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 Q1FY22 (For the First Quarter Ended 2 April 2022)

• The company has posted strong revenue and profit growth in Q1FY22 with 30% YoY growth in revenue and 92% YoY increase in net income on a GAAP basis and 72% on a non-GAAP basis.
• The robust performance was driven by its strategic focus and expansion in secular growth markets, as well as fast growing product portfolio, and sustained emphasis on execution.
• The company has delivered a record operating profit of 25.1% on a GAAP basis and 36.3% on a non-GAAP basis. Gross margin further grew by 590 basis points on a GAAP basis and 600 basis points on a non-GAAP basis compared to Q1 2021.
• Its sustained focus on cash generation has delivered a 47% increase in operating cash flow in Q1 2022 compared to Q1 2021

Exhibit 1: Performance Trend

Source: Analysis by Kalkine Group

Expanded Capabilities

Based on the popular Lattice Nexus™ platform, the latest Lattice mVision™ Solution Stack enhancements help in accelerating the development of the low power embedded vision applications, including Machine Vision, Robotics, ADAS as well as Video Surveillance.

Bagged Multiple Awards for Cyber Security

In a notable achievement, the company has won multiple back-to-back cyber security awards for the second year in a row in Q1FY22. The company has won the Cyber Security Global Excellence Awards®, with both the Lattice SupplyGuard™ service and Lattice Sentry™ solution stack winning in the Cyber Security Solution & Service category.

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.

Caters to Diverse Customers’ Needs

The company is selling its products to wide-ranging customers globally in three primary end market groups comprising Communications and Computing, Industrial and Automotive, and Consumer. The company also provides IP licensing and services to these end markets. There exists various segment drivers across these end markets, comprising 5G infrastructure deployments, client computing platforms, and cloud and enterprise servers, in the communications and computing space. Further, the drivers in the industrial and automotive market include industrial Internet of Things, factory automation, robotics, and automotive electronics.

Key Metrics

The company’s EBITDA margin and ROE grew sharply in FY 2021 as compared to FY 2017. 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 ~54.24% 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 company witnessed momentum in product development in Q1FY22 with the commencement of production shipments for Lattice CertusPro™-NX to customers as well as augmented capabilities of Lattice mVision™ Solution Stack. Notably, the company has guided to achieve revenue in the range of $153 million and $163 million in Q2FY22 and the gross margin percentage is anticipated to remain at 68% plus or minus 1% on a non-GAAP basis. Moreover, the company forecasts total operating expenses to stay between $48 million and $50 million on a non-GAAP basis in Q2FY22.

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 Q1FY22 and decent guidance for Q2FY22.

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$46.29 per share, up by 3.72% on 10^th May 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.