Lattice: Buy For The Long-Term Despite Short-Term Headwinds

In our earlier evaluation of Lattice Semiconductor Company (NASDAQ:LSCC), we delved into the exceptional upsurge of the corporate’s progress in 2022, which surged at a formidable 28.1%, fuelled by sturdy performances within the Communications & Computing (26.1%) and Industrial & Automotive (41.2%) segments, the place Lattice expanded its product portfolio and elevated its competitiveness. We believed these components enabled the corporate to edge out different rivals. Moreover, our evaluation indicated its progress was supported by the rising use of low-power FPGAs in EVs.

On this newest evaluation, we centered on Lattice’s newest FPGA developments that would drive progress past 2024. Firstly, we analyzed the growth of Lattice’s FPGA portfolio, increasing its low-power portfolio with Nexus and introducing mid-range FPGA options with the launch of Avant-G and Avant-X. We performed a comparative evaluation of their options in opposition to rivals’ choices to gauge their aggressive edge. Moreover, we examined the potential for Lattice to capitalize on AI-driven purposes using its mid-range FPGAs. Lastly, we delved into the outlook for FPGA adoption throughout numerous finish markets, updating our income projections for Lattice.

Enlargement of FPGA Product Portfolio

Firstly, we examined Lattice’s FPGA portfolio and in contrast it with high rivals (excluding Renesas) within the desk for Low to Mid-Vary FPGAs, with low-range FPGAs of fewer than 100,000 logic cells and mid-range spanning 100,000 to 500,000 logic cells in line with Lattice.

Comparability of Low to Mid-Vary FPGAs

Lattice

AMD

Microchip

Intel

Variety of Low-Vary FPGAs (<100K Logic)

3,454

2,790

1,150

2,981

Variety of Mid-Vary FPGAs (100K – 500K Logic)

199

854

301

3,573

Complete Low to Mid-range FPGAs

3,653

3,644

1,451

6,554

Click on to enlarge

Supply: DigiKey, Khaveen Investments

Primarily based on the desk, Lattice has the best variety of Low-Vary FPGAs (<100K Logic parts), highlighting its benefit on this phase. In our earlier evaluation, we highlighted the corporate’s give attention to “small dimension and power-efficient FPGA as a distinction to its rivals within the FPGA market together with Xilinx and Intel.”

Lattice Nexus Platform

Throughout the low-range FPGA portfolio, Lattice just lately expanded its portfolio with its CrossLinkU-NX FPGA household, claiming to be the business’s first low-power FPGAs that includes built-in USB, to speed up USB-equipped system designs and embedded imaginative and prescient purposes. As well as, the corporate highlighted in its earnings briefing Nexus as a “main contributor” to Lattice’s progress and the introduction of recent FPGAs inside the Nexus household.

A few examples of that’s on Nexus, we have launched seven system households primarily based on Nexus. 5 of these system households are already in manufacturing. However there’s two extra that go into manufacturing this 12 months.” – James Anderson, CEO

Avant FPGAs

We recognized that Lattice at present has solely 199 mid-range FPGAs, which is considerably decrease than rivals AMD, Microchip (MCHP), and Intel (INTC). Amongst these corporations, Intel leads the best way with a complete of three,573 mid-range FPGAs. Nonetheless, from its earnings briefing, administration introduced its growth within the mid-power FPGAs with the launch of Avant-G and Avant-X just lately, following Avant-E. Moreover, Lattice expects the Avant portfolio to develop to between 15% to twenty% of its whole income in 3 to 4 years. From its Investor Presentation, administration claimed Avant gives 2.5x decrease energy consumption and 2x quicker efficiency than rivals.

Therefore, we in contrast Lattice’s newest mid-range FPGA merchandise, Avant-G and Avant-X, with related mid-range FPGAs from rivals to find out their efficiency competitiveness primarily based on their reminiscence charges, reminiscence kind, transceivers knowledge charges, and course of node.

Comparability of Mid-Vary FPGA

Avant-G (Lattice)

Avant-X (Lattice)

Spartan UltraScale+ (AMD)

PolarFire (Microchip)

Agilex 5 D-series (Intel)

Agilex 5 E-series (Intel)

Reminiscence Charges (RAM)

2.4 Gbps

2.1-2.4 Gbps

2.4-4.3 Gbps

1.6 Gbps

3.2-4.3Gbps

2.4-3.7Gbps

Reminiscence Kind (RAM)

LPDDR4/DDR4

DDR5/LPDDR 4/DDR4

LPDDR5/DDR4/LPDDR4

DDR4/DDR3/LPDDR3

DDR5/ LPDDR5/DDR4/LPDDR4

DDR5/ LPDDR5/DDR4/LPDDR4

Transceivers Knowledge Charges

10Gbps

25Gbps

16.3 Gbps

12.7 Gbps

28 Gbps

28Gbps

Course of

16nm

16nm

16nm

28nm

10nm

10nm

Click on to enlarge

Supply: Firm Knowledge, Khaveen Investments

Primarily based on the desk, the 2 Avant FPGAs have a slower reminiscence velocity (as much as 2.4 Gbps) in comparison with AMD (2.4 – 4.3 Gbps) and Intel (as much as 4.3 Gbps), quicker reminiscence permits for faster knowledge entry and thus diminished latency. As well as, the reminiscence kind may have an effect on the facility consumption and bandwidth of the FPGAs, and probably the most superior sorts out there are DDR5 and LPDDR5. Therefore, Intel’s Agilex 5 sequence leads on this facet, adopted by AMD and Lattice. Relating to transceivers’ knowledge charges, Intel’s Agilex 5 sequence is the very best with 28 Gbps. Excessive transceiver charges enable for quicker knowledge change and bandwidth-intensive purposes. Lattice’s Avant-X has a barely decrease price of 25 Gbps, however the firm claims it additionally presents “energy effectivity, superior connectivity, and optimized compute”. Different FPGAs’ knowledge charges are considerably decrease at a spread from 10 Gbps to 16.3 Gbps. Lastly, by way of course of node expertise used, Intel’s FPGAs are extra superior (10nm). Extra superior course of expertise can supply elevated logic density, decreased energy utilization and enhanced efficiency. Alternatively, Microchip falls behind compared to Lattice, AMD and Intel. We then ranked every of the components and calculated the typical rating of all components.

Comparability of Mid-Vary FPGA

Avant-G (Lattice)

Avant-X (Lattice)

Spartan UltraScale+ (AMD)

PolarFire (Microchip)

Agilex 5 D-series (Intel)

Agilex 5 E-series (Intel)

Reminiscence Charges (RAM)

5

4

2

6

1

3

Reminiscence Kind (RAM)

5

3

4

6

1

1

Transceivers Knowledge Charges

6

3

4

5

1

1

Course of

3

3

3

6

1

1

Common

4.75

3.25

3.25

5.75

1

1.5

Click on to enlarge

Supply: Khaveen Investments

In keeping with the desk above, Intel’s Agilex 5 D-series has the very best rating in all features, main it to be ranked in first place, adopted by Intel’s, Agilex 5 E-series. Avant-X and Spartan Ultrascale+ even have the identical rank, however Avant X has the next reminiscence velocity whereas Spartan has higher reminiscence kind and better transceivers knowledge charges. Avant-G ranks fourth and Microchip’s PolarFire ranks final. Subsequently, we imagine that regardless that Intel’s FPGAs edge out different rivals, Lattice’s FPGAs nonetheless have some aggressive benefits in comparison with Microchip, contemplating the corporate has simply expanded its portfolio to mid-range FPGAs. Total, we decided our efficiency comparability outcomes contradict the administration’s declare from its presentation, and we as an alternative imagine Intel continues to be the superior firm within the mid-range phase.

Outlook

Total, we examined the low to mid-range FPGAs of Lattice and its rivals. The corporate dominates with the biggest product breadth in low-range FPGA with nearly 3,500 merchandise. Moreover, the corporate launched a number of new merchandise on this vary which additional solidifies its product breadth. Nonetheless, the corporate has not stood out as a mid-range FPGA producer attributable to its low variety of mid-range FPGAs as a brand new entrant competing in opposition to bigger gamers like AMD, Intel and Microchip on this phase. In our earlier evaluation of Lattice, we additionally highlighted that AMD and Intel stay the highest FPGA producers with 53% and 26.7% market share in 2022. Lattice’s newest mid-range FPGA, Avant-G and Avant-X, lack competitiveness because it lags behind Intel’s and AMD’s mid-range FPGAs. Nonetheless, we imagine the corporate’s launch of Avant establishes its entry into the mid-range FPGA market and the roadmap under exhibits the deliberate growth of future Avant FPGAs which may result in the corporate bettering a few of its product specs missing reminiscent of reminiscence charges, reminiscence kind, transceiver knowledge charges and course of primarily based on our FPGA spec comparability evaluation above.

AI Affect to FPGA Demand

Subsequent, we examined how AI advantages Lattice’s FPGAs. Moreover, as administration highlighted from its earnings briefing that AI-related income was round $100 mln in 2023, accounting for about 14% of Lattice’s whole income, we additionally regarded into what segments the corporate derives its AI-related income. In keeping with the corporate’s CEO from its earnings briefing, Lattice estimated AI-related income from a variety of AI-related purposes together with:

“AI-optimized servers within the knowledge heart…Lattice gadgets are used within the management, administration, and safety of the AI computing system” “AI-enabled PCs, the place Lattice options are used to run the AI inference algorithm that gives options reminiscent of consumer presence and gaze detection in PC techniques just like the Lenovo ThinkPad” “AI-enabled automotive ADAS techniques, the place Lattice options are used to combination and pre-process important knowledge that’s used for AI processing”.

In keeping with Informa Tech, FPGAs can function {hardware} accelerators in knowledge facilities, and they’re particularly useful for AI inferencing duties as they’ve greater throughput and decrease latency in comparison with common processors or GPUs. As well as, Lattice highlighted that its FPGAs have a 2.5x decrease energy consumption than different FPGAs. In our earlier evaluation of Nvidia (NVDA), we derived a forecasted common progress price for knowledge heart chip progress of 39%, pushed by demand from cloud service suppliers ramping up infrastructure. Moreover, the corporate just lately introduced a partnership with Nvidia to make the most of its power-efficient FPGAs to facilitate sensor fusion and bridging in Nvidia’s Jetson Orin and IGX Orin platforms, which fall below Nvidia’s Knowledge Heart phase. In keeping with Nvidia, Jetson Orin is designed to speed up energy-efficient autonomous techniques, reminiscent of robotics, imaginative and prescient AI, and edge purposes, whereas the IGX Orin is right for AI-powered industrial and medical purposes.

Apart from that, Lattice has additionally developed SensAI, a software program stack that makes use of its FPGAs for inferencing, permitting clients to “develop and deploy FPGA-based Machine Studying / Synthetic Intelligence options”. In PCs, Lattice’s SensAI will help lengthen battery life by 28% or detect consumer presence and a spotlight utilizing its Face Framing Expertise. Furthermore, Lattice claimed that its software program also can improve safety and optimize techniques in PCs. In keeping with Counterpoint Analysis, the worldwide AI PCs market is predicted to develop at a CAGR of fifty% reflecting the sturdy demand for AI PCs’ superior safety and elevated effectivity.

Lattice additionally has mVision that helps deploy options reminiscent of “machine imaginative and prescient, robotics, ADAS, video surveillance, and drones”. Moreover, Lattice has highlighted that its FPGAs are additionally utilized in automotive ADAS and Infotainment techniques by enabling parallel sensor processing, low-power interfaces and “hardware-based safety” capabilities. For instance, Lattice’s FPGAs are additionally used to assist ADAS “facet radar purposes” for Mazda’s (OTCPK:MZDAY) CX-60 and CX-90 SUV. We highlighted a robust demand for ADAS purposes with a market CAGR of 18.7%.

Outlook

Finish Market

Forecast CAGR

Knowledge Heart

39%

AI-enabled PC

50%

ADAS

18.7%

Common

35.9%

Click on to enlarge

Supply: Counterpoint Analysis, Acumen Analysis, Khaveen Investments

The desk above consists of the market CAGR of AI purposes together with knowledge facilities, AI-enabled PCs, and the ADAS market. Total, we calculated the typical CAGR to be 35.9%. As well as, the corporate administration additionally expects greater AI-related income within the subsequent few years as highlighted by the quote under.

We count on our AI-related income to greater than double over the following few years primarily based on the rising pipeline of AI-related design wins. – James Anderson, CEO.

Therefore, from the administration steering of Lattice’s AI-related income to be $200 mln, we assumed the corporate to realize this within the subsequent three years and accordingly calculated the CAGR to be 26%. In contrast with our derived common market CAGR of 35.9%, it surpasses administration’s forecast and due to this fact we imagine administration’s steering of $200 mln in AI-related income may very well be affordable.

Finish Markets Development Outlook for FPGAs

Lastly, we examined the top market outlook for FPGAs and subsequently forecasted the corporate’s income. Lattice’s Avant and Nexus are low and mid-range FPGAs, that focus on purposes in Communications, Computing, Industrial & Automotive.

Communications and Computing

In keeping with Lattice, the corporate gives options for “computing techniques reminiscent of servers and shopper gadgets, 5G wi-fi infrastructure, switches, routers, and different associated purposes” on this phase. For Computing, FPGAs can speed up knowledge facilities and their computing capabilities by releasing up processor assets and lowering energy consumption. In keeping with Intel, FPGAs can carry out higher than GPUs when “the applying calls for low latency and low batch sizes”. In our earlier evaluation of Microsoft (MSFT), we estimated that the cloud market shall be rising by a ahead common of 23% pushed by knowledge quantity progress. We imagine knowledge heart demand to be an excellent gauge of FPGA demand in Computing, as FPGAs are utilized in knowledge heart servers to dump “compute-intensive duties from the CPU and GPU” attributable to their low latency and vitality effectivity. For Communications, given their low latency and the flexibility for parallel processing, FPGAs are appropriate for processing huge knowledge stream required within the 5G RAN. We highlighted in our earlier evaluation of Qualcomm that the penetration price of 5G gadgets is projected to “attain 83% by 2027 from 62% in 2023”, boding effectively for the demand for 5G providers.

Industrial and Automotive

For this phase, the corporate presents options to “industrial Web of Issues (“IoT”) and “Business 4.0”, machine imaginative and prescient, robotics, manufacturing facility automation, superior driver help techniques (“ADAS”), and automotive infotainment.”

For Industrial, from our earlier evaluation of ADI (ADI), we highlighted sturdy progress within the semicon industrial market with a CAGR of seven.21%, pushed by good grid deployments and digitalization of factories. Intel’s case research explains how FPGAs may allow the transformation of good factories with their parallel computing capabilities. Furthermore, Lattice’s Automate 3.0 resolution stack can also be used to speed up good automation system growth, together with “robotics, embedded real-time networking, predictive upkeep, purposeful security (FuSa) and safety”.

For Automotive, the ADAS market is predicted to develop at a CAGR of 18.7%. Furthermore, McKinsey expects the automotive software program market to develop at a CAGR of 9.4%, pushed by Software program-defined Automobiles as customers demand safer and extra superior vehicles. FPGAs may assist automotive producers enhance numerous options and allow SDVs, reminiscent of zonal architectures, energy effectivity, real-time networking, and infotainment interfaces. Lattice claimed that its FPGA presents 2x quicker connectivity velocity and 5x extra impartial sensor interfaces. The chart under summarizes how Lattice’s software program is utilized in numerous automotive purposes.

Client

Within the Client phase, the corporate’s merchandise are utilized in purposes together with “good dwelling gadgets, prosumer gadgets, sound bars, high-end projectors, Augmented Actuality (“AR”) / Digital Actuality (“VR”), and wearables”, FPGAs can speed up processing energy, allow real-time sensor fusion and object recognition for AR purposes, and optimize energy consumption. We highlighted that the AR/VR market CAGR is 42.24% in our earlier evaluation of Apple (AAPL), pushed by demand in client and enterprise purposes.

Outlook

Section Income ($’000s)

Our Earlier Forecast (2023)

Precise Income (2023)

Distinction

Communication and Computing

326,092

257,536

-68,556

Development % (YoY)

18.7%

-6.3%

-25.0%

Industrial and Automotive

397,793

433,482

35,689

Development % (YoY)

24.5%

35.7%

11.2%

Client

49,064

46,136

-2,928

Development % (YoY)

0.0%

-6.0%

-6.0%

Licensing and Companies

15,730

-15,730

Development % (YoY)

-8.2%

8.2%

Complete Income

788,678

737,154

-51,524

Development % (YoY)

19.4%

11.6%

-7.8%

Click on to enlarge

Supply: Firm Knowledge, Khaveen Investments

In our earlier protection, we projected the corporate’s 2023 income primarily based on its historic 5-year common progress price. Our forecast was greater in comparison with its precise 2023 income progress of 11.6%, attributed primarily to the unanticipated market headwinds highlighted by administration.

Finish Market Development

Market CAGR

Lattice’s 5Y Common

Computing and Communication

14.6%

16.6%

Industrial and Automotive

12.96%

23.7%

Client

6.60%

-9.3% (4Y common)

Click on to enlarge

Supply: Grand View Analysis, Khaveen Investments

Evaluating the market CAGR and the corporate’s 5-year historic common income progress, we noticed that these two are barely in keeping with the Computing and Communication phase (14.6% and 16.6%). Nonetheless, for the Industrial & Automotive and Client phase, the market CAGR differs considerably from the corporate’s historic common progress. Subsequently, we imagine that basing our forecast on its historic progress is extra in line than utilizing market CAGR. Nonetheless, we additionally took into consideration the administration steering for the corporate in 2024 the place administration expects Q1 income to be between $130 mln to $150 mln with Q2 surprising to rise considerably however H2 revenues to be greater than H1, reflecting bettering market situations and its new Nexus and Avant product launches in that interval.

Lattice Income Forecasts ($’000s)

2023

2024F

2025F

2026F

Communications and Computing

257,536

236,241

264,274

305,582

Development % (YoY)

-6.3%

-8.3%

16.6%

15.6%

Industrial and Automotive

433,482

392,581

472,879

580,030

Development % (YoY)

35.7%

-9.4%

23.7%

22.7%

Client

46,136

47,771

41,740

37,854

Development % (YoY)

-6.0%

3.5%

-9.3%

-9.3%

Complete Income

737,154

676,592

778,893

923,466

Development % (YoY)

11.6%

-8.2%

18.9%

18.6%

Click on to enlarge

Supply: Firm Knowledge, Khaveen Investments

Total, we forecasted the corporate’s whole income to say no by 8.2% in 2024 primarily based on administration steering reflecting the anticipated market headwinds highlighted within the first half and the potential restoration within the second half. In 2025 and past, we forecasted the income progress for every phase primarily based on the up to date 5-year historic progress price. Significantly for the Client phase, we used 4-year previous progress as the corporate restructured this phase in 2019 by winding down its smartphone merchandise.

Threat: Competitors in FPGAs

AMD (Xilinx) just lately introduced the event of low-cost Spartan UltraScale+ FPGAs highlighting their excessive I/O-to-logic-cell ratios and superior security measures, together with “NIST-approved post-quantum safety” and tamper-resistant circuits. This growth is more likely to pose challenges to Lattice’s low to mid-range FPGAs. As AMD is the main participant within the FPGA market by market share, we imagine Lattice could face elevated competitors, prompting them to innovate additional to take care of their aggressive edge within the low-cost FPGA phase. Moreover, we imagine that Renesas, a brand new entrant into the FPGA market, could additional result in intensifying competitors.

Verdict

All in all, regardless of anticipated market progress headwinds in 2024, our evaluation signifies a robust potential for Lattice to maintain progress by increasing its product portfolio in low- and mid-power FPGAs. We anticipate vital strides from the corporate’s growth into the mid-range FPGA market. Nonetheless, we additionally take notice that whereas Lattice’s mid-range FPGAs outperform Microchip’s choices, they nonetheless lag behind business leaders like AMD and Intel, although the corporate’s roadmaps indicated future product developments which may see enhancements in product efficiency to raised compete in opposition to main gamers. Moreover, we imagine that Lattice may benefit from the sturdy progress in AI-related purposes reminiscent of knowledge facilities, AI-enabled PCs, and ADAS techniques as our market evaluation confirmed a median CAGR of 35.9%, surpassing the administration’s forecasts. Delving deeper into end-market prospects for FPGAs, we recognized key progress drivers throughout numerous finish markets and the way Lattice is capitalizing on these drivers. Total, we imagine that Lattice is poised to capitalize on the rising demand for AI purposes, additional strengthening the corporate’s place within the FPGA market.

Primarily based on a reduction price of 13.4% (firm’s WACC), and terminal worth primarily based on its 5-year common EV/EBITDA of 49.77x, our mannequin exhibits an upside of 25.95%. As well as, our up to date mannequin exhibits the next upside as we beforehand used the business’s EV/EBITDA ratio, which was solely 20.13x. We up to date the ratio as the corporate’s historic EV/EBITDA was considerably greater than the business common (27.78x). Primarily based on our up to date DCF, we obtained a worth goal of $99.57 and improve the corporate to a Purchase score.