a variety of speed grades, with propagation delays as low as 3.5 nanoseconds, the highest performance in the industry.end markets including consumer, automotive, communications, computing, industrial and medical.

In addition, we offer the ispPAC^®Power Manager and ispClock Programmable Mixed Signal Devices,

As customer equipment grows more complex, their power and clocking problems also become more complex. Our Power Manager and ispClock™ families of programmable mixed signal devices. These devices, featuringfeature a combination of programmable logic and programmable analog allowcircuitry that allows system designers to reduce system cost and design time by quickly and easily implementintegrating a wide variety of power and clock management functions within a single integrated circuit. Our ispPACThese products can replace numerous discrete components, reducing cost and conserving board space, while providing customers with additional design flexibility and time-to-market benefits. The accuracy of our Power Manager products enables more reliable system performance for our customers.

The key features of selected PLD families are described in the table below:

Note: MachXO implements logic using look-up tables. The figures shown are the macrocell equivalents.

Software Development Tools and Intellectual Property Cores

Our products are supported by the ispLEVER^® software development tool suite and PAC-Designer^® software. Supporting Windows, UNIX and LINUX platforms, ispLEVER^® software allows our customers to enter, verify and synthesize a design, perform logic simulation and timing analysis, assign input/output pins, designate critical paths, debug, execute automatic timing-driven place and route tasks, and download a logic and input/output configuration to our devices. Designed to seamlessly integrate with third-party electronic design automation environments, ispLEVER^® software provides a front-to-back design flow that leverages a customer’s prior investment in tools offered by Aldec, Altium, Cadence, Mentor Graphics, Synopsys and Synplicity. In the future, we plan to continue to enhance and expand the capability of our software development tool suite.

Lattice’s IP core program (ispLeverCORE™) assists our customers’ design efforts by providing pre-tested, reusable functions that can be easily utilized, allowing our customers to focus on their unique system architectures. These IP cores eliminate the need to “re-invent the wheel,” by providing many industry-standard functions, including PCI Express, DDR, Ethernet, CPRI, OBSAI, 7:1 LVDS, and embedded microprocessors.

Product Development

We place substantial emphasis on new product development and believe that continued investment in this area is required to maintain and improve our competitive position. Our product development activities emphasize new proprietary products, enhancement of existing products and process technologies and improvement of software development tools. Product development activities occur in Hillsboro, Oregon; San Jose, California; Downers Grove, Illinois; Bethlehem, Pennsylvania; and Shanghai, China. During 2005, we closed three smaller silicon design centers and one software development center, and consolidated the development activities of those centers into our larger facilities.

Research and development expenses were $68.6 million in fiscal 2008, $83.0 million in fiscal 2007 and $82.0 million in 2006 and $97.2 million in 2005.fiscal 2006. While we expect to continue to make significant future investments in research and development, we streamlined and consolidated our research and development process duringin the third and fourth quarterquarters of 2005,2007, the impact of which is reflected in Restructuring charges. During the third and fourth quartersquarter of 2007,2008, we took additional steps to streamline our research and development activities to focus on our core FPGA product lines.better align operating expenses with near-term revenue expectations, primarily reducing headcount. (See discussion under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”).

Operations

We do not manufacture our own silicon wafers.products. We maintain strategic relationships with large semiconductor foundries to source our finished silicon wafers. This strategy allows us to focus our internal resources on product and market development, and eliminates the fixed cost of owning and operating semiconductor manufacturing facilities. We are also able to take advantage of the ongoing advanced process technology development efforts of semiconductor foundries. In addition, all of our assembly operations and most of our test operations are performed by outside suppliers. We perform certain test operations and reliability and quality assurance processes internally. We have achieved and maintained ISO9001:2000 Quality Management Systems Certification and ISO16949:2002 Quality Systems Certification, and released a full line of PLD products qualified to the AEC-Q100 Reliability Standard.

Wafer Fabrication

We source silicon wafers from our foundry partners, Fujitsu in Japan, Seiko Epson Corporation (“Seiko Epson”) in Japan, United Microelectronics Corporation (“UMC”) in Taiwan and Chartered Semiconductor Manufacturing, Ltd. (“Chartered Semiconductor”) in Singapore, pursuant to agreements with each company and their respective affiliates. We negotiate wafer volumes, prices and other terms with our foundry partners and their respective affiliates on a periodic basis.

Assembly

After wafer fabrication and initial testing, we ship wafers to independent subcontractors for assembly. During assembly, wafers are separated into individual die and encapsulated in plastic or ceramic packages. Presently, we have qualified assembly partners in Indonesia, Japan, Malaysia, the Philippines, Singapore and South Korea. We negotiate assembly prices, volumes and other terms with our assembly partners and their respective affiliates on a periodic basis.

We currently offer an extensive list of standard products in lead (Pb) free packaging. Our lead-free products meet the European Parliament Directive entitled “Restrictions on the use of Hazardous Substances.”Substances”. We offer a relatively small list of loaded products where they are not prohibited. We continually review our suppliers to ensure they meet or exceed our packaging requirements.

Testing

We electrically test the die on each wafer prior to shipment for assembly. Following assembly, prior to customer shipment, each product undergoes final testing and quality assurance procedures. Final testing on certain products is performed by independent contractors in Indonesia, Japan, Malaysia, the Philippines, Singapore and South Korea, and at our Oregon facility.

Marketing, Sales and Customers

We sell our products directly to end customers through a network of independent manufacturers’ representatives and indirectly through a network of independent distributors.distributors, some of which have price protection

and rights of return on unsold merchandise. We also employ a direct sales management and field applications engineering organization to support our end customers and indirect sales resources. Our end customers are primarily original equipment manufacturers in the communications, computing, consumer, industrial, automotive, medical and military end markets.

As of December 2007,2008, we have agreements with 2016 manufacturers’ representatives and two primary distributors, Arrow Electronics, Inc. and Avnet Inc., in North America. We have also established export sales channels in over 50 foreign countries through a network of over 3020 sales representatives and distributors. The majority of our sales are made through distributors.

We protect both of our primary North American distributors and some of our foreign distributors against reductions in published prices, and expect to continue this policy in the foreseeable future. We also allow returns from these distributors of unsold products under certain conditions. For these reasons, we do not recognize revenue until products are resold by these distributors to an end customer. Resale of product through these distributors as a percentage of our total revenue was 33%, 36% and 38% in fiscal 2008, 2007 38% inand 2006, and 37% in 2005.respectively.

We provide technical and marketing support to our end customers with engineering staff based at our headquarters, product development centers and selected field sales offices. We maintain numerous domestic and international field sales offices in major metropolitan areas.

Export sales as a percentage of our total revenue were 83%, 81% and 80% in fiscal 2008, 2007 80% inand 2006, and 77% in 2005.respectively. Export sales to China accounted for 28%, 23%, and 17% of revenue in fiscal 2008, 2007, and 2006, respectively, to Japan accounted for 14%, 13%, and 13% of revenue in fiscal 2008, 2007, 2006, and 2005, respectively, to Japan accounted for 13%, 13%, and 15% of revenue in fiscal 2007, 2006, and 2005, respectively, and to Taiwan accounted for 11%9%, 11%, and 8%11% of revenue in fiscal 2008, 2007, 2006, and 2005,2006, respectively. Both export and domestic sales are denominated in U.S. dollars, with the exception of sales to Japan, which are denominated in yen. If our export sales decline significantly, there would be a material adverse impact on our business and results of operations.

Our twothree largest customers are distributors and make up a significant portion of our total revenue. Revenue attributable to resales of products by our distributor Arrow Electronics, Inc. accounted for approximately 13%11%, 15%13% and 15% of revenue in fiscal 2008, 2007 2006 and 2005,2006, respectively, and by our distributor Avnet, Inc., accounted for approximately 15%14%, 16%15% and 11%16% of revenue in fiscal 2008, 2007 and 2006, respectively. Sales of products to Promaster Technology Corporation accounted for approximately 10%, 10% and 2005,8% of revenue in fiscal 2008, 2007 and 2006, respectively. No other individual customer accounted for more than 10% of total revenue in any of the fiscal years 2008, 2007 2006 or 2005.2006.

Seasonality

In most years, we experience some seasonal trends in the sale of our products. Sales of our products are often stronger in the first half of the year and often weaker in the summer months. In addition, December is often a weak month for sales. However, on balance, general economic and semiconductor market conditions have a greater impact on our business and financial results than seasonal trends.

Backlog

Our backlog of scheduled and released orders at December 29, 2007January 3, 2009 was $33.9$23.6 million, as compared to $45.7$33.9 million at December 30, 2006.29, 2007. This backlog consisted of direct customer and distributor orders scheduled for delivery within the next 90 days. Distributor orders accounted for the majority of the backlog in both periods. Direct customer orders may be changed, rescheduled or cancelled under certain circumstances without penalty prior to shipment. Additionally, distributor orders generally may be changed, rescheduled or cancelled without penalty prior to shipment. Furthermore, certain of our distributor shipments are subject to rights of return and

price adjustment. Revenue associated with these distributor shipments is not recognized until the product is resold to an end customer. In addition, other distributor shipments are not subject to rights of return or price adjustments. Revenue associated with these distributor shipments is recognized upon shipment to the distributor. Typically, the majority of our revenue results from orders placed and filled within the same period. Such orders are referred to as “turns orders.”orders”. By definition, turns orders are not captured in a backlog measurement made at the beginning of a period. We do not anticipate a significant change in this business pattern. For these reasons, backlog as of any particular date should not be used as a predictor of revenue for any future period.

Competition

The semiconductor industry is intensely competitive and characterized by rapid rates of technological change, product obsolescence and price erosion. Our current and potential competitors include a broad range of semiconductor companies from emerging companies to large, established companies, many of which have greater financial, technical, manufacturing, marketing and sales resources than we do.

The principal competitive factors in the programmable logic market include silicon and software product features, price, technical support, and sales, marketing and distribution strength. The availability of competitive intellectual property cores is also critical. In addition to product features such as density, performance, power consumption, reprogrammability, and reliability, competition occurs on the basis of price and market acceptance of specific products and technology. We intend to continue to address these competitive factors by working to continually introduce product enhancements and new products and by working to reduce the manufacturing cost of our products.

We compete directly with Actel Corporation, Altera Corporation and Xilinx, Inc. We also indirectly compete with other semiconductor companies that provide logic solutions that are not user programmable. Although to date we have not experienced direct competition from companies located outside the United States, such companies may become a more significant competitive factor in the future. Competition may also increase if other larger semiconductor companies seek to expand into our market. Any such increases in competition could have a material adverse effect on our operating results.

Patents

We seek to protect our products and technologies primarily through patents, trade secrecy measures, copyrights, mask work protection, trademark registrations, licensing restrictions, confidentiality agreements and other approaches designed to protect proprietary information. There can be no assurance that others may not independently develop competitive technology not covered by our intellectual property rights or that measures we take to protect our technology will be effective.

We hold numerous domestic, European and Asian patents and have patent applications pending in the United States, AsiaEurope and Europe.Asia. Our current patents will expire at various times between 20082009 and 2025.2026. There can be no assurance that pending patent applications or other applications that may be filed will result in issued patents, or that any issued patents will survive challenges to their validity. Although we believe that our patents have value, there can be no assurance that our patents, or any additional patents that may be issued in the future, will provide meaningful protection from competition. We believe that our success will depend primarily upon the technical expertise, experience, creativity and the sales and marketing abilities of our personnel.

Patent and other proprietary rights infringement claims are common in our industry. There can be no assurance that, with respect to any claim made against us, that we would be able to successfully defend against the claim or that we could obtain a license that would allow us to use the proprietary rights on terms or under conditions that would not harm our business.

Licenses and Agreements

Advanced Micro Devices

In 1999, as part of our acquisition of Vantis Corporation, a wholly owned subsidiary of Advanced Micro Devices, Inc. (“AMD”), we entered into an agreement with AMD pursuant to which we have cross-licensed Vantis patents with AMD patents, having an effective filing date on or before June 15, 1999, related to programmable logic products. This cross-license was made on a worldwide, non-exclusive and royalty-free basis. Additionally, as part of our acquisition of Vantis, we acquired certain third-party license rights held by Vantis prior to the acquisition.

Agere Systems

In 2002, as part of our acquisition of the FPGA business of Agere, we entered into an intellectual property agreement with Agere and Agere Systems Guardian Corporation. Pursuant to this agreement, these Agere companies assigned or licensed to us certain FPGA and Field Programmable System Chip patents, trademarks, software and other intellectual property rights and technology, and we licensed back rights in these same assets. These cross-licenses were made on a worldwide, non-exclusive and royalty-free basis.

Altera

In 2001, we entered into a comprehensive, royalty-free, non-exclusive patent cross-license agreement and a multi-year patent peace agreement with Altera.

Fujitsu

On September 10, 2004, we entered intoWe have an Advance Payment and Purchase Agreement (the “Fujitsu APP Agreement”“Agreement”), with Fujitsu Limited, (“Fujitsu”), pursuant to which we advanced $125.0 million to Fujitsu in support of the development and construction of a 300mm wafer fabrication facility in Mie, Japan. As of March 31, 2007, we had completed the unsecured advance payments to Fujitsu.payments.

During the third quarter of fiscal 2006 and third quarter of fiscal 2007, we entered into amendments (“Amendments”) to the Fujitsu APP Agreement. PriorAgreement, prior to the Amendments,which our $125.0 million advance was to be credited against the purchase price of 300mm wafers received from Fujitsu.Fujitsu Limited. The Amendments permit us to also credit the advance against the purchase price of 200mm wafers and other services (collectively, wafer credits and other services are referred to as “advance credits”), including engineering mask set charges. The

On December 18, 2008, Lattice entered into a letter agreement with Fujitsu APPMicroelectronics Limited (“Fujitsu Microelectronics”) and Fujitsu Microelectronics America, Inc. (“Fujitsu America”) (together with Fujitsu Microelectronics, collectively “Fujitsu”) in connection with Lattice’s exercise of its right to request repayment of the Advance Payment (as defined in the Agreement) pursuant to the Agreement, will continueas amended, between Lattice, Fujitsu Limited and Fujitsu America and assigned by Fujitsu Limited to Fujitsu Microelectronics, a wholly-owned subsidiary of Fujitsu Limited incorporated in Japan, effective March 21, 2008. Under the terms of the letter agreement, Lattice has requested and Fujitsu has agreed to repay in cash to Lattice the outstanding portion of the Advance Payment pursuant to the following schedule:

As of January 3, 2009, the form of advance credits, subject to the right of either party to terminate the agreement upon the occurrence of certain events. Prior to the Amendments, we could request a refundaggregate balance of the unused amountAdvance Payment was $91.6 million. The balance of the advance payment if we had not used allfinal Advance Payment repayment to be made after commencement of ourFujitsu’s first fiscal quarter in 2010 will be an amount equal to that aggregate balance of $91.6 million less the $60.0 million of repayments during Fujitsu’s first and third fiscal quarters in 2009 and less the amounts of wafer credits or other services (including engineering mask set charges) provided by December 31, 2007. PursuantFujitsu to Lattice between January 3, 2009 and the Amendments, we may request a refunddate of final repayment. Such amount cannot be estimated at the present time.

All other terms and conditions of the unused amountAgreement remain in full force and effect until repayment of the advance payment if we have not used all of our advance credits by December 31, 2008.Advance Payment in full. The repayment obligation of Fujitsu is unsecured.

Seiko Epson/Epson Electronics America

Epson Electronics America, Inc. (“EEA”), an affiliated U.S. distributor of Seiko Epson, has agreed to provide us with manufactured wafers in quantities based on six-month rolling forecasts. Prices for the wafers obtained from EEA are reviewed and adjusted periodically. Wafers for our products are manufactured in Japan at Seiko Epson’s wafer fabrication facilities and are delivered to us by EEA.

In 1997, we entered into an advance production payment agreement with Seiko Epson and EEA which was subsequently amended in 2002 and 2004. Under this agreement we advanced $51.3 million to Seiko Epson to finance construction of an eight-inch sub-micron semiconductor wafer manufacturing facility. As of December 30, 2006, all of the payments had been repaid to us in the form of semiconductor wafers. We are not obligated to make additional payments under this agreement.

UMC Group

In 1995, we entered into a series of agreements with United Microelectronics Corporation (“UMC”), a public Taiwanese company, pursuant to which we agreed to join UMC and several other companies to form a separate Taiwanese corporation, (“UICC”), for the purpose of building and operating an advanced semiconductor manufacturing facility in Taiwan, Republic of China. Under the terms of the agreements, we invested $49.7 million for an approximate 10% equity interest in the corporation and the right to receive a percentage of the facility’s wafer production at market prices.

In 1996, we entered into an agreement with Utek Corporation (“Utek”), a public Taiwanese company in the wafer foundry business that became affiliated with the UMC group in 1998, pursuant to which we agreed to make a series of equity investments in Utek under specific terms. In exchange for these investments, we received the right to purchase a percentage of Utek’s wafer production. Under this agreement, we invested $17.5 million. On January 3, 2000, UICC and Utek merged into UMC.

For financial reporting purposes, all of our shares of UMC common stock are accounted for as available-for-sale and marked to market in our Consolidated Balance Sheet until they are sold, at which time a gain or loss is recognized in our Consolidated Statement of Operations. Unrealized gains and losses are included in Accumulated other comprehensive (loss) income within Stockholders’ equity. An other than temporary impairment of UMC share value could result in a reduction of the Consolidated Balance Sheet carrying value and would result in a charge to our Consolidated Statement of Operations.

Employees

At December 29, 2007,January 3, 2009, we had 883753 full-time employees. We believe that our future success will depend, in part, on our ability to continue to attract and retain highly skilled technical and management personnel. No employee is subject to a collective bargaining agreement. We have never experienced a work stoppage and consider our employee relations to be good.

Executive Officers of the Registrant

The following individuals currently serve as our executive officers:

Stephen A. SkaggsBruno Guilmart joined the Company in December 1992 as Director, Corporate Development. He was appointed Senior Vice President, Chief Financial Officer and Secretary in August 1996. He was appointed President in October 2003, Chief Executive Officer in August 2005 and Director in November 2005.

Mr. Skaggs and the Company entered into a letter agreement (the “Letter Agreement”) as of January 31,July 2008 with respect to his employment pursuant to that certain Employment Agreement (the “Employment

Agreement”), dated as of August 9, 2005, by and between Mr. Skaggs and the Company. Pursuant to the Letter Agreement, the parties agreed that Mr. Skaggs will resign as President and Chief Executive Officer. Mr. Guilmart was appointed director of the Company on July 28, 2008. Prior to joining the Company, Mr. Guilmart served as Chief Executive Officer of the Company effectiveUnisem (M) Berhad Group from August 2007 to June 2008. Mr. Guilmart served as President, Chief Executive Officer and a director of May 31, 2008, whereupon his employment under the Employment Agreement will terminate, unless his employment has previously terminated in accordance with the provisionsAdvanced Interconnect Technologies, Inc. from September 2003 to August 2007. Before joining Advanced Interconnect Technologies, Inc., Mr. Guilmart was Vice President of the Employment Agreement or the parties otherwise agree prior to that date. The parties further agreed that concurrent with the effectiveness of his resignation,Worldwide Sales for Chartered Semiconductor Manufacturing Limited. Mr. Skaggs willGuilmart also resign as a member of the Company’s Board of Directors. Mr. Skaggs subsequently announced his intention to resign from the Board of Directorsheld senior management and business development positions at the end of his current term, which is on the date of the Company’s 2008 annual meeting, presently scheduled to be held on May 6, 2008.Cadence Design Systems, Temic Semiconductor and Hewlett-Packard.

Jan JohannessenMichael G. Potter rejoinedjoined the Company in October 2001on February 17, 2009. Prior to joining the Company, Mr. Potter served as Vice President, Investments. In October 2003, he was appointed Corporatethe Senior Vice President and Chief Financial Officer and in November 2005 he was appointed Senior Vice President. He originally joined the Company in 1983 andof Neophotonics, Inc. from May 2007 to January 2009. Mr. Potter served as Vice President and Chief Financial Officer between 1987of STATS ChipPac Ltd. from August 2004 to May 2007. Before the merger of STATS and 1993. From 1993 to 2001, he workedChipPac in August 2004, Mr. Potter served as an independent venture capitalist.Acting Chief Financial Officer of ChipPac, Inc. Mr. Potter also held senior positions at Honeywell International, Inc. and started his career with KPMG Peat Marwick Thorne. Mr. Potter is a member of the Board of Directors for Canadian Solar Inc.

Martin R. BakerByron W. Milsteadjoined the Company in May 2008 as Corporate Vice President and General Counsel. Prior to joining the Company, Mr. Milstead served as Senior Vice President and General Counsel of Credence Systems Corporation from December 2005 to May 2008. Mr. Milstead served as Vice President and General

Counsel of Credence Systems Corporation from November 2000 until December 2005. Prior to joining Credence Systems Corporation, Mr. Milstead practiced law at the Salt Lake City office of Parsons Behle & Latimer and the Portland offices of both Bogle and Gates and Ater Wynne.

Christopher M. Fanning joined the Company in January 1997 as Vice President and General Counsel. He was appointed Secretary in August 2005 and Corporate Vice President in November 2005. From 1991 until he joined the Company, Mr. Baker held legal positions with Altera Corporation.

Stephen M. Donovan joined the Company in October 1989 and served as Director of Marketing and Director of International Sales. He was appointed Vice President, International Sales in August 1993. He was promoted to Corporate Vice President Salesand General Manager, Low Density Solutions in 2008. Previously, he managed Lattice’s software, intellectual property and technical support businesses as Corporate Vice President, Enterprise Solutions. He also served as Vice President of Strategic Planning. Prior to joining Lattice, Mr. Fanning was employed by The Boston Consulting Group.

Sean Riley joined the Company in September 2008. Prior to joining the Company, Mr. Riley was Vice President of Marketing for MathStar from April 2005 to May 1998. Mr. Donovan has worked in the2008, a programmable logic industry since 1982.startup company. Mr. Riley joined MathStar from Intel Corporation, where he worked from June 1992 to April 2005 in various marketing, engineering and general management roles.

Available Information

We make available, free of charge through our website at www.latticesemi.com, via a link to the SEC’s website at www.sec.gov, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and amendments to those reports and statements as soon as reasonably practicable after such materials are electronically filed with, or furnished to, the SEC. You may also obtain free copies of these materials by contacting our Investor Relations Department at 5555 N.E. Moore Court, Hillsboro, Oregon 97124-6421, telephone (503) 268-8000.

Item 1A.  Risk Factors.

The following risk factors and other information included in this Annual Report should be carefully considered before making an investment decision relating to our common stock. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. If any of the following risks occur, our business, financial condition, operating results, and cash flows could be materially adversely affected.

Global economic conditions and uncertainty could adversely affect our revenue, gross margin and expenses, collectability of accounts receivable and supplier relationships.

Our revenue and gross margin depend significantly on general economic conditions and the demand for programmable logic devices in markets in which we compete. Global economic weakness and constrained infrastructure spending have previously resulted, and may result in the future, in decreased revenue, gross margin, earnings or growth rates and problems with our ability to manage inventory levels and collect customer receivables. In addition, our relationships with our employees and suppliers could be adversely affected. We could experience such economic weakness and reduced spending due to various macroeconomic factors affecting spending and investment behavior, including periods of economic recession, conditions in the residential real estate and mortgage markets, access to credit, and the weakening or strengthening of the U.S. dollar relative to other world currencies. In addition, customer financial difficulties have previously resulted, and could result in the future, in increases in bad debt write-offs and additions to reserves in our receivables portfolio. We also have experienced, and may experience in the future, gross margin declines in certain products, reflecting the effect of items such as competitive pricing pressures, inventory write-downs, charges associated with the cancellation of planned production lines, and increases in component and manufacturing costs resulting from higher labor and material costs borne by our manufacturers and suppliers that, as a result of competitive pricing pressures or other factors, we are unable to pass on to our customers. Global economic downturns also may lead to restructuring actions and associated expenses. Uncertainty about future economic conditions makes it difficult for us to forecast operating results and to make decisions about future investments. Whenever adverse economic or end market conditions exist, there is likely to be an adverse effect on our operating results.

Our entire long-term marketable securities portfolio is invested in auction rate securities, and have all been the subject of failed auctions, which have adversely affected their liquidity. If auction rate securities continue to experience unsuccessful auctions, or if the credit rating of the auction rate security, auction rate security issuer, the third-party insurer of such investments, the issuers of the investments underlying the securities or credit default swaps deteriorate, we have and may in the future be required to adjust the carrying value of the auction rate security through impairment charges, and any of these events could have a materially detrimental effect on our liquidity and results of operations.

At January 3, 2009 and December 29, 2007, we held auction rate securities that were considered illiquid with a face value of $39.2 million and $44.9 million, respectively, and an estimated fair value of $19.5 million and $44.9 million, respectively.

Long-term marketable securities with a face value of $14.0 million (estimated fair value of $5.3 million) are exposed to risks associated with the sale of credit default swaps, pursuant to which the assets underlying the auction rate securities are exposed to claims in the event of default of certain debt instruments owned by third parties. In addition, investment grade long-term marketable securities with a face value of $8.3 million (estimated fair value of $0.9 million) were replaced on December 3, 2008 by Ambac Assurance Corporation (“AMBAC”, the issuer) auction market preferred shares, as a result of AMBAC exercising their put option feature provided in this security. For the year ended January 3, 2009, the credit ratings on our corporate auction rate securities were downgraded from AAA to ratings ranging from A- and BBB- and preferred shares auction rate securities were downgraded from AA to BBB. In addition, Long-term marketable securities with a face value of $16.9 million (estimated fair value of $13.2 million) are exposed to risks associated with student loan asset-backed notes. Such notes are insured by the federal government or guaranteed by the Federal Family Education Loan Program (FFELP). The credit ratings on our student loan auction rate securities remained unchanged at AAA.

While the auctions for auction rate securities have historically provided a liquid market for these securities, due to liquidity issues in global credit and capital markets, auction rate securities held by us have experienced multiple failed auctions (a portion beginning in October 2007) as the amount of securities submitted for sale at the auctions has exceeded the amount of purchase orders. These instruments are considered illiquid and have been reclassified as Long-term marketable securities on the Consolidated Balance Sheets. Due to the severity of the decline in fair value, the duration of the decline, and the downgrading of the credit ratings on some of the securities, the Company determined that an other-than-temporary decline in fair value had occurred, and recorded an impairment charge of $19.7 million for the fiscal year ended January 3, 2009. If we were to liquidate our position in these securities, the amount realized could be materially different than the estimated fair value amounts at which we are carrying these securities and there could be a materially detrimental effect on our financial results.

Sales of our older products may decline faster than sales of our new products increase, which would result in reduced revenues and gross margins.

Our product development strategy is to aggressively introduce new products in order to grow our overall revenue. However,While we expect the strong growth of new product revenue to continue, there is no assurance that the rate of growth can be maintained, or that new product revenue will meet our expectations. In addition, currently the majority of our revenue is derived from sales of mainstream and mature products. Mature products are older products that generally are no longer designed by customers into end systems and are sold to support the mass production of customer end systems in which they have historically been designed. Consequently, sales of these products have a tendency to decline as customer end systems gradually reach the end of their life cycles. Mainstream products are more recently introduced products that may still be designed by customers into new systems. However, they are predominantly used in customer end systems that are in the early to mid-life stage of their life cycles. Consequently, sales of mainstream products can be volatile and are subject to overall economic, industry and customer specific inventory conditions. Sales of mainstream products may increase or decline in a given period depending on conditions.

We have limited ability to predict or to foresee changes or the pace of changes in sales by product classification. In recent periods, we have experienced increased rates of decline in sales of our mature products. Additionally, in the past we have also experienced periods of declinesdecline in sales of our mainstream products. If in any period, the overall sales of the combination of our mature and mainstream products decline and if sales of new products do not increase at a rate that is sufficient to counteract this decline, then our total revenues would decline. In addition, as mature products typically generate a higher gross margin than mainstream or new products, generate, a faster than normal decline in sales of mature products could adversely impact our gross margins.

Export sales account for the majority of our revenue and may decline in the future due to economic and governmental uncertainties.

We derive a majority of our revenue from export sales. Accordingly, if we experience a decline in export sales, our operating results could be adversely affected. Our export sales are subject to numerous risks, including:

A downturn in the communications equipment end market could cause a reduction in demand for our products and limit our ability to maintain revenue levels and operating results.

The majority of our revenue (currently approximately 54%) is derived from customers in the communications equipment end market. Any deterioration in this end market or any reduction in technology capital spending could lead to a reduction in demand for our products. For example, in the past, a general weakening in demand for programmable logic products from customers in the communications end market has adversely affected our revenue. Whenever adverse economic or end market conditions exist, there is likely to be an adverse effect on our operating results.

We may experience a disruption of our business activities dueUnforeseen events related to the transitionglobal economic conditions and uncertainty could adversely affect our ability to a new Chief Executive Officer.collect amounts due from Fujitsu.

On February 1, 2008,As of January 3, 2009, we announcedhave Fujitsu related accounts that aggregate $91.6 million, of which $60.0 million is an other receivable to be repaid during Fujitsu’s first and third fiscal quarters in 2009. The balance of the final repayment to be made after commencement of Fujitsu’s first fiscal quarter in 2010 will be an amount equal to that aggregate balance of $91.6 million less the $60.0 million of repayments during Fujitsu’s first and third fiscal quarters in 2009 and less the amounts of wafer credits or other services (including engineering mask set charges) provided by Fujitsu to Lattice between January 3, 2009 and the date of final repayment. The obligation of Fujitsu is unsecured. If unforeseen events related to the global economic conditions and uncertainties adversely affect Fujitsu, we had reached an agreement withmay have to adjust the carrying value of these accounts and it could have a materially detrimental effect on our Presidentresults of operations.

The downturn in the economy and Chief Executive Officer, pursuantthe volatility in the capital markets could limit our ability to which he agreedaccess capital or could increase our costs of capital, if additional financing is required.

We have seen a dramatic downturn in the U.S. and global economy. While we intend to resign his positions withfund our operations from working capital, our ability to execute stock buyback programs, fund capital expansion projects, enter into strategic investments, or support potential acquisitions may be limited as a result of the deteriorating capital markets. Historically, the Company effective as of May 31, 2008. We are inhas occasionally accessed these markets to support certain business activities. In the process of searching for a new Chief Executive Officer, but there is no assurance that we will identify and reach an employment agreement with a new Chief Executive Officer in sufficient time for the new Chief Executive Officer to joinfuture, the Company by May 31, 2008. There is also no assurance that the new Chief Executive Officer willmay not be able to immediately lead the Company in an effective mannerobtain capital market financing or achievecredit availability on similar terms, or at all, which could have a material adverse effect on the Company’s business objectives.consolidated financial position, results of operations, and cash flows.

We may be unsuccessful in defining, developing or selling the new FPGAprogrammable logic products required to maintain or expand our business.

As a semiconductor company, we operate in a dynamic environment marked by rapid product obsolescence. The programmable logic market is characterized by rapid technology and product evolution and historically the market for FPGA products has grown faster than the market for PLD products. Currently we derive a greater proportion of our revenue from PLD products than FPGA products. Consequently, our future success depends on our ability to introduce new FPGA and associated software design tool products that meet evolving customer needs while achieving acceptable margins. We are presently shipping our next generation FPGA product families that are critical to our ability to grow our FPGA product revenue and expand our overall revenue. We also plan to continue upgrading our customer design tool products and increase our offerings of intellectual property cores. If we fail to introduce new products in a timely manner, or if these products or future new products fail to achieve market acceptance, our operating results would be harmed.

Lattice and Fujitsu has agreedhave entered into agreements pursuant to manufacturewhich Fujitsu manufactures our current and future FPGA products on its 130 nanometer, 90 nanometer and 9065 nanometer CMOS process technologies, as well as on 130 nanometer and 90 nanometer technologies with embedded flash memory that we have jointly developed with Fujitsu. We have access to 65 nanometer CMOS process technology from Fujitsu. Fujitsu is our sole source supplier of wafers for our newest FPGA products our new wafer fabrication processes and our planned future FPGA products. The success of our next generation FPGA products is dependent on our ability to successfully partner with Fujitsu. If for any reason we are unsuccessful in our efforts to partner with Fujitsu in connection with these next generation FPGA products, our future revenue growth wouldmay be materially adversely affected.

The introduction of new silicon and software design tool products in a dynamic market environment presents significant business challenges. Product development commitments and expenditures must be made well in advance of product sales. The market reception of new products depends on accurate projections of long-term customer demand, which by their nature are uncertain.

Our future revenue growth is dependent on market acceptance of our new silicon and software design tool products and the continued market acceptance of our current products. The success of these products is dependent on a variety of specific technical factors including:

If, due to these or other factors, our new silicon and software products do not achieve market acceptance, our operating results wouldmay be harmed.

We may experience a disruption of our business activities due to the transition to a new executive management team.

We may experience disruption in our business activities as we transition to a new executive management team, and our relationships with employees, customers and suppliers could be adversely affected by these disruptions. In addition, our competitors may seek to use this transition and the related potential disruptions to gain a competitive advantage over us. Our future operating results depend substantially upon the continued service of our executive officers and key personnel and in significant part upon our ability to attract and retain qualified management personnel. Competition for qualified personnel is intense, and we cannot ensure success in attracting or retaining qualified personnel. There may be only a limited number of persons with the requisite skills to serve in these positions and it may be increasingly difficult for us to hire personnel over time. Our business, financial condition and results of operations could be materially adversely affected by the loss of any of our key employees, by the failure of any key employee to perform in his or her current position, or by our inability to attract and retain skilled employees. In addition, the transition to new executive officers has involved the development of a new cost structure, a refined product strategy and a new business model that better aligns operating costs with near-term revenue expectations to deliver improved operating results. Any changes to our business are subject to the risks that management may be diverted from ongoing business activities, we could incur significant costs and expenses to undertake changes, and that such changes may result in loss of key employees and customer relationships. The benefits from changes in the cost structure and product strategy may not materialize for a number of reasons, including the possibility that we may incur unanticipated costs, experience management turnover, or fail to gain market acceptance of a refined product strategy or be unable to execute the plan in a timely manner.

The potential impact of customer design-in activity on future revenue is inherently uncertain and could impact our ability to manage production or our ability to forecast sales.

We face uncertainties relating to the potential impact of customer design-in activity because it is unknown whether any particular customer design-in will ultimately result in sales of significant volume. After a specific customer design-in is obtained, many factors can impact the timing and amount of sales that are ultimately realized from the specific customer design-in. Changes in the competitive position of our technology, our customer’s product competitiveness, our customer’s product strategy, the financial position of our customer, and many other factors can all impact the timing and amount of sales ultimately realized from any specific customer design-in. As a result, we may not be able to accurately manage the production levels of our new products or accurately forecast the future sales of such products, and, thus, our operating results couldmay be harmed.

Product quality problems could lead to reduced revenue, gross margins and net income.

We generally warrant our products for varying lengths of time against non-conformance to our specifications and certain other defects. Because our products, including hardware, software and intellectual property cores, are highly complex and increasingly incorporate advanced technology, our quality assurance programs may not detect all defects, whether manufacturing defects in individual products or systematic defects that could affect numerous shipments. Inability to detect a defect could result in increased engineering expenses necessary to remediate the defect and also result in increased costs due to inventory impairment charges. On occasion we have also repaired or replaced certain components and software or refunded the purchase price or license fee paid by our customers due to product defects. If there are material increases in product defects, the costs to remediate such defects, or the costs to resolve warranty claims compared with our historical experience, our revenue, gross margins, and net income may be adversely affected.

A substantial portion of our short-term and our entire long-term marketable securities portfolio is invested in auction rate securities, a number of which have been the subject of failed auctions which have adversely affected the liquidity of these securities. If auction rate securities continue to experience unsuccessful auctions, or if the credit rating of the auction rate security issuer, the third-party insurer of such investments, the issuers of the investments underlying the securities or credit default swaps, or Ambac Assurance Corporation (“AMBAC”) deteriorates, we may be required to adjust the carrying value of the auction rate security through an impairment charge.

At December 29, 2007 we held $65.2 million in auction rate securities (with investment grades of AAA or AA), which are variable rate debt instruments with long-term stated maturities whose interest rates are reset through a Dutch auction approximately every 28 days. While the auctions have historically provided a liquid market for these securities, due to liquidity issues in global credit and capital markets, a portion of the auction rate securities held by us have experienced multiple failed auctions beginning in October 2007 as the amount of securities submitted for sale at the auctions has exceeded the amount of purchase orders. Our auction rate securities are collateralized by federally insured student loans, municipal bonds, corporate bonds, notes, high grade commercial paper, or bank deposit notes; however, $14.0 million of our long-term auction rate securities are exposed to risks associated with the sale of credit default swaps, pursuant to which the assets underlying the auction rate securities are exposed to claims in the event of default of certain debt instruments owned by third parties. A total of $44.9 million of our auction rate securities were part of unsuccessful auctions and as a result, these instruments are considered illiquid and have been reclassified as Long-term marketable securities on the Consolidated Balance Sheet. Of this amount, $22.3 million of the auction rate securities in our portfolio were considered illiquid as of December 29, 2007, and, subsequent to December 29, 2007, an additional $22.6 million of the auction rate securities, all of which are backed by federally insured student loans or municipal bonds, were part of unsuccessful auctions and are thus considered illiquid. The remaining $20.3 million of auction rate securities included in Short-term marketable securities has been called, redeemed, or sold since December 29, 2007, and the proceeds are now being held as cash or cash equivalents. In addition, for $8.3 million of our auction rate securities held in Long-term marketable securities, AMBAC can, under certain circumstances, exercise a put option, which essentially replaces the auction rate security investment with preferred stock of AMBAC. If auction rate securities continue to experience unsuccessful auctions, or if the credit rating of the auction rate security issuer, the third-party insurer of such investments, the issuers of the investments underlying the securities or credit default swaps, or AMBAC deteriorates, we may be required to adjust the carrying value of the auction rate security through an impairment charge. Any of these events could have a materially detrimental effect on our liquidity and results of operations.

The cyclical nature of the semiconductor industry may limit our ability to maintain revenue levels and operating results during industry downturns.

The semiconductor industry is highly cyclical, to a greater extent than other less technology-driven industries. Our financial performance has periodically been negatively affected by downturns in the semiconductor industry. Factors that contribute to these industry downturns include:

Historically, the semiconductor industry has experienced periodic downturns of varying degrees of severity and duration. Typically, after such downturns, semiconductor industry conditions improve, although such improvement may not be significant or sustainable. Increased demand for semiconductor industry products may not proportionately increase demand for programmable logic products in general, or our products in

particular. Even if demand for our products increases, average selling prices for our products may not increase, and could decline. Whenever adverse semiconductor industry conditions or other similar conditions exist, there is likely to be an adverse effect on our operating results.

Further, our ability to predict end-user demand is limited. Typically, the majority of our revenue comes from “turns orders,” which are orders placed and filled within the same quarter. By definition, turns orders are not captured in a backlog measurement at the beginning of a quarter. Accordingly, we cannot use backlog as a reliable measure of predicting revenue.

Our wafer supply could be interrupted or reduced, which may result in a shortage of products available for sale.

We do not manufacture finished silicon wafers and many of our products, including all of our newest FPGA products, are manufactured by a sole source. Currently, our silicon wafers are manufactured by Fujitsu in Japan, Seiko Epson in Japan, UMC in Taiwan and Chartered Semiconductor in Singapore. If any of our current or future foundry partners significantly interrupts or reduces our wafer supply, our operating results could be harmed.

In the past, we have experienced delays in obtaining wafers and in securing supply commitments from our foundries. At present, we anticipate that our supply commitments are adequate. However, these existing supply commitments may not be sufficient for us to satisfy customer demand in future periods. Additionally, notwithstanding our supply commitments, we may still have difficulty in obtaining wafer deliveries consistent with the supply commitments. We negotiate wafer prices and supply commitments from our suppliers on at least an annual basis. If any of our foundry partners were to reduce its supply commitment or increase its wafer prices, and we cannot find alternative sources of wafer supply, our operating results could be harmed.

Many other factors that could disrupt our wafer supply are beyond our control. Since worldwide manufacturing capacity for silicon wafers is limited and inelastic, we could be harmed by significant industry-wide increases in overall wafer demand or interruptions in wafer supply. Additionally, a future disruption of any of our foundry partners’ foundry operations as a result of a fire, earthquake, act of terrorism, political unrest, governmental uncertainty, war, or other natural disaster or catastrophic event could disrupt our wafer supply and could harm our operating results.

If our foundry partners experience quality or yield problems, we may face a shortage of products available for sale.

We depend on our foundries to deliver high quality silicon wafers with acceptable yields in a timely manner. As is common in our industry, we have experienced wafer yield problems and delivery delays. If our foundries

are unable for a prolonged period to produce silicon wafers that meet our specifications, with acceptable yields, our operating results could be harmed.

The reliable manufacture of high performance programmable logic devices is a complicated and technically demanding process requiring:

As a result, our foundries may experience difficulties in achieving acceptable quality and yield levels when manufacturing our silicon wafers.

Our products may not be competitive if we are unsuccessful in migrating our manufacturing processes to more advanced technologies or alternative fabrication facilities.

To develop new products and maintain the competitiveness of existing products, we need to migrate to more advanced wafer manufacturing processes that use smaller device geometries. We also may need to use additional foundries. Because we depend upon foundries to provide their facilities and support for our process technology development, we may experience delays in the availability of advanced wafer manufacturing process technologies at existing or new wafer fabrication facilities. As a result, volume production of our advanced process technologies at fabrication facilities may not be achieved. This could harm our operating results.

Our supply of assembled and tested products could be interrupted or reduced, which may result in a shortage of products available for sale.

We do not assemble our finished products or perform all testing of our products. Currently, our finished products are assembled and may be tested by ASEindependent contractors in Indonesia, Malaysia, Amkor in the Philippines, Singapore and South Korea Fujitsu in Japan, AIT in Indonesia, UTAC in Singapore, and other independent contractorsor elsewhere in Asia. If any of our current or future assembly or test contractors significantly interrupts or reduces our supply of assembled and tested devices, our operating results could be harmed.

In the past, we have experienced delays in obtaining assembled and tested products and in securing assembly and test capacity commitments from our suppliers. At present, we anticipate that our assembly and test capacity commitments are adequate. However, these existing commitments may not be sufficient for us to satisfy customer demand in future periods. Additionally, notwithstanding our assembly and test capacity commitments we may still have difficulty in obtaining deliveries of finished products consistent with the capacity commitments. We negotiate assembly and test prices and capacity commitments from our contractors on a periodic basis. If any of our assembly or test contractors were to reduce its capacity commitment or increase its prices, and we cannot find alternative sources, our operating results could be harmed.

Many other factors that could disrupt our supply of finished products are beyond our control. Because worldwide capacity for assembly and testing of semiconductor products is limited and inelastic, we could be harmed by significant industry-wide increases in overall demand or interruptions in supply. The assembly of complex packages requires a consistent supply of a variety of raw materials such as substrates, leadframes, and mold compound. The worldwide manufacturing capacity for these materials is also limited and inelastic. A

significant industry-wide increase in demand, or interruptions in the supply of these materials to our assembly or test contractors, could harm our operating results. Additionally, a future disruption of any of our assembly or test contractors’ operations as a result of a fire, earthquake, act of terrorism, political unrest, governmental uncertainty, war, or other natural disaster or catastrophic event could disrupt our supply of assembled and tested devices and could harm our operating results.

In addition, our quarterly revenue levels may be affected to a significant extent by our ability to match inventory and current production mix with the product mix required to fulfill orders. The large number of individual parts we sell and the large number of customers for our products, combined with limitations on our and our customer’scustomers’ ability to forecast orders accurately and our relatively lengthy manufacturing cycles, may make it difficult to achieve a match of inventory on hand, production units, and shippable orders sufficient to realize quarterly or annual revenue projections.

If our assembly and test supply contractors experience quality or yield problems, we may face a shortage of products available for sale.

We rely on contractors to assemble and test our devices with acceptable quality and yield levels. As is common in our industry, we have experienced quality and yield problems in the past. If we experience prolonged quality or yield problems in the future, our operating results could be harmed.

The majority of our revenue is derived from semiconductor devices assembled in advanced packages. The assembly of advanced packages is a complex process requiring:

As a result, our contractors may experience difficulties in achieving acceptable quality and yield levels when assembling and testing our semiconductor devices.

Our stock price may continue to experience large fluctuations.

Historically, the price of our common stock has at times experienced rapid and severe price fluctuations that have left investors little time to react. The price of our common stock may continue to fluctuate greatly in the future due to a variety of company specific factors, including:

Our stock price has ranged from a low of $3.08$1.04 per share to a high of $6.80$4.00 per share for the fiscal year 2007.ended January 3, 2009.

We may fail to retain or attract the specialized technical and management personnel required to successfully operate our business.

To a greater degree than most non-technology companies or larger technology companies, our future success depends on our ability to attract and retain highly qualified technical and management personnel. As a mid-sized company, we are particularly dependent on a relatively small group of key employees. Competition for skilled technical and management employees is intense within our industry. As a result, we may not be able to retain our existing key technical and management personnel. In addition, we may not be able to attract additional qualified employees in the future. If we are unable to retain existing key employees or are unable to hire new qualified employees, our operating results could be adversely affected.

Our future quarterly operating results may fluctuate and therefore may fail to meet expectations.

Our quarterly operating results have fluctuated in the past and may continue to fluctuate. Consequently, our operating results may fail to meet the expectations of analysts and investors. As a result of industry conditions and the following specific factors, our quarterly operating results are more likely to fluctuate and are more difficult to predict than a typical non-technology company of our size and maturity:

Conditions in Asia may disrupt our existing supply arrangements and result in a shortage of finished products available for sale.

All of our major silicon wafer suppliers operate fabrication facilities located in Asia. Additionally, our finished silicon wafers are assembled and tested by independent contractors located in Indonesia, Japan, Malaysia, the Philippines Singapore and South Korea. Economic, financial, social and political conditions in Asia have historically been volatile. Financial difficulties, the effects of currency fluctuation, governmental actions or restrictions, prolonged work stoppages, political unrest, war, natural disaster, disease or any other difficulties experienced by our suppliers may disrupt our supply and could harm our operating results.

Export sales account for the majority of our revenueWe may not be able to fund future foundry partner investments and meet other capital needs when required or on favorable terms.

We may decline in the future dueseek new or additional sources of funding. In addition, in order to economicsecure additional wafer supply, we may from time to time consider various financial arrangements including equity investments, advance purchase payments, loans, or similar arrangements with independent wafer manufacturers in exchange

for committed wafer capacity. To the extent that we pursue any such additional financing arrangements, additional debt or equity financing may be required. There can be no assurance that such additional financing will be available when needed or, if available, will be on favorable terms. Any future equity financing will decrease existing stockholders’ equity percentage ownership and governmental uncertainties.

We derive a majority of our revenue from export sales. Accordingly, if we experience a decline in export sales, our operating results could be adversely affected. Our export sales are subject to numerous risks, including:

We may not be able to successfully compete in the highly competitive semiconductor industry.

The semiconductor industry is intensely competitive and many of our direct and indirect competitors have substantially greater financial, technological, manufacturing, marketing and sales resources than we do.resources. The current level of competition in the programmable logic market is high and may increase in the future. We currently compete directly with companies that have licensed our technology or have developed similar products.

We also compete indirectly with numerous semiconductor companies that offer products based on alternative technical solutions. These direct and indirect competitors are established multinational semiconductor companies as well as emerging companies. If we are unable to compete successfully in this environment, our future results will be adversely affected.

We may have failed to adequately insure against certain risks, and, as a result, our financial condition and results may be adversely affected.

We carry insurance customary for companies in our industry, including, but not limited to, liability, property and casualty, worker’s compensation and business interruption insurance. We also self-insure our employees for basic medical expenses, subject to a true insurance stop loss for catastrophic illness. In addition, we have insurance contracts that provide director and officer liability coverage for our directors and officers. Other than the specific areas mentioned above, we are self-insured with respect to most other risks and exposures, and the insurance we carry in many cases is subject to a significant policy deductible or other limitationslimitation before coverage applies. Based on management’s assessment and judgment, we have determined that it is more cost effective to self-insure against certain risks than to incur the insurance premium costs. The risks and exposures for which we self-insure include, but are not limited to, natural disasters, product defects, political risk, theft, patent infringement and some employment practice matters. Should there be a catastrophic loss due to an uninsured event such as an earthquake or a loss due to adverse occurrences in any area in which we are self-insured, our financial condition, results of operations and liquidity may be adversely affected.

Changes in accounting for equity compensation will adversely affect our consolidated statement of operations and could adversely affect our ability to attract and retain employees.

We have historically used equity incentives as a key component of employee compensation in order to align employees’ interests with the interests of our stockholders, encourage employee retention, and provide competitive compensation packages. The Financial Accounting Standards Board adopted changes to generally accepted accounting principles that require us and other companies to record a charge to earnings for employee stock option grants and other equity incentives beginning in the quarter ended April 1, 2006. To the extent that these or other new regulations make it more expensive to grant stock options and other equity incentives to employees, we will incur increased compensation costs. We also have changed our equity compensation strategy to, among other things, issue predominantly restricted stock units rather than stock options, and this could make it more difficult to attract, retain and motivate employees. Any of these results could materially and adversely affect our business.

While we believe that we currently have adequate internal controls over financial reporting, we are exposed to risks from legislation requiring companies to evaluate those internal controls.

Section 404 of the Sarbanes-Oxley Act of 2002 requires our management to report on, and our independent auditors to attest to, the effectiveness of our internal controls over financial reporting. We have an ongoing program to perform the system and process evaluation and testing necessary to comply with these requirements. We have and will continue to incur significant expenses and devote management resources to Section 404 compliance on an ongoing basis. In the event that our chief executive officer, chief financial officer or independent registered public accounting firm determine in the future that our internal controls over financial reporting are not effective as defined under Section 404, investor perceptions may be adversely affected and could cause a decline in the market price of our stock.

If we are unable to adequately protect our intellectual property rights, our financial results and competitive position may suffer.

Our success depends in part on our proprietary technology. However, we may fail to adequately protect this technology. As a result, we may lose our competitive position or face significant expense to protect or enforce our intellectual property rights.

We intend to continue to protect our proprietary technology through patents, copyrights and trade secrets. Despite this intention, we may not be successful in achieving adequate protection. Claims allowed on any of our patents may not be sufficiently broad to protect our technology. Patents issued to us also may be challenged, invalidated or circumvented. Finally, our competitors may develop similar technology independently.

Companies in the semiconductor industry vigorously pursue their intellectual property rights. If we become involved in protracted intellectual property disputes or litigation we may be forced to use substantial financial and management resources, which could have an adverse effect on our operating results.

Our industry is characterized by frequent claims regarding patents and other intellectual property rights of others. We have been, and from time to time expect to be, notified of claims that we are infringing the intellectual property rights of others. If any third party makes a valid claim against us, we could face significant liability and could be required to make material changes to our products and processes. In response to any claims of infringement, we may seek licenses under patents that we are alleged to be infringing. However, we may not be able to obtain a license on favorable terms, or at all, without our operating results being adversely affected.

We face risks related to litigation.

We are exposed to certain asserted and unasserted potential claims, including the pending patent litigation brought against us by Lizy K. John. There can be no assurance that, with respect to potential claims made against us, we could resolve such claims under terms and conditions that would not have a material adverse effect on our business, our liquidity or our financial results. We have been and may in the future be subject to various other legal proceedings, including as discussed in greater detail hereafter, claims that involve possible infringement of patent and other intellectual property rights of third parties. It is inherently difficult to assess the outcome of litigation matters, and there can be no assurance that we will prevail in any litigation. Any such litigation could result in a substantial diversion of our efforts and the use of substantial management and financial resources, which by itself could have a material adverse effect on our financial condition and operating results. Further, an adverse determination in any such litigation could result in a material adverse impact on our financial position and the results of operations for the period in which the effect of an unfavorable final outcome becomes probable and can be reasonably estimable.estimated.

Item 1B.  Unresolved Staff Comments.

None.

Item 2.  Properties.

Our corporate headquarters consists of land and 200,000 square feet of buildings we own in Hillsboro, Oregon. A portion of undeveloped land near the corporate headquarters is currently availableowned by the Company but listed for sale. In Shanghai, China, we own 19,000 square feet oftwo research and development spacefacilities totaling 29,000 square feet and lease an additional 8,000 square feet offoot research and development space in a facility in Shanghai.facility. We currently lease a 66,350 square foot research and development facility in San Jose, California through December 2013; in addition, we lease another 66,350 square foot research and development facility in San Jose through December 2008. Approximately half of the latter facility is subleased through the remainder of the lease term. The Company expects to record a restructuring charge of approximately $1.3 million in the first quarter of fiscal 2008 related to this facility.2013. We also currently lease a 6,400 square foot research and development facility in Illinois through August 2012, and a 36,00020,000 square foot research and development facility in Pennsylvania through August 2009.September 2014. We also lease office facilities in multiple metropolitan locations for our domestic and international sales staff. We believe that our existing facilities are suitable and adequate for our current and foreseeable future needs.

Additionally, we lease a 25,000 square foot facility in Austin, Texas through December 2011. As part of our 2005 restructuring plan (see discussion under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”) in December 2005, we ceased our research and development operations in this location, and have subleased the Austin facility through the end of 2011.

Item 3.  Legal Proceedings.

On June 11, 2007, a patent infringement lawsuit was filed by Lizy K. John (“John”) against Lattice Semiconductor Corporation in the U.S. District Court for the Eastern District of Texas, Marshall Division. John seeks an injunction, unspecified damages, and attorneys’ fees and expenses. The Company filed a request for re-examination of the patent by the United States Patent and Trademark Office (“PTO”), which was granted by the PTO, and the re-examination is in progress. The litigation has been stayed pending the results of the re-examination. Neither the likelihood nor the amount of any potential exposure to the Company is estimablecan be estimated at this time.

We are exposed to certain asserted and unasserted potential claims. There can be no assurance that, with respect to potential claims made against us, we could resolve such claims under terms and conditions that would not have a material adverse effect on our business, our liquidity or our financial results. Periodically, we review the status of each significant matter and assess its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and a range of possible losses can be estimated, we then accrue a liability for the estimated loss. Any liability for estimated loss is based on the criteria inprovisions of SFAS No. 5, “Accounting for Contingencies”. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Because of such uncertainties, accruals are based only on the best information available at the time. As additional information becomes available, we reassess the potential liability related to pending claims and litigation and may revise estimates. Presently, no accrual has been estimated under SFAS No. 5 for potential losses that may or may not arise from the current lawsuits in which we are involved.

Item 4.  Submission of Matters to a Vote of Security Holders.

Not applicable.

PART II

Item 5.  Market for the Registrant’s Common Stock, Related Stockholder Matters, and Issuer Purchases of Equity Securities.

Market Information

Our common stock is traded on the over-the-counter market and prices are quoted on the NASDAQ Global Market under the symbol “LSCC.”“LSCC”. The following table sets forth the low and high intraday sale prices for our common stock for the last two fiscal years, as reported by NASDAQ.

Holders

As of March 10, 2008,11, 2009, we had approximately 466441 stockholders of record.

Dividends

The payment of dividends on our common stock is within the discretion of our Board of Directors. We intend to retain earnings to finance the growth of our business. We have never paid cash dividends.

Recent Sales of Unregistered Securities

None.

Issuer Purchases of Equity Securities

None.On December 13, 2008, the Board of Directors approved a stock repurchase program pursuant to which up to $20.0 million of outstanding common stock may be repurchased from time to time. The duration of the repurchase program is twelve months. Under the program, Lattice may purchase shares of common stock through open market and privately negotiated transactions at prices deemed appropriate by management. The timing and amount of repurchase transactions under this program will depend on market conditions and corporate and regulatory considerations. The purchases will be funded from available working capital. There were no purchases in fiscal 2008.

Comparison of Total Cumulative Stockholder Return

The following graph shows the five-year comparison of cumulative stockholder return on our common stock, the S&P 500 Index and the Philadelphia Semiconductor Index (SOX) from December 20022003 through December 2007.2008. Cumulative stockholder return assumes $100 invested at the beginning of the period in our common stock, the S&P 500 and the Philadelphia Semiconductor Index (SOX). Historical stock price performance is not necessarily indicative of future stock price performance.

Lattice Cumulative Stockholder Return

Item 6.  Selected Financial Data.

(3)

Convertible notes include the amount in Zero Coupon Convertible Subordinated Notes due 2010 and Other current liabilities recorded in the Consolidated Balance Sheet. On July 1, 2008, holders have the option to require us to purchase all or a portion of their Convertible Notes in cash at 100% of their principal amount.

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Lattice Semiconductor Corporation (“Lattice” or the “Company”) designs, develops and markets high performance programmable logic products and related software. Programmable logic products are widely used semiconductor components that can be configured by the end customer as specific logic circuits, and enable the end customer to shorten design cycle times and reduce development costs. Within the programmable logic market there are two groups of products—programmable logic devices (“PLDs”PLD”) and field programmable gate arrays (“FPGAs”FPGA”)—each representing a distinct silicon architectural approach. Products based on the two alternative programmable logic architectures are generally optimal for different types of logic functions, although many logic functions can be implemented using either architecture. We believe that a substantial portion of programmable logic customers utilize both PLD and FPGA architectures. Our end customers are primarily original equipment manufacturers in the communications, computing, industrial, consumer, automotive, medical and military end markets.

Critical Accounting Policies and Estimates

Critical accounting policies are those that are both most important to the portrayal of a company’s financial condition and results and require management’s most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. A description of our critical accounting policies follows.

Use of Estimates.    The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and classification of assets, such as marketable securities, accounts receivable, inventory and deferred income taxes and liabilities, such as accrued liabilities (including restructuring charges), income taxes and deferred income and allowances on sales to certain distributors, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the fiscal periods presented. Actual results could differ from those estimates.

Revenue Recognition and Deferred Income.    Revenue from sales to customers is generally recognized upon shipment provided that persuasive evidence of an arrangement exists, the price is fixed or determinable, title has transferred, collection of resulting receivables is probable, there are no customer acceptance requirements and no remaining significant obligations. Certain of our sales are made to distributors under agreements providing price protection and rights of return on unsold merchandise. Revenue and cost relating to such distributor sales are deferred until either the product is sold by the distributor or return privileges and price protection rights terminate, at which time related estimated distributor resale revenue, estimated effects of distributor price adjustments, and estimated costs are reflected in income. Our revenue reporting is highly

dependent on receiving pertinent and accurate data from our distributors in a timely fashion. Distributors provide us periodic data regarding the product, price, quantity, and end customer when products are resold as well as the quantities of our products they still have in stock. We must use estimates and apply judgments to reconcile distributors’ reported inventories to their activities. Any error in our judgment could lead to inaccurate reporting of our revenues, deferred income and allowances on sales to distributors, and net income. Revenue from software licensing was not material for the periods presented.

Beginning in fiscal 2006 we entered into arrangements with certain distributors to issue accounts receivable credit adjustments (“distributor advances”) to reduce the distributors’ working capital required to service our end customers. The distributor advances are for estimated future price discounts and are recorded as a reduction of Deferred income and allowances on sales to distributors. These arrangements are unsecured, bear no interest, are settled on a quarterly basis and are due upon demand. The distributor advances have no impact on revenue recognition.

Fair Value of Financial Instruments.    We invest in various financial instruments including corporate and municipal bonds, notes, commercial paper and auction rate securities. The Company values these instruments at

their fair value and monitors its portfolio for impairment on a periodic basis. In the event that the carrying value of an investment exceeds its fair value and the decline in value is determined to be other than temporary the Company records an impairment charge and establishes a new carrying value. The framework under the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS No. 157”) establishes three levels of inputs that may be used to measure fair value. Each level of input has different levels of subjectivity and difficulty involved in determining fair value.

Level 1instruments generally represent quoted prices in active markets. Therefore, determining fair value for Level 1 instruments generally does not require significant management judgment, and the estimation is not difficult.

Level 2 instruments include inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices for identical instruments in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 instruments include unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The determination of fair value for Level 3 instruments requires the most management judgment and subjectivity.

Inventory.    We value inventory at the lower of cost or market on a quarterly basis. In addition, we write down unproven, excess and obsolete inventories to net realizable value. To value our inventory, we make a number of estimates and assumptions including market and economic conditions, product lifecycles and forecasted demand for our products. To the extent actual results differ from these estimates and assumptions, the balances of reported inventory and cost of products sold will change accordingly.

Long-Lived Assets.    We account for our long-lived assets, primarily property and equipment and amortizable intangible assets, in accordance with Statement of Financial Accounting Standards (“SFAS”)SFAS No. 144, “Accounting for the Disposal of Long-Lived Assets,” which requires us to review the impairment of long-lived assets annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment is determined by comparing the estimated undiscounted cash flows to the carrying amount. A loss is recorded if the carrying amount of the asset exceeds the estimated undiscounted cash flows. Intangible assets are generally being amortized over five years, and fifteen years for income tax purposes, on a straight-line basis.

Goodwill.    Goodwill represents the excess of cost over the fair value of net assets acquired in a business combination and is not amortized. We test goodwill annually at fiscal year-end for impairment and more frequently if events and circumstances indicate that it might be impaired. The impairment test is performed in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.” Accordingly, an impairment loss is recognized to the extent that the carrying amount of goodwill exceeds its implied fair value. This determination is made at the reporting unit level. We have assigned all goodwill to a single, enterprise-level reporting unit. The impairment test consists of two steps. The first step of the test, used to identify potential impairment, compares the estimated fair value of the reporting unit with the related carrying amount. Second, if the carrying amount of the reporting unit exceeds its fair value, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation in accordance with SFAS No. 141, “Business Combinations.” The residual fair value after this allocation is the implied fair value of the reporting unit’s goodwill. We performed an impairment test as of December 29, 2007 and recorded a non-cash impairment loss on goodwill of $223.6 million and, as a result, we no longer have goodwill recorded on our Consolidated Balance Sheet.Sheets.

Restructuring Charges.    Restructuring chargesExpenses associated with exit or disposal activities are recognized when probable and recorded at fair value as incurred in accordance withestimable under SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” Restructuring costs include estimatesActivities” for everything but severance. Because the Company has a history of paying severance and other costs related to employee terminations, facility costs related to abandonmentbenefits, the cost of various leased research and development sites, and other costsseverance

benefits associated with a restructuring charge is recorded when such costs are probable and the exit and disposal activities. As changes to these estimates occur in subsequent periods resulting from timing changes or other factors, we will record eitheramount can be reasonably estimated. For leased facilities that were vacated, an increase or decreaseamount equal to the estimated costs previously recorded. It is possible that actual costs incurred in thetotal future will differlease obligations from the amountsdate of vacating the premises through the expiration of the lease, net of any future sublease income, was recorded at December 29, 2007.as a part of restructuring charges.

Accounting for Income Taxes.    To report income tax expense related to operating results, we record current and deferred income tax assets and liabilities in our Consolidated Balance Sheet.Sheets. In determining the value of our deferred tax assets, we make estimates of future taxable income. At the end of fiscal years 2008, 2007 2006 and 2005,2006, we have recorded full valuation allowances for all of our U.S. deferred tax assets due to uncertainties regarding their realization. At the end of fiscal years 2007,year 2006, and 2005, we have recorded a partial valuation allowance against our foreign deferred tax assets. At the end of fiscal years 2008 and 2007, we no longer have a valuation allowance against our foreign deferred tax assets as we believe it is more likely than not that the deferred tax assets will be realized.

Effective December 31, 2006, we adoptedWe recognize uncertain tax positions in accordance with Financial Accounting Standards Board (“FASB”) Interpretation No. 48 “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109” (“FIN No. 48”). We are subject to income taxes in the United States and certain foreign countries. We believe our tax return positions are fully supported, but tax authorities may challenge certain positions, which may not be fully sustained. We assess our income tax positions and record tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances, and information available at the reporting date. For uncertain tax positions where it is more likely than not that a tax benefit will be sustained, we record the greatest amount of tax benefit that has a greater than 50 percent probability of being realized upon effective settlement with a taxing authority that has full knowledge of all relevant information. For uncertain income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in our financial statements, and we also record in the Provision for income taxes therecognize estimated interest and penalties that would be assessed in relation to the estimated settlement value of uncertain tax provisions.positions in the Provision for income taxes.

Stock-Based Compensation.    In the first quarter of 2006, we adopted “Share Based Payment—a revision of SFAS No. 123, Accounting for Stock-Based Compensation” (“SFAS No. 123(R)”), which requires the measurement at fair value and recognition of compensation expense for all share-based payment awards. Determining the appropriate fair-value model and calculating the fair value of employee stock options and rights to purchase shares under stock purchase plans at the date of grant requires judgment. We use the Black-Scholes option pricing model to estimate the fair value of substantially all of these share-based awards consistent with the provisions of SFAS No. 123(R). Option pricing models, including the Black-Scholes model, also require the use of input assumptions, including expected volatility, expected life,term, expected dividend rate, and expected risk-free rate of return. The assumptions for expected volatility and expected life are the two assumptions that significantly affect the grant date fair value.

Grants of restricted stock units are part of an overall revision of the Company’s equity compensation practices undertaken by the Company, which, in part, has tied the number of shares to be granted in a given year to officers of the Company, including executive officers, to the Company’s performance to its annual plan. In order to implement the alignment of such equity incentive grants to annual plan performance, the timing of annual equity incentive grants to officers has been moved from the regularly scheduled board meeting occurring in the Company’s third fiscal quarter to the regularly scheduled board meeting occurring in the first fiscal quarter.

In addition, the vesting of restricted stock units granted to executive officers is contingent upon certain annual appreciation in the Company’s stock price. The principal option plans also provide for grants of restricted stock units to employees who are not officers. The restricted stock units granted to employees who are not executive officers generally vest quarterly over a four-year period beginning on the grant date. Restricted stock unit grants have replaced option grants as the principal form of equity compensation for non-officer employees who receive equity grants.

Upon the adoption of SFAS No. 123(R) effective January 1, 2006, stock compensation expense related to acquisitions (attributable to research and development activities) and previously classified as part of Amortization of intangible assets has been reclassified to Research and development expense. Such deferred stock compensation attributable to research and development activities was completely recognized as of April 1, 2006.

Correction of prior period financial statements.    We determined in the first quarter of fiscal 2007 that at December 30, 2006, the Company’s profit sharing accrual was overstated by $2.2 million related to amounts originally provided for in fiscal 2001. We have corrected the fiscal 2006 and 2005 consolidated financial statements by reducing previously reported Accrued payroll obligations and Retained earnings (accumulated deficit) by the same amount under the provisions for making immaterial corrections outlined in Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” While this error was not material to any previously filed annual consolidated financial statements, management concluded that correcting the error of approximately $2.2 million would be material to its consolidated statements of operations for fiscal year 2007, and accordingly, prior period Accrued payroll obligation and prior period Retained earnings (accumulated deficit) have been restated to record the cumulative compensation expense in this Form 10-K.

Results of operations

Key elements of our Consolidated StatementStatements of Operations were as follows (dollars in thousands):

Revenue

Revenue in fiscal 2008 decreased to $222.3 million as compared to $228.7 million in fiscal 2007 primarily due to a reduction in revenue from Mature and Mainstream products, partially offset by an increase in revenue from New products. Revenue in fiscal 2007 decreased to $228.7 million as compared to $245.5 million in fiscal 2006 primarily due to a reduction in revenue from Mature products, partially offset by an increase in revenue from New products. Revenue in fiscal 2006 increased to $245.5 million as compared to $211.1 million in fiscal 2005 primarily due to growth of New products and FPGA products as well as strength in the communications, consumer and military end markets.

The communications end market accounted for approximately 51%54% of our revenue in fiscal yearsyear 2008, 51% in fiscal year 2007 and 50% for the 2006 and 2005 fiscal years.year. Accordingly, a significant portion of our revenue is dependent on the health of this end market. The communications end

In light of the difficult global economic environment, we experienced a sequential decline in revenue of 1% and 13% during the third and fourth quarter of fiscal 2008, respectively. Forecasting for all of 2009 is particularly challenging and there is limited visibility to the broad market slowly improved throughout 2005 andfor programmable logic devices, however the communication market in Asia is showing a better than expected revenue trend. It is likely that we will experience a decline in revenue in the first half of 2006 before weakening in the later part of 2006 and 2007.2009.

Revenue by Product Line

From a product line viewpoint, in fiscal 2008 when compared to fiscal 2007, there was a 32% increase in FPGA units sold primarily driven by an increase in demand for our FPGA New products. PLD revenue decreased in fiscal 2008, when compared to fiscal 2007, due to a decline in both units sold and average selling prices. From a product line viewpoint, in fiscal 2007 when compared to fiscal 2006, there was a 16% increase in FPGA units sold primarily driven by an increase in FPGA New products. PLD revenue decreased in fiscal 2007, when compared to fiscal 2006, due to a decline in both units sold and average selling prices. In fiscal 2006, the increase in FPGA and PLD revenue was primarily the result of increased units sold when compared to fiscal 2005.

The composition of our revenue by product line for fiscal years 2008, 2007 2006 and 20052006 was as follows (dollars in thousands):

Revenue by Product Classification

Revenue for New products increased 99% for fiscal 2008 compared to fiscal 2007, as a result of increased unit sales. Revenue from Mainstream products decreased 11% for fiscal 2008 compared to fiscal 2007 with a decline in units sold. Mature product revenue decreased 27% for fiscal 2008 compared to fiscal 2007 primarily as a result of decreased unit sales.

Revenue for New products increased 99% for fiscal 2007 compared to fiscal 2006, as a result of increased unit sales. Revenue from Mainstream products decreased 3% for fiscal 2007 compared to fiscal 2006 with a decline in both units sold and average selling price. Mature product revenue decreased 24% for fiscal 2007 compared to fiscal 2006 primarily as a result of decreased unit sales.

In fiscal 2006 the increase in New and Mainstream revenue was primarily the result of an increase in units sold when compared to 2005, while the decrease in Mature revenue was primarily the result of a decrease in units sold. Among other things, future revenue growth is dependent on overall economic conditions for our industry and market acceptance of our New products, as well as continued demand for our Mature and Mainstream products.

The composition of our revenue by product classification for fiscal years 2008, 2007 2006 and 20052006 was as follows (dollars in thousands):

In fiscal 2007 we reclassified our New, Mainstream and Mature product categories to better reflect our current product portfolio. Fiscal 2006 and 2005 information has been adjusted to reflect these new product category classifications.

Revenue by Geography

Revenue from export sales as a percentage of total revenue was 83% for fiscal 2008, 81% for fiscal 2007 and 80% for 2006 and 77% for 2005.2006. Export revenue as a percentage of overall revenue increased in fiscal 20072008 compared to 20062007 and 20052006 due to relatively more favorable business conditions in Asia and a continuing trend towards outsourcing of manufacturing by North American and European customers.customers to Asia.

The composition of our revenue by geographical location of our direct and indirect customers is as follows (in thousands):

Gross Margin and Operating Expenses

Our gross margin percentage was 53.8% for fiscal 2008, 54.9% for fiscal 2007 and 56.5% for 2006 and 54.6% for 2005.2006. The decrease in gross margin percentage from fiscal 2007 to 2008 and fiscal 2006 to 2007 resulted primarily from a decline in revenue from Mature products, which typically carry a higher gross margin than our other product categories, as well as revenue growth from New products, which typically carry an initial lower gross margin than our other product categories. The increase in gross margin percentage from fiscal 2005 to 2006 reflects revenue growth in Mainstream products, which had an improved margin in fiscal 2006 versus 2005 due to yield enhancements and cost reductions. Additionally, in the fourth quarter of fiscal 20052008, we initiated a last-time buy program to recognize the obsolescencewrote down excess inventory of certain Mature products,$2.1 million, resulting in a charge to Cost of products sold to write down excess inventory.sold.

Research and development expense was $68.6 million for fiscal 2008 compared to $83.0 million for fiscal 2007 compared toand $82.0 million for 2006 and $97.2 million for 2005.2006. Research and development expenses consist primarily of personnel, masks, engineering wafers, third-party design automation software, assembly tooling and qualification expenses. The decrease in 2008 compared to fiscal 2007 was primarily a result of a decrease in labor costs as a result of the restructuring plan implemented in the third quarter of 2007 (“2007 restructuring plan”) and the restructuring plan implemented in the third quarter of 2008 (“2008 restructuring plan”), and a decrease in mask and wafer costs. The 2008 and 2007 restructuring plans are further described below. The increase in fiscal 2007 compared to fiscal 2006 was primarily a result of an increase in labor costs (including stock-based compensation) offset by a decrease in expenses as a result of the restructuring plan implemented during the third and fourth quarter of fiscal 2007 (“2007 restructuring plan”), which is further described below,plan and a decrease in mask and wafer costs. We believe that a continued commitment to research and development is essential in order to maintain product leadership and provide innovative new product offerings, and therefore we expect to continue to make significant future investments in research and development. As we continue to move to more advanced process technologies such as 65nm, mask and engineering wafer costs are becoming increasingly more expensive and will therefore increasingly represent a greater proportion of total research and development expenses. The decrease in expense in fiscal 2006 compared to 2005 is primarily a result of the restructuring plan implemented during the fourth quarter of fiscal 2005 (“2005 restructuring plan”), which resulted in the realignment of certain departments and job responsibilities further described below. In addition, the decrease also resulted from stock-based compensation expense related to previous acquisitions being fully recognized.

Selling, general and administrative expense was $58.7 million in fiscal 2008, $58.5 million in fiscal 2007 and $58.5 million in 2006 and $57.5 million in 2005.fiscal 2006. Selling, general and administrative expense was flat in fiscalfor all periods presented. Fiscal years 2007 compared to fiscaland 2006 and included increased laborreversals of accrued legal costs (including stock-based compensation) offset by aof $1.0 million reversal of an accrual for legal expenses compared to aand $0.7 million, reversal in fiscal 2006. The increase in Selling, general and administrative expense in fiscal 2006 compared to 2005 is due to a number of factors including a

reduction of sublease income, which is recorded as an offset to Selling, general and administrative expense, recognition of stock-based compensation, increased commission and compensation related expense and the 2005 restructuring plan, which is further described below. These increases were mostly offset by a $6.5 million reduction in legal expenses in fiscal 2006 compared to 2005 primarily due to legal expenses related to shareholder class action suits, an SEC informal inquiry, shareholder derivative suits, a Special Litigation Committee investigation and Audit Committee investigation, all of which were resolved in early 2006. Legal expenses related to these matters resulted in a total charge of $6.3 million during fiscal 2005.respectively.

At December 29, 2007, the estimated fair value of the company was below book value. Therefore, the Company performed an impairment test on Goodwill in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.” We calculated the impairment loss based on an allocation of the estimated fair value of the Company’s equity to the fair value of the Company’s assets and liabilities in a manner similar to a purchase price allocation in a business combination. Fair value was based on a weighted average sum oftwo primary valuation methodologies: the income

approach, which used the discounted cash flow method, and the market approach, which used the market capitalization method. In the allocation, goodwill was determined to have no implied fair value, and, as a result, goodwill related to the acquisition of Vantis Corporation on June 15, 1999, the acquisition of Integrated Intellectual Properties, Inc. on March 16, 2001, and the acquisition of the FPGA business of Agere Systems, Inc. on January 18, 2002 totaling $223.6 million was written off and recorded as a non-cash Impairment loss on goodwill.

Amortization of intangible assets is related to our 2002 acquisition of the FPGA business of Agere Systems, Inc. and of Cerdelinx Technologies, Inc. Amortization expense was $5.6 million in fiscal 2008, $9.8 million in fiscal 2007 and $10.8 million in 2006 and $14.4 million in 2005.fiscal 2006. Amortization expense in fiscal 2008 and 2007 decreased as a portion of the intangible assets acquired in the Agere and Cerdelinx acquisitions became completely amortized. Amortization expense inamortized during the third quarter of fiscal 2006 decreased as a portion of the intangible assets acquired in the Agere acquisition became completely amortized.2007. Amortization charges are expected to be eliminatedcease after the first quarter of 2009. Under the guidance of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company evaluates the remaining useful life and recoverability of equipment and other assets, including intangible assets with definite lives, whenever events or changes in circumstances require us to do so.

Restructuring activity relates to the restructuring plans implemented during the fourth quarter of fiscal 2005 (“2005 restructuring plan”) and, the third quarter of fiscal 2007 (“2007 restructuring plan”) and the third quarter of fiscal 2008 (“2008 restructuring plan”). Included in our Consolidated Statement of Operations and reported as Restructuring for fiscal 2008 is a net charge of $6.8 million which is comprised of charges of $4.1 million under the 2008 restructuring plan primarily related to severance costs and $2.7 million under the 2007 restructuring plan primarily related to severance costs and costs to vacate leased properties. Included in our Consolidated Statement of Operations and reported as Restructuring for fiscal 2007, is a net charge of $2.4 million. This amount is comprised of charges under the 2007 restructuring plan of $2.7 million, primarily related to a reduction in work force and a voluntary separation program for certain employees partially offset by a credit of $0.3 million related to the settlement of the remaining lease obligation for our facility in the United Kingdom, which was closed in connection with the 2005 restructuring plan. ChargesIncluded in our Consolidated Statement of Operations and reported in Restructuring for 2006, was a net charge of $0.3 million related to charges under the 20072005 restructuring plan primarily related to a reduction in work force and a voluntary separation program for certain employees.plan.

On January 31, 2008, Stephen A. Skaggs, then President and Chief Executive Officer and the Company entered into an agreement pursuant to which Mr. Skaggs is expected to resignresigned as President and Chief Executive Officer effective not later than May 31, 2008. The Company expects to recordrecorded and paid approximately $1.0 million in severance and related costs on a prorated basis from February 1, 2008 through May 31,in fiscal 2008. In addition, the terms of Mr. Skaggs’ severance agreement allowallowed for a partial acceleration of vesting of previously awarded stock options. As a result, the Company expects to recordrecorded a non-cash charge of $0.7$0.3 million in the second quarter of fiscal 2008 related to the effects of accelerated vesting. Costs related to Mr. Skaggs’ severance agreement will be charged to restructuring expense.

We will incur a restructuring charge of approximately $1.3 million in the first quarter of fiscal 2008, related to an operating lease commitment for a portion of our facility in San Jose, California.

We cannot be certain as to the actual amount of any remaining restructuring charges or the timing of their recognition for financial reporting purposes.

Effective January 1, 2006, the Company realigned certain departments and job responsibilities. As a result, a portion of our historic cost center allocations have been realigned between Selling, general and administrative and Research and development to reflect our operations following the 2005 restructuring plan. The realignment reduced fiscal 2006 Research and development expense by approximately $3.1 million, which was primarily offset by a corresponding increase in Selling, general and administrative expense, when compared to fiscal 2005.

Interest and otherOther (expense) income, net

InterestOther (expense) income, net, was $7.8an expense of $17.8 million in fiscal 2008, income of $12.5 million in fiscal 2007 $13.0and income of $17.0 million in fiscal 2006 and $8.5 million2006.

The following table summarizes the activity in Other (expense) income, net:

The decrease in interest income in fiscal 2005. The decrease2008 compared to fiscal 2007 and in fiscal 2007 compared to fiscal 2006 was primarily attributable to a decrease in average invested balances as a result of the use of cash for extinguishment of Zero Coupon Convertible Subordinated Notes due in 2010 (“Convertible Notes”), partially offset by higher and, to a lesser extent, lower interest rates.rates on invested balances. The increase in fiscal 2006 compared to 2005 was primarily attributable to higher interest rates.

Other income, net, was $4.8$19.7 million in fiscal 2007, $4.0 millionOther-than-temporary impairment of long-term marketable securities relates primarily to holdings in 2006 and $8.6 million in 2005. For fiscal 2007, Other income,auction rate securities that are considered illiquid. Gain on debt buyback, net, consisted of a $2.7 million gain onrelates to the extinguishment of Convertible Notes, net of $0.1 million of amortization of Convertible Noteassociated issuance costs and other costs, a $1.6 million gain on sale of land and a $0.5 million dividend from UMC. For fiscal 2006, Other income, net, consisted of a $1.6 million gain on sale of UMC common stock and a $2.4 million gain on extinguishment of Convertible Notes, net of $0.1 million of amortization of Convertible Note issuance costs and other costs. To the extent market conditions allow, we may make similar sales of UMC common stock in the future.

Provision for income taxes

We are paying foreign income taxes, which are reflected in the Provision for income taxes in the Consolidated StatementStatements of Operations and are primarily related to the cost of operating an offshore research and development subsidiary and sales subsidiaries. We are not currently paying federal income taxes and do not expect to pay such taxes until the benefits of our tax net operating losses are fully utilized. We expect to pay a nominal amount of state income tax. We accrue interest and penalties related to unrecognizeduncertain tax benefitspositions in the Provision for income taxes.

Liquidity and Capital Resources

Financial Condition (Sources and Uses of Cash)

Our sources and uses of cash from operating, financing and investing activities were as follows (in thousands):

Fiscal 2008 compared to 2007

Operating Activities

Net cash provided by operating activities was $26.8 million in fiscal 2008, compared to Net cash used in operating activities of $28.5 million in fiscal 2007, primarily as a result of a $37.5 million advance payment made to Fujitsu Limited (“Fujitsu”) in fiscal 2007, while no payment was made in fiscal 2008, and increased

usage of Fujitsu advance credits in fiscal 2008. The Company’s inventory decreased $7.3 million resulting in additional cash from operations in fiscal 2008 compared to $1.2 million of net purchases in fiscal 2007. Accounts receivable, net, increased $6.7 million in fiscal 2007 and decreased $2.9 million in fiscal 2008 as a result of billing and collection timing.

Investing Activities

Net cash provided by investing activities decreased by $58.6 million in fiscal 2008 compared to fiscal 2007. The decrease was due to the sales of marketable securities to fund the $37.5 million advance payment to Fujitsu and the $66.6 million used to extinguish Convertible Notes in fiscal 2007, while no payments were made to Fujitsu and only $40.0 million was used to extinguish Convertible Notes in fiscal 2008. Further, purchases of marketable securities decreased due to a shift in our investment policy toward cash equivalents and corporate bonds, notes, and commercial paper in response to the uncertainties in the global credit and capital markets.

Financing Activities

Net cash used in financing activities decreased $22.7 million for fiscal 2008 compared to fiscal 2007. The decrease was primarily due to the use of $66.6 million to extinguish Convertible Notes in fiscal 2007, while only $40.0 million was used to extinguish Convertible Notes in fiscal 2008.

Fiscal 2007 compared to 2006

Operating Activities

Net cash used in operating activities was $28.5 million in fiscal 2007, compared to $14.5 million in fiscal 2006. The increase is primarily related to the $37.5 million advance payment made to Fujitsu in fiscal 2007 and a Net loss of $239.8 million (which includes a non-cash impairment charge to goodwill of $223.6 million) in fiscal

2007 compared to Net income of $3.1 million in fiscal 2006. Additionally, cash used in operating activities increased for fiscal 2007 compared to fiscal 2006 due to a decrease in Accounts payable and accrued expenses partially offset byand an increase in Accounts receivable, net.

Investing Activities

Net cash provided by investing activities increased by $59.6 million in fiscal 2007 as compared to fiscal 2006. The increase was due to the sales of marketable securities to fund the $37.5 million advance payment to Fujitsu, and the $66.6 million used to extinguish Convertible Notes in fiscal 2007, compared to $21.6 million used to extinguish Convertible Notes in fiscal 2006, andoffset by the impact of an absence of sales of UMC stock in fiscal 2007, compared to sale proceeds of $13.3 million in fiscal 2006. Further, capital expenditures decreased to $11.0 million in fiscal 2007, compared to $13.7 million in fiscal 2006. In addition, in fiscal 2007 we received $2.2 million in proceeds from the sale of land.

Financing Activities

Net cash used in financing activities increased $49.8 million in fiscal 2007 as compared to fiscal 2006. The increase was primarily due to the use of $66.6 million to extinguish Convertible Notes in fiscal 2007 compared to $21.6 million in fiscal 2006.

Fiscal 2006 compared to 2005

Operating Activities

Net cash used in operating activities decreased by $5.5 million in fiscal 2006 as compared to 2005. The change is primarily related to recognition of net income in fiscal 2006 compared to a net loss in 2005. This was offset primarily by an increase in inventories during fiscal 2006, compared to a decrease in 2005 due primarily to increased inventories related to New products in fiscal 2006, while reduced starts and fewer receipts of wafers at the end of fiscal 2005 reduced the 2005 inventory balance. Also contributing to the offset in fiscal 2006 was cash used for an advance payment to Fujitsu compared to the lesser payment made in 2005. In addition, while fiscal 2005 includes the charge related to the 2005 restructuring plan, the majority of the cash payments related to the 2005 restructuring plan were made in fiscal 2006.

Investing Activities

Net cash provided by investing activities decreased by $11.1 million for fiscal 2006 as compared to 2005. The change is due primarily to a decrease in the sale of equity securities (principally UMC common stock) offset by an increase in net proceeds from short-term investments. Net proceeds from the sale of equity securities (principally UMC common stock) totaled $13.3 million for fiscal 2006 as compared to $27.5 million for 2005. Net proceeds from short-term investments totaled $32.1 in fiscal 2006 compared to $26.6 million in 2005. Further, capital expenditures were greater in fiscal 2006, totaling $13.7 million compared to $11.3 million in 2005.

Financing Activities

Net cash used in financing activities decreased $12.2 million for fiscal 2006 as compared to 2005. The decrease is due primarily to the use of $21.6 million to extinguish our Convertible Notes in fiscal 2006 compared to $30.2 million in 2005. Further, net proceeds from the issuance of common stock for fiscal 2006 increased $4.2 million over 2005.

Liquidity

As of December 29, 2007,January 3, 2009, our principal source of liquidity was $85.1$65.9 million of Cash and cash equivalents and Short-term marketable securities, which was approximately $148.1$19.2 million less than the balance of $233.2

$85.1 million at December 30, 200629, 2007.This decrease was due primarily to the $37.5 million advance payment made to Fujitsu, $66.6$40.0 million used to extinguishrepurchase Convertible

Notes and $44.9 million of illiquid auction rate securities reclassified to Long-term marketable securities at year end.in fiscal 2008 offset by increases in cash flow from operating activities. Working capital decreasedincreased to $182.5 million from $110.5 million at December 29, 2007 primarily as the result of a $60.0 million increase in Other receivable as explained in the following paragraphs.

Under the terms of a letter agreement between Lattice and Fujitsu, we requested and Fujitsu has agreed to repay in cash to the Company the outstanding portion of the Advance Payment made by us to Fujitsu under the terms of an Advance Payment and Purchase Agreement pursuant to the following schedule:

As of January 3, 2009, the aggregate balance of the Advance Payment was $91.6 million. The balance of the final Advance Payment repayment to be made after commencement of Fujitsu’s first fiscal quarter in 2010 will be an amount equal to that aggregate balance of $91.6 million less the $60.0 million of repayments during Fujitsu’s first and third fiscal quarters in 2009 and less the amounts of wafer credits or other services (including engineering mask set charges) provided by Fujitsu to Lattice between January 3, 2009 and the date of final repayment. Such amount cannot be estimated at the present time. The repayment obligation of Fujitsu is unsecured.

We believe that our existing liquid resources and cash expected to be generated from future operations, combined with a receivable for advance creditspayments from foundries and our ability to borrow additional funds, will be adequate to meet our operating and capital requirements and obligations for at least the next twelve months. As of March 31, 2007, we had completed the unsecured advance payments of an aggregate of $125.0 million to Fujitsu. The advance payments will be returned to us in the form of wafer credits or other services (including engineering mask set charges), subject to the right of either party to terminate the agreement upon the occurrence of certain events. Collectively, wafer credits and other services are referred to as “advance credits.” As of December 29, 2007, $18.0 million had been returned to us in the form of advance credits, and we expect an additional $25.2 million to be returned to us in the form of advance credits during the next twelve months. Beginning December 31, 2008, we may request a refund of the unused amount of the advance payments. The repayment obligation of Fujitsu is unsecured.

From 2003 through December 29, 2007,July 2, 2008, we paid an aggregate of $144.5$184.5 million to extinguish $160.0$200.0 million principal amount of Convertible Notes. Although theAs a result of these repurchases, no Convertible Notes are due for payment in 2010 unless they have otherwise been redeemed, purchased, repurchased or converted prior to their maturity date, holders ofremain outstanding and the Convertible Notes have a right to require payment of the Convertible Notes on July 1, 2008, and we expect holders to exercise this right.Company has no long-term debt.

At January 3, 2009 and December 29, 2007, we held $65.2 million in auction rate securities (with investment gradeswith a face value of AAA or AA), which are variable$39.2 million and $44.9 million, respectively. At December 29, 2007, the market rate debt instruments with long-term stated maturities whose interest rates are reset through a Dutch auction approximately every 28 days. While the auctions have historically provided a liquid market for these securities had an estimated fair value of $44.9 million. At January 3, 2009, due to liquidity issues in global creditthe occurrence of multiple failed auctions and capital markets, a portiondetermination of illiquidity, the auction rate securities held by us have experienced multiple failed auctions beginning in October 2007 as the amounthad an estimated fair value of $19.5 million.

Long-term marketable securities submitted for sale at the auctions has exceeded the amountwith a face value of purchase orders. Our auction rate securities are collateralized by federally insured student loans, municipal bonds, corporate bonds, notes, high grade commercial paper, or bank deposit notes; however, $14.0 million (estimated fair value of our long-term auction rate securities$5.3 million) are exposed to risks associated with the sale of credit default swaps, pursuant to which the assets underlying the auction rate securities are exposed to claims in the event of default of certain debt instruments owned by third parties. A totalIn addition, investment grade long-term marketable securities with a face value of $44.9$8.3 million (estimated fair value of $0.9 million) were replaced on December 3, 2008 by Ambac Assurance Corporation (“AMBAC”, the issuer) auction market preferred shares, as a result of AMBAC exercising their put option feature provided in this security. For the year ended January 3, 2009, the credit ratings on our corporate auction rate securities were partdowngraded from AAA to ratings ranging from A- and BBB- and preferred shares auction rate securities were downgraded from AA to BBB. In addition, Long-term marketable securities with a face value of unsuccessful$16.9 million (estimated fair value of $13.2 million) are exposed to risks associated with student loan asset-backed notes. Such notes are insured by the federal government or guaranteed by the Federal Family Education Loan Program (FFELP). The credit ratings on our student loan auction rate securities remained unchanged at AAA.

While the auctions for auction rate securities have historically provided a liquid market for these securities, due to liquidity issues in global credit and capital markets, auction rate securities held by us have experienced multiple failed auctions (a portion beginning in October 2007) as a result, thesethe amount of securities submitted for sale at the auctions has exceeded the amount of purchase orders. These instruments are considered illiquid and have been reclassified as Long-term marketable securities on the Consolidated Balance Sheet. Of this amount, $22.3 millionSheets. Due to the severity of the auction rate securitiesdecline in our portfolio were considered illiquid as of December 29, 2007, and, subsequent to December 29, 2007, an additional $22.6 millionfair value, the duration of the auction rate securities, all of which are backed by federally insured student loans or municipal bonds, were part of unsuccessful auctions and are thus considered illiquid. The remaining $20.3 million of auction rate securities included in Short-term marketable securities has been called, redeemed, or sold since December 29, 2007,decline, and the proceeds are now being held as cash or cash equivalents. In addition, for $8.3 milliondowngrading of our auction rate securities held in Long-term marketable securities, Ambac Assurance Corporation (“AMBAC”) can, under certain circumstances, exercise a put option, which essentially replaces the auction rate security investment with preferred stock of AMBAC. If auction rate securities continue to experience unsuccessful auctions, or if the credit ratingratings on some of the auction rate security issuer,securities, the third-party insurer of such investments, the issuers of the investments underlying the securities or credit default swaps, or AMBAC deteriorates, we may be required to adjust the carryingCompany determined that an other-than-temporary decline in fair value of the auction rate security throughhad occurred, and recorded an impairment charge. Anycharge of $19.7 million for the fiscal year ended January 3, 2009. If we were to liquidate our position in these eventssecurities, the amount realized could havebe materially different than the estimated fair value amounts at which we are carrying these securities and there could be a materially detrimental effect on our liquidityfinancial results.

In accordance with SFAS Nos. 115, “Accounting for Certain Investments in Debt and resultsEquity Securities”, and SFAS 124-1, “The Meaning of operations. We haveOther-Than-Temporary Impairment and Its Application to Certain Investments,” the ability to hold these investments until maturity and, therefore, we would not expect to recognize suchCompany recorded an adverse impact in our financial statements.

The sumunrealized gain of Cash and cash equivalents andless than $0.1 million during the year ended January 3, 2009 on certain Short-term marketable securities, at December 29, 2007which has been recorded in Accumulated other comprehensive loss. Future fluctuations in fair value related to these instruments that the Company deems to be temporary, including any recoveries of previous write-downs, would be recorded to Accumulated other comprehensive loss. If the Company were to determine in the future that any further decline in fair value is lower thanother-than-temporary, we would record an other-than-temporary impairment charge, which could have a materially detrimental impact on our operating results. If we were to liquidate our position in these securities, it is likely that the amount shown as Cash and short-term investmentsof any future realized gain or loss would be different from the unrealized gain reported in item 9.01, exhibit 99.1Accumulated other comprehensive loss.

On December 13, 2008, the Board of Directors approved a stock repurchase program pursuant to which up to $20.0 million of our previously filed

Form 8-K dated January 24, 2008outstanding common stock may be repurchased from time to time. The duration of the repurchase program is twelve months. Under the program, Lattice may purchase shares of common stock through open market and privately negotiated transactions at prices deemed appropriate by $22.6 million related to the reclassificationmanagement. The timing and amount of auction rate securities. This reclassification hasrepurchase transactions under this program will depend on market conditions and corporate and regulatory considerations. The purchases will be funded from available working capital. There were no impact on the Consolidated Statement of Operations.purchases in fiscal 2008.

We may in the future seek new or additional sources of funding. In addition, in order to secure additional wafer supply, we may from time to time consider various financial arrangements including equity investments, advance purchase payments, loans, or similar arrangements with independent wafer manufacturers in exchange for committed wafer capacity. To the extent that we pursue any such additional financing arrangements, additional debt or equity financing may be required. There can be no assurance that such additional financing will be available when needed or, if available, will be on favorable terms. Any future equity financing will decrease existing stockholders’ equity percentage ownership and may, depending on the price at which the equity is sold, result in dilution.

Contractual Obligations

The following table summarizes our significant contractual cash obligations at December 29, 2007January 3, 2009 (in thousands):

We also have other liabilities of $6.2 million relating to uncertain tax positions. However, as we are unable to reliably estimate the timing of future payments related to uncertain tax positions, we have excluded this amount from the table above.

Our only significant operating leases, apart from those accrued for in the 2005 and 2007 restructuring plans,plan, are for our facilities in San Jose, California and Bethlehem, Pennsylvania. Our lease in San Jose expires in December of 2013. Annual rent isrental costs are estimated to be $1.9 million and increases 2%3% annually. Our lease in Bethlehem expires in AugustSeptember of 2009.2014. Annual rent is $0.8rental costs are estimated to be $0.5 million and increases 3% annually. Leasehold improvements are amortized over the shorter of the non-cancelable lease term or the estimated useful life of the assets.

New Accounting Pronouncements

In September 2006, FASBDecember 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements”141(R), “Business Combinations” (“SFAS No. 157”141(R)”), which defines fair value. SFAS No. 141(R) provides revised guidance on how acquirers recognize and measure the consideration transferred, identifiable assets acquired, liabilities assumed, noncontrolling interests and goodwill acquired in a business combination. SFAS No. 141(R) also expands required disclosures surrounding the nature and financial effects of certain assets and liabilities, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This statement does not require any new fair value measurements, but

may change current practice for certain entities. This statementbusiness combinations. SFAS No. 141(R) is effective, for financial statements issuedon a prospective basis, for fiscal years beginning after NovemberDecember 15, 2007 and interim periods within those years. However, on December 14, 2007, the FASB issued proposed FASB Staff Position (“FSP”) SFAS No. 157 (“FSP No. 157-b”), which would delay the effective date of SFAS No. 157 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). FSP No. 157-b partially defers the effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for items within the scope of FSP No. 157-b.2008. The application of SFAS No. 157141(R) is not expected to have a material impact on the Company’s financial statements.Consolidated Financial Statements.

In FebruaryDecember 2007, the FASB issued SFAS No. 159, “The Fair Value Option for160, “Noncontrolling Interests in Consolidated Financial Assets and Financial Liabilities”Statements” (“SFAS No. 159”160”)., to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 159 permits companies to choose to measure certain financial instruments and certain other items at fair value. The standard requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings. SFAS No. 159160 is effective for the Companyfinancial statements issued for fiscal years beginning in the first quarter of fiscal yearon or after December 15, 2008. The application of SFAS No. 159160 is not expected to have a material impact on the Company’s Consolidated Financial Statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS No. 161”). The new standard is intended to improve financial statements.reporting about derivative

instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The application of SFAS No. 161 is not expected to have a material impact on the Company’s Consolidated Financial Statements.

Off-Balance Sheet Arrangements

As of December 29, 2007,January 3, 2009, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk.

As of December 29, 2007At January 3, 2009 and December 30, 2006, our investment portfolio included $20.0 million and $32.4 million of fixed income securities, respectively. As with all fixed income instruments, these securities are subject to interest rate risk and will decline in value if market interest rates increase. If market rates were to increase immediately and uniformly by 10% from levels at the years ended December 29, 2007 and December 30, 2006, the decline in the fair value of our portfolio would not be material. Furthermore, we have the ability to hold our fixed income investments until maturity and, therefore, we would not expect to recognize such an adverse impact in our financial statements.

At December 29, 2007, we held $65.2 million in auction rate securities (with investment gradeswith a face value of AAA or AA), which are variable$39.2 million and $44.9 million, respectively. At December 29, 2007, the market rate debt instruments with long-term stated maturities whose interest rates are reset through a Dutch auction approximately every 28 days. While the auctions have historically provided a liquid market for these securities had an estimated fair value of $44.9 million. At January 3, 2009, due to liquidity issues in global creditthe occurrence of multiple failed auctions and capital markets, a portiondetermination of an other-than-temporary impairment, the auction rate securities held by us have experienced multiple failed auctions beginning in October 2007 as the amounthad an estimated fair value of $19.5 million.

Long-term marketable securities submitted for sale at the auctions has exceeded the amountwith a face value of purchase orders. Our auction rate securities are collateralized by federally insured student loans, municipal bonds, corporate bonds, notes, high grade commercial paper, or bank deposit notes; however, $14.0 million (estimated fair value of our long-term auction rate securities$5.3 million) are exposed to risks associated with the sale of credit default swaps, pursuant to which the assets underlying the auction rate securities are exposed to claims in the event of default of certain debt instruments owned by third parties. A totalIn addition, investment grade long-term marketable securities with a face value of $44.9$8.3 million (estimated fair value of $0.9 million) were replaced on December 3, 2008 by Ambac Assurance Corporation (“AMBAC”, the issuer) auction market preferred shares, as a result of AMBAC exercising their put option feature provided in this security. For the year ended January 3, 2009, the credit ratings on our corporate auction rate securities were partdowngraded from AAA to ratings ranging from A- and BBB- and preferred shares auction rate securities were downgraded from AA to BBB. In addition, Long-term marketable securities with a face value of unsuccessful$16.9 million (estimated fair value of $13.2 million) are exposed to risks associated with student loan asset-backed notes. Such notes are insured by the federal government or guaranteed by the Federal Family Education Loan Program (FFELP). The credit ratings on our student loan auction rate securities remained unchanged at AAA.

While the auctions for auction rate securities have historically provided a liquid market for these securities, due to liquidity issues in global credit and capital markets, auction rate securities held by us have experienced multiple failed auctions (a portion beginning in October 2007) as a result, thesethe amount of securities submitted for sale at the auctions has exceeded the amount of purchase orders. These instruments are considered illiquid and have been reclassified as Long-term marketable securities on the Consolidated Balance Sheet. Of this amount, $22.3 millionSheets. Due to the severity of the auction rate securitiesdecline in our portfolio were considered illiquid as of December 29, 2007, and, subsequent to December 29, 2007, an additional $22.6 millionfair value, the duration of the auction rate securities, all of which are backed by federally insured student loans or municipal bonds, were part of unsuccessful auctions and thus considered illiquid. The remaining $20.3 million of auction rate securities included in Short-term marketable securities has been called, redeemed, or sold since December 29, 2007,decline, and the proceeds are now being held as cash or cash equivalents. In addition, for $8.3 milliondowngrading of our auction rate securities held in Long-term marketable securities, AMBAC can, under certain circumstances, exercise a put option, which essentially replaces the auction rate security investment with preferred stock of AMBAC. If

auction rate securities continue to experience unsuccessful auctions, or if the credit ratingratings on some of the auction rate security issuer,securities, the third-party insurer of such investments, the issuers of the investments underlying the securities or credit default swaps, or AMBAC deteriorates, we may be required to adjust the carryingCompany determined that an other-than-temporary decline in fair value of the auction rate security throughhad occurred, and recorded an impairment charge. Anycharge of $8.0 million and $19.7 million for the quarter and fiscal year ended January 3, 2009, respectively. If we were to liquidate our position in these eventssecurities, the amount realized could havebe materially different than the estimated fair value amounts at which we are carrying these securities and there could be a materially detrimental effect on our liquidity and results of operations. We have the ability to hold these investments until maturity and, therefore, we would not expect to recognize such an adverse impact in our financial statements.

The fair market value of the Convertible Notes is subject to interest rate risk and market risk due to the convertible feature of the Convertible Notes and the fair market value of the Company’s common stock. Generally the fair market value of fixed interest rate debt will increase as interest rates fall and decrease as interest rates rise. The interest and market value changes affect the fair market value of the Convertible Notes but do not impact our financial position, cash flows or results of operations. At December 29, 2007 and December 30, 2006, the fair value of the Convertible Notes was $39.0 million and $104.8 million, respectively, based on quoted market prices and recent sales.results.

We have international subsidiary and branch operations. Additionally, we sell products to Japanese customers denominated in yen. We are therefore subject to foreign currency exchange rate exposure. To minimize foreign exchange risk related to yen-based net assets on our Consolidated Balance Sheet,Sheets, on August 11, 2004, we entered into an agreement with a bank under the terms of which we can borrow up to $6.0 million in Japanese yen in a revolving line of credit arrangement. In the second fiscal quarter of 2008, we amended the agreement to reduce the line of credit to $4.0 million. Outstanding borrowing is collateralized by a market rate investment account. Interest on outstanding borrowing is based on the Japanese LIBOR Fixed Rate, and averaged 1.67%1.9% for the year ended December 29, 2007.January 3, 2009. Outstanding borrowing at December 29, 2007January 3, 2009 was $3.5$0.8 million. This arrangement can be terminated at any time by either party.

We are exposed to equity price risk due to our equity investment in UMC (see Note 5 to our Consolidated Financial Statements). Neither a 10% increase nor a 10% decrease in equity price related to this investment would have a material effect on our Consolidated Financial Statements as of the years ended December 29, 2007 or December 30, 2006. We have not attempted to reduce or eliminate this equity price risk through hedging or similar techniques. As a result, sustained changes in the market price of UMC common stock could impact our financial results. To the extent that the market value of our UMC common stock experiences deterioration for an extended period of time, our operating results could be adversely affected.

Item 8.  Financial Statements and Supplementary Data.

Index to Consolidated Financial Statements and Consolidated Financial Statement Schedule

LATTICE SEMICONDUCTOR CORPORATION

CONSOLIDATED BALANCE SHEETSHEETS

(in thousands, except share and par value amounts)