Lattice Semiconductor (NASDAQ:LSCC) Misses Q4 Sales Targets, Stock Drops

Jabin Bastian /
2024/02/12 4:08 pm EST

Semiconductor designer Lattice Semiconductor (NASDAQ:LSCC) fell short of analysts' expectations in Q4 FY2023, with revenue down 3% year on year to $170.6 million. Next quarter's revenue guidance of $140 million also underwhelmed, coming in 19.7% below analysts' estimates. It made a non-GAAP profit of $0.45 per share, down from its profit of $0.49 per share in the same quarter last year.

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Lattice Semiconductor (LSCC) Q4 FY2023 Highlights:

  • Revenue: $170.6 million vs analyst estimates of $176.5 million (3.3% miss)
  • EPS (non-GAAP): $0.45 vs analyst estimates of $0.45 (small beat)
  • Revenue Guidance for Q1 2024 is $140 million at the midpoint, below analyst estimates of $174.4 million (gross margin and implied operating profit guidance also below)
  • Free Cash Flow of $68.24 million, down 12.2% from the previous quarter
  • Inventory Days Outstanding: 174, up from 164 in the previous quarter
  • Gross Margin (GAAP): 69.7%, in line with the same quarter last year
  • Market Capitalization: $9.63 billion

Jim Anderson, president and CEO, said, "We achieved double-digit annual revenue growth in 2023, with record gross margin and continued profit expansion. Despite near-term cyclical industry headwinds, we continue to be well positioned for the long-term with a rapidly expanding product portfolio and strong customer momentum. "

A global leader in its category, Lattice Semiconductor (NASDAQ:LSCC) is a semiconductor designer specializing in customer-programmable chips that enhance CPU performance for intensive tasks such as machine learning.

Processors and Graphics Chips

The biggest demand drivers for processors (CPUs) and graphics chips at the moment are secular trends related to 5G and Internet of Things, autonomous driving, and high performance computing in the data center space, specifically around AI and machine learning. Like all semiconductor companies, digital chip makers exhibit a degree of cyclicality, driven by supply and demand imbalances and exposure to PC and Smartphone product cycles.

Sales Growth

Lattice Semiconductor's revenue growth over the last three years has been strong, averaging 22.2% annually. But as you can see below, its revenue declined from $176 million in the same quarter last year to $170.6 million. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

Lattice Semiconductor Total Revenue

Lattice Semiconductor had a difficult quarter as revenue dropped 3% year on year, missing analysts' estimates by 3.3%.

Lattice Semiconductor's revenue inverted from positive to negative growth this quarter, which was unfortunate to see. Looking ahead to the next quarter, the company's management team forecasts a 24% year-on-year revenue decline. On the other hand, analysts expect revenue to turn positive over the next 12 months, with average estimates of 1.1% growth.

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Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.

Lattice Semiconductor Inventory Days Outstanding

This quarter, Lattice Semiconductor's DIO came in at 174, which is 31 days above its five-year average, suggesting that the company's inventory has grown to higher levels than we've seen in the past.

Key Takeaways from Lattice Semiconductor's Q4 Results

Revenue missed, leading to an operating income miss, although EPS was in line. Looking forward, the company's outlook was below expectations and a further reason for the stock's weakness. Specifically, revenue, gross margin, and implied operating profit guidance for next quarter missed analysts' expectations. Overall, this was a mediocre quarter for Lattice Semiconductor. The company is down 7% on the results and currently trades at $66 per share.

Lattice Semiconductor may not have had the best quarter, but does that create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

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