Lattice Semiconductor (NASDAQ:LSCC) Posts Better-Than-Expected Sales In Q1, Provides Encouraging Quarterly Guidance

Petr Huřťák /
2023/05/01 4:04 pm EDT

Semiconductor designer Lattice Semiconductor (NASDAQ:LSCC) reported results ahead of analyst expectations in the Q1 FY2023 quarter, with revenue up 22.5% year on year to $184.3 million. Guidance for next quarter's revenue was $188 million at the midpoint, 2.47% above the average of analyst estimates. Lattice Semiconductor made a GAAP profit of $55.9 million, improving on its profit of $36.1 million, in the same quarter last year.

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Lattice Semiconductor (LSCC) Q1 FY2023 Highlights:

  • Revenue: $184.3 million vs analyst estimates of $178.3 million (3.36% beat)
  • EPS (non-GAAP): $0.51 vs analyst estimates of $0.50 (2.4% beat)
  • Revenue guidance for Q2 2023 is $188 million at the midpoint, above analyst estimates of $183.5 million
  • Free cash flow of $36.5 million, down 49.2% from previous quarter
  • Inventory Days Outstanding: 191, up from 186 previous quarter
  • Gross Margin (GAAP): 69.8%, up from 66.9% same quarter last year

Jim Anderson, president and CEO, said, "Our strong growth and customer momentum continued into the first quarter of 2023 with a 22% year-over-year increase in revenue. We drove 55% year-over-year growth in net income on a GAAP basis and 36% on a non-GAAP basis. While we’re not immune to macro-economic challenges impacting the industry, we have Lattice-specific growth drivers, which position us well for long-term growth in our core markets. "

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.

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 20.4% annually. And as you can see below, last year has been especially strong, with quarterly revenue growing from $150.5 million to $184.3 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

This was a decent quarter for Lattice Semiconductor as revenues grew 22.5%, topping analyst estimates by 3.36%. This marks 10 straight quarters of revenue growth, which means the current upcycle has had a good run, as a typical upcycle tends to be 8-10 quarters.

However, Lattice Semiconductor believes the growth is set to continue, and is guiding for revenue to grow 16.5% YoY next quarter, and Wall St analysts are estimating growth 10.8% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) are an important metric for chipmakers, as it reflects the capital intensity of the business 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 inventory days came in at 191, 54 days above the five year average, suggesting that that inventory has grown to higher levels than what we used to see in the past.

Key Takeaways from Lattice Semiconductor's Q1 Results

With a market capitalization of $10.9 billion, more than $112.1 million in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.

We enjoyed seeing Lattice Semiconductor’s improve their operating margin this quarter. And we were also excited to see that it outperformed Wall St’s revenue expectations. On the other hand, operating cash flow missed, and there was an increase in inventory levels. This quarter's results were mixed but overall fairly positive, but investors might have been expecting more and the company is down 3.79% on the results and currently trades at $78.5 per share.

Should you invest in Lattice Semiconductor right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.