Lattice Semiconductor's (NASDAQ:LSCC) Q2 Sales Top Estimates, Inventory Levels Improve

Kayode Omotosho /
2023/07/31 4:05 pm EDT

Semiconductor designer Lattice Semiconductor (NASDAQ:LSCC) reported Q2 FY2023 results beating Wall Street analysts' expectations, with revenue up 17.8% year on year to $190.1 million. The company also expects next quarter's revenue to be around $192 million, roughly in line with analysts' estimates. Lattice Semiconductor made a GAAP profit of $50.6 million, improving from its profit of $44.5 million in the same quarter last year.

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Lattice Semiconductor (LSCC) Q2 FY2023 Highlights:

  • Revenue: $190.1 million vs analyst estimates of $187.3 million (1.47% beat)
  • EPS (non-GAAP): $0.52 vs analyst estimates of $0.51 (2.26% beat)
  • Revenue guidance for Q3 2023 is $192 million at the midpoint, roughly in line with what analysts were expecting
  • Free cash flow of $67.1 million, up 84% from the previous quarter
  • Inventory Days Outstanding: 176, down from 191 in the previous quarter
  • Gross Margin (GAAP): 69.7%, up from 68.5% in the same quarter last year

Jim Anderson, president and CEO, said, "We continued to grow both revenue and profitability in Q2 2023 on a year-over-year basis, with revenue increasing 18%, and net income on a GAAP basis growing 14% and 23% on a non-GAAP basis. We’re driving the largest product portfolio expansion in the Company’s history, which continues to create strong customer momentum. While we’re not immune to macro-economic challenges impacting the industry, we are well positioned 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 22% annually. As you can see below, this quarter was especially strong, with revenue growing from $161.4 million in the same quarter last year to $190.1 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 decent quarter as its revenue grew 17.8% year on year, topping analysts' estimates by 1.47%. However, this was its third consecutive quarter of decelerating growth, potentially indicating a coming cycle downturn.

Although Lattice Semiconductor's revenue growth has decelerated over the past three quarters, its management team thinks it will continue growing next quarter. The company is guiding to 11.3% year-on-year growth, which is relatively in line with Consensus estimates of 11.2% growth over the next 12 months.

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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 176, which is 37 days above its five-year average. These numbers suggest that despite the recent decrease, the company's inventory levels are higher than what we've seen in the past.

Key Takeaways from Lattice Semiconductor's Q2 Results

Sporting a market capitalization of $12.5 billion, more than $103.8 million in cash on hand, and positive free cash flow over the last 12 months, we believe that Lattice Semiconductor is attractively positioned to invest in growth.

That revenue and earnings per share (EPS) both exceeded Wall Street's expectations was a positive. Additionally, we liked seeing Lattice Semiconductor's strong improvement in inventory levels. While next quarter's revenue guidance was roughly in line with Consensus expectations, gross margin and non-GAAP operating profit guidance were slightly ahead. Overall, this quarter's results seemed fairly positive and shareholders should feel optimistic. The market was likely expecting more, however, and the stock is down 1.16% after reporting, trading at $89.99 per share.

So should you invest in Lattice Semiconductor 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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The author has no position in any of the stocks mentioned in this report.