Flex Logix Acquisition By Analog Devices Will Open Opportunity To Capture New eFPGA Customers

Key Takeaways

• Strategic investments and partnerships position QuickLogic to capture eFPGA market share, driving potential revenue and cash flow growth.
  
• Expanding IP portfolio enhances QuickLogic's ability to deliver tailored solutions, potentially boosting net margins and operational growth.
  
• Dependence on key contracts and economic conditions could challenge revenue stability and profitability if delays or competition occur.

Catalysts

Operates as a fabless semiconductor company in the United States.

• The acquisition of Flex Logix assets by Analog Devices and the potential discontinuation of Flex Logix IP licensing creates an opportunity for QuickLogic to capture new eFPGA IP customers, which could significantly boost future revenue.
  
• QuickLogic's early investment in developing eFPGA Hard IP for Intel's 18A process node positions it to be the first available supplier for this cutting-edge technology, likely enhancing future revenue and market share.
  
• The company's expanding portfolio of IP across multiple process technologies increases its ability to deliver customer-specific solutions quickly, potentially improving net margins through economies of scale and faster time-to-market.
  
• QuickLogic anticipates new contracts and renewed funding initiatives, including the Strategic Radiation Hardened FPGA government contract, which could elevate future revenue streams and cash flow from 2025 onwards.
  
• The integration of Synopsys' Synplify into QuickLogic’s Aurora tool suite is expected to expand market reach into new sectors, increasing revenue while enhancing product capabilities and customer satisfaction, supporting long-term operational growth.

QuickLogic Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming QuickLogic's revenue will grow by 12.9% annually over the next 3 years.
• Analysts are not forecasting that QuickLogic will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate QuickLogic's profit margin will increase from -6.8% to the average US Semiconductor industry of 14.6% in 3 years.
• If QuickLogic's profit margin were to converge on the industry average, you could exepct earnigns to reach $4.6 million (and earnings per share of $0.24) by about January 2028, down from $-1.5 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 60.9x on those 2028 earnings, up from -95.1x today. This future PE is greater than the current PE for the US Semiconductor industry at 33.2x.
• Analysts expect the number of shares outstanding to grow by 9.09% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.4%, as per the Simply Wall St company report.

QuickLogic Future Earnings Per Share Growth

Risks

• Delays in contract awards, particularly those related to the defense industrial base, can lead to revenue recognition being pushed into future quarters, affecting near-term growth expectations. This specifically affected projected Q4 2024 revenue.
  
• The acquisition of Flex Logix by Analog Devices could present competition challenges or limit QuickLogic's opportunities if Analog Devices chooses to compete aggressively, impacting QuickLogic’s future revenue.
  
• Global economic conditions and potential changes in government contract funding could affect QuickLogic's projections, especially for large defense and strategic contracts, influencing overall revenue stability.
  
• High dependence on a few key contracts means that any delay or cancellation could significantly affect the company’s financial performance and cash flows.
  
• With cash used in current operations exceeding income, future profitability could be pressured if new contracts and revenue streams don't materialize as expected.

Valuation

• The analysts have a consensus price target of $11.53 for QuickLogic 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 $13.0, and the most bearish reporting a price target of just $10.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $31.5 million, earnings will come to $4.6 million, and it would be trading on a PE ratio of 60.9x, assuming you use a discount rate of 8.4%.
  
• Given the current share price of $9.36, the analyst's price target of $11.53 is 18.8% 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.