Lattice Inventory: Purchase For The Lengthy-Time period Regardless of Brief-Time period Headwinds (NASDAQ:LSCC)

Anna Bliokh

In our earlier evaluation of Lattice Semiconductor Company (NASDAQ:LSCC), we delved into the outstanding upsurge of the corporate’s development in 2022, which surged at a formidable 28.1%, fuelled by strong 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 elements enabled the corporate to edge out different rivals. Moreover, our evaluation indicated its development was supported by the rising use of low-power FPGAs in EVs.

On this newest evaluation, we targeted on Lattice’s newest FPGA developments that might drive development past 2024. Firstly, we analyzed the enlargement 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 carried out 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.

Growth 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
Whole Low to Mid-range FPGAs	3,653	3,644	1,451	6,554

Supply: DigiKey, Khaveen Investments

Based mostly on the desk, Lattice has the best variety of Low-Vary FPGAs (<100K Logic parts), highlighting its benefit on this section. In our earlier evaluation, we highlighted the corporate’s concentrate on “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 lately expanded its portfolio with its CrossLinkU-NX FPGA household, claiming to be the trade’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 development and the introduction of recent FPGAs throughout the Nexus household.

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

Avant FPGAs

We recognized that Lattice at the moment has solely 199 mid-range FPGAs, which is considerably decrease than rivals AMD, Microchip (MCHP), and Intel (INTC). Amongst these firms, Intel leads the way in which with a complete of three,573 mid-range FPGAs. Nonetheless, from its earnings briefing, administration introduced its enlargement within the mid-power FPGAs with the launch of Avant-G and Avant-X 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.

Lattice

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

Supply: Firm Knowledge, Khaveen Investments

Based mostly 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 lowered 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 collection leads on this facet, adopted by AMD and Lattice. With regards to transceivers’ knowledge charges, Intel’s Agilex 5 collection is one of the best with 28 Gbps. Excessive transceiver charges permit for quicker knowledge alternate and bandwidth-intensive purposes. Lattice’s Avant-X has a barely decrease fee of 25 Gbps, however the firm claims it additionally gives “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 know-how used, Intel’s FPGAs are extra superior (10nm). Extra superior course of know-how can provide elevated logic density, decreased energy utilization and enhanced efficiency. However, Microchip falls behind compared to Lattice, AMD and Intel. We then ranked every of the elements and calculated the common rating of all elements.

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

Supply: Khaveen Investments

In keeping with the desk above, Intel’s Agilex 5 D-series has the best rating in all points, 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. Due to this fact, we imagine that despite the fact 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 a substitute imagine Intel remains to be the superior firm within the mid-range section.

Outlook

Total, we examined the low to mid-range FPGAs of Lattice and its rivals. The corporate dominates with the most important product breadth in low-range FPGA with virtually 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 as a result of 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 section. 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 beneath exhibits the deliberate improvement of future Avant FPGAs which may result in the corporate enhancing a few of its product specs missing resembling reminiscence charges, reminiscence kind, transceiver knowledge charges and course of primarily based on our FPGA spec comparability evaluation above.

Lattice

AI Influence 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 roughly 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 middle…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 resembling person presence and gaze detection in PC methods just like the Lenovo ThinkPad”
• “AI-enabled automotive ADAS methods, 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 development fee for knowledge middle chip development of 39%, pushed by demand from cloud service suppliers ramping up infrastructure. Moreover, the corporate 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 beneath Nvidia’s Knowledge Middle section. In keeping with Nvidia, Jetson Orin is designed to speed up energy-efficient autonomous methods, resembling robotics, imaginative and prescient AI, and edge purposes, whereas the IGX Orin is good for AI-powered industrial and medical purposes.

In addition to 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 can assist prolong battery life by 28% or detect person presence and a focus utilizing its Face Framing Expertise. Furthermore, Lattice claimed that its software program also can improve safety and optimize methods 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 resembling “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 methods by enabling parallel sensor processing, low-power interfaces and “hardware-based safety” capabilities. For instance, Lattice’s FPGAs are additionally used to help ADAS “aspect radar purposes” for Mazda’s (OTCPK:MZDAY) CX-60 and CX-90 SUV. We highlighted a powerful demand for ADAS purposes with a market CAGR of 18.7%.

Outlook

Finish Market	Forecast CAGR
Knowledge Middle	39%
AI-enabled PC	50%
ADAS	18.7%
Common	35.9%

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 common 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 beneath.

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 attain 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 subsequently we imagine administration’s steering of $200 mln in AI-related income could possibly be affordable.

Finish Markets Development Outlook for FPGAs

Lastly, we examined the tip 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.

Lattice

Communications and Computing

In keeping with Lattice, the corporate gives options for “computing methods resembling servers and shopper gadgets, 5G wi-fi infrastructure, switches, routers, and different associated purposes” on this section. For Computing, FPGAs can speed up knowledge facilities and their computing capabilities by liberating up processor sources and decreasing 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 development. We imagine knowledge middle demand to be an excellent gauge of FPGA demand in Computing, as FPGAs are utilized in knowledge middle servers to dump “compute-intensive duties from the CPU and GPU” as a result of their low latency and vitality effectivity. For Communications, given their low latency and the flexibility for parallel processing, FPGAs are appropriate for processing large knowledge move required within the 5G RAN. We highlighted in our earlier evaluation of Qualcomm that the penetration fee of 5G gadgets is projected to “attain 83% by 2027 from 62% in 2023”, boding nicely for the demand for 5G providers.

Industrial and Automotive

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

For Industrial, from our earlier evaluation of ADI (ADI), we highlighted sturdy development 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 improvement, together with “robotics, embedded real-time networking, predictive upkeep, purposeful security (FuSa) and safety”.

Lattice

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 shoppers demand safer and extra superior vehicles. FPGAs may assist automobile producers enhance numerous options and allow SDVs, resembling zonal architectures, energy effectivity, real-time networking, and infotainment interfaces. Lattice claimed that its FPGA gives 2x quicker connectivity velocity and 5x extra impartial sensor interfaces. The chart beneath summarizes how Lattice’s software program is utilized in numerous automotive purposes.

Lattice

Shopper

Within the Shopper section, the corporate’s merchandise are utilized in purposes together with “good house 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

Phase 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%
Shopper	49,064	46,136	-2,928
Development % (YoY)	0.0%	-6.0%	-6.0%
Licensing and Providers	15,730		-15,730
Development % (YoY)	-8.2%		8.2%
Whole Income	788,678	737,154	-51,524
Development % (YoY)	19.4%	11.6%	-7.8%

Supply: Firm Knowledge, Khaveen Investments

In our earlier protection, we projected the corporate’s 2023 income primarily based on its historic 5-year common development fee. Our forecast was greater in comparison with its precise 2023 income development 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%
Shopper	6.60%	-9.3% (4Y common)

Supply: Grand View Analysis, Khaveen Investments

Evaluating the market CAGR and the corporate’s 5-year historic common income development, we noticed that these two are barely consistent with the Computing and Communication section (14.6% and 16.6%). Nonetheless, for the Industrial & Automotive and Shopper section, the market CAGR differs considerably from the corporate’s historic common development. Due to this fact, we imagine that basing our forecast on its historic development is extra in line than utilizing market CAGR. Nonetheless, we additionally took under 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 enhancing 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%
Shopper	46,136	47,771	41,740	37,854
Development % (YoY)	-6.0%	3.5%	-9.3%	-9.3%
Whole Income	737,154	676,592	778,893	923,466
Development % (YoY)	11.6%	-8.2%	18.9%	18.6%

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 development for every section primarily based on the up to date 5-year historic development fee. Significantly for the Shopper section, we used 4-year previous development as the corporate restructured this section in 2019 by winding down its smartphone merchandise.

Threat: Competitors in FPGAs

AMD (Xilinx) 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 improvement 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 might face elevated competitors, prompting them to innovate additional to keep up their aggressive edge within the low-cost FPGA section. Moreover, we imagine that Renesas, a brand new entrant into the FPGA market, might additional result in intensifying competitors.

Verdict

Khaveen Investments

All in all, regardless of anticipated market development headwinds in 2024, our evaluation signifies a powerful potential for Lattice to maintain development by increasing its product portfolio in low- and mid-power FPGAs. We anticipate vital strides from the corporate’s enlargement into the mid-range FPGA market. Nonetheless, we additionally take observe that whereas Lattice’s mid-range FPGAs outperform Microchip’s choices, they nonetheless lag behind trade leaders like AMD and Intel, although the corporate’s roadmaps indicated future product developments which may see enhancements in product efficiency to higher compete in opposition to main gamers. Moreover, we imagine that Lattice may gain advantage from the sturdy development in AI-related purposes resembling knowledge facilities, AI-enabled PCs, and ADAS methods 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 development 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.

Based mostly on a reduction fee 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 trade’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 trade common (27.78x). Based mostly on our up to date DCF, we obtained a worth goal of $99.57 and improve the corporate to a Purchase ranking.

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