Small FPGA And AI Solutions Will Unlock Future Potential

Key Takeaways

• Expansion in AI, data centers, and automotive sectors suggests increased future revenue and market share due to strategic focus and product innovation.
  
• New product revenue growth and operational efficiency efforts aim to enhance margins and shareholder returns despite challenging economic conditions.
  
• Lattice Semiconductor faces potential revenue challenges from tariffs, foreign market dependence, declining sales, inventory inefficiencies, and intensified competition in low-power FPGA markets.

Catalysts

Develops and sells semiconductor products in Asia, Europe, and the Americas.

• Lattice Semiconductor's ongoing focus on expanding design wins in small and mid-range FPGAs, and growth in generative AI, data centers, and automotive sectors, suggests an increase in future revenue and market share.
  
• The company is seeing robust growth in new product revenue at a strong double-digit pace, which is expected to accelerate and contribute to the gross margin due to the higher ASP of newer products.
  
• Strategic focus on low power and small size solutions positions Lattice uniquely to capitalize on emerging high-growth segments like AI and industrial automation, likely impacting revenue positively.
  
• Improvements in operational efficiency and proactive cost control efforts are aimed at sustaining or enhancing net margins, amid challenging macroeconomic conditions and industry volatility.
  
• Continued share repurchase program, with $75 million remaining, indicates a focus on enhancing Earnings Per Share (EPS) by reducing share count and returning capital to shareholders.

Lattice Semiconductor Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Lattice Semiconductor's revenue will grow by 13.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.5% today to 25.5% in 3 years time.
• Analysts expect earnings to reach $181.1 million (and earnings per share of $1.0) by about May 2028, up from $51.4 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $201.4 million in earnings, and the most bearish expecting $105.6 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 62.2x on those 2028 earnings, down from 127.5x today. This future PE is greater than the current PE for the US Semiconductor industry at 22.5x.
• Analysts expect the number of shares outstanding to grow by 0.1% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.08%, as per the Simply Wall St company report.

Lattice Semiconductor Future Earnings Per Share Growth

Risks

• The ongoing volatility and uncertainty around new tariffs could create indirect impacts on Lattice Semiconductor's business, affecting customer demand and potentially disrupting their supply chain, which would impact revenue and earnings.
  
• A significant portion of Lattice's revenue—approximately 80%—comes from outside the U.S., making it susceptible to geopolitical shifts and international economic policies, which could negatively impact overall revenue.
  
• There is a noted 15% decline in revenue compared to the previous year, raising concerns about the company’s ability to return to higher revenue levels and maintain profitability amid fluctuating demand trends.
  
• Inventory levels in distribution channels may take longer to normalize than anticipated, potentially leading to inefficiencies and affecting profitability due to sustained inventory carrying costs and related expenses.
  
• While Lattice has exhibited strength in new product growth, the competitive landscape for low-power, small-sized FPGAs is becoming more crowded, with larger competitors like Xilinx and Altera shifting focus, posing a risk to future market share and pressure on profit margins.

Valuation

• The analysts have a consensus price target of $62.88 for Lattice Semiconductor based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $75.0, and the most bearish reporting a price target of just $50.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $710.8 million, earnings will come to $181.1 million, and it would be trading on a PE ratio of 62.2x, assuming you use a discount rate of 9.1%.
  
• Given the current share price of $47.59, the analyst price target of $62.88 is 24.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.