LATTICE SEMICONDUCTOR CORP, 10-K405, 1999-07-02

LATTICE SEMICONDUCTOR CORP
10-K405, 1999-07-02
SEMICONDUCTORS & RELATED DEVICES

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C 20549
FORM 10-K

COMMISSION FILE NUMBER: 0-18032

/X/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended April 3, 1999 or

/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
------- -------

LATTICE SEMICONDUCTOR CORPORATION

(Exact name of Registrant as specified in its Charter)

DELAWARE 93-0835214
(State of Incorporation) (I.R.S Employer Identification No.)
5555 NE MOORE COURT, HILLSBORO, OREGON 97124-6421
(Address of principal executive offices) (Zip Code)

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

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

Title of Class Name of Exchange
Common Stock, $.01 par value NASDAQ

Preferred Share Purchase Rights None

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 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.

Yes X No
--- ---

As of June 17, 1999, the aggregate market value of the shares of voting
stock of the Registrant held by non-affiliates was approximately $821 million.
Shares of Common Stock held by each officer and director and by each person who
owns 5% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.

As of June 17, 1999, 23,711,652 shares of the Registrant's common stock
were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

1. Portions of the Annual Report to Stockholders for the fiscal year
ended April 3, 1999 are incorporated by reference in Part II hereof.

2. Portions of the definitive proxy statement of the Registrant to be
filed pursuant to Regulation 14A for the 1999 Annual Meeting of Stockholders to
be held on August 9, 1999 are incorporated by reference in Part III hereof.

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LATTICE SEMICONDUCTOR CORPORATION
FORM 10-K
ANNUAL REPORT
TABLE OF CONTENTS

Item of Form 10-K Page
- ----------------- ----
<S> <C>
PART I

Item 1 - Business.............................................................................. 2
Item 2 - Properties............................................................................15
Item 3 - Legal Proceedings.....................................................................16
Item 4 - Submission of Matters to a Vote of Security Holders...................................16
Item 4(a) - Executive Officers of the Registrant..................................................17

PART II

Item 5 - Market for the Registrant's Common Stock and Related Stockholder Matters..............19
Item 6 - Selected Financial Data...............................................................19
Item 7 - Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................................20
Item 7(a) - Quantitative and Qualitative Disclosures about Market Risk............................20
Item 8 - Financial Statements and Supplementary Data...........................................20
Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure...........................................................................21

PART III

Item 10 - Directors and Executive Officers of the Registrant....................................22
Item 11 - Executive Compensation................................................................22
Item 12 - Security Ownership of Certain Beneficial Owners and Management........................22
Item 13 - Certain Relationships and Related Transactions........................................22

PART IV

Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K.......................23

Signatures..............................................................................................27

Financial Statement Schedules...........................................................................S-1

</TABLE>

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ITEM 1. BUSINESS

This Report 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. Actual results could differ
materially from those projected in the forward-looking statements as a result
of the factors set forth in "Factors Affecting Future Results" and elsewhere
in this Report.

GENERAL

Lattice Semiconductor Corporation (the "Company") designs, develops and
markets high performance programmable logic devices ("PLDs") and related
development system software. The Company is the inventor and world's leading
supplier of in-system programmable ("ISP-TM-") PLDs. The Company introduced
ISP devices to the industry in 1992. PLDs are standard semiconductor
components that can be configured by the end customer as specific logic
functions, enabling shorter design cycle times and reduced development costs.
Lattice products are sold worldwide through an extensive network of
independent sales representatives and distributors, primarily to original
equipment manufacturers ("OEMs") of communication, computing, industrial and
military systems. Lattice was founded in 1983 and is based in Hillsboro,
Oregon.

In June 1999, the Company acquired Vantis Corporation from Advanced Micro
Devices ("AMD") for approximately $500 million in cash. Vantis will be
integrated into the operations of the Company and remain a wholly-owned
subsidiary of the Company. The business of Vantis is substantially similar to
that of the Company including markets, products, customers, work force and
revenues, which are not included in the descriptions, Technology, Products,
Product Development, Operations, Marketing, Sales, Customers, Backlog,
Licenses and Agreements and Year 2000 Compliance contained herein. Prior to
the acquisition, Vantis relied upon its parent company, AMD, for most
manufacturing activities as well as financial and administrative services.
As a part of the acquisition agreement between AMD and the Company, AMD has
agreed to continue to perform many of these services for defined periods or
at the Company's option, shorter periods. The transaction is being accounted
for using the purchase method in the Company's consolidated financial
statements beginning in the period ended July 3, 1999. As part of the
acquisition agreements, AMD and the Company have agreed to sign an election
under the Internal Revenue Code which will enable the Company to take a tax
deduction for the purchase price amortized over periods up to 15 years. The
primary benefits expected to result from this acquisition are accelerated
development of new products and new technologies, and the ability to reach
and service a greater number of customers.

PLD 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 logical "OR" functions,
commonly described as "gates". Typically, complex combinations of individual
gates are required to implement the specialized logic functions required for
systems applications. While system designers use a relatively small number of
standard architectures to meet their microprocessor and memory needs, they
require a wide variety of logic circuits in order to achieve end product
differentiation.

Logic circuits are found in a wide range of today's digital electronic
equipment including communication, computing, industrial and military
systems. According to WSTS, a semiconductor industry association, logic

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accounted for approximately 28% of the estimated $109 billion worldwide
digital integrated circuit market in 1998. The logic market encompasses,
among other segments, standard logic, custom-designed application specific
integrated circuits ("ASICs", which include conventional gate-arrays,
standard cells and full custom logic circuits), and PLDs.

Manufacturers of electronic equipment are increasingly 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 and time delay. Standard logic products, an alternative to
custom-designed ASICs, limit a manufacturer's flexibility to adequately
customize an end system. Programmable logic addresses this inherent dilemma.
PLDs are standard products, purchased by systems manufacturers in a "blank"
state, that can be custom configured into a virtually unlimited number of
specific logic functions by programming the device with electrical signals.
PLDs give system designers the ability to quickly create their own custom
logic functions to provide product differentiation without sacrificing rapid
time to market. Certain PLD products, including the Company's, are
reprogrammable, meaning that the logic configuration can be modified, if
needed, after the initial programming. In-system programmable PLDs, first
pioneered by the Company, extend the flexibility of standard reprogrammable
PLDs by allowing the system designer to configure and reconfigure the logic
functions of the PLD with standard 5-volt or 3.3-volt power supplies without
removing the PLD from the system board.

The PLD market has two primary segments: low-density PLDs (less than 1,000
logic gates) and high-density PLDs (greater than 1,000 logic gates).
High-density PLD devices include devices based on both the complex PLD
("CPLD") and field programmable gate array ("FPGA") architectures.

Products based on these alternative high-density PLD architectures are
generally optimal for different types of logic functions, although many logic
functions can be implemented using either architecture. CPLDs are
characterized by a regular building block structure of wide-input logic
cells, termed macrocells, and use of a centralized logic interconnect scheme.
CPLDs are optimal for control logic applications, such as state machines, bus
arbitration, encoders, decoders and sequencers. FPGAs are characterized by a
narrow-input logic cell and use a distributed interconnect scheme. FPGAs are
optimal for register intensive and data path logic applications such as
interface logic and arithmetic functions. The Company believes that a
substantial portion of high-density PLD customers utilize both CPLD and FPGA
architectures within a single system design, partitioning logic functions
across multiple devices to optimize overall system performance and cost.

TECHNOLOGY

The Company believes that electrically erasable CMOS ("E2CMOS-Registered
Trademark-") is the preferred process technology for PLD products due to its
inherent performance, reprogrammability and testability benefits. E2CMOS
technology, through its fundamental ability to be programmed and erased
electronically, serves as the foundation for the Company's ISP products.

IN-SYSTEM PROGRAMMABLE (ISP) PRODUCTS AND TECHNOLOGY

The Company pioneered the development of ISP products which utilize 5-volt or
3.3-volt programming signals and, as a result, can be configured and
reconfigured by a system designer without being removed from the printed
circuit board. Standard E2CMOS programmable logic devices require a 12-volt
programming signal and therefore must be removed from the printed circuit
board and programmed using specialized hardware. ISP devices offer

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enhanced flexibility versus standard PLDs and provide significant customer
benefits. ISP devices can allow customers to reduce design cycle times,
accelerate time to market, reduce prototyping costs, reduce manufacturing
costs and lower inventory requirements. ISP devices can also provide
customers the opportunity to perform simplified and cost-effective field
reconfiguration through a data file transferred by computer disk or serial
data signal.

PRODUCTS

ISP PRODUCTS

SILICON. The Company first entered the ISP market in fiscal 1993 and
currently offers seven distinct families of ISP products, each consisting of
multiple devices. The Company is currently shipping over 300 performance,
package and temperature range combinations of ISP products.

ispLSI-Registered Trademark- 1000/E: The Company's original ISP family
utilizes an innovative, proprietary CPLD architecture incorporating familiar
GAL-Registered Trademark- ("Generic Array Logic") based logic building
blocks. This family provides performance of up to 125 MHz (7.5 nanosecond
propagation delay), densities of 2,000 to 8,000 gates and is available in 44-
to 128-pin standard surface mount packages.

ispLSI 2000E/VE: Introduced in fiscal 1999, the SuperFAST-TM- 5 volt ispLSI
2000E and 3.3 volt ispLSI 2000VE families utilize an architecture designed
for input/output ("I/O") intensive applications and are the industry's
fastest CPLDs. These families provides performance of up to 200 MHz (3.5
nanosecond propagation delay), densities of 1,000 to 8,000 gates and are
available in 44-to 208-pin standard surface mount packages.

ispLSI 3000/E: The ispLSI 3000/E family incorporates an enhanced CPLD
architecture to target higher density applications while retaining high
performance. This family provides densities of 7,000 to 20,000 gates,
performance of up to 125 MHz (7.5 nanosecond propagation delay), and is
available in 160- to 432-pin surface mount packages.

ispLSI 5000V: Introduced in fiscal 1999, the SuperWIDE-TM- 3.3-volt ispLSI
5000V family is based on an entirely new CPLD architecture that incorporates
a 68-input logic block. This innovative logic block architecture, the
industry's widest, makes the 5000V family an ideal solution for 32-bit and
emerging 64-bit control logic applications. This family provides densities
of 12,000 to 24,000 gates, performance of up to 125 MHz (7.5 nanoseconds
propagation delay), and is available in 192- to 388-pin surface mount
packages.

ispLSI 8000: Introduced in fiscal 1999, the SuperBIG-TM- 5-volt ispLSI 8000
family utilizes an entirely new hierarchical CPLD architecture designed to
efficiently implement large, register intensive, logic applications. This
family provides densities of 25,000 to 50,000 gates, performance of up to 110
MHz (8.5 nanoseconds propagation delay), and is available in 272- to 492-pin
surface mount packages.

ispGAL-Registered Trademark-: This proprietary family combines in-system
programmability with the industry standard 22V10 low-density architecture.
Offered with performance of up to 200 MHz, (5.0 nanosecond propagation
delay), the ispGAL family is available in both 5-volt and 3.3-volt operating
supply versions.

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ispGDX-TM-: This family extends in-system programmability to the circuit
board level using an innovative digital cross-point switch architecture.
Offered with propagation delays as low as 5.0 nanoseconds, up to 160 I/O and
complete pin-to-pin signal routing, the ispGDX is targeted towards digital
signal interconnect and interface applications.

The Company plans to continue to introduce new families of ISP products, as
well as improve the performance of existing product families based on market
needs.

SOFTWARE DEVELOPMENT TOOLS. All ISP products are supported by ispEXPERT-TM-,
the Company's third generation software development tool suite. Supporting
both the PC and UNIX platforms, ispEXPERT allows a customer to enter, verify
and synthesize a design, perform logic simulation and timing analysis, assign
I/O pins and critical speed paths, debug and floorplan a design, execute
automatic place and route tasks and download a program to an ISP device.
Seamlessly integrated with third-party electronic design automation ("EDA")
environments, ispEXPERT leverages customers' prior investments in products
offered by Aldec, Cadence, Mentor Graphics, OrCAD, Synopsys, Synplicity,
Viewlogic and Veribest. In the future, the Company plans to continue to
enhance and expand its development tool offerings.

The Company also provides a variety of software algorithms that support
in-system programming of the Company's ISP devices via multiple formats and
mechanisms. These software products include ispCODE-TM-, Turbo
ispDOWNLOAD-TM-, ispREMOTE-TM-, ispATE-TM-, and ispSVF-TM-.

NON-ISP PRODUCTS. The Company offers the industry's broadest line of
low-density CMOS PLDs based on its 16 families of GAL products offered in
over 180 speed, power, package and temperature range combinations. GAL
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. The
Company offers the industry standard GAL16V8, GAL20V8, GAL22V10, GAL20RA10
and GAL20XV10 architectures in a variety of speed grades, with propagation
delays as low as 3.5 nanoseconds, the highest performance in the industry.
The Company also offers several proprietary extension architectures, the
GAL26CV12, GAL18V10, GAL16VP8, GAL20VP8, GAL6001/2, GAL16V8Z and GAL20V8Z,
each of which is optimized for specific applications. The Company also offers
a full range of 3.3-volt industry standard architectures, the GAL16LV8,
GAL20LV8, GAL22LV10 and GAL26CLV12 in a variety of speed grades, with
propagation delays as low as 3.5 nanoseconds, the highest performance in the
industry.

The Company's non-ISP products are supported by industry standard software
and hardware development tools marketed by independent manufacturers
specifically for PLD applications.

PRODUCT DEVELOPMENT

The Company places substantial emphasis on new product development and
believes that continued investment in this area is required to maintain its
competitive position. See "Factors Affecting Future Results." The Company's
product development activities emphasize new proprietary ISP products,
enhancement of existing products and process technologies and improvement of
software development tools. Product development activities occur in the
Company's Hillsboro, Oregon headquarters, Milpitas, California product
development center and Corsham, England and Shanghai, China design centers.

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Research and development expenses were $27.8 million, $32.0 million and $33.2
million in fiscal years 1997, 1998 and 1999, respectively. The Company
expects to continue to make significant investments in research and
development in the future.

OPERATIONS

The Company does not manufacture its own silicon wafers and has historically
maintained strategic relationships with large semiconductor manufacturers to
source finished silicon wafers. This allows internal resources to be focused
on product, process and market development. In addition, assembly is
performed for the Company by outside suppliers. The Company performs certain
test operations and reliability and quality assurance processes internally,
as the Company believes it can add significant customer value in these areas.
The Company has achieved ISO 9001 quality certification, an indication of the
Company's high internal operational standards.

WAFER FABRICATION

The majority of the Company's silicon wafer requirements are currently
supplied by Seiko Epson Corporation ("Seiko Epson") in Japan pursuant to an
agreement with Epson Electronics America, Inc. ("EEA", formerly SMOS Systems,
Inc. "S MOS"), an affiliated U.S. distributor of Seiko Epson. See "Licenses
and Agreements - Seiko Epson/S MOS." The Company negotiates wafer volumes,
prices and terms with Seiko Epson and EEA on a periodic basis. In addition,
the Company receives silicon wafers from the United Microelectronics
Corporation Group of affiliated companies ("UMC Group") in Taiwan pursuant
to a series of agreements entered into in 1995. Wafer prices and other
purchase terms related to this commitment are subject to periodic adjustment.
See "Licenses and Agreements - UMC Group." A significant interruption or
shortage in wafer supply from Seiko Epson through EEA or from the UMC Group
would have a material adverse effect on the Company's business. A significant
or unexpected deterioration in the silicon wafer quality or yield levels
achieved by Seiko Epson or the UMC Group could also have a material adverse
effect on the Company's business. See "Factors Affecting Future Results."

ASSEMBLY

After wafer fabrication and initial testing, the Company ships wafers to
independent subcontractors for assembly. During assembly, wafers are
separated into individual die and encapsulated in plastic or ceramic
packages. Presently, the Company has qualified long-term assembly partners in
Hong Kong, Malaysia, the Philippines, South Korea, Taiwan and the United
States. See "Factors Affecting Future Results."

TESTING

The Company electrically tests the die on each wafer prior to shipment for
assembly. Following assembly, prior to customer shipment, each product
undergoes final testing using test equipment, techniques and quality
assurance procedures. Final testing on certain products is performed at
independent contractors in Malaysia, the Philippines, South Korea and the
United States.

MARKETING, SALES AND CUSTOMERS

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The Company sells its products directly to end customers through a network of
independent manufacturers' representatives and indirectly through a network
of independent distributors. The Company also employs a direct sales
management and field applications engineering organization to support its end
customers and indirect sales resources. The Company's end customers are
primarily original equipment manufacturers in the fields of communication,
computing, industrial and military systems.

At April 3, 1999, the Company utilized 21 manufacturers' representatives and
four distributors in North America. Arrow Electronics, Inc., Avnet, Inc. and
Marshall Industries provide full distribution coverage, while Future
Electronics provides regional distribution coverage in Canada. The Company
has also established export sales channels in over 30 foreign countries
through a network of over 30 sales representatives and distributors.
Approximately one-half of the Company's North American sales and most of its
export sales are made through distributors.

The Company protects each of its North American distributors and some of its
foreign distributors against reductions in published prices, and expects to
continue this policy in the foreseeable future. The Company also allows
returns from these distributors of unsold products under certain conditions.
For these reasons, the Company does not recognize revenue until products are
resold by these distributors.

The Company provides technical and marketing support to end customers with
engineering staff based in the Company's headquarters, design centers and
selected field sales offices. The Company maintains 21 domestic and
international sales offices. These offices are located in the metropolitan
areas of Atlanta, Boston, Chicago, Dallas, Los Angeles, Minneapolis, Orange
County, Orlando, Portland, Raleigh, San Diego, San Jose, Hong Kong, London,
Milan, Munich, Paris, Seoul, Shanghai, Taipei and Tokyo.

Export sales accounted for 49%, 51% and 50% of the Company's total revenue in
fiscal 1997, 1998 and 1999, respectively. Both export and domestic sales are
denominated in U.S. dollars, with the exception of sales to Japan, which are
dominated in yen. If export sales decline significantly there will be a
material adverse impact on the Company's business. See "Factors Affecting
Future Results."

The Company's products are sold to a large and diverse group of customers. No
individual customer or distributor accounted for more than 10% of total
revenue in fiscal 1997, 1998 or 1999. No export sales to any individual
country accounted for more than 10% of total revenue in fiscal 1997, 1998 or
1999.

BACKLOG

The Company's backlog of scheduled and released orders as of April 3, 1999
was approximately $30.4 million as compared to approximately $31.8 million as
of March 28, 1998. The Company's backlog consists of direct OEM and
distributor orders scheduled for delivery within the next 90 days.
Distributor orders accounted for the majority of the backlog in both periods.
Direct OEM 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, distributor shipments are subject to
rights of return and price adjustment. Revenue associated with distributor
shipments is not recognized until the product is resold to an end customer.
In recent periods, the majority of the Company's revenue has resulted from
orders placed and filled within the same period ("turns orders"). By
definition, turns orders are not captured in a backlog measurement made at
the beginning of a period. The Company does not anticipate a

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significant change in this business pattern. For all 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.
The Company's current and potential competitors include a broad range of
semiconductor companies from large, established companies to emerging
companies, many of which have greater financial, technical, manufacturing,
marketing and sales resources.

The principal competitive factors in the PLD market include product features,
price, customer support, and sales, marketing and distribution strength. The
availability of competitive software development tools is also critical. In
addition to product features such as density, speed, power consumption,
reprogrammability, design flexibility and reliability, competition in the PLD
market occurs on the basis of price and market acceptance of specific
products and technology. The Company believes that it competes favorably with
respect to each of these factors. The Company intends to continue to address
these competitive factors by working to continually introduce product
enhancements and new products, by seeking to establish its products as
industry standards in their respective markets, and by working to reduce the
manufacturing cost of its products over their respective life cycles.

In the ISP PLD market, the Company primarily competes directly with Altera
and Xilinx, both of which offer competing products. The Company also competes
indirectly with other PLD suppliers as well as other semiconductor companies
providing non-PLD based logic solutions. As the Company and these other
companies seek to expand their markets, competition may increase.

Although to date the Company has not experienced significant competition from
companies located outside the United States, such companies may become a more
significant competitive factor in the future. As the Company and its current
competitors seek to expand their markets, competition may increase. Any such
increases in competition could have a material adverse effect on the
Company's operating results. See "Factors Affecting Future Results."

PATENTS

The Company seeks to protect its products and wafer fabrication process
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 the Company's
intellectual property rights or that measures taken by the Company to protect
its technology will be effective. See "Factors Affecting Future Results."

The Company holds numerous domestic, European and Japanese patents on its PLD
products and has patent applications pending in the United States, Japan and
Europe. 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 the
Company believes that its patents have value, there can be no assurance that
the Company's patents, or any additional patents that may be issued in the
future, will provide

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meaningful protection from competition. The Company believes its success will
depend primarily upon the technical expertise, experience, creativity and the
sales and marketing abilities of its personnel.

Patent and other proprietary rights infringement claims are common in the
semiconductor industry. There can be no assurance that, with respect to
claims made against the Company, the Company could obtain a license on terms
or under conditions that would not have a material adverse effect on the
Company. See "Factors Affecting Future Results."

LICENSES AND AGREEMENTS

SEIKO EPSON/EPSON ELECTRONICS AMERICA, INC.

EEA, an affiliated U.S. distributor of Seiko Epson, has agreed to provide
manufactured wafers to the Company in quantities based on six-month rolling
forecasts provided by the Company. The Company has committed to buy certain
minimum quantities of wafers per month. Wafers for the Company's products are
manufactured in Japan at Seiko Epson's wafer fabrication facilities and are
delivered to the Company by EEA. Prices for the wafers obtained from EEA are
reviewed and adjusted periodically.

In July 1994, the Company entered into an advance production payment
agreement with Seiko Epson and EEA, under which it advanced to Seiko Epson
$42 million during fiscal 1995 to be used by Seiko Epson to finance
additional sub-micron semiconductor wafer manufacturing capacity. Under the
terms of the agreement, the advance is to be repaid in the form of advanced
technology sub-micron semiconductor wafers. In conjunction with the advance
production payment agreement, the Company also paid $2 million during fiscal
1995 for the development of sub-micron process technology and the fabrication
of engineering wafers. These agreements call for wafers to be supplied by
Seiko Epson through EEA pursuant to a purchase agreement concluded with EEA.
As of April 3, 1999, all wafers pursuant to these agreements had been
received by the Company.

In March 1997, the Company entered into a second advance production payment
agreement with Seiko Epson and EEA under which it agreed to advance
approximately $85 million, payable upon completion of specific milestones, to
Seiko Epson to finance construction of an eight-inch sub-micron semiconductor
wafer manufacturing facility. The timing of the payments is related to
certain milestones in the development of the facility. Under the terms of the
agreement, the advance is to be repaid with semiconductor wafers over a
multi-year period. The agreement calls for wafers to be supplied by Seiko
Epson through EEA pursuant to purchase agreements concluded with EEA. The
Company also has an option under the agreement to advance Seiko Epson an
additional $60 million for additional wafer supply under similar terms. The
first payment under this agreement, approximately $17.0 million, was made
during fiscal 1997. During fiscal 1998, the Company made two additional
payments aggregating approximately $34.2 million.

UMC GROUP

The Company entered into a series of agreements with UMC in September 1995
pursuant to which the Company agreed to join UMC and several other companies
to form a separate Taiwanese company, UICC, for the purpose of building and
operating an advanced semiconductor manufacturing facility in Taiwan,
Republic of China. Under the terms of the agreement, the Company invested
approximately $49.7 million between fiscal 1996 and fiscal 1998

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for an approximate 10% equity interest in UICC and the right to receive a
percentage of the facility's wafer production at market prices.

In October 1997, the UICC foundry was substantially destroyed by fire. UMC,
the majority owner of UICC, has informed the Company that this loss has been
substantially recovered by an insurance settlement and additional investment
income. In June 1999, the Board of Directors of UICC and the Board of
Directors of UMC voted in favor of merging UICC into UMC. The matter is
scheduled for a UMC shareholder vote in July 1999. The Company has received
assurance that its capacity rights would be preserved in the event of this
merger. Accordingly, management of the Company believes that its investment
in UICC is not impaired.

FACTORS AFFECTING FUTURE RESULTS

Notwithstanding the objectives, projections, estimates and other
forward-looking statements in this Annual Report, the Company's future
operating results will continue to be subject to quarterly variations based
on a wide variety of risks. These risks include, but are not limited to:

OUR WAFER SUPPLY COULD BE INTERRUPTED OR REDUCED AND RESULT IN A SHORTAGE OF
FINISHED PRODUCTS AVAILABLE FOR SALE.

We do not manufacture finished silicon wafers. Currently all our silicon
wafers are manufactured by Seiko Epson in Japan and the UMC Group, a group of
affiliated companies in Taiwan. If Seiko Epson, through its U.S. affiliate
Epson Electronics America, or the UMC Group significantly interrupts or
reduces our wafer supply, our operating results would be adversely affected.

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, during times of capacity shortage, 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 on at least an annual basis. If Seiko Epson, Epson Electronics
America or the UMC Group reduces our supply commitment or increases our wafer
prices, and we cannot find alternative sources of wafer supply, our operating
results could be adversely affected.

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 adversely affected by significant industry wide
increases in overall wafer demand or interruptions in wafer supply.
Additionally, a disruption of Seiko Epson's or the UMC Group's foundry
operations as a result of a fire, earthquake or other natural disaster would
disrupt our wafer supply and would have an adverse effect on our operating
results.

IF OUR FOUNDRY PARTNERS EXPERIENCE QUALITY OR YIELD PROBLEMS, WE MAY FACE A
SHORTAGE OF FINISHED PRODUCTS AVAILABLE FOR SALE.

10
<PAGE>

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

Substantially all of our revenues are derived from products based on a
specialized silicon wafer manufacturing process technology called
E2CMOS-Registered Trademark-. The reliable manufacture of high performance
E2CMOS semiconductor wafers is a complicated and technically demanding
process requiring:
- - a high degree of technical skill;
- - state-of-the-art equipment;
- - the absence of defects in the masks used to print circuits on a wafer;
- - the elimination of minute impurities and errors in each step of the
fabrication process; and
- - effective cooperation between the wafer supplier and the circuit designer.

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.

In order to develop new products and maintain the competitiveness of existing
products, we need to migrate to more advanced wafer manufacturing processes
that utilize larger wafer sizes and smaller device geometries. We may also
utilize additional foundries. Since 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 E2CMOS-Registered Trademark- process
technologies at the new fabs of Seiko Epson, the UMC Group or future
foundries may not be achieved. This could have an adverse effect on our
operating results.

WE MAY BE UNSUCCESSFUL IN DEFINING AND DEVELOPING NEW PRODUCTS REQUIRED TO
MAINTAIN OR GROW OUR BUSINESS.

As a semiconductor company, we operate in a dynamic environment marked by
rapid product obsolescence. Our future success depends on our ability to
introduce new or improved products that meet customer needs while achieving
acceptable margins. If we fail to introduce these new products in a timely
manner or these products fail to achieve market acceptance, our business and
financial condition will be adversely affected.

The introduction of new 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 success of a
new product depends on accurate forecasts of long-term market demand and
future technology developments.

Our future revenue growth is dependent on market acceptance of our new
proprietary ISP-TM- product families and the continued market acceptance of our
proprietary software development tools. The success of these products is
dependent on a variety of specific technical factors including:
- - successful product definition;
- - timely and efficient completion of product design;

11
<PAGE>

- - timely and efficient implementation of wafer manufacturing and assembly
processes;
- - product performance; and
- - the quality and reliability of the product.

If, due to these or other factors, our new ISP products do not achieve market
acceptance, our business and financial condition will be adversely affected.

WE MAY EXPERIENCE UNEXPECTED DIFFICULTIES INTEGRATING VANTIS CORPORATION.

Integration of Vantis has begun. If integration is unsuccessful, or more
difficult, or more time consuming than originally planned, we may incur
unexpected disruptions to our ongoing business. These disruptions may have
an adverse effect on our operations and financial results. Further, the
following specific factors may adversely affect our ability to smoothly and
quickly integrate the business of Vantis:

- - We may experience unexpected losses of key employees or customers;

- - We may experience difficulties and delays in conforming the standards,
processes, procedures and controls of our two businesses;

- - We may experience unexpected costs and discover unexpected liabilities;

- - We may not receive product manufacturing and administrative services from
Vantis former parent corporation, AMD at a level of quality and timeliness
consistent with the historical delivery of this support;

- - We may not achieve expected levels of revenue growth, cost reduction and
profitability improvement; and

- - We may not be able to coordinate our new product and process development
in a way which permits us to bring new technologies to the market in a
timely manner.

CONTINUED DETERIORATION OF CONDITIONS IN ASIA MAY DISRUPT OUR EXISTING SUPPLY
ARRANGEMENTS AND RESULT IN A SHORTAGE OF FINISHED PRODUCTS AVAILABLE FOR SALE.

Our two silicon wafer suppliers operate fabs located in Asia. Our finished
silicon wafers are assembled and tested by independent subcontractors located
in Hong Kong, Malaysia, the Philippines, South Korea and Taiwan. A prolonged
interruption in our supply from any of these subcontractors could have an
adverse effect on our operating results.

Our wafer purchases from Seiko Epson are denominated in Japanese yen. The
value of the dollar with respect to the yen has fluctuated in the past and
may not remain stable in the future. Future substantial deterioration of
dollar-yen exchange rates could have an adverse effect on our operating
results.

EXPORT SALES ACCOUNT FOR A SUBSTANTIAL PORTION OF OUR REVENUES AND MAY
DECLINE IN THE FUTURE DUE TO ECONOMIC AND GOVERNMENTAL UNCERTAINTIES.

Our export sales are affected by unique risks frequently associated with
foreign economies including:
- - changes in local economic conditions;

12
<PAGE>

- - exchange rate volatility;
- - governmental controls and trade restrictions;
- - export license requirements and restrictions on the export of technology;
- - political instability;
- - changes in tax rates, tariffs or freight rates;
- - interruptions in air transportation; and
- - difficulties in staffing and managing foreign sales offices.

For example, our export sales have recently been affected by the Asian
economic crisis. Significant changes in the economic climate in the foreign
countries where we derive our export sales could have an adverse effect on
our operating results.

IF OUR ASSEMBLY AND TEST SUBCONTRACTORS EXPERIENCE QUALITY OR YIELD PROBLEMS,
WE MAY FACE A SHORTAGE OF FINISHED PRODUCTS AVAILABLE FOR SALE.

We rely on subcontractors 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, there could be an adverse affect on our
operating results.

The majority of our revenue is derived from semiconductor devices assembled
in advanced packages. The assembly of advanced packages is a complex process
requiring:
- - a high degree of technical skill;
- - state-of-the-art equipment;
- - the absence of defects in lead frames used to attach semiconductor devices
to the package;
- - the elimination of raw material impurities and errors in each step of the
process; and
- - effective cooperation between the assembly subcontractor and the device
manufacturer.

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

THE CYCLICAL NATURE OF THE SEMICONDUCTOR INDUSTRY MAY LIMIT OUR ABILITY TO
MAINTAIN OR GROW REVENUE AND PROFIT LEVELS DURING FUTURE INDUSTRY DOWNTURNS.

The semiconductor industry is highly cyclical, to a greater extent than other
less dynamic or less technology-driven industries. In the past, our financial
performance has been negatively affected by significant downturns in the
semiconductor industry as a result of:
- - the cyclical nature of the demand for the products of semiconductor
customers;
- - general reductions in inventory levels by customers;
- - excess production capacity; and
- - accelerated declines in average selling prices.

If these or other conditions in the semiconductor industry occur in the future,
there could be an adverse effect on our operating results.

13
<PAGE>

OUR STOCK PRICE MAY CONTINUE TO EXPERIENCE LARGE SHORT-TERM FLUCTUATIONS
WHICH MAY RESULT IN INVESTORS LOSING ALL OR PART OF THEIR INVESTMENT.

In recent years, the price of our common stock has fluctuated greatly. These
price fluctuations have been rapid and severe and 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:
- - quarter to quarter variations in our operating results;
- - shortfalls in revenues or earnings from levels expected by securities
analysts;
- - announcements of technological innovations or new products by other
companies.

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. If we are unable to compete
successfully in this environment, our future results will be adversely
affected.

The current level of competition in the programmable logic market is high and
may increase as our market expands. We currently compete directly with
companies that have licensed our products and technology or have developed
similar products. We also compete indirectly with numerous semiconductor
companies that offer products and solutions based on alternative
technologies. These direct and indirect competitors are established
multinational semiconductor companies as well as emerging companies. We also
may experience significant competition from foreign companies in the future.

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.

IF WE ARE NOT ABLE 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.

14
<PAGE>

Companies in the semiconductor industry vigorously pursue their intellectual
property rights. If we become involved in protracted intellectual property
disputes or litigation we may utilize substantial financial and management
resources, which could have an adverse effect on our operating results. We
may also be subject to future intellectual property claims or judgements. If
these were to occur, we may not be able to obtain a license on favorable
terms or without our operating results being adversely affected.

YEAR 2000 COMPLIANCE

The Company is currently working to address the potential impact of the Year
2000 on the processing of information by the Company's computerized systems,
including interfaces to its business partners.

In June 1999, the Company completed its planned Year 2000 compliance
activities with respect to its products and internal systems, software,
equipment and facilities. Based solely on these activities, management
believes that all products and material internal systems, software, equipment
and facilities are currently Year 2000 compliant. The Company does not
anticipate that potential Year 2000 issues will have a material adverse
impact on the Company's financial position or operating results. In
aggregate, approximately $2 million in expenses were incurred to fund Year
2000 compliance activities.

However, the Company could be adversely impacted if any of our critical
business partners were to experience a severe business interruption due to a
failure to address their internal Year 2000 issues in a timely manner. The
most reasonably likely worst case Year 2000 scenario is a temporary
disruption in supplier deliveries or customer shipments. If a severe
disruption occurs in either of these two areas and is not corrected in a
timely manner, a revenue or profit shortfall may result in the first half of
calendar year 2000. Based solely on responses received to date from our
business partners, the Company has no reason to believe that there will be
such a material adverse impact. However, if the responses received from our
business partners are inaccurate or happen to change, then there could be
such a material adverse impact. Management plans to evaluate Year 2000
business interruption scenarios and develop appropriate contingency plans by
September 1999.

EMPLOYEES

As of April 3, 1999 the Company had 546 full-time employees. The Company
believes that its future success will depend, in part, on its ability to
continue to attract and retain highly skilled technical and management
personnel. None of the Company's employees is subject to a collective
bargaining agreement. The Company has never experienced a work stoppage and
considers its employee relations good.

ITEM 2. PROPERTIES.

The Company's corporate headquarters are located in three adjacent buildings
owned by the Company in Hillsboro, Oregon comprising a total of approximately
200,000 square feet. The Company leases, through 2001, a 41,000 square foot
product development facility in Milpitas, California. The Company owns a
13,000 square foot research and development facility and approximately 6,000
square feet of dormitory facilities in Shanghai, China. The Company recently
opened a third design center in Corsham, England in a facility leased on a
short-term basis. The Company leases, on a short-term basis, office
facilities for its domestic and international sales offices.

Vantis leases corporate headquarter facilities in Sunnyvale, California, as
well as research and development facilities in Texas and Colorado, and sales
offices worldwide.

15
<PAGE>

ITEM 3. LEGAL PROCEEDINGS.

ADVANCED MICRO DEVICES, INC. V. ALTERA CORPORATION (CASE NO. C-94-20567-RMW,
N. D. CAL.). This litigation, which began in 1994, involves multiple claims
and counterclaims for patent infringement relating to Vantis Corporation's
(formerly a wholly owned subsidiary of Advanced Micro Devices, Inc. ("AMD"))
and Altera Corporation's programmable logic devices. The Company assumed this
litigation in its acquisition from AMD of Vantis Corporation. In April 1999,
the Federal Court of Appeal reversed the earlier jury and Court decisions and
held that Altera is not licensed to the eight AMD patents-in-suit. Also in
April 1999, and following the decision of the Federal Court of appeal, Altera
filed a petition for rehearing. In June 1999, the Federal Court of Appeal
denied Altera's petition for rehearing.

In connection with its acquisition of Vantis Corporation, Lattice has agreed
to assume both the claims against Altera and the claims by Altera against
AMD. Although there can be no assurance as to the results of such litigation,
based upon information presently known to management, we do not believe that
the ultimate resolution of this lawsuit will have a material adverse effect
on our business. The foregoing statement constitutes a forward-looking
statement and the actual results may differ materially depending on a number
of factors, including new court decisions and additional counterclaims made
by other parties to such litigation.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Not applicable.

16
<PAGE>

ITEM 4(a). EXECUTIVE OFFICERS OF THE REGISTRANT.

As of June 14, 1999, the executive officers of the Company are as set forth
below.

Name Age Position
- ------------------ --- ------------------------------------------------
<S> <C> <C>
Cyrus Y. Tsui 53 President, Chief Executive Officer and
Chairman of the Board

Steven A. Laub 40 Senior Vice President and Chief Operating Officer

Stephen A. Skaggs 36 Senior Vice President, Chief Financial Officer and
Secretary

Stephen M. Donovan 48 Corporate Vice President, Sales

Jonathan K. Yu 58 Corporate Vice President, Business Development

Martin R. Baker 43 Vice President and General Counsel

Randy D. Baker 40 Vice President, Manufacturing

Albert L. Chan 49 Vice President and General Manager, Lattice Silicon
Valley

Thomas J. Kingzett 52 Vice President, Reliability and Quality Assurance

Stanley J. Kopec 48 Vice President, Corporate Marketing

Rodney F. Sloss 55 Vice President, Finance

Kenneth K. Yu 51 Vice President and Managing Director,
Lattice Asia
</TABLE>

Executive officers of the Company are appointed by the Board of Directors to
serve at the discretion of the Board and hold office until the officers'
successors are appointed.

Cyrus Y. Tsui joined the Company in September 1988 as President, Chief
Executive Officer and Director, and in March 1991 was named Chairman of the
Board. From 1987 until he joined the Company, Mr. Tsui was Corporate Vice
President and General Manager of the Programmable Logic Division of AMD. He
was Vice President and General Manager of the Commercial Products Division of
Monolithic Memories Incorporated from 1983 until the merger with AMD in 1987.
Mr. Tsui has held technical and managerial positions in the

17
<PAGE>

semiconductor industry for over 30 years. He has worked in the programmable
logic industry since its inception.

Steven A. Laub joined the Company in June 1990 as Vice President and General
Manager. He was elected Senior Vice President and Chief Operating Officer in
August 1996.

Stephen A. Skaggs joined the Company in December 1992 as Director, Corporate
Development. He was elected Senior Vice President, Chief Financial Officer
and Secretary in August 1996.

Stephen M. Donovan joined the Company in October 1989 and has served as
Director of Marketing and Director of International Sales. He was elected
Vice President, International Sales in August 1993. He was elected Corporate
Vice President, Sales, in May 1998. Mr. Donovan has worked in the
programmable logic industry since 1982.

Jonathan K. Yu joined the Company in February 1992 as Vice President,
Operations. He was elected Corporate Vice President, Business Development in
August 1996. Mr. Yu has held technical and managerial positions in the
semiconductor industry for over 30 years.

Martin R. Baker joined the Company in January 1997 as Vice President and
General Counsel. From 1991 until he joined the Company, Mr. Baker held legal
positions with Altera Corporation.

Randy D. Baker joined the Company in April 1985 as Manager, Manufacturing and
was promoted in 1988 to Director, Manufacturing. He was elected Vice
President, Manufacturing in August 1996. Mr. Baker has worked in the
semiconductor industry for over 15 years.

Albert L. Chan joined the Company in May 1989 as California Design Center
Manager and was promoted in 1991 to Director, California Product Development
Center. He was elected Vice President, California Product Development in
August 1993. He was elected Vice President and General Manager, Lattice
Silicon Valley, in August 1997. Mr. Chan has worked in the programmable logic
industry since 1983.

Thomas J. Kingzett joined the Company in July 1992 as Director, Reliability
and Quality Assurance. He was elected Vice President, Reliability and Quality
Assurance in May 1998. Mr. Kingzett has worked in the semiconductor industry
for over 25 years.

Stanley J. Kopec joined the Company in August 1992 as Director, Marketing. He
was elected Vice President, Corporate Marketing in May 1998. Mr. Kopec has
worked in the programmable logic industry since 1985.

Rodney F. Sloss joined the Company in May 1994 as Vice President, Finance.
Prior to joining the Company, Mr. Sloss served as Chief Financial Officer of
The Alexander Haagen Company, a real estate developer.

Kenneth K. Yu joined the Company in January 1991 as Director of Process
Technology. He has served as Managing Director, Lattice Asia since November
1992 and was elected Vice President, Lattice Asia in August 1993. Mr. Yu has
held technical and managerial positions in the semiconductor industry for
over 25 years.

18
<PAGE>

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS.

The Company's common stock is traded on the over-the-counter market and
prices are quoted on the Nasdaq National Market under the symbol "LSCC". The
following table sets forth the high and low sale prices for the common stock
for the last two fiscal years and for the period since April 3, 1999. On
June 17, 1999, the last reported sale price of the common stock was $57 3/4.
As of June 17, 1999, the Company had approximately 311 stockholders of record.

<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Fiscal 1998:
First Quarter. . . . . . . . . . . . . . . $62 5/8 $41 1/2
Second Quarter . . . . . . . . . . . . . . 74 1/2 54 7/8
Third Quarter. . . . . . . . . . . . . . . 67 1/2 45
Fourth Quarter . . . . . . . . . . . . . . 57 39 3/4

Fiscal 1999:
First Quarter. . . . . . . . . . . . . . . $54 5/8 $25 5/8
Second Quarter . . . . . . . . . . . . . . 36 5/8 23 1/4
Third Quarter. . . . . . . . . . . . . . . 46 1/2 18 7/8
Fourth Quarter . . . . . . . . . . . . . . 56 5/16 37 3/4

Fiscal 2000:
First Quarter (through June 28, 1999). . . $61 7/8 $38 1/16

</TABLE>

The payment of dividends on the common stock is within the discretion of the
Company's Board of Directors. The Company intends to retain earnings to
finance the growth of its business. The Company has not paid cash dividends
on its common stock and the Board of Directors does not expect to declare
cash dividends on the common stock in the near future.

ITEM 6. SELECTED FINANCIAL DATA.

The information required by this Item is set forth in the Company's 1999 Annual
Report to Stockholders at page 15 under the caption "Selected Financial Data",
which information is incorporated herein by reference.

19
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

The information required by this Item is set forth in the Company's 1999
Annual Report to Stockholders at pages 10 through 14 under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", which information is incorporated herein by reference.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

As of April 3, 1999 and March 28, 1998, the Company's investment portfolio
consisted of fixed income securities of $293.4 million and $245.5 million
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 as of April 3, 1999 and March 28, 1998, the decline in the
fair value of the portfolio would not be material. Further, the Company has
the ability to hold its fixed income investments until maturity and,
therefore, the Company would not expect to recognize such an adverse impact
in income or cash flows.

The Company has international subsidiary and branch operations. Additionally,
the majority of the Company's silicon wafer purchases are denominated in
Japanese yen. The Company is therefore subject to foreign currency rate
exposure. To mitigate rate exposure with respect to yen-denominated wafer
purchases, the Company maintains yen-denominated bank accounts and bills it
Japanese customers in yen. The yen bank deposits are utilized to hedge
yen-denominated wafer purchases against specific and firm wafer purchases. If
the foreign currency rates fluctuate by 10% from rates at April 3, 1999 and
March 28, 1998, the effect on the company's consolidated financial statements
would not be material. However, there can be no assurance that there will not be
a material impact in the future.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

FINANCIAL STATEMENTS

The information required by this Item is set forth in the Company's 1999 Annual
Report to Stockholders, at pages 16 through 27, which information is
incorporated herein by reference.

<TABLE>
<CAPTION>
Page
----
<S> <C>
FINANCIAL STATEMENT SCHEDULES

Report of Independent Accountants on Financial Statement Schedule. . . . S-1

Schedule VIII - Valuation and qualifying
accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2

</TABLE>

No other schedules are included because the required information is
inapplicable, not required or is presented in the financial statements or
related notes thereto.

20
<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

Not applicable.

With the exception of the information expressly incorporated by reference from
the Annual Report to Stockholders into Parts II and IV of this Form 10-K, the
Company's Annual Report to Stockholders is not to be deemed filed as part of
this Report.

21
<PAGE>

PART III

Certain information required by Part III is omitted from this Report in that
the Company will file its definitive proxy statement for the Annual Meeting
of Stockholders to be held on August 9, 1999, pursuant to Regulation 14A of
the Securities Exchange Act of 1934 (the "Proxy Statement"), not later than
120 days after the end of the fiscal year covered by this Report, and certain
information included in the Proxy Statement is incorporated herein by
reference. With the exception of the information expressly incorporated by
reference from the Proxy Statement, the Company's Proxy Statement is not to
be deemed filed as a part of this report.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information required by this Item with respect to directors of the
Company is included under "Proposal 1: Election of Directors" in the
Company's Proxy Statement, which information is incorporated herein by
reference. Information with respect to executive officers of the Company is
included under Item 4(a) of Part I of this Report and is incorporated herein
by reference.

ITEM 11. EXECUTIVE COMPENSATION.

The information required by this Item with respect to executive compensation
is included under "Proposal 1: Election of Directors-Directors," "Executive
Compensation" and "Comparison of Total Cumulative Stockholder Return" in the
Company's Proxy Statement, which information is incorporated herein by
reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The information required by this Item is included in the Company's Proxy
Statement under the caption "Security Ownership of Certain Beneficial Owners and
Management", which information is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information required by this Item is included under "Proposal 1: Election of
Directors - Transactions with Management" in the Company's Proxy Statement,
which information is incorporated herein by reference.

22
<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

<TABLE>
<S> <C>
(a)(1) and (2) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES.

The information required by this Item is included under
Item 8 of this Report.

(a)(3) EXHIBITS.

3.1 The Company's Certificate of Incorporation, as amended
(including (i) the Company's Certificate Eliminating
Matters set forth in Certificates of Designation with
respect to Series A, Series B, Series D and Series E,
dated February 15, 1990; (ii) the Company's Restated
Certificate of Incorporation, as amended, incorporated by
reference to Exhibit 3.1 filed with the Company's Annual
Report on Form 10-K for the fiscal year ended March 31,
1990; (iii) the Company's Certificate of Designation of
Rights, Preferences and Privileges of Series A
participating Preferred Stock incorporated by reference
to Exhibit 1 filed with the Company's Registration
Statement on Form 8-A on September 13, 1991; and (iv) the
Certificate of Amendment, dated September 8, 1993, of the
Company's Certificate of Incorporation, filed as an
exhibit hereto).

3.2 The Company's Bylaws, as amended (including (i) the
Company's Amended Bylaws, incorporated by reference to
Exhibit 3.2 filed with the Company's Annual Report on
Form 10-K for the fiscal year ended March 30, 1991; (ii)
Amendment to the Company's Bylaws authorized by the Board
of Directors on May 24, 1991, filed as an exhibit hereto;
(iii) Amendment to the Company's Bylaws authorized by the
Board of Directors on May 16, 1995, filed as an exhibit
hereto; and (iv) Amendment to the Company's Bylaws
authorized by the Board of Directors on February 4, 1997,
filed as an exhibit hereto).

4.1 Preferred Shares Rights Agreement dated as of September
11, 1991 between Lattice Semiconductor Corporation and
First Interstate Bank of Oregon, N.A., as Rights Agent
(Incorporated by reference to Exhibit 1 filed with the
Company's Registration Statement on Form 8-A on September
13, 1991).

10.3 Patent License Agreement dated November 10, 1989 between
Monolithic Memories, Inc. and Lattice Semiconductor
Corporation, as amended (Incorporated by reference to
Exhibit 10.3, File No. 33-31231).(1)

10.7 Form of Distributor Agreement (Incorporated by reference
to Exhibit 10.6, File No. 33-31231).

23
<PAGE>

10.9 * Lattice Semiconductor Corporation 1988 Stock Incentive
Plan, as amended (Incorporated by reference to Exhibit
10.9 filed with the Company's Annual Report on Form 10-K
for the fiscal year ended March 28, 1992).

10.10 * Form of Stock Option Agreement (Incorporated by
reference to Exhibit 10.9, File No. 33-31231).

10.11 * Employment Letter dated September 2, 1988 from Lattice
Semiconductor Corporation to Cyrus Y. Tsui (Incorporated
by reference to Exhibit 10.10, File No. 33-31231).

10.12 Form of Proprietary Rights Agreement (Incorporated by
reference Exhibit 10.11, File No. 33-31231).

10.13 * Outside Directors Compensation Plan (Incorporated by
reference to Exhibit 10.12, File No. 33-31231).

10.14 * Amended Outside Directors Stock Option Plan
(Incorporated by reference to Exhibit 10.13, File No.
33-35427).

10.15 * 1993 Outside Directors Stock Option Plan (Incorporated
by reference to Exhibit 10.15 filed with the Company's
Annual Report on Form 10-K for the fiscal year ended
April 3, 1993).

10.16 * Employee Stock Purchase Plan, as amended (Incorporated
by reference to Exhibit 10.16 filed with the Company's
Annual Report on Form 10-K for the fiscal year ended
April 3, 1993).

10.17 Advance Production Payment Agreement dated July 5, 1994
among Lattice Semiconductor Corporation and Seiko Epson
Corporation and S MOS Systems, Inc. (Incorporated by
reference to Exhibit 10.17 filed with the Company's
Annual Report on Form 10-K for the fiscal year ended
April 1, 1995).(1)

10.18 Engineering Payment Agreement dated July 5, 1994 among
Lattice Semiconductor Corporation and Seiko Epson
Corporation and S MOS Systems, Inc. (Incorporated by
reference to Exhibit 10.18 filed with the Company's
Annual Report on Form 10-K for the fiscal year ended
April 1, 1995.

10.19 Bridge Capacity Letter dated September 12, 1995 between
Lattice Semiconductor Corporation and United
Microelectronics Corporation. (Incorporated by reference
to Exhibit 10.1 filed with the Company's Current Report
on Form 8-K dated September 28, 1995)(1).

10.20 Foundry Venture Side Letter dated September 13, 1995
among Lattice Semiconductor Corporation, United
Microelectronics Corporation and FabVen (Incorporated by
reference

24
<PAGE>

to Exhibit 10.2 filed with the Company's Current Report
on Form 8-K dated September 28, 1995)(1).

10.21 FabVen Foundry Capacity Agreement dated as of August ___,
1995 among FabVen, United Microelectronics Corporation
and Lattice Semiconductor Corporation (Incorporated by
reference to Exhibit 10.3 filed with the Company's
Current Report on Form 8-K dated September 28, 1995)(1).

10.22 Foundry Venture Agreement dated as of August ___, 1995,
between Lattice Semiconductor Corporation and United
Microelectronics Corporation (Incorporated by reference
to Exhibit 10.4 filed with the Company's Current Report
on Form 8-K dated September 28, 1995)(1).

10.23 Advance Production Payment Agreement dated March 17, 1997
among Lattice Semiconductor Corporation and Seiko Epson
Corporation and S MOS Systems, Inc. (Incorporated by
reference to Exhibit 10.23 filed with the Company's
Annual Report on Form 10-K for the fiscal year ended
March 29, 1997)(1).

10.24 * Lattice Semiconductor Corporation 1996 Stock Incentive
Plan (Incorporated by reference to Exhibit 4.1 filed on
Form S-8 dated November 7, 1996).

10.25 Form of North America Sales Representative Agreement.
(Incorporated by reference to Exhibit 10.25 filed with
the Company's Annual Report on Form 10-K for the fiscal
year ended March 28, 1998).

10.26 Stock Purchase Agreement dated as of April 21, 1999 by
and between Lattice Semiconductor Corporation and
Advanced Micro Devices, Inc. (Incorporated by reference
to Exhibit 2.1 filed with the Company's Current Report on
Form 8-K dated April 21, 1999).

10.27 First Amendment to Stock Purchase Agreement dated as of
June 7, 1999 entered into by and between Lattice
Semiconductor Corporation and Advanced Micro Devices, Inc.

10.28 Second Amendment to Stock Purchase Agreement dated as of
June 15, 1999 entered into by and between Lattice
Semiconductor Corporation and Advanced Micro Devices, Inc.

10.29 Form 8-K for Lattice Semiconductor Corporation
regarding June 15, 1999 acquisition of Vantis Corporation
(Incorporated by reference to Company's Current Report on
Form 8-K dated June 15, 1999 and filed June 25, 1999).

11.1 Computation of Net Income Per Share(2).

13.1 1999 Annual Report to Stockholders.

21.1 Subsidiaries of the Registrant.

23.1 Consent of Independent Accountants.

24.1 Power of Attorney (see pages 27-28).

27.1 Financial Data Schedule for Year Ended April 3, 1999.
</TABLE>

25
<PAGE>

______________

(1) Pursuant to Rule 24b-2 under the Securities Exchange Act of 1934,
confidential treatment has been granted to portions of this exhibit, which
portions have been deleted and filed separately with the Securities and Exchange
Commission.

(2) Incorporated by reference to Note 1 to the Consolidated Financial
Statements in the Company's Annual Report to Stockholders for the fiscal year
ended April 3, 1999.

* Management contract or compensatory plan or arrangement required to be
filed as an Exhibit to this Annual Report on Form 10-K pursuant to Item
14(c) thereof.

(b) No reports on Form 8-K were filed during the last quarter of fiscal
1999.

(d) See (a)(1) and (2) above.

26
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Hillsboro, State of Oregon, on the 1st of July, 1999.

LATTICE SEMICONDUCTOR CORPORATION

By: /s/Stephen A. Skaggs
-----------------------------------------
Stephen A. Skaggs, Senior Vice President,
Chief Financial Officer and Secretary

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Cyrus Y. Tsui and Stephen A. Skaggs, jointly and
severally, his attorneys-in-fact, each with the power of substitution, for him
in any and all capacities, to sign any amendments to this Report on Form 10-K,
and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on the 1st day of July, 1999 on
behalf of the Registrant and in the capacities indicated:

Signature Title
- ------------------------- --------------------------------------------

/s/Cyrus Y. Tsui President, Chief Executive Officer
- ------------------------- and Chairman of the Board (Principal
Cyrus Y. Tsui Executive Officer)

/s/Stephen A. Skaggs Senior Vice President, Chief Financial
- ------------------------- Officer and Secretary (Principal Financial
Stephen A. Skaggs Officer)

/s/Mark O. Hatfield Director
- -------------------------
Mark O. Hatfield

/s/Daniel S. Hauer Director
- -------------------------
Daniel S. Hauer

27
<PAGE>

Signature Title
- ------------------------- --------------------------------------------

/s/Harry A. Merlo Director
- -------------------------
Harry A. Merlo

/s/Larry W. Sonsini Director
- -------------------------
Larry W. Sonsini

/s/Douglas C. Strain Director
- -------------------------
Douglas C. Strain

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors
of Lattice Semiconductor Corporation

Our audits of the consolidated financial statements referred to in our report
dated April 21, 1999, except as to Note 13, which is as of June 15, 1999
appearing in the Annual Report to Stockholders of Lattice Semiconductor
Corporation (which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K) also included an
audit of the financial statement schedule listed in Item 14(a)(2) of this
Form 10-K. In our opinion, this financial statement schedule presents fairly,
in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.

PricewaterhouseCoopers LLP

Portland, Oregon
April 21, 1999

S-1

<PAGE>

SCHEDULE VIII

LATTICE SEMICONDUCTOR CORPORATION

VALUATION AND QUALIFYING ACCOUNTS

(IN THOUSANDS)

<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
---------- ---------------------------------------------------------------
CHARGED TO
BALANCE AT CHARGED TO OTHER WRITE-OFFS BALANCE
BEGINNING OF COSTS AND ACCOUNTS NET OF AT END OF
CLASSIFICATION PERIOD EXPENSES (DESCRIBE) RECOVERIES PERIOD
-------------- ------------ --------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended March 29, 1997:
Allowance for deferred tax asset......... $2,336 $(340) -- -- $1,996
Allowance for doubtful accounts.......... 800 70 -- 4 874
------ ------ ---- ------ ------
$3,136 $ (270) $ -- $ 4 $2,870
------ ------ ---- ------ ------
------ ------ ---- ------ ------

Year ended March 28, 1998:
Allowance for deferred tax asset......... $1,996 $ (205) -- -- $1,791
Allowance for doubtful accounts.......... 874 3 -- (80) 797
------ ------ ---- ------ ------
$2,870 $ (202) $ -- $ (80) $2,588
------ ------ ---- ------ ------
------ ------ ---- ------ ------

Year ended April 3, 1999:
Allowance for deferred tax asset......... $1,791 $ (136) -- -- $1,655
Allowance for doubtful accounts.......... 797 70 -- 14 881
------ ------ ---- ------ ------
$2,588 $ (66) $ -- $ 14 $2,536
------ ------ ---- ------ ------
------ ------ ---- ------ ------
</TABLE>

S-2

<PAGE>

Exhibit 10.27

FIRST AMENDMENT TO

STOCK PURCHASE AGREEMENT

This FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT dated as of June 7,
1999 is entered into by and between Lattice Semiconductor Corporation, a
Delaware corporation ("Buyer"), and Advanced Micro Devices, Inc., a Delaware
corporation ("Seller"). Unless otherwise defined herein, capitalized terms used
herein shall have the respective meanings assigned to them in the Stock Purchase
Agreement, dated as of April 21, 1999, by and between Buyer and Seller (the
"Stock Purchase Agreement").

RECITALS

A. Seller and Buyer entered into the Stock Purchase Agreement,
whereby Seller has agreed to sell, and Buyer has agreed to purchase, all of the
issued and outstanding capital stock of Vantis Corporation ("Vantis").

B. Seller and Buyer desire to amend certain terms of the Stock
Purchase Agreement.

AGREEMENT

Now, therefore, in consideration of the premises and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:

1. AMENDMENT

Section 1.3 of the Stock Purchase Agreement shall be deleted in its
entirety and replaced with the following:

"1.3 The Closing. The Closing shall take place at the offices of
Wilson, Sonsini, Goodrich & Rosati, 650 Page Mill Road, Palo Alto,
California 94304-1050 on June 14, 1999, or as soon as practicable after all
conditions specified in Articles VI, VII and VIII have been satisfied or
waived in accordance with this Agreement, but not later than the fifth
business day following the date that all conditions specified in Articles
VI, VII and VIII have been satisfied or waived in accordance with this
Agreement, or at such other place or on such other date as Seller and Buyer
may mutually agree."

2. MISCELLANEOUS

a. STOCK PURCHASE AGREEMENT OTHERWISE NOT AFFECTED. Except as
expressly amended pursuant hereto, the Stock Purchase Agreement shall remain
unchanged and in full force and effect and is hereby ratified and confirmed in
all respects.

b. AMENDMENT AND WAIVERS. This Amendment may be amended only by an
agreement in writing executed on behalf of both Buyer and Seller. No waiver of
any provision nor consent to any exception to the terms of the Amendment shall
be effective unless in writing and signed by the party to be bound and then only
to the specific purpose, extent and instance so provided.

<PAGE>

c. INTEGRATION. This Amendment constitutes the entire agreement
between the parties pertaining to the subject matter hereof and supersedes all
prior agreements and understandings of the parties in connection therewith.

d. NO ASSIGNMENT. Neither this Amendment nor any rights or
obligations under it are assignable, except that Buyer may assign its rights,
but not its obligations, hereunder to any wholly owned subsidiary of Buyer.
Subject to the foregoing sentence, this Amendment is binding upon and inures to
the benefit of and is enforceable by the parties hereto and their respective
successors and permitted assigns.

e. COUNTERPARTS. This Amendment and any amendment hereto or any
other agreement or document delivered pursuant hereto may be executed in one or
more counterparts and by different parties in separate counterparts. All of such
counterparts shall constitute one and the same agreement or other document and
shall become effective unless otherwise provided therein when one or more
counterparts have been signed by each party and delivered to the other party.

f. SEVERABILITY. If any provision of this Amendment is determined to
be invalid, illegal or unenforceable by any Governmental Entity, the remaining
provisions of this Amendment shall remain in full force and effect provided that
the essential terms and conditions of this Amendment for both parties remain
valid, binding and enforceable. To the extent permitted by Law, the parties
hereby to the same extent waive any provision of Law that renders any provision
hereof prohibited or unenforceable in any respect.

g. PARTIES IN INTEREST. Except as set forth in Article 10 of the
Stock Purchase Agreement with respect to Indemnified Parties, nothing in this
Amendment, express of implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Amendment.

h. GOVERNING LAW. This Amendment, the legal relations between the
parties and any Action, whether contractual or non-contractual, instituted by
any party with respect to matters arising under or growing out of or in
connection with or in respect of this Amendment shall be governed by and
construed in accordance with the laws of the State of California applicable to
contracts made and performed in such State and without regard to conflicts of
law doctrines.

<PAGE>

IN WITNESS WHEREOF, each of Buyer and Seller has caused this Amendment
to be executed by its duly authorized representation as of the date first above
written.

BUYER:

LATTICE SEMICONDUCTOR CORPORATION,
a Delaware corporation

By:
--------------------------------------
Name: Steven A. Laub
Title: Chief Operating Officer

SELLER:

ADVANCED MICRO DEVICES, INC.
a Delaware corporation

By:
--------------------------------------
Name: Thomas M. McCoy, Esq
Title: Senior Vice President, General
Counsel and Secretary

<PAGE>

Exhibit 10.28

SECOND AMENDMENT TO

STOCK PURCHASE AGREEMENT

This SECOND AMENDMENT TO STOCK PURCHASE AGREEMENT dated as of June 15, 1999
is entered into by and between Lattice Semiconductor Corporation, a Delaware
corporation ("Buyer"), and Advanced Micro Devices, Inc., a Delaware corporation
("Seller"). Unless otherwise defined herein, capitalized terms used herein shall
have the respective meanings assigned to them in the Stock Purchase Agreement,
dated as of April 21, 1999, by and between Buyer and Seller, as amended by the
First Amendment to Stock Purchase Agreement dated as of June 7, 1999 (as
amended, the "Stock Purchase Agreement").

RECITALS

A. Seller and Buyer entered into the Stock Purchase Agreement, whereby
Seller has agreed to sell, and Buyer has agreed to purchase, all of the issued
and outstanding capital stock of Vantis Corporation ("Vantis").

B. Seller and Buyer desire to amend certain terms of the Stock Purchase
Agreement.

AGREEMENT

NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:

1. AMENDMENTS

a. The fifth sentence of Section 1.2 of the Stock Purchase
Agreement, describing the calculation of the Company Per Share Value, is
hereby amended and restated as follows:

"The Company Per Share Value shall equal the quotient determined
by dividing the Estimated Purchase Price (as defined in Section
1.4) by the fully diluted number of shares of Company common
stock outstanding immediately prior to the close of this
transaction (reflecting all shares subject to Company Options
(but excluding any shares subject to Company Options granted
after April 21, 1999)), without applying the treasury method."

b. The final sentence of Section 1.2 of the Stock Purchase Agreement
is hereby amended and restated as follows:

"As soon as reasonably practicable, but in no event more than 90
days after the Closing Date, Buyer will issue to each person who
immediately

1
<PAGE>

prior to the Closing Date was a holder of Company Options a
document evidencing the foregoing assumption of such option by
Buyer."

c. Section 1.3 of the Stock Purchase Agreement is hereby amended by
deleting Section 1.3 in its entirety and replacing it with the following:

"THE CLOSING. The Closing shall take place at the offices of
Wilson, Sonsini, Goodrich & Rosati, 650 Page Mill Road, Palo
Alto, California 94304-1050 on June 15, 1999, or as soon as
practicable after all conditions specified in Articles VI, VII
and VIII have been satisfied or waived in accordance with this
Agreement, but not later than the fifth business day following
the date that all conditions specified in Articles VI, VII and
VIII have been satisfied or waived in accordance with this
Agreement, or at such other place or on such other date as Seller
and Buyer may mutually agree."

d. The heading of Section 5.2 of the Stock Purchase Agreement is
hereby amended to read "No Rights to Seller Intellectual Property and
Limited Trademark License."

e. Section 5.2 of the Stock Purchase Agreement is hereby amended to
insert an "(a)" immediately prior to the text thereof.

f. Section 5.2 of the Stock Purchase Agreement is hereby amended to
add new Section 5.2(b) as follows:

"(b) Seller hereby grants to Company and Buyer, for the period
beginning on the Closing Date and ending on the last day of the
fifteenth month following the Closing Date, a worldwide,
non-exclusive, non-transferable license under the Transition
Trademarks (as defined below) to use such trademarks in
connection with documentation, collateral materials, packaging
and sale of Transition Products (as defined below) in
substantially the same manner that such trademarks were used by
the Seller or Company prior to the Closing; provided, however,
that no Transition Trademark shall be used in public advertising
of any product, service or entity. Company shall maintain the
quality of the goods with which such trademarks are used at the
level maintained by Company or Seller prior to Closing. Without
limiting the foregoing, neither Buyer nor Company shall use the
Transition Trademarks in a manner that detracts from the goodwill
associated with the use of such trademarks or in a manner
contrary to the reasonable instructions of Seller. All goodwill
associated with the use of such Transition Trademarks shall inure
to the benefit of Seller. Buyer and Company agree to use
commercially reasonable efforts to obtain or to effect customer
qualifications of the Transition Products to remove the
Transition Trademarks. For the purposes of this Section 5.2(b),
(A) "Transition Products" means all products sold, offered for
sale, or provided by Company prior to the

2
<PAGE>

Closing including all such products in the Company's inventory
as of the Closing Date, and (B) "Transition Trademarks" means
all trademarks, logos, graphics, and trade dress of Seller used
by Company prior to the Closing Date in connection with the
marketing, sale, promotion and packaging of the Transition
Products, other than those which are transferred to Company.
Buyer shall indemnify and hold harmless Seller against any Loss
arising out of any warranty or product liability claims asserted
against Seller with respect to Transition Products sold by
Company or Buyer after the Closing Date resulting from Buyers or
Company's use of the Transition Marks, except to the extent that
such claim arises from a breach by Seller or Company of any
representation or warranty hereunder. The indemnity provided in
this Section 5.2 shall be subject to Sections 10.3 and 10.4 of
this Agreement but not the other provisions of Article X."

g. Section 5.8 of the Stock Purchase Agreement is hereby amended by
adding a new sentence at the end of such Section, which shall read as
follows:

"Notwithstanding any provision of this Agreement to the contrary,
the lease identified as Item 1 to Schedule 5.8 (re "Premises at
985/995 Stewart Drive, Sunnyvale, California") shall be assigned
immediately following the Closing Date pursuant to the Lease
Assignment and Assumption Agreement in the form attached hereto
as Exhibit 5.8(a)."

h. Section 5.14 of the Stock Purchase Agreement is hereby amended by
deleting clause (a) of Section 5.14 and replacing it with the following:

"(a) Seller shall continue to use its best efforts to obtain such
Approval from and after the Closing, subject (in the case of
software licenses) to the Limit, as set forth in Section
5.16(c)."

i. Section 5.16 of the Stock Purchase Agreement is hereby amended by
deleting Section 5.16(a) in its entirety and replacing it with the
following:

"(a) This Section 5.16 does not apply to Intellectual Property or
trade secrets, except that this Section 5.16 does apply to the
Intellectual Property of the type described in clause (i)(B) or
(i)(C) of Section 2.8(b) (the "Applicable Intellectual Property")
identified on the Schedule to clause (i) of Section 2.8(b) and
the Applicable Intellectual Property referred to in the board
resolutions identified in Section 5.16(b)(i) (or the attachments
thereto) and the unregistered trademarks listed on the Schedule
to clause (i) of Section 2.8(b).

j. Section 5.16 of the Stock Purchase Agreement is hereby amended by
deleting Section 5.16(c) in its entirety and replacing it with the following:

"(c) To the extent any Other Business Assets have not been
assigned and transferred prior to Closing, Seller shall take such
additionally

3
<PAGE>

commercially reasonable actions after the Closing to effect such
assignments and transfers as are reasonably requested by Buyer
(or, in the case of any third party software licenses, replace
such license); provided, however, that with respect to the
transfer and assignment of any third party software licenses
contemplated by this Section 5.16 or Section 5.14(a), or
otherwise necessary or used to conduct the Business (unless only
necessary or used to conduct the bi-polar programmable logic
device business) as conducted prior to the Closing (but without
reliance on the rights of Seller or any of its Affiliates, other
than the Company) (collectively, "Third Party Licenses"), Seller
shall use commercially reasonable actions after the Closing to
effect such assignments and transfers (or replace the licenses
with substantially similar licenses). Buyer may make
arrangements for the transfer or assignment of Third Party
Licenses (or the replacement thereof with substantially similar
licenses) and Seller shall reimburse Buyer any sums paid to
third party licensors for such transfers, assignments and
replacements; provided that this sentence shall not apply to the
EDA Software licenses from Cadence Design Systems, Inc. (the
"Cadence Licenses"). Notwithstanding the foregoing, Seller shall
not be obligated to pay to third party licensors and/or
reimburse Buyer amounts (other than amounts in respect of the
Cadence Licenses) in excess of $800,000 in the aggregate for all
such assignments, transfers, replacements or reimbursements (the
"Limit"). In addition, Seller's obligations to expend sums for
the assignment, transfer or replacement of Third Party Licenses
shall terminate on the first anniversary of the Closing Date.
Payments made by Seller to licensors for the assignment,
transfer or replacement of Third Party Licenses, which are
subject to the Limit, shall not be made without the consent of
Buyer, which consent shall not be unreasonably withheld."

k. Section 5.16(d) of the Stock Purchase Agreement is hereby amended
by deleting Section 5.16(d) in its entirety and replacing it with the
following:

"(d) Subject to the limitations set forth in Section 5.16(c), the
assignments and transfers pursuant to this Section 5.16 shall be
at no cost to Buyer, Company or their respective subsidiaries and
Affiliates; provided, however, that the transfer by Seller and
purchase by Company of certain leasehold improvements at Stewart
Drive, Sunnyvale, California at or prior to the Closing shall
take place for $3,768,000."

l. Section 5.16 of the Stock Purchase Agreement is hereby amended by
adding a new Section 5.16(e) immediately after Section 15.16(d), which
shall read in its entirety as follows:

"(e) Seller will execute or cause its controlled Affiliates to
execute, if applicable, all such further assignments and other
documents as are reasonably requested by Buyer to give effect to,
record and evidence any assignments and transfers required to be
made pursuant hereto or

4
<PAGE>

Section 5.15 at no cost to Buyer, Company or their respective
subsidiaries and Affiliates."

m. Section 13.2 of the Stock Purchase Agreement is hereby amended by
deleting the penultimate sentence of the definition of "Agreed Accounting
Principles" and inserting in lieu thereof the following:

"Except for the purchase of certain leasehold improvements
contemplated by the proviso of Section 5.16(d), which shall be
valued at $3,768,000, assets contributed to Company or any
Subsidiary by Seller or any of its controlled Affiliates after
the date hereof will be valued at zero."

n. Section 13.2 of the Stock Purchase Agreement is hereby amended by
deleting the first sentence of the definition of "Business" which reads "
`Business' means the business of Company and the Subsidiaries taken as a
whole, and shall be deemed to include the following incidents of such
business: income, cash flow, operations, condition (financial or other),
assets, properties, revenues and liabilities" and replacing it with the
following:

" `Business' means the business of Company and the Subsidiaries
taken as a whole (including the bi-polar programmable logic
device business of Seller, whether or not previously included in
the business of the Company and the Subsidiaries), and shall be
deemed to include the following incidents of such business:
income, cash flow, operations, condition (financial or other),
assets, properties, revenues and liabilities."

o. Section 1.4 of the Stock Purchase Agreement is hereby amended by
deleting the second sentence of such Section which reads "Not later than
five business days prior to the Closing Date, Seller shall deliver to Buyer
a written notice setting forth Seller's good faith estimate (applying the
Agreed Accounting Principles) as of the Closing Date of the Closing Equity
Adjustment Amount (the "Estimated Closing Equity Adjustment Amount") and,
based thereon, Seller's calculation of the Estimated Purchase Price, which
shall be binding on Buyer and Seller as the Estimated Purchase Price
hereunder absent manifest error" and replacing it with the following:

"Not later than five business days prior to the Closing Date,
Seller shall deliver to Buyer a written notice setting forth
Seller's good faith estimate (applying the Agreed Accounting
Principles), which estimate shall be based upon a balance sheet
prepared as of a date no earlier than five days prior to the
Closing Date, of the Closing Equity Adjustment Amount (the
"Estimated Closing Equity Adjustment Amount") and, based thereon,
Seller's calculation of the Estimated Purchase Price, which shall
be binding on Buyer and Seller as the Estimated Purchase Price
hereunder absent manifest error."

5
<PAGE>

2. MISCELLANEOUS

6
<PAGE>

IN WITNESS WHEREOF, each of Buyer and Seller has caused this Amendment to
be executed by its duly authorized representation as of the date first above
written.

BUYER:

LATTICE SEMICONDUCTOR CORPORATION,
a Delaware corporation

By:
--------------------------------------
Name: Steven A. Laub
Title: Chief Operating Officer

SELLER:

ADVANCED MICRO DEVICES, INC.,
a Delaware corporation

By:
--------------------------------------
Name: Thomas M. McCoy, Esq.
Title: Senior Vice President, General Counsel and
Secretary

<PAGE>

- ------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------

<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------
April 3, March 28, March 29,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $200,072 $245,894 $204,089
Net income $ 42,046 $ 56,567 $ 45,005
Basic net income per share $ 1.79 $ 2.43 $ 2.00
Diluted net income per share $ 1.77 $ 2.37 $ 1.96
Cash and short-term investments $319,434 $267,110 $228,647
Total assets $540,896 $489,066 $403,462
Stockholders' equity $483,734 $434,686 $360,491
- ----------------------------------------------------------------------------------------
</TABLE>

- ------------------------------------------------------------------------------
CORPORATE PROFILE
- ------------------------------------------------------------------------------

Lattice Semiconductor Corporation designs, develops and markets high
performance programmable logic devices ("PLDs") and related development
system software. Lattice is the inventor and world's leading supplier of
in-system programmable ("ISP-TM-") logic devices. PLDs are standard
semiconductor components that can be configured by the end customer as
specific logic functions, enabling shorter design cycle times and reduced
development costs. Lattice's end customers are primarily original equipment
manufacturers ("OEMs") of communications, computing, industrial controls and
military systems. Approximately one-half of Lattice's revenue is derived
from export sales, mainly to Europe and Asia. Lattice was founded in 1983
and is based in Hillsboro, Oregon.

<PAGE>

Exhibit 13.1

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

This report 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. Actual results could differ materially from
those projected in the forward-looking statements as a result of the factors set
forth in the section entitled "Factors Affecting Future Results" and elsewhere
in this report.

Lattice Semiconductor Corporation, (the "Company"), designs, develops and
markets the broadest range of high-performance in-system programmable
("ISP-TM-") programmable logic devices ("PLDs"). The Company introduced ISP
devices to the industry in 1992. PLDs are standard semiconductor components that
can be configured by the end customer as specific logic functions, enabling
shorter design cycle times and reduced development costs. Lattice products are
sold worldwide through an extensive network of independent sales representatives
and distributors, primarily to original equipment manufacturers ("OEMs") of
communication, computing, industrial and military systems. Approximately
one-half of the Company's revenue is derived from export sales, mainly to Europe
and Asia. The Company was founded in 1983 and is based in Hillsboro, Oregon.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the percentage of
revenue represented by selected items reflected in the Company's consolidated
statement of operations.

<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------
APRIL 3, MARCH 28, MARCH 29,
1999 1998 1997
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue 100% 100% 100%
Costs and expenses:
Cost of products sold 39 40 41
Research and development 17 13 14
Selling, general and administrative 18 16 16
-------------------------------
74 69 71
-------------------------------
Income from operations 26 31 29
Interest and other income (net) 5 4 4
-------------------------------
Income before provision for income taxes 31 35 33
Provision for income taxes 10 12 11
-------------------------------
Net income 21% 23% 22%
</TABLE>

REVENUE Revenue was $200.1 million in fiscal 1999, a decrease of 19% from fiscal
1998. Fiscal 1998 revenue of $245.9 million represented an increase of 20% from
the $204.1 million recorded in fiscal 1997.

Fiscal 1999 revenue as compared to fiscal 1998 was negatively impacted by a
decline in demand from Asia due to the economic crisis in that region.
Furthermore, revenue in all geographies was negatively impacted by a decline in
demand for the Company's non-ISP product families. The Company's revenue growth
in fiscal 1998 was the result of sales increases of ISP products. Revenue from
ISP products was approximately 72%, 65% and 48% of total revenue for fiscal
1999, 1998 and 1997, respectively. The remainder of revenue was derived from
non-ISP product families.

The Company's sales by geographic area were as follows:

<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------
APRIL 3, MARCH 28, MARCH 29,
(IN THOUSANDS) 1999 1998 1997
- -------------------------------------------------------------------
<S> <C> <C> <C>
United States $100,778 $120,278 $104,249
Export sales
Europe 53,649 61,243 39,863
Asia 34,680 55,853 52,624
Other 10,965 8,520 7,353
----------------------------------------
$200,072 $245,894 $204,089
</TABLE>

Revenue from export sales was approximately 50%, 51% and 49% of total revenue
for fiscal 1999, 1998 and 1997, respectively. The Company expects export sales
to continue to represent a significant portion of revenue. See "Factors
Affecting Future Results."

The average selling price of the Company's products was flat in fiscal 1999 as
compared to fiscal 1998. The average selling price increased in fiscal 1998 as
compared to fiscal 1997. This change was due primarily to an increased
proportion of ISP products in the revenue mix. Although selling prices of mature
products generally decline over time, this decline is at times offset by higher
selling prices of new products. The Company's ability to maintain or increase
the level of its average selling price is dependent on the continued
development, introduction and market acceptance of new products. See "Factors
Affecting Future Results."

GROSS MARGIN The Company's gross margin as a percentage of revenue was 61%, 60%
and 59% for fiscal years 1999, 1998 and 1997, respectively. The improvement was
primarily due to an improvement in product mix and reductions in the Company's
manufacturing costs. Reductions in manufacturing costs resulted primarily from
yield improvements, migration of products to more advanced technologies and
smaller die sizes, and wafer price reductions.

RESEARCH AND DEVELOPMENT Research and development expense was $33.2 million,
$32.0 million and $27.8 million in fiscal 1999, 1998 and 1997, respectively.
Spending increases resulted primarily from the development of new products,
including the Company's ISP families and related software development tools. The
Company believes that a continued commitment to research and development is
essential in order to maintain product leadership in its existing product
families and provide innovative new product offerings, and therefore expects to
continue to make significant future investments in research and development.

SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative expense
was $36.8 million, $39.9 million and $33.6 million in fiscal 1999, 1998 and
1997, respectively. The decrease in fiscal 1999 expense as compared to fiscal
1998 was primarily due to decreased sales commissions associated with lower
revenue levels. The increase in fiscal 1998 expenses as compared to fiscal 1997
was primarily due to expansion of the Company's sales force and increased sales
commissions associated with higher revenue levels.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

INCOME FROM OPERATIONS Income from operations decreased 31%, from $75.1 million
to $51.6 million, from fiscal 1998 to fiscal 1999, and increased 27%, from $59.0
million, between fiscal 1997 and fiscal 1998. Income from operations as a
percentage of revenue decreased to 26% in fiscal 1999 from 31% and 29% in fiscal
1998 and fiscal 1997 respectively.

INTEREST AND OTHER INCOME (EXPENSE), NET Interest and other income (net of
expense) was approximately flat between fiscal 1998 and fiscal 1999 but
increased by approximately $1.9 million from fiscal 1997 to fiscal 1998. The
increase was primarily due to higher cash and investment balances resulting from
cash generated from operations and common stock issuance from employee stock
option exercises. In fiscal 1999, these higher cash and investment balances were
offset by lower interest rates for invested balances, particularly in the second
half of the fiscal year.

PROVISION FOR INCOME TAXES The Company's effective tax rate was 32.5%, 34.0% and
33.5% for fiscal 1999, 1998 and 1997, respectively. The fiscal 1999 and 1998
rate changes were due primarily to changes in the proportion of tax-exempt
interest income included in the Company's overall net income. The fiscal 1999
rate was also favorably impacted by reduced state taxes resulting from the
increased realization of tax credits.

Deferred tax asset valuation allowances are recorded to offset deferred tax
assets that can only be realized by earning taxable income in distant future
years. Management established the valuation allowances because it cannot
determine if it is more likely than not that such income will be earned.

NET INCOME Net income decreased 26%, from $56.6 million to $42.0 million, from
fiscal 1998 to fiscal 1999, and increased 26%, from $45.0 million, between
fiscal 1997 and fiscal 1998. Net income as a percentage of revenue was 21%, 23%
and 22% for fiscal years 1999, 1998 and 1997, respectively.

FACTORS AFFECTING FUTURE RESULTS

Notwithstanding the objectives, projections, estimates and other
forward-looking statements in this Annual Report, the Company's future operating
results will continue to be subject to quarterly variations based on a wide
variety of risks. These risks include, but are not limited to:

OUR WAFER SUPPLY COULD BE INTERRUPTED OR REDUCED AND RESULT IN A SHORTAGE OF
FINISHED PRODUCTS AVAILABLE FOR SALE.

We do not manufacture finished silicon wafers. Currently all our silicon wafers
are manufactured by Seiko Epson in Japan and the UMC Group, a group of
affiliated companies in Taiwan. If Seiko Epson, through its U.S. affiliate Epson
Electronics America, or the UMC Group significantly interrupts our wafer supply,
our operating results would be adversely affected.

In the past, we have experienced delays in obtaining wafers and 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,
during times of capacity shortage, 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 on at least
an annual basis. If Seiko Epson, Epson Electronics America or the UMC Group
reduces our supply commitment or increases our wafer prices, and we cannot find
alternative sources of wafer supply, our operating results could be adversely
affected.

IF OUR FOUNDRY PARTNERS EXPERIENCE QUALITY OR YIELD PROBLEMS, WE MAY FACE A
SHORTAGE OF FINISHED PRODUCTS AVAILABLE FOR SALE.

We depend on our foundries to deliver reliable silicon wafers with acceptable
yields in a timely manner. As is common in our industry, we have experienced
wafer yield problems and delivery delays in the past. If our foundries are
unable to produce silicon wafers that meet our specifications, with acceptable
yields, for a prolonged period, our operating results could be adversely
affected.

Substantially all of our revenues are derived from products based on a
specialized silicon wafer manufacturing process technology called E to the
power of 2 CMOS-Registered Trademark-. The reliable manufacture of high
performance E to the power of 2 CMOS semiconductor wafers is a complicated
and technically demanding process requiring:

- a high degree of technical skill;

- state-of-the-art equipment;

- the absence of defects in the masks used to print circuits on a wafer;

- the elimination of minute impurities and errors in each step of the
fabrication process; and

- effective cooperation between the wafer supplier and the circuit
designer.

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.

In order to develop new products and maintain the competitiveness of existing
products, we need to migrate to more advanced wafer manufacturing processes
that utilize larger wafer sizes and smaller device geometries. We may also
utilize additional foundries. Since 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 E to the power of 2 CMOS-Registered
Trademark- process technologies at the new fabs of Seiko Epson, the UMC Group
or future foundries may not be achieved. This could have an adverse effect on
our operating results.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

WE MAY BE UNSUCCESSFUL IN DEFINING AND DEVELOPING NEW PRODUCTS REQUIRED TO
MAINTAIN OR GROW OUR BUSINESS.

As a semiconductor company, we operate in a dynamic environment marked by rapid
product obsolescence. Our future success depends on our ability to introduce new
or improved products that meet customer needs while achieving acceptable
margins. If we fail to introduce these new products in a timely manner or these
products fail to achieve market acceptance, our business and financial condition
will be adversely affected.

The introduction of new 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 success of a new
product depends on accurate forecasts of long-term market demand and future
technology developments.

Our future revenue growth is dependent on market acceptance of our new
proprietary ISP-TRADEMARK- product families and the continued market acceptance
of our
proprietary software development tools. The success of these products is
dependent on a variety of specific technical factors including:

- successful product definition;

- timely and efficient completion of product design;

- timely and efficient implementation of wafer manufacturing and
assembly processes;

- product performance; and

- the quality and reliability of the product.

If, due to these or other factors, our new ISP products do not achieve
market acceptance, our business and financial condition will be adversely
affected.

WE MAY EXPERIENCE UNEXPECTED DIFFICULTIES INTEGRATING VANTIS CORPORATION.

Integration of Vantis has begun (see Note 13 of Notes to Consolidated
Financial Statements). If integration is unsuccessful, or more difficult, or
more time consuming than originally planned, we may incur unexpected
disruptions to our ongoing business. These disruptions may have an adverse
effect on our operations and financial results. Further, the following
specific factors may adversely affect our ability to smoothly and quickly
integrate the business of Vantis:

- We may experience unexpected losses of key employees or customers;

- We may experience difficulties and delays in conforming the standards,
processes, procedures and controls of our two businesses;

- We may experience unexpected costs and discover unexpected
liabilities;

- We may not receive product manufacturing and administrative services
from Vantis's former parent corporation, AMD, at a level of quality
and timeliness consistent with the historical delivery of this
support;

- We may not achieve expected levels of revenue growth, cost reduction
and profitability improvement; and

- We may not be able to coordinate our new product and process
development in a way which permits us to bring new technologies to
market in a timely manner.

CONTINUED DETERIORATION OF CONDITIONS IN ASIA MAY DISRUPT OUR EXISTING SUPPLY
ARRANGEMENTS AND RESULT IN A SHORTAGE OF FINISHED PRODUCTS AVAILABLE FOR SALE.

Our two silicon wafer suppliers operate fabs located in Asia. Our finished
silicon wafers are assembled and tested by independent subcontractors located in
Hong Kong, Malaysia, the Philippines, South Korea and Taiwan. A prolonged
interruption in our supply from any of these subcontractors could have an
adverse effect on our operating results.

Although we have yet not experienced significant supply interruptions,
the economic, financial, social and political situation in Asia has recently
been volatile. Financial difficulties, governmental actions or restrictions,
prolonged work stoppages or any other difficulties experienced by these
suppliers may disrupt our supply and could have an adverse effect on our
operating results.Our wafer purchases from Seiko Epson are denominated in
Japanese yen. The value of the dollar with respect to the yen has fluctuated
in the past and may not remain stable in the future. Future substantial
deterioration of dollar-yen exchange rates could have an adverse effect on
our operating results.

EXPORT SALES ACCOUNT FOR A SUBSTANTIAL PORTION OF OUR REVENUES AND MAY DECLINE
IN THE FUTURE DUE TO ECONOMIC AND GOVERNMENTAL UNCERTAINTIES.

Our export sales are affected by unique risks frequently associated with foreign
economies including:

- changes in local economic conditions;

- exchange rate volatility;

- governmental controls and trade restrictions;

- export license requirements and restrictions on the export of
technology;

- political instability;

- changes in tax rates, tariffs or freight rates;

- interruptions in air transportation; and

- difficulties in staffing and managing foreign sales offices.

IF OUR ASSEMBLY AND TEST SUBCONTRACTORS EXPERIENCE QUALITY OR YIELD PROBLEMS, WE
MAY FACE A SHORTAGE OF FINISHED PRODUCTS AVAILABLE FOR SALE.

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

- a high degree of technical skill;

- state-of-the-art equipment;

- the absence of defects in lead frames used to attach semiconductor
devices to the package;

- the elimination of raw material impurities and errors in each step of
the process; and

- effective cooperation between the assembly subcontractor and the
device manufacturer.

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

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

THE CYCLICAL NATURE OF THE SEMICONDUCTOR INDUSTRY MAY LIMIT OUR ABILITY TO
MAINTAIN OR GROW REVENUE AND PROFIT LEVELS DURING FUTURE INDUSTRY DOWNTURNS.

- the cyclical nature of the demand for the products of semiconductor
customers;

- general reductions in inventory levels by customers;

- excess production capacity; and

- accelerated declines in average selling prices.

If these or other conditions in the semiconductor industry occur in the
future, there could be an adverse effect on our operating results.

OUR STOCK PRICE MAY CONTINUE TO EXPERIENCE LARGE SHORT-TERM FLUCTUATIONS WHICH
MAY RESULT IN INVESTORS LOSING ALL OR PART OF THEIR INVESTMENT.

- quarter-to-quarter variations in our operating results;

- shortfalls in revenues or earnings from levels expected by securities
analysts;

- announcements of technological innovations or new products by other
companies.

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. If we are unable to compete
successfully in this environment, our future results will be adversely affected.

The current level of competition in the programmable logic market is high
and may increase as our market expands. We currently compete directly with
companies that have licensed our products and technology or have developed
similar products. We also compete indirectly with numerous semiconductor
companies that offer products and solutions based on alternative technologies.
These direct and indirect competitors are established multinational
semiconductor companies as well as emerging companies. We also may experience
significant competition from foreign companies in the future.

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.

IF WE ARE NOT ABLE 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 utilize substantial financial and
management resources, which could have an adverse effect on our operating
results. We may also be subject to future intellectual property claims or
judgements. If these were to occur, we may not be able to obtain a license on
favorable terms or without our operating results being adversely affected.

YEAR 2000 COMPLIANCE

In June 1999, the Company completed its planned Year 2000 compliance
activities with respect to its products and internal systems, software,
equipment and facilities. Based solely on these activities, management believes
that all products and material internal systems, software, equipment and
facilities are currently Year 2000 compliant. The Company does not anticipate
that potential Year 2000 issues will have a material adverse impact on the
Company's financial position or operating results. In aggregate, approximately
$2 million in expenses were incurred to fund Year 2000 compliance activities.

However, the Company could be adversely impacted if any of our critical
business partners were to experience a severe business interruption due to a
failure to address their internal Year 2000 issues in a timely manner. The most
reasonably likely worst case Year 2000 scenario is a temporary disruption in
supplier deliveries or customer shipments. If a severe disruption occurs in
either of these two areas and is not corrected in a timely manner, a revenue or
profit shortfall may result in the first half of calendar year 2000. Based
solely on responses received to date from our business partners, the Company has
no reason to believe that there will be such a material adverse impact. However,
if the responses received from our business partners are inaccurate or happen to
change, then there could be such a material adverse impact. Management plans to
evaluate Year 2000 business interruption scenarios and develop appropriate
contingency plans by September 1999.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of April 3, 1999 and March 28, 1998, the Company's investment portfolio
consisted of fixed income securities of $293.4 million and $245.5 million,
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 as of April 3, 1999 and March 28, 1998, the decline in the fair value of
the portfolio would not be material. Further, the Company has the ability to
hold its fixed income investments until maturity and, therefore, the Company
would not expect to recognize such an adverse impact in income or cash flows.

The Company has international subsidiary and branch operations.
Additionally, the majority of the Company's silicon wafer purchases are
denominated in Japanese yen. The Company is therefore subject to foreign
currency rate exposure. To mitigate rate exposure with respect to
yen-denominated wafer purchases, the Company maintains yen-denominated bank
accounts and bills its Japanese customers in yen. The yen bank deposits are
utilized to hedge yen-denominated wafer purchases against specific and firm
wafer purchases. If the foreign currency rates fluctuate by 10% from rates at
April 3, 1999 and March 28, 1998, the effect on the company's consolidated
financial statements would not be material. However, there can be no assurance
that there will not be a material impact in the future.

LIQUIDITY AND CAPITAL RESOURCES

As of April 3, 1999, the Company's principal source of liquidity was $319.4
million of cash and short-term investments, an increase of $52.3 million from
the balance of $267.1 million at March 28, 1998. This increase was primarily the
result of cash generated from operations and common stock issuance.

Accounts receivable decreased $4.4 million, or 16%, as compared to the
balance at March 28, 1998. This decrease was primarily due to lower revenue
levels. Inventories decreased by $5.0 million, or 22%, versus amounts recorded
at March 28, 1998 due to decreased production in response to lower revenue
levels. Accounts payable and other accrued expenses remained approximately flat
versus balances recorded at March 28, 1998, as decreased inventory expenditures
were offset by the timing of payments of other expenses. Accrued payroll
obligations increased $2.3 million, or 21%, as compared to the balance at March
28, 1998 due to timing of payments. Income taxes payable increased $0.8 million,
or 18%, as compared to the balance at March 28, 1998 due to the timing of tax
deductions and payments.

Stockholders' equity increased by approximately $49.0 million, primarily
due to net income of approximately $42.0 million for fiscal 1999 and net
proceeds from common stock issuance. These combined net proceeds were partially
offset by stock repurchases aggregating approximately $9.2 million.

Capital expenditures were approximately $18.4 million, $18.8 million and
$10.6 million for fiscal years 1999, 1998 and 1997, respectively. These
consisted primarily of manufacturing test equipment, engineering equipment,
buildings and building improvements. The increase in fiscal 1999 and 1998
capital expenditures as compared to fiscal 1997 was associated with construction
in process of an additional corporate headquarters building and increased
investment in manufacturing test equipment to support the growth in unit volumes
of ISP products.

The Company currently anticipates capital expenditures of approximately $20
to $25 million for the fiscal year ending April 1, 2000.

The Company entered into a series of agreements with United
Microelectronics Corporation ("UMC") in September 1995 pursuant to which the
Company agreed to join UMC and several other companies to form a separate
Taiwanese company, United Integrated Circuits 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, the
Company invested approximately $49.7 million between fiscal 1996 and fiscal
1998, for an approximate 10% equity interest in UICC and the right to receive a
percentage of the facility's wafer production at market prices.

In March 1997, the Company entered into an advance payment production
agreement with Seiko Epson Corporation ("Seiko Epson") and its affiliated U.S.
distributor, Epson Electronics America, Inc. ("EEA") under which it agreed to
advance approximately $85 million, payable upon completion of specific
milestones, to Seiko Epson to finance construction of an eight-inch sub-micron
semiconductor wafer manufacturing facility. Under the terms of the agreement,
the advance is to be repaid with semiconductor wafers over a multi-year period.
The agreement calls for wafers to be supplied by Seiko Epson through EEA
pursuant to purchase agreements with EEA. The Company also has an option under
this agreement to advance Seiko Epson an additional $60 million for additional
wafer supply under similar terms. The first payment pursuant to this agreement,
approximately $17.0 million, was made during fiscal 1997. During fiscal 1998,
the Company made two additional payments aggregating approximately $34.2
million. As a result of anticipated future payments to Seiko Epson, the Company
expects that its working capital will be reduced by approximately $34 million
during fiscal 2000.

On April 21, 1999, the Company announced a definitive agreement to acquire
Vantis Corporation, a wholly owned subsidiary of Advanced Micro Devices, Inc.
("AMD"), for approximately $500 million in cash, including the acquisition of an
approximately $60 million in net tangible assets. This acquisition was completed
June 15, 1999 and was financed with approximately $250 million in existing cash
and $250 million in bank borrowings. Vantis Corporation designs, develops and
markets programmable logic devices. The acquisition will be accounted for as a
purchase.

The Company believes that its existing sources of liquidity and expected
cash generated from operations, along with the debt financing for the Vantis
acquisition, will be adequate to fund the Company's anticipated cash needs for
the next twelve months.

In an effort to secure additional wafer supply, the Company may from time
to time consider various financial arrangements including joint ventures, equity
investments, advance purchase payments, loans, or similar arrangements with
independent wafer manufacturers in exchange for committed wafer capacity. To the
extent that the Company pursues any such additional financial arrangements,
additional debt or equity financing may be required. There can be no assurance
that any such additional funding could be obtained when needed or, if available,
on terms acceptable to the Company.

<PAGE>

SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------------------------
APRIL 3, MARCH 28, MARCH 29, MARCH 30, APRIL 1,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:

Revenue $200,072 $245,894 $204,089 $198,167 $144,083

Costs and expenses:
Cost of products sold 78,440 98,883 83,736 82,216 58,936
Research and development 33,190 32,012 27,829 26,825 22,859
Selling, general and administrative 36,818 39,934 33,558 31,323 25,020
------------------------------------------------------------------------
148,448 170,829 145,123 140,364 106,815
------------------------------------------------------------------------
Income from operations 51,624 75,065 58,966 57,803 37,268
Interest and other income, net 10,668 10,643 8,712 5,442 3,349
------------------------------------------------------------------------
Income before provision for income taxes 62,292 85,708 67,678 63,245 40,617
Provision for income taxes 20,246 29,141 22,673 21,461 13,651
------------------------------------------------------------------------
Net income $ 42,046 $ 56,567 $ 45,005 $ 41,784 $ 26,966
- ------------------------------------------------------------------------------------------------------------------------
Basic net income per share $ 1.79 $ 2.43 $ 2.00 $ 2.06 $ 1.45
- ------------------------------------------------------------------------------------------------------------------------
Diluted net income per share $ 1.77 $ 2.37 $ 1.96 $ 1.99 $ 1.41
- ------------------------------------------------------------------------------------------------------------------------
Shares used in per share calculations:
Basic net income 23,487 23,239 22,460 20,327 18,627
- ------------------------------------------------------------------------------------------------------------------------
Diluted net income 23,819 23,894 22,973 20,979 19,164
- ------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA:

Working capital $324,204 $283,678 $267,669 $244,649 $106,021
Total assets 540,896 489,066 403,462 342,935 192,917
Stockholders' equity 483,734 434,686 360,491 298,768 157,797
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED APRIL 3, 1999 YEAR ENDED MARCH 28, 1998
------------------------------------------------------------------------------------
FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
UNAUDITED QUARTERLY DATA:

Revenue $53,788 $50,168 $48,088 $48,028 $60,168 $60,038 $64,068 $61,620
Gross profit $33,045 $30,623 $29,045 $28,919 $36,071 $36,183 $38,165 $36,592
Net income $11,848 $10,513 $ 9,870 $ 9,816 $13,818 $13,651 $14,930 $14,168
Basic net income per share $ 0.50 $ 0.45 $ 0.42 $ 0.42 $ 0.59 $ 0.58 $ 0.64 $ 0.62
Diluted net income per share $ 0.49 $ 0.45 $ 0.42 $ 0.41 $ 0.58 $ 0.57 $ 0.62 $ 0.60
- --------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
APRIL 3, MARCH 28,
(IN THOUSANDS, EXCEPT SHARE AND PAR VALUE AMOUNTS) 1999 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 79,301 $ 60,344
Short-term investments 240,133 206,766
Accounts receivable, net 23,788 28,229
Inventories (note 2) 17,683 22,647
Prepaid expenses and other current assets 6,061 5,572
Deferred income taxes (note 6) 14,400 14,500
--------------------
Total current assets 381,366 338,058
Foundry investments, advances and other
assets (notes 4 and 8) 114,537 114,338
Property and equipment, less accumulated
depreciation (note 3) 44,993 36,670
--------------------
$540,896 $489,066
- -----------------------------------------------------------------------------------------

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses (note 8) $ 18,611 $ 18,196
Accrued payroll obligations 13,573 11,231
Income taxes payable (note 6) 4,985 4,210
Deferred income 19,993 20,743
--------------------
Total current liabilities 57,162 54,380
--------------------
Commitments and contingencies (notes 4, 5, 8, 9 and 10) -- --
Stockholders' equity (note 7):
Preferred stock, $.01 par value, 10,000,000 shares authorized;
none issued and outstanding -- --

Common stock, $.01 par value, 100,000,000 shares authorized;
23,597,236 and 23,428,072 shares issued and outstanding 236 234

Paid-in capital 223,290 216,290

Retained earnings 260,208 218,162
--------------------
483,734 434,686
--------------------
$540,896 $489,066
- -----------------------------------------------------------------------------------------
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.

<PAGE>

CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------
APRIL 3, MARCH 28, MARCH 29,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $ 200,072 $ 245,894 $ 204,089
Costs and expenses:
Cost of products sold (note 8) 78,440 98,883 83,736
Research and development 33,190 32,012 27,829
Selling, general and administrative (note 11) 36,818 39,934 33,558
------------------------------------
148,448 170,829 145,123
------------------------------------
Income from operations 51,624 75,065 58,966
Other income (expense):
Interest income 11,279 10,277 8,886
Other income (expense), net (611) 366 (174)
------------------------------------
Income before provision for income taxes 62,292 85,708 67,678
Provision for income taxes (note 6) 20,246 29,141 22,673
------------------------------------
Net income $ 42,046 $ 56,567 $ 45,005
- ----------------------------------------------------------------------------------------------
Basic net income per share $ 1.79 $ 2.43 $ 2.00
- ----------------------------------------------------------------------------------------------
Diluted net income per share $ 1.77 $ 2.37 $ 1.96
- ----------------------------------------------------------------------------------------------
Shares used in per share calculations:
Basic net income 23,487 23,239 22,460
- ----------------------------------------------------------------------------------------------
Diluted net income 23,819 23,894 22,973
- ----------------------------------------------------------------------------------------------
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.

<PAGE>

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK
--------------------
($.01 PAR VALUE) PAID-IN RETAINED
(IN THOUSANDS, EXCEPT PAR VALUE) SHARES AMOUNT CAPITAL EARNINGS TOTAL
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances, March 30, 1996 22,123 $ 221 $ 181,957 $ 116,590 $ 298,768
Common stock issued 755 8 10,516 -- 10,524
Tax benefit of option exercises -- -- 6,179 -- 6,179
Other comprehensive income -- -- 15 -- 15
Net income for fiscal 1997 -- -- -- 45,005 45,005
-------------------------------------------------------------
Balances, March 29, 1997 22,878 229 198,667 161,595 360,491
Common stock issued 550 5 12,546 -- 12,551
Tax benefit of option exercises -- -- 5,225 -- 5,225
Other comprehensive income (loss) -- -- (148) -- (148)
Net income for fiscal 1998 -- -- -- 56,567 56,567
-------------------------------------------------------------
Balances, March 28, 1998 23,428 234 216,290 218,162 434,686
Common stock issued 507 5 11,207 -- 11,212
Repurchase of common stock (338) (3) (9,155) -- (9,158)
Tax benefit of option exercises -- -- 4,888 -- 4,888
Other comprehensive income -- -- 60 -- 60
Net income for fiscal 1999 -- -- -- 42,046 42,046
-------------------------------------------------------------
Balances, April 3, 1999 23,597 $ 236 $ 223,290 $ 260,208 $ 483,734
- -----------------------------------------------------------------------------------------------------
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.

<PAGE>

CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------
APRIL 3, MARCH 28, MARCH 29,
(IN THOUSANDS) 1999 1998 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flow from operating activities:
Net income $ 42,046 $ 56,567 $ 45,005
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 10,064 9,558 8,629
Deferred income taxes 100 (2,775) (2,025)
Changes in assets and liabilities:
Accounts receivable 4,441 (2,289) (3,056)
Inventories 4,964 5,162 (6,048)
Prepaid expenses and other current assets (489) (2,654) (750)
Foundry investments, advances and other assets (199) (25,154) (7,439)
Accounts payable and accrued expenses 415 3,920 (739)
Accrued payroll obligations 2,342 1,583 2,192
Income taxes payable 775 3,428 (4,018)
Deferred income (750) 2,478 1,369
----------------------------------
Net cash provided by operating activities 63,709 49,824 33,120
----------------------------------
Cash flow from investing activities:
Purchase of short-term investments, net (33,367) (32,068) (14,128)
Foundry investments -- (10,164) (25,800)
Capital expenditures (18,387) (18,825) (10,561)
----------------------------------
Net cash used by investing activities (51,754) (61,057) (50,489)
----------------------------------
Cash flow from financing activities:
Repurchase of common stock, net (9,158) -- --
Net proceeds from issuance of common stock 16,160 17,628 16,718
----------------------------------
Net cash provided by financing activities 7,002 17,628 16,718
----------------------------------
Net increase (decrease) in cash and cash equivalents 18,957 6,395 (651)
Beginning cash and cash equivalents 60,344 53,949 54,600
----------------------------------
Ending cash and cash equivalents $ 79,301 $ 60,344 $ 53,949
- ----------------------------------------------------------------------------------------------
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS Lattice Semiconductor Corporation, (the "Company"), founded
in 1983 and based in Hillsboro, Oregon, designs, develops and markets high
performance programmable logic devices ("PLDs") and related development system
software. The Company is the inventor and world's leading supplier of in-system
programmable ("ISP-TM-") logic devices. PLDs are standard semiconductor
components that can be configured by the end customer as specific logic
functions, enabling shorter design cycle times and reduced development costs.
The Company's end customers are primarily original equipment manufacturers
("OEMs") of communications, computing, industrial controls and military systems.
Approximately one-half of the Company's revenue is derived from export sales,
mainly to Europe and Asia.

FISCAL REPORTING PERIOD AND PRINCIPLES OF CONSOLIDATION The Company reports on a
52 or 53 week fiscal year, which ends on the Saturday closest to March 31. The
fiscal year ended April 3, 1999 was a 53 week fiscal year. The accompanying
consolidated financial statements include the accounts of Lattice Semiconductor
Corporation and its wholly owned foreign subsidiaries, Lattice GmbH, Lattice
Semiconducteurs SARL, Lattice Semiconductor KK, Lattice Semiconductor Shanghai
Co., Ltd., Lattice Semiconductor Asia Ltd., Lattice Semiconductor International
Ltd., Lattice Semiconductor UK Ltd. and Lattice Semiconductor AB. The assets,
liabilities, and results of operations of these entities were not material for
any of the years presented in the consolidated financial statements and all
intercompany accounts and transactions have been eliminated.

CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS The Company considers all highly
liquid investments, which are readily convertible into cash and have original
maturities of three months or less, to be cash equivalents. Short-term
investments, which are relatively less liquid and have maturities of less than
one year, are composed of corporate auction preferred stocks ($131.4 million),
municipal and local government obligations ($64.8 million), Federal agency
obligations ($16.9 million), time deposits ($16.9 million) and commercial paper
($10.1 million) at April 3, 1999.

The Company accounts for its short-term investments as held- to-maturity,
which are stated at amortized cost with corresponding premiums or discounts
amortized over the life of the investment to interest income. Amortized cost
approximates market value at April 3, 1999.

FINANCIAL INSTRUMENTS All of the Company's significant financial assets and
liabilities are recognized in the Consolidated Balance Sheet as of April 3, 1999
and March 28, 1998. The carrying value of the Company's financial instruments
approximate current market value except foundry equity investments in Taiwan
which are either not readily marketable or where market prices are not
necessarily indicative of realizable value. The Company estimates the fair value
of its cash and cash equivalents, short-term investments, accounts receivable,
other current assets and current liabilities based upon existing interest rates
related to such assets and liabilities compared to the current market rates of
interest for instruments of similar nature and degree of risk.

DERIVATIVE FINANCIAL INSTRUMENTS In order to minimize exposure to foreign
exchange risk with respect to its long-term investments made with foreign
currencies as further described in note 4 of notes to consolidated financial
statements, the Company has at times entered into foreign forward exchange
contracts in order to hedge these transactions. These contracts are accounted
for as identifiable hedges against firm Company commitments. Realized gain or
loss with respect to these contracts for the fiscal periods presented was not
material. As of April 3, 1999, the Company had no open foreign exchange
contracts for the purchase or sale of foreign currencies. The Company does not
enter into derivative financial instruments for trading purposes.

FOREIGN EXCHANGE The majority of the Company's silicon wafer purchases are
denominated in Japanese yen. The Company maintains yen-denominated bank accounts
and bills its Japanese customers in yen. The yen bank deposits utilized to hedge
yen-denominated wafer purchases are accounted for as identifiable hedges against
specific and firm wafer purchases. Gains or losses from foreign exchange rate
fluctuations on unhedged balances denominated in foreign currencies are
reflected in other income. Realized and unrealized gains or losses were not
significant for the fiscal periods presented.

CONCENTRATIONS OF CREDIT RISK Financial instruments which potentially expose the
Company to concentrations of credit risk consist primarily of short-term
investments and trade receivables. The Company places its investments through
several financial institutions and mitigates the concentration of credit risk by
placing percentage limits on the maximum portion of the investment portfolio
which may be invested in any one investment instrument. Investments consist
primarily of A1 and P1 or better rated U.S. commercial paper, U.S. government
agency obligations and other money market instruments, "AA" or better rated
municipal obligations, money market preferred stocks and other time deposits.
Concentrations of credit risk with respect to trade receivables are mitigated by
a geographically diverse customer base and the Company's credit and collection
process. The Company performs credit evaluations for all customers and secures
transactions with letters of credit or advance payments where necessary.
Write-offs for uncollected trade receivables have not been significant to date.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE Revenue from sales to OEM customers
is recognized upon shipment. Certain of the Company's sales are made to
distributors under agreements providing price protection and right of return on
unsold merchandise. Revenue and cost relating to such distributor sales are
deferred until the product is sold by the distributor and related revenue and
costs are then reflected in income. Accounts receivable are shown net of
allowance for doubtful accounts of $881,000 and $797,000 at April 3, 1999 and
March 28, 1998, respectively.

INVENTORIES Inventories are stated at the lower of first-in, first-out cost or
market.

LONG-LIVED ASSETS During the fiscal year ended March 29, 1997, the Company
adopted Statement of Financial Accounting Standards No. 121 (SFAS 121),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," which requires the Company to review the impairment of
long-lived assets whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The adoption of SFAS 121 did
not have a material impact on the Company's financial condition or results of
operations.

PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation
is computed using the straight-line method for financial reporting purposes over
the estimated useful lives of the related assets, generally three to five years
for equipment and software and thirty years for buildings. Accelerated methods
of computing depreciation are generally used for income tax purposes.

TRANSLATION OF FOREIGN CURRENCIES The Company translates accounts denominated in
foreign currencies in accordance with SFAS 52, "Foreign Currency Translation."
Translation adjustments related to the consolidation of foreign subsidiary
financial statements have not been significant to date.

RESEARCH AND DEVELOPMENT Research and development costs are expensed as
incurred.

STOCK-BASED COMPENSATION The Company accounts for its employee and director
stock options and employee stock purchase plan in accordance with provisions of
Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock
Issued to Employees." During 1995, the Financial Accounting Standards Board
("FASB") issued SFAS 123, "Accounting for Stock-Based Compensation." SFAS 123,
effective for fiscal years beginning after December 31, 1995, provides an
alternative to APB 25, but allows companies to account for employee and director
stock-based compensation under the current intrinsic value method as prescribed
by APB 25. The Company has continued to account for its employee and director
stock plans in accordance with APB 25. Additional pro forma disclosures as
required under SFAS 123 are presented in note 7 of notes to consolidated
financial statements.

NET INCOME PER SHARE Net income per share is computed based on the weighted
average number of shares of common stock and common stock equivalents assumed to
be outstanding during the period (using the treasury stock method). Common stock
equivalents consist of stock options and warrants to purchase common stock.

In February 1997, the FASB issued SFAS 128, "Earnings Per Share," which is
effective for the Company for periods ending after December 15, 1997.
Accordingly, the Company adopted this pronouncement in the quarter ended
December 27, 1997. Primary net income per share as previously reported has been
replaced by "basic net income per share" and "diluted net income per share."
Prior period results have been restated to conform to the new presentation.

The most significant difference between basic and diluted net income per
share is that basic net income per share does not treat potentially dilutive
securities such as options and warrants as outstanding. For the Company, there
is no difference between diluted net income per share and primary net income per
share as previously reported. A reconciliation of the numerators and
denominators of basic and diluted net income per share is presented below:

<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------
(IN THOUSANDS, APRIL 3, MARCH 28, MARCH 29,
EXCEPT FOR PER SHARE DATA) 1999 1998 1997
- --------------------------------------------------------------------
<S> <C> <C> <C>
Basic and diluted net income $42,046 $56,567 $45,005
- -------------------------------------------------------------------
Shares used in basic net income
per share calculations 23,487 23,239 22,460
Dilutive effect of stock options
and warrants 332 655 513
- -------------------------------------------------------------------
Shares used in diluted net income
per share calculations 23,819 23,894 22,973
- -------------------------------------------------------------------
Basic net income per share $ 1.79 $ 2.43 $ 2.00
- -------------------------------------------------------------------
Diluted net income per share $ 1.77 $ 2.37 $ 1.96
- -------------------------------------------------------------------
</TABLE>

STATEMENT OF CASH FLOWS Income taxes paid approximated $16.4 million, $23.1
million and $22.6 million in fiscal 1999, 1998, and 1997, respectively. Interest
paid does not differ materially from interest expense, which aggregated
approximately $273,000, $83,000 and $152,000 in fiscal 1999, 1998 and 1997,
respectively.

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 of assets and liabilities and
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.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NEW ACCOUNTING PRONOUNCEMENTS In June 1997, the FASB issued SFAS 130, "Reporting
Comprehensive Net Income." Under SFAS 130, the Company is required to report
comprehensive income and its components in its consolidated financial
statements, in addition to net income. For the Company, comprehensive income
consists principally of net income. However, it also consists of translation of
net assets held in foreign subsidiaries and other minor items. This portion of
comprehensive income is included in the accompanying Consolidated Statement of
Changes in Stockholders' Equity as "Other comprehensive income." The Company
adopted this pronouncement in the first quarter of fiscal 1999.

Also in June 1997, the FASB issued SFAS 131, "Disclosures About Segments of
an Enterprise and Related Information." This pronouncement, which supercedes
SFAS 14, "Financial Reporting for Segments of a Business Enterprise",
establishes standards for the way companies report information about operating
segments for the fiscal years beginning after December 15, 1997. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The Company adopted this pronouncement in
fiscal 1999.

In March 1998, the AICPA issued Statement of Position ("SOP") 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use". In addition to prescribing accounting treatment for these costs,
the SOP also provides guidance related to the accounting for costs incurred for
software upgrades and enhancements. This pronouncement was adopted during fiscal
1999 and did not have a significant impact on the consolidated financial
statements.

In June 1998, the FASB issued SFAS 133, "Accounting for Derivatives
Instruments and Hedging Activities." SFAS 133 establishes new accounting
treatment for derivatives and hedging activities and supersedes and amends a
number of existing accounting standards. For the Company, this pronouncement
will be effective in fiscal year 2002, and is not anticipated to have a material
effect on the consolidated financial statements.

NOTE 2. INVENTORIES

<TABLE>
<CAPTION>
APRIL 3, MARCH 28,
(IN THOUSANDS) 1999 1998
- ----------------------------------------
<S> <C> <C>
Work in progress $10,956 $12,675
Finished goods 6,727 9,972
------------------
$17,683 $22,647
- ----------------------------------------
</TABLE>

NOTE 3. PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
APRIL 3, MARCH 28,
(IN THOUSANDS) 1999 1998
- ------------------------------------------------------------------
<S> <C> <C>
Land $ 2,099 $ 2,098
Buildings 7,135 7,135
Construction in progress 18,768 6,750
Computer and test equipment 68,017 62,863
Office furniture and equipment 3,116 3,054
Leasehold and building improvements 2,643 2,547
---------------------
101,778 84,447
Accumulated depreciation and amortization (56,785) (47,777)
---------------------
$ 44,993 $ 36,670
- ------------------------------------------------------------------
</TABLE>

NOTE 4. FOUNDRY INVESTMENTS, ADVANCES AND OTHER ASSETS

<TABLE>
<CAPTION>
APRIL 3, MARCH 28,
(IN THOUSANDS) 1999 1998
- ------------------------------------------------------------------
<S> <C> <C>
Foundry investments and other assets $ 63,275 $ 63,076
Wafer supply advances 51,262 51,262
---------------------
$114,537 $114,338
- ------------------------------------------------------------------
</TABLE>

The Company entered into a series of agreements with United Microelectronics
Corporation ("UMC") in September 1995 pursuant to which the Company 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, the Company invested approximately $49.7 million between fiscal 1996
and fiscal 1998 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. This investment is accounted for at cost.

In October 1997, the above joint venture foundry was substantially
destroyed by fire. UMC, the majority owner of UICC, has informed the Company
that this loss has been substantially recovered by an insurance settlement and
additional investment income. Presently, the Board of UICC is considering
options ranging from rebuilding the foundry to dissolving UICC. Management
believes that UMC will continue to make alternative foundry capacity available
to the Company. Considering these circumstances, management believes the UICC
investment is not impaired. See note 13.

In July 1994, the Company signed an agreement with Seiko Epson Corporation
("Seiko Epson") and its affiliated U.S. distributor, Epson Electronics America,
Inc. ("EEA"), under which it advanced $44 million to be used to finance
additional sub-micron wafer manufacturing capacity and technological
development. The advance was completely repaid in the form of semiconductor
wafers over a multi-year period ending in fiscal 1998.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In March 1997, the Company entered into a second advance payment production
agreement with Seiko Epson and EEA under which it agreed to advance
approximately $85 million, payable upon completion of specific milestones, to
Seiko Epson to finance construction of an eight-inch sub-micron semiconductor
wafer manufacturing facility. Under the terms of the agreement, the advance is
to be repaid with semiconductor wafers over a multi-year period. No interest
income is recorded. The agreement calls for wafers to be supplied by Seiko Epson
through EEA pursuant to purchase agreements with EEA. The Company also has an
option under the agreement to advance Seiko Epson an additional $60 million for
additional wafer supply under similar terms. The first payment under this
agreement, approximately $17.0 million, was made during fiscal 1997. During
fiscal 1998, the Company made two additional payments aggregating approximately
$34.2 million.

NOTE 5. LEASE OBLIGATIONS

Certain facilities and equipment of the Company are leased under operating
leases, which expire at various times through fiscal 2001. Rental expense under
the operating leases was approximately $1,200,000, $1,026,000 and $984,000 for
fiscal 1999, 1998 and 1997, respectively. Future minimum lease commitments at
April 3, 1999 are as follows:

<TABLE>
<CAPTION>
Fiscal Year (in thousands)
- --------------------------------
<S> <C>
2000 $ 1,203
2001 947
-------
$ 2,150
- --------------------------------
</TABLE>

NOTE 6. INCOME TAXES

The components of the provision for income taxes for fiscal 1999, 1998 and 1997
are presented in the following table:

<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------
APRIL 3, MARCH 28, MARCH 29,
(IN THOUSANDS) 1999 1998 1997
- ----------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 18,678 $ 29,204 $ 22,308
State 1,468 2,712 2,390
----------------------------------
20,146 31,916 24,698
----------------------------------
Deferred:
Federal 93 (2,539) (1,829)
State 7 (236) (196)
----------------------------------
100 (2,775) (2,025)
----------------------------------
$ 20,246 $ 29,141 $ 22,673
- ----------------------------------------------------------
</TABLE>

Foreign income taxes were not significant for the fiscal years presented

The provision for income taxes differs from the amount of income tax determined
by applying the applicable U.S. statutory federal income tax rate to pretax
income as a result of the following differences:

<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------
APRIL 3, MARCH 28, MARCH 29,
(IN THOUSANDS) 1999 1998 1997
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Computed income tax expense
at the statutory rate $ 21,802 $ 29,998 $ 23,687
Adjustments for tax effects of:
State taxes, net 1,478 2,402 2,048
Research and development credits (270) (154) (62)
Nontaxable investment income (3,037) (3,009) (2,579)
Other 273 (96) (421)
-----------------------------------
$ 20,246 $ 29,141 $ 22,673
- --------------------------------------------------------------------------
</TABLE>

The components of the Company's net deferred tax asset are as follows:

<TABLE>
<CAPTION>
APRIL 3, MARCH 28,
(IN THOUSANDS) 1999 1998
- ----------------------------------------------------------------
<S> <C> <C>
Deferred income $ 7,547 $ 7,934
Expenses and allowances not currently
deductible 8,508 8,357
---------------------
Total deferred tax assets 16,055 16,291
Valuation allowance (1,655) (1,791)
---------------------
$14,400 $14,500
- ----------------------------------------------------------------
</TABLE>

The valuation allowance is recorded to reduce deferred tax assets which can only
be realized by earning taxable income in distant future years. Management
established the valuation allowance because it cannot determine if it is more
likely than not that such income will be earned.

NOTE 7. STOCKHOLDERS' EQUITY

COMMON STOCK On June 12, 1998, the Company's Board of Directors authorized
management to repurchase up to 1.2 million shares of the Company's common stock.
As of April 3, 1999, the Company had repurchased 337,500 shares at an aggregate
cost of approximately $9.2 million.

STOCK WARRANTS As of April 3, 1999, the Company has issued to a vendor warrants
to purchase 633,192 shares of common stock. Of this amount, 464,125 warrants
were issued and 340,500 exercised prior to fiscal 1997. During fiscal 1997,
67,419 warrants were issued and none were exercised. During fiscal 1998, a
warrant was issued to purchase 51,550 shares of common stock, earned ratably
from March 1997 through February 1998. Additionally, the vendor exercised
warrants for 123,625 shares at an average exercise price of $18.77 per share.
During fiscal 1999, a warrant was issued to purchase 50,098 shares of common
stock, earned ratably from March 1998 to February 1999.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

STOCK OPTION PLANS As of April 3, 1999, the Company had reserved 2,000,000 and
5,775,000 shares of common stock for issuance to officers and key employees
under the 1996 Stock Option Plan and 1988 Stock Option Plan, respectively. The
1996 Plan options generally vest over four years in increments as determined by
the Board of Directors and have terms up to ten years. The 1988 Plan options are
exercisable immediately and have terms up to ten years. The transfer of certain
shares of common stock acquired through the exercise of 1988 Plan stock options
is restricted under stock vesting agreements that grant the Company the right to
repurchase unvested shares at the exercise price if employment is terminated.
Generally, the Company's repurchase rights lapse quarterly over four years.

The 1993 Directors' Stock Option Plan provides for the issuance of stock options
to members of the Company's Board of Directors who are not employees of the
Company; 225,000 shares of the Company's Common Stock are reserved for issuance
thereunder. These options are granted at fair market value at the date of grant
and generally become exercisable quarterly over a four year period beginning on
the date of grant and expire five years from the date of grant.

The following table summarizes the Company's stock option activity and related
information for the past three years:

<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
APRIL 3, MARCH 28, MARCH 29,
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
NUMBER OF AVERAGE NUMBER OF AVERAGE NUMBER OF AVERAGE
SHARES UNDER EXERCISE SHARES UNDER EXERCISE SHARES UNDER EXERCISE
(NUMBER OF SHARES IN THOUSANDS) OPTION PRICE OPTION PRICE OPTION PRICE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning of
fiscal year 2,756 $40.38 2,290 $27.50 2,330 $22.20
Options granted 1,688 31.96 983 63.13 827 30.82
Options canceled (1,068) 58.82 (134) 39.78 (176) 28.31
Options exercised (439) 23.08 (383) 21.76 (691) 13.31
----------------------------------------------------------------------------
Options outstanding at end of fiscal year 2,937 $31.42 2,756 $40.38 2,290 $27.50
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>

The following table summarizes information about stock options outstanding at
April 3, 1999:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
(NUMBER OF SHARES IN THOUSANDS) REMAINING AVERAGE AVERAGE
NUMBER OF CONTRACT LIFE EXERCISE NUMBER OF EXERCISE
RANGE OF EXERCISE PRICES SHARES (IN YEARS) PRICE SHARES PRICE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$16.38 - $28.13 729 1.03 $25.77 513 $24.81
$31.00 - $31.49 919 3.61 31.00 39 31.00
$31.50 - $32.88 911 2.35 31.56 333 31.63
$33.56 - $37.00 274 1.20 35.76 172 36.28
$51.88 - $66.25 104 2.46 62.05 36 62.66
--------------------------------------------------------------------
2,937 2.31 $31.42 1,093 $30.16
- ---------------------------------------------------------------------------------------------------------
</TABLE>

Effective November 10, 1998, the Company offered employees the choice of
exchanging certain previously granted stock options for new stock options. The
new stock options have an exercise price of $31.00, the fair value of the
Company's common stock on the effective date, and vest over four years from the
effective date. As a result, approximately 941,970 options were exchanged. The
exchanged stock options had a weighted average exercise price of $61.46.

STOCK PURCHASE PLAN The Company's employee stock purchase plan was approved by
the stockholders in August 1990, and became effective January 1, 1991. The plan
permits eligible employees to purchase shares of common stock through payroll
deductions, not to exceed 10% of the employee's compensation. The purchase price
of the shares is the lower of 85% of the fair market value of the stock at the
beginning of each six-month period or 85% of the fair market value at the end of
such period, but in no event less than the book value per share at the mid-point
of each offering period. Amounts accumulated through payroll deductions during
the offering period are used to purchase shares on the last day of the offering
period. Of the 700,000 shares authorized to be issued under the plan, 64,009,
34,945 and 57,421 shares were issued during fiscal 1999, 1998 and 1997,
respectively, and 208,855 shares were available for issuance at April 3, 1999.

PRO FORMA DISCLOSURES The Company accounts for its stock options and employee
stock purchase plan in conformity with APB 25 and has

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

adopted the additional proforma disclosure provisions of SFAS 123.

The fair value, as defined by SFAS 123, for stock options and employee stock
plan purchase rights was estimated on the date of grant using the Black-Scholes
option pricing model with the following assumptions:

<TABLE>
<CAPTION>
GRANTS FOR YEARS ENDED
------------------------------------------------
APRIL 3, MARCH 28, MARCH 29,
1999 1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Stock options:
Expected volatility 43.9% 48.6% 46.4.%
Risk-free interest rate 4.7% 5.6% 6.1%
Expected life from vesting date 1.3 years 1.2 years 0.9 years
Dividend yield 0% 0% 0%
Stock purchase rights:
Expected volatility 43.6% 36.0% 36.7%
Risk-free interest rate 4.8% 5.9% 5.3%
Expected life 6 months 6 months 6 months
Dividend yield 0% 0% 0%
- -----------------------------------------------------------------------------------------
</TABLE>

The Black-Scholes option pricing model was developed for use in estimating the
fair value of freely tradable, fully transferable options without vesting
restrictions. The Company's stock options have characteristics which
significantly differ from those of freely tradable, fully transferable options.
The Black-Scholes option pricing model also requires highly subjective
assumptions, including expected stock price volatility and expected stock option
term which greatly affect the calculated fair value of an option. The Company's
actual stock price volatility and option term may be materially different from
the assumptions used herein.

The resultant grant date weighted-average fair values calculated using the
Black-Scholes option pricing model and the noted assumptions for stock options
granted was $10.37, $25.20 and $11.54, and for stock purchase rights $9.53,
$12.30 and $6.80, for fiscal 1999, 1998 and 1997, respectively.

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information is as follows:

<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------
APRIL 3, MARCH 28, MARCH 29,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998 1997
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Pro forma net income $32,425 $48,777 $40,681
Pro forma basic earnings per share $ 1.38 $ 2.10 $ 1.81
Pro forma diluted earnings per share $ 1.37 $ 2.05 $ 1.78
- ------------------------------------------------------------------------
</TABLE>

Because the SFAS 123 pro forma disclosure applies only to options granted
subsequent to April 1, 1995, its pro forma effect will not be fully reflected
until subsequent years. The effects on pro forma disclosures of applying SFAS
123 are not likely to be representative of the effects on pro forma disclosures
in future years.

SHAREHOLDER RIGHTS PLAN A shareholder rights plan approved on September 11, 1991
provides for the issuance of one right for each share of outstanding common
stock. With certain exceptions, the rights will become exercisable only in the
event that an acquiring party accumulates beneficial ownership of 20% or more of
the Company's outstanding common stock or announces a tender or exchange offer,
the consummation of which would result in ownership by that party of 20% or more
of the Company's outstanding common stock. The rights expire on September 11,
2001 if not previously redeemed or exercised. Each right entitles the holder to
purchase, for $60.00, a fraction of a share of the Company's Series A
Participating Preferred Stock with economic terms similar to that of one share
of the Company's common stock. The Company will generally be entitled to redeem
the rights at $0.01 per right at any time on or prior to the tenth day after an
acquiring person has acquired beneficial ownership of 20% or more of the
Company's common stock. If, prior to the redemption or expiration of the rights,
an acquiring person or group acquires beneficial ownership of 20% or more of the
Company's outstanding common stock, each right not beneficially owned by the
acquiring person or group will entitle its holder to purchase, at the rights'
then current exercise price, that number of shares of common stock having a
value equal to two times the exercise price.

NOTE 8. TRANSACTIONS WITH PRINCIPAL SUPPLIERS

The majority of the Company's silicon wafers are currently manufactured by Seiko
Epson in Japan and are sold to the Company through Seiko Epson's affiliated U.S.
distributor, EEA. In connection with the series of agreements entered into with
UMC as described in note 4 of notes to consolidated financial statements, the
Company currently receives production wafers. A significant interruption in
supply from Seiko Epson through EEA, or from UMC, would have a material adverse
effect on the Company's business.

The Company has signed two advance payment production agreements with Seiko
Epson and EEA, in July 1994 and March 1997, respectively, under which it has
advanced or will advance cash to be used in conjunction with the construction of
additional wafer capacity, with the advances being repaid in the form of
semiconductor wafers over a multi-year period. These transactions are more fully
described in note 4 of notes to consolidated financial statements.

The Company continues to purchase a portion of its wafer supply from Seiko
Epson for cash using commercial terms. Wafer purchases totaled $20.8 million,
$20.9 million and $22.8 million for fiscal 1999, 1998 and 1997, respectively.
Accounts payable and accrued expenses at April 3, 1999 and March 28, 1998
include $3.4 and $4.5 million, respectively, due this vendor. Open purchase
commitments to this vendor approximated $9.2 million at April 3, 1999.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9. EMPLOYEE BENEFIT PLANS

PROFIT SHARING PLAN The Company initiated a profit sharing plan effective April
1, 1990. Under the provisions of this plan, as approved by the Board of
Directors, a percentage of the operating income of the Company, as defined and
calculated at the end of the second and fourth quarter of each fiscal year for
each respective six-month period, is paid equally to qualified employees. In
fiscal 1999, 1998 and 1997, approximately $2.1 million, $3.0 million and $2.4
million, respectively, were charged against operations in connection with the
plan.

QUALIFIED INVESTMENT PLAN In 1990, the Company adopted a 401(k) plan, which
provides participants with an opportunity to accumulate funds for retirement.
Under the terms of the plan, eligible participants may contribute up to 15% of
their eligible earnings to the plan Trust. The plan allows for discretionary
matching contributions by the Company; no such contributions occurred through
fiscal 1996. Beginning in fiscal 1997, the Company matched eligible employee
contributions of up to 5% of base pay. Company contributions are discretionary
and vest over four years.

NOTE 10. COMMITMENTS AND CONTINGENCIES

The Company is exposed to certain asserted and unasserted potential claims.
Patent and other proprietary rights infringement claims are common in the
semiconductor industry. There can be no assurance that, with respect to
potential claims made against the Company, the Company could obtain a license on
terms or under conditions that would not have a material adverse effect to the
Company.

NOTE 11. RELATED PARTY

Larry W. Sonsini is a member of the Company's Board of Directors and is
presently the Chairman of the Executive Committee of Wilson Sonsini Goodrich &
Rosati, a law firm that provides corporate legal services to the Company. Legal
services billed to the Company aggregated approximately $61,000, $51,000 and
$61,000, respectively, for fiscal 1999, 1998 and 1997. Amounts payable to the
law firm were not significant at April 3, 1999 or March 28, 1998.

NOTE 12. SEGMENT AND GEOGRAPHIC INFORMATION

The Company operates in one industry segment comprising the design, development,
manufacture and marketing of high performance programmable logic devices. The
Company's sales by major geographic area were as follows:

<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------
APRIL 3, MARCH 28, MARCH 29,
(IN THOUSANDS) 1999 1998 1997
- -----------------------------------------------------------
<S> <C> <C> <C>
United States $100,778 $120,278 $104,249
Export sales:
Europe 53,649 61,243 39,863
Asia 34,680 55,853 52,624
Other 10,965 8,520 7,353
-------- -------- --------
99,294 125,616 99,840
-------- -------- --------
$200,072 $245,894 $204,089
- -----------------------------------------------------------
</TABLE>

More than 90% of the Company's property and equipment is located in the United
States. Other long-lived assets located outside the United States consist
primarily of the foundry investments and advances described in note 4 of notes
to consolidated financial statements.

No individual customer accounted for more than 10% of revenue in fiscal 1999,
1998 or 1997. No export sales to customers or distributors of any individual
country accounted for more than 10% of revenue in fiscal 1999, 1998 or 1997.

NOTE 13. SUBSEQUENT EVENTS

On April 21, 1999, the Company announced a definitive agreement to acquire
Vantis Corporation, a wholly owned subsidiary of Advanced Micro Devices, Inc.
("AMD"), for $500 million in cash, including the acquisition of an estimated
$60 million in net tangible assets. This acquisition was completed June 15,
1999 and was financed with approximately $250 million in existing cash and
$250 million in bank borrowings. Vantis Corporation designs, develops and
markets programmable logic devices. The acquisition will be accounted for as
a purchase.

In June 1999, the Boards of UMC and UICC (see note 4) voted to merge UICC into
UMC. The matter is scheduled for a shareholder vote in July 1999. The Company is
assured by UMC that capacity rights will be preserved after the proposed merger.

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Lattice Semiconductor Corporation

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Lattice Semiconductor Corporation and its subsidiaries at April 3, 1999 and
March 28, 1998, and the results of their operations and their cash flows for
each of the three years in the period ended April 3, 1999, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

/s/ PricewaterhouseCoopers LLP

Portland Oregon,
April 21, 1999, except as to Note 13, which is as of June 15, 1999

<PAGE>

CORPORATE DIRECTORY

BOARD OF DIRECTORS
Cyrus Y. Tsui
Chairman of the Board, President and Chief
Executive Officer

Mark O. Hatfield
Former U.S. Senator

Daniel S. Hauer(1)
Consultant to EEA
Electronics America, Inc.

Harry A. Merlo(1),(2)
President,
Merlo Corporation

Douglas C. Strain(2)
Vice Chairman and Founder,
Electro
Scientific Industries, Inc.

Larry W. Sonsini
Partner and Chairman of the
Executive Committee,
Wilson, Sonsini, Goodrich & Rosati

OFFICERS
Cyrus Y. Tsui
Chairman of the Board, President and Chief
Executive Officer

Steven A. Laub
Senior Vice President and Chief Operating
Officer

Stephen A. Skaggs
Senior Vice President, Chief
Financial Officer and Secretary

Stephen M. Donovan
Corporate Vice President, Sales

Jonathan K. Yu
Corporate Vice President,
Business Development

Randy D. Baker
Vice President, Manufacturing

Martin R. Baker
Vice President and General Counsel

Albert L. Chan
Vice President and General Manager
Lattice Silicon Valley

Thomas J. Kingzett
Vice President, Reliability and Quality
Assurance

Stanley J. Kopec
Vice President, Corporate Marketing

Rodney F. Sloss
Vice President, Finance

Kenneth K. Yu
Vice President and Managing Director,
Lattice Asia

Technology Advisor to the Office
of the President

CORPORATE HEADQUARTERS
Lattice Semiconductor Corporation
5555 N.E. Moore Court
Hillsboro, Oregon 97124-6421
Telephone: (503) 268-8000
Facsimile: (503) 268-8347

LEGAL COUNSEL
Wilson, Sonsini, Goodrich & Rosati
Palo Alto, California

INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
Portland, Oregon

REGISTRAR AND TRANSFER AGENT
ChaseMellon Shareholder Services, L.L.C.
Shareholder Relations
P.O. Box 3315
South Hackensack, NJ 07606
or
85 Challenger Road
Ridgefield Park, NJ 07660
(800) 522-6645
TDD for Hearing Impaired:
(800) 231-5469
Foreign Shareholders: (201) 329-8660
TDD Foreign Shareholders
(201) 329-8354
Website Address:
www.chasemellon.com

ANNUAL MEETING

The annual meeting of stockholders for Lattice Semiconductor
Corporation will be held at the Embassy Suites Hotel, 9000 S.W. Washington
Square Road, Tigard, Oregon 99223 on Monday, August 9, 1999, at 1:00 PM.

FORM 10-K

Financial information, including the Company's Annual Report on Form
10-K as filed with the Securities and Exchange Commission, and on quarterly
operating results is available by accessing our investor relations web site
located at http://www.lscc.com or on request by telephoning the Lattice
shareholder relations department.

COMMON STOCK
Lattice Semiconductor Corporation's common stock is traded on the NASDAQ
National Market System under the symbol "LSCC."

STOCK PRICE HISTORY
The Company's common stock is traded on the over-the-counter market and prices
are quoted on the NASDAQ National Market System under the symbol "LSCC." The
following table sets forth the high and low sale prices for the last two fiscal
years.

<TABLE>
<CAPTION>
Low High
- -------------------------------------------
<S> <C> <C>
Fiscal 1998:
First Quarter 41 1/2 62 5/8
Second Quarter 54 7/8 74 1/2
Third Quarter 45 67 1/2
Fourth Quarter 39 3/4 57

Fiscal 1999:
First Quarter 25 5/8 54 5/8
Second Quarter 23 1/4 36 5/8
Third Quarter 18 7/8 46 1/2
Fourth Quarter 37 3/4 56 5/16
</TABLE>

<PAGE>

EXHIBIT 21.1

LATTICE SEMICONDUCTOR CORPORATION

SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>

Name Jurisdiction of Incorporation
---- -----------------------------
<S> <C>
1. Lattice GmbH Germany

2. Lattice Semiconducteurs SARL France

3. Lattice Semiconductor AB Sweden

4. Lattice Semiconductor Asia Limited Hong Kong

5. Lattice Semiconductor International Limited Jamaica

6. Lattice Semiconductor KK Japan

7. Lattice Semiconductor (Shanghai) Co. Ltd. China

8. Lattice UK Limited United Kingdom

</TABLE>

<PAGE>

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-33933, No. 33-35259, No. 33-38521, No.
33-76358, No. 33-51232, No. 33-69496, No. 333-15737, No. 333-40031, No.
333-69467, and 333-81035) and the Registration Statements on Form S-3 (No.
33-57512, No. 333-15741, and No. 333-40043) of Lattice Semiconductor
Corporation of our report dated April 21, 1999 except as to Note 13, which is
as of June 15, 1999 which appears in the Annual Report to Stockholders, which
is incorporated by reference in this Annual Report on Form 10-K. We also
consent to the incorporation by reference of our report dated April 21, 1999
relating to the financial statement schedule, which appears in this Form 10-K.

PricewaterhouseCoopers LLP

Portland, Oregon
June 30, 1999

<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-03-1999
<PERIOD-START> MAR-29-1998
<PERIOD-END> APR-03-1999
<CASH> 79,301
<SECURITIES> 240,133
<RECEIVABLES> 23,788
<ALLOWANCES> (881)
<INVENTORY> 17,683
<CURRENT-ASSETS> 381,366
<PP&E> 101,778
<DEPRECIATION> (56,785)
<TOTAL-ASSETS> 540,896
<CURRENT-LIABILITIES> 57,162
<BONDS> 0
0
0
<COMMON> 236
<OTHER-SE> 483,498
<TOTAL-LIABILITY-AND-EQUITY> 540,896
<SALES> 200,072
<TOTAL-REVENUES> 200,072
<CGS> 78,440
<TOTAL-COSTS> 148,448
<OTHER-EXPENSES> 611
<LOSS-PROVISION> 70
<INTEREST-EXPENSE> (11,279)
<INCOME-PRETAX> 62,292
<INCOME-TAX> 20,246
<INCOME-CONTINUING> 42,046
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,046
<EPS-BASIC> 1.79
<EPS-DILUTED> 1.77

</TABLE>