No Surprises In Lattice Semiconductor’s (NASDAQ:LSCC) Q4 Sales Numbers, Stock Jumps 10%

Semiconductor designer Lattice Semiconductor (NASDAQ:LSCC) met Wall Street’s revenue expectations in Q4 CY2024, but sales fell by 31.2% year on year to $117.4 million. The company expects next quarter’s revenue to be around $120 million, coming in 1.4% above analysts’ estimates. Its non-GAAP profit of $0.15 per share was 20.7% below analysts’ consensus estimates.

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"We achieved record design wins, significantly reduced operating expenses, and delivered a strong 31.8% adjusted EBITDA margin in 2024,” said Ford Tamer, Chief Executive Officer.

Company Overview

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

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Unfortunately, Lattice Semiconductor’s 4.7% annualized revenue growth over the last five years was tepid. This was below our standard for the semiconductor sector and is a rough starting point for our analysis. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.

Long-term growth is the most important, but short-term results matter for semiconductors because the rapid pace of technological innovation (Moore's Law) could make yesterday's hit product obsolete today. Lattice Semiconductor’s history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 12.2% annually.

This quarter, Lattice Semiconductor reported a rather uninspiring 31.2% year-on-year revenue decline to $117.4 million of revenue, in line with Wall Street’s estimates. Company management is currently guiding for a 14.8% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 2.6% over the next 12 months. Although this projection suggests its newer products and services will catalyze better top-line performance, it is still below average for the sector.

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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.

This quarter, Lattice Semiconductor’s DIO came in at 206, which is 47 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 Q4 Results

We were impressed by Lattice Semiconductor’s strong improvement in inventory levels. We were also glad its revenue guidance for next quarter came in slightly higher than Wall Street’s estimates. The company's CEO struck an optimistic tone, which is a contrast to the uncertainty of previous quarters, saying "We are starting to see signs of improvement in the broader market environment as evidenced by our stronger backlog and improved book to bill, which bode well for our business moving forward." On the other hand, its EPS in the quarter fell short of Wall Street’s estimates. Overall, this was a fine quarter amid lower expectations. The stock traded up 8.7% to $59.15 immediately after reporting.

So do we think Lattice Semiconductor is an attractive buy at the current price? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.