Lattice Semiconductor Q4 Earnings Preview: Time to Buy (NASDAQ:LSCC)

Last June, deep in the throes of the semiconductor selloff, I penned an article wherein I advised investors to keep FPGA maker Lattice Semiconductor (NASDAQ:LSCC) on their radar. Some of the reasons why I felt LSCC was a good long-term investment was the company’s successful transition to primarily a provider of low-cost, small-form-factor FPGA products, good execution by the new executive team that came in 2018 as well as a slew of product innovations. LSCC stock hit bottom around the time my article was published after rocketing 65.7%, including gaining 18.4% in the year-to-date. It seems that the semiconductor selloff is also done with the industry’s famous benchmark, iShares Semiconductor ETF (SOXX), up 34.5% since it hit a multi-year bottom in mid-October and has also climbed 16.6% YTD.

Lattice has achieved some important milestones since June, but I believe the launch of their Lattice Avant platform is, by far, the most significant.

Lattice Avant Doubles Addressable Market

On Dec. 5, 2022, Lattice unveiled Lattice Avant, which the company says is ”…a new FPGA platform purpose-built to bring the company’s power efficient architecture, small size, and performance leadership to mid-range FPGAs, offering best-in-class power efficiency, advanced connectivity, and optimized compute. The Lattice Avant-E family of mid-range FPGAs are the company’s first products built on the 16nm FinFET Avant platform. The Avant-E family delivers the highest DSP and embedded memory to logic ratio for mid-range FPGAs, enabling intelligence at the edge for applications in automotive, communications, compute, and industrial market segments. ”

The Avant platform will help Lattice to address and also expand its set of customer applications across all its key markets. Company executives say the new product will create new greenfield revenue opportunities for Lattice, doubling its addressable market from SAM of $3 billion to $6 billion. For some perspective, Lattice’s trailing 12-month sales clocked in at $626 million, meaning the company now has an admirable growth runway. Two weeks ago, the Avant platform was named a 2023 BIG Innovation Awards winner in the product category for its leadership power efficiency, performance, and small form factor. Back in December Lattice Semiconductor was named as the Most Respected Public Semiconductor Company at the 2022 Global Semiconductor Alliance Awards, making it the third year in a row it has picked the award.

It appears that Lattice’s new roadmap is unraveling as planned. Over the past three years, Lattice CEO Jim Anderson has continuously reiterated the company’s mission to become the “low power programmable leader,” a radical shift from the company’s recent past where it tried to cover many bases including getting into a bunch of only tangentially related businesses such as HDMI and USB-C. Lattice now has a laser focus on low-powered FPGA verticals with high ROIs including 5G, servers, industrial IoT, ADAS (Advanced Driver-Assistance Systems) among others. The FPGA maker will now focus on FPGAs in the 1 mW to 1-watt power range and 2 mm2 to 100 mm2. Rival companies like AMD (AMD)-owned Xilinx and Intel (INTC)-owned Altera serve the higher-end with larger power-hungry FPGAs that operate at around 200 watts and 3,000 mm2.

Meanwhile, the company’s pivotal Industrial and Automotive segment continues expanding at a fast clip-during Q3 2024 the segment’s revenue increased 15% sequentially and was up 45% on a year-over-year basis. The company expects this market to continue being a strong long-term growth opportunity as it continues to add applications in industrial automation and robotics as well as automotive, ADAS and infotainment systems. Back in August, the company launched the Lattice CertusPro NX FPGA family for Automotive and extended temperature applications. These new products combine automotive-grade features with the best-in-class power efficiency, performance, and small form factor found in all Lattice CertusPro NX FPGAs.

Earnings Preview

Lattice Semiconductor is expected to report Q4 2022 earnings on 02/13/2023 after market close. According to Zacks Investment Research, based on 5 analysts’ forecasts, the consensus EPS forecast for the quarter is $0.38, good for 81% Y/Y growth. Here’s the company’s guidance for the quarter:

• Revenue is expected to be between $170 million and $180 million, good for 23.4% Y/Y growth at the mid-point.

• Gross margin percentage is expected to be 69.5% plus or minus 1% on a non-GAAP basis, flat sequentially but a good 440 basis points higher than the previous year’s comparable quarter.

With a P/E Non-GAAP of 47.72 compared to the sector median of 18.67, LSCC shares appear expensive. Indeed, its price target of $68 suggests this stock has 11.6% downside compared to the current price of $75.88. However, I believe the company’s unique position as the low-power FPGA leader, fast top- and bottom-line growth as well as its pace of innovation means the shares will continue attracting a healthy premium. I think now is the right time to load up on LSCC shares for the long haul.