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.

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.
• In Q4 FY 2021, 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.
• 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

Superior Supplier Globally

The company is the largest volume supplier of FPGA globally and is also the tier 1 supplier with 38 years of innovation. FPGAs are regular arrays of logic that can be custom configured by the user through software. To facilitate its customers in accessing the market faster, the company backed its FPGAs with IP cores, reference designs, development kits, and design software.

Expanding Its Leadership Portfolio

LSCC has built integrated system-level solution stacks, comprising Lattice sensAI™ for Edge AI applications, Lattice mVision™ for low power embedded vision, Lattice Sentry™ for implementing hardware security, and Lattice Automate™ for industrial automation and robotics. Further, the company is lined up with Lattice 5G ORAN Stack to be launched in H1 2022 and the Next Solution Stack. It’s hardware devices Lattice AVANT^TM is scheduled for launch in H2 2022 and the Lattice Nexus #5 to be introduced in H1 2022.  

Expanded Capabilities

The company, recently, announced updates to the Lattice mVision™ Solution Stack with expanded capabilities which deliver flexible interface bridging as well as 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.

Recent Update

The company recently mentioned that it will showcase presentation on Cyber Resiliency Through Firmware Protections and Supply Chain Security at RSA® Conference 2022, which is scheduled on June 9, 2022.

Deepened Collaboration

LSCC, recently, 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.

Key Metrics

The company’s EBITDA margin and ROE grew sharply. The company’s cash conversion cycle improved to 118.9 days in FY21 from 165.3 days in FY17. Notably, Debt to Equity ratio improved significantly to 0.38x in FY21 compared to 1.38x in FY17 and 0.44x in FY20, 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 ~54.26% of the total shareholding while the top four constitute the maximum holding.

Exhibit 3: Top 10 Shareholders

Source: Analysis by Kalkine Group

Key Risks

The company is exposed to the risk of impact of the COVID-19 pandemic on its business. 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 remains excited about FY22 as the company further executes 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 between $46 million and $48 million on a non-GAAP basis for Q1FY22.

Recently, the company announced that it will hold its first quarter 2022 conference call on May 3, 2022.

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 P/E 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 P/E 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$47.25 per share, down by 3.39% on 26^th April 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

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.