Wednesday, January 23, 2019

Lattice Still Looks Like A Very Interesting Self-Improvement Story

Conditions have gotten ugly in the semiconductor space but not equally so for all players. Companies in the field-programmable gate array (or FPGA) space have held up better, as both Lattice (LSCC) and Xilinx (XLNX) are up about 15% over the past year, well ahead of the 12% decline in the SOX, and both are likewise well ahead of the SOX on a six-month comparison (where Xilinx has significantly outperformed Lattice). Although Lattice offered a very weak guide for the fourth quarter as distributors burn off inventory and Asian customers order less on macro uncertainties, much of that post-earnings drop has been recovered in recent weeks.

I really like the Lattice story. There is scarcity value in the FPGA space overall, and I think Lattice has a meaningful opportunity in focusing on "lower horsepower" FPGAs where Xilinx and Intel (INTC) really don't compete and where Microchip (MCHP) may well not be as focused as Microsemi was. I also believe there is a significant longer-term margin improvement opportunity here, and one that management seems to take quite seriously. The only "but" is valuation; Lattice does look a little undervalued and there is an opportunity for upgraded expectations over time, but it screens out as relatively fairly-valued in a space with a lot of cheaper-looking alternatives.

Read the full article here:
Lattice Still Looks Like A Very Interesting Self-Improvement Story

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