LSCC Details

Lattice Semiconductor Corporation (NASDAQ: LSCC) is the low power programmable leader. The company along with its subsidiaries is involved in developing technologies and monetize by way of differentiated programmable logic semiconductor products, system solutions, design services, and licenses. The company solves customer problems across the network, from the Edge to the Cloud, across the communications, computing, industrial, automotive and consumer markets.

Decent Financial Performance in Q4FY21 and FY21 (For the Period Ended 1 January 2022)

• The company has posted fourth consecutive quarter of double-digit growth year-over-year, with revenue increasing 32.3% YoY in Q4FY21. Resultantly, the company’s revenue grew by 3% YoY in FY21.
• Gross margin expanded 370 basis points on a GAAP basis and 350 basis points on a non-GAAP basis compared to a year ago period, with net income growing 78% on a GAAP basis and 65% on a non-GAAP basis versus Q4FY20.
• For FY21, the company has generated 83% higher cash flow from operations compared to the previous year and have repurchased $70 million of the company's shares.

Exhibit 1: Performance Trend

Source: Analysis by Kalkine Group

Expanded Capabilities

The company expanded capabilities of the Lattice mVision™ Solution Stack that provides flexible interface bridging and higher quality image signal processing (ISP) performance. LSCC has also launched new hardware boards built on the latest Lattice Nexus™ platform, which will fast-track the development of low power embedded vision applications comprising Machine Vision, Robotics, ADAS, Video Surveillance, and Drones.        The newest release of the Lattice mVision Solution Stack (v 3.0) offers improved interface bridging support for higher precision, better accuracy, and improved flexibility across a wider range of Embedded Vision applications.

Deepened Collaboration

LSCC has collaborated with the OPC® Foundation, an industry consortium, which is involved in creating and maintaining interoperability standards for industrial automation applications. This collaboration will allow the company to team up with other industry leaders to fast-track industrial automation applications. This will also strengthen its support of the OPC Unified Architecture (UA) standard and provide future factories with new and expanded versions of its industrial solutions, including the Lattice Automate™ solution stack.

Key Metrics

The company’s EBITDA margin and ROE grew sharply. The company’s cash conversion cycle improved to 118.9 days in FY21 . Notably, Debt to Equity ratio improved significantly in FY21 depicting reasonable leverage position of the company.

Exhibit 2: Key Financial Metrics

Source: Analysis by Kalkine Group

Top 10 Shareholders: The top 10 shareholders together form ~54.21% of the total shareholding while the top four constitute the maximum holding.

Exhibit 3: Top 10 Shareholders

Source: Analysis by Kalkine Group

Key Risks

Besides the impact from Covid-19, the company is dependent on a concentrated number of subcontractors to supply and fabricate silicon wafers and to perform assembly and test operations for its semiconductor products. Moreover, it is susceptible to the risk of shortages in, or increased costs of, wafers and materials, which could unfavorably impact its gross margins and revenues.

Outlook

The management is content with the company’s robust revenue growth and profit expansion in Q4FY21, as LSCC stays focused on implementing to its financial model. Further, the management remain excited about FY22 as the company further executes to its long-term strategy and develop momentum across its customer base. Notably, the company has guided to achieve revenue in the range of $141 million and $151 million in Q1FY22 and the gross margin percentage is anticipated to remain at 66% plus or minus 1% on a non-GAAP basis. Moreover, the company forecasts total operating expenses of between $46 million and $48 million on a non-GAAP basis for Q1FY22.

Valuation Methodology: Price/EPS Based Relative Valuation (Illustrative)

Technical Overview

Chart

Source: REFINITIV, Note: Purple color line reflects Relative Strength Index (14-Period)

Stock Recommendation

The stock has been valued using Price/EPS multiple based relative valuation (on an illustrative basis) and the target price so arrived reflects a rise of low double-digit (in % terms). A slight premium has been applied to peer average Price/EPS multiple (NTM basis) considering its strong revenue growth and profit expansion in Q4FY21 and decent guidance for Q1FY22.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Considering the aforementioned factors, we give a “Buy” recommendation on the stock at the closing market price of US$55.38 per share, up by 8.57% on 15^th March 2022.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices

Disclaimer

Kalkine New Zealand Limited is authorised to provide general advice only. The information on this website does not take into account any of your investment objectives, financial situation or needs. Before you make a decision about whether to acquire a financial product, you should obtain the Product Disclosure Statement from the product issuer. You should consider the appropriateness of advice taking into account your own objectives, financial situation and needs and seek independent financial advice before making any financial decisions.