In our previous assessment of Lattice Semiconductor Company (NASDAQ:LSCC), we delved into the exceptional upsurge of the corporate’s progress in 2022, which surged at a powerful 28.1%, fuelled by sturdy performances within the Communications & Computing (26.1%) and Industrial & Automotive (41.2%) segments, the place Lattice expanded its product portfolio and elevated its competitiveness. We believed these elements enabled the corporate to edge out different opponents. Moreover, our evaluation indicated its progress was supported by the rising use of low-power FPGAs in EVs.
On this newest evaluation, we centered on Lattice’s newest FPGA developments that might drive progress past 2024. Firstly, we analyzed the enlargement of Lattice’s FPGA portfolio, increasing its low-power portfolio with Nexus and introducing mid-range FPGA options with the launch of Avant-G and Avant-X. We carried out a comparative evaluation of their options in opposition to opponents’ choices to gauge their aggressive edge. Moreover, we examined the potential for Lattice to capitalize on AI-driven purposes using its mid-range FPGAs. Lastly, we delved into the outlook for FPGA adoption throughout numerous finish markets, updating our income projections for Lattice.
Growth of FPGA Product Portfolio
Firstly, we examined Lattice’s FPGA portfolio and in contrast it with prime opponents (excluding Renesas) within the desk for Low to Mid-Vary FPGAs, with low-range FPGAs of fewer than 100,000 logic cells and mid-range spanning 100,000 to 500,000 logic cells in response to Lattice.
Comparability of Low to Mid-Vary FPGAs |
Lattice |
AMD |
Microchip |
Intel |
Variety of Low-Vary FPGAs (<100K Logic) |
3,454 |
2,790 |
1,150 |
2,981 |
Variety of Mid-Vary FPGAs (100K – 500K Logic) |
199 |
854 |
301 |
3,573 |
Whole Low to Mid-range FPGAs |
3,653 |
3,644 |
1,451 |
6,554 |
Supply: DigiKey, Khaveen Investments
Based mostly on the desk, Lattice has the best variety of Low-Vary FPGAs (<100K Logic components), highlighting its benefit on this phase. In our previous analysis, we highlighted the corporate’s deal with “small size and power-efficient FPGA as a difference to its competitors in the FPGA market including Xilinx and Intel.”
Lattice Nexus Platform
Inside the low-range FPGA portfolio, Lattice lately expanded its portfolio with its CrossLinkU-NX FPGA household, claiming to be the business’s first low-power FPGAs that includes built-in USB, to speed up USB-equipped system designs and embedded imaginative and prescient purposes. As well as, the corporate highlighted in its earnings briefing Nexus as a “major contributor” to Lattice’s progress and the introduction of recent FPGAs inside the Nexus household.
A few examples of that’s on Nexus, we have launched seven machine households primarily based on Nexus. 5 of these machine households are already in manufacturing. However there’s two extra that go into manufacturing this 12 months.” – James Anderson, CEO
Avant FPGAs
We identified that Lattice currently has only 199 mid-range FPGAs, which is significantly lower than competitors AMD, Microchip (MCHP), and Intel (INTC). Among these companies, Intel leads the way with a total of 3,573 mid-range FPGAs. However, from its earnings briefing, management announced its expansion in the mid-power FPGAs with the launch of Avant-G and Avant-X recently, following Avant-E. Additionally, Lattice expects the Avant portfolio to grow to between 15% to 20% of its total revenue in 3 to 4 years. From its Investor Presentation, management claimed Avant provides 2.5x lower power consumption and 2x faster performance than competitors.
Hence, we compared Lattice’s latest mid-range FPGA products, Avant-G and Avant-X, with similar mid-range FPGAs from competitors to determine their performance competitiveness based on their memory rates, memory type, transceivers data rates, and process node.
Comparison of Mid-Range FPGA |
Avant-G (Lattice) |
Avant-X (Lattice) |
Spartan UltraScale+ (AMD) |
PolarFire (Microchip) |
Agilex 5 D-series (Intel) |
Agilex 5 E-series (Intel) |
Memory Rates (RAM) |
2.4 Gbps |
2.1-2.4 Gbps |
2.4-4.3 Gbps |
1.6 Gbps |
3.2-4.3Gbps |
2.4-3.7Gbps |
Memory Type (RAM) |
LPDDR4/DDR4 |
DDR5/LPDDR 4/DDR4 |
LPDDR5/DDR4/LPDDR4 |
DDR4/DDR3/LPDDR3 |
DDR5/ LPDDR5/DDR4/LPDDR4 |
DDR5/ LPDDR5/DDR4/LPDDR4 |
Transceivers Data Rates |
10Gbps |
25Gbps |
16.3 Gbps |
12.7 Gbps |
28 Gbps |
28Gbps |
Process |
16nm |
16nm |
16nm |
28nm |
10nm |
10nm |
Source: Company Data, Khaveen Investments
Based mostly on the desk, the 2 Avant FPGAs have a slower reminiscence pace (as much as 2.4 Gbps) in comparison with AMD (2.4 – 4.3 Gbps) and Intel (as much as 4.3 Gbps), sooner reminiscence permits for faster information entry and thus diminished latency. As well as, the reminiscence sort might have an effect on the facility consumption and bandwidth of the FPGAs, and essentially the most advanced sorts available in the market are DDR5 and LPDDR5. Therefore, Intel’s Agilex 5 collection leads on this side, adopted by AMD and Lattice. In terms of transceivers’ information charges, Intel’s Agilex 5 collection is the perfect with 28 Gbps. Excessive transceiver charges allow for sooner information trade and bandwidth-intensive purposes. Lattice’s Avant-X has a barely decrease price of 25 Gbps, however the firm claims it additionally gives “energy effectivity, superior connectivity, and optimized compute”. Different FPGAs’ information charges are considerably decrease at a spread from 10 Gbps to 16.3 Gbps. Lastly, when it comes to course of node know-how used, Intel’s FPGAs are extra superior (10nm). Extra superior course of know-how can offer elevated logic density, decreased energy utilization and enhanced efficiency. However, Microchip falls behind compared to Lattice, AMD and Intel. We then ranked every of the elements and calculated the typical rating of all elements.
Comparison of Mid-Range FPGA |
Avant-G (Lattice) |
Avant-X (Lattice) |
Spartan UltraScale+ (AMD) |
PolarFire (Microchip) |
Agilex 5 D-series (Intel) |
Agilex 5 E-series (Intel) |
Memory Rates (RAM) |
5 |
4 |
2 |
6 |
1 |
3 |
Memory Type (RAM) |
5 |
3 |
4 |
6 |
1 |
1 |
Transceivers Data Rates |
6 |
3 |
4 |
5 |
1 |
1 |
Process |
3 |
3 |
3 |
6 |
1 |
1 |
Average |
4.75 |
3.25 |
3.25 |
5.75 |
1 |
1.5 |
Supply: Khaveen Investments
According to the table above, Intel’s Agilex 5 D-series has the highest ranking in all aspects, leading it to be ranked in first place, followed by Intel’s, Agilex 5 E-series. Avant-X and Spartan Ultrascale+ also have the same rank, but Avant X has a higher memory speed while Spartan has better memory type and higher transceivers data rates. Avant-G ranks fourth and Microchip’s PolarFire ranks last. Therefore, we believe that even though Intel’s FPGAs edge out other competitors, Lattice’s FPGAs still have some competitive advantages compared to Microchip, considering the company has just expanded its portfolio to mid-range FPGAs. Overall, we determined our performance comparison results contradict the management’s claim from its presentation, and we instead believe Intel is still the superior company in the mid-range segment.
Outlook
Overall, we examined the low to mid-range FPGAs of Lattice and its competitors. The company dominates with the largest product breadth in low-range FPGA with almost 3,500 products. Additionally, the company launched several new products in this range which further solidifies its product breadth. However, the company has not stood out as a mid-range FPGA manufacturer due to its low number of mid-range FPGAs as a new entrant competing against larger players like AMD, Intel and Microchip in this segment. In our previous analysis of Lattice, we also highlighted that AMD and Intel remain the top FPGA manufacturers with 53% and 26.7% market share in 2022. Lattice’s latest mid-range FPGA, Avant-G and Avant-X, lack competitiveness as it lags behind Intel’s and AMD’s mid-range FPGAs. However, we believe the company’s launch of Avant establishes its entry into the mid-range FPGA market and the roadmap below shows the planned development of future Avant FPGAs which could lead to the company improving some of its product specs lacking such as memory rates, memory type, transceiver data rates and process based on our FPGA spec comparison analysis above.
AI Affect to FPGA Demand
Next, we examined how AI benefits Lattice’s FPGAs. Additionally, as management highlighted from its earnings briefing that AI-related revenue was around $100 mln in 2023, accounting for approximately 14% of Lattice’s total revenue, we also looked into what segments the company derives its AI-related revenue. According to the company’s CEO from its earnings briefing, Lattice estimated AI-related revenue from a wide range of AI-related applications including:
- “AI-optimized servers within the information heart…Lattice units are used within the management, administration, and safety of the AI computing system”
- “AI-enabled PCs, the place Lattice options are used to run the AI inference algorithm that gives options equivalent to person presence and gaze detection in PC programs just like the Lenovo ThinkPad”
- “AI-enabled automotive ADAS programs, the place Lattice options are used to mixture and pre-process important information that’s used for AI processing”.
In response to Informa Tech, FPGAs can function {hardware} accelerators in information facilities, and they’re particularly helpful for AI inferencing duties as they’ve larger throughput and decrease latency in comparison with common processors or GPUs. As well as, Lattice highlighted that its FPGAs have a 2.5x decrease energy consumption than different FPGAs. In our earlier evaluation of Nvidia (NVDA), we derived a forecasted common progress price for information heart chip progress of 39%, pushed by demand from cloud service suppliers ramping up infrastructure. Moreover, the corporate lately introduced a partnership with Nvidia to make the most of its power-efficient FPGAs to facilitate sensor fusion and bridging in Nvidia’s Jetson Orin and IGX Orin platforms, which fall under Nvidia’s Knowledge Middle phase. In response to Nvidia, Jetson Orin is designed to speed up energy-efficient autonomous programs, equivalent to robotics, imaginative and prescient AI, and edge purposes, whereas the IGX Orin is right for AI-powered industrial and medical purposes.
Moreover that, Lattice has additionally developed SensAI, a software program stack that makes use of its FPGAs for inferencing, permitting prospects to “develop and deploy FPGA-based Machine Studying / Synthetic Intelligence options”. In PCs, Lattice’s SensAI might help prolong battery life by 28% or detect person presence and a focus utilizing its Face Framing Expertise. Furthermore, Lattice claimed that its software program also can improve safety and optimize programs in PCs. In response to Counterpoint Analysis, the worldwide AI PCs market is anticipated to develop at a CAGR of fifty% reflecting the sturdy demand for AI PCs’ superior safety and elevated effectivity.
Lattice additionally has mVision that helps deploy options equivalent to “machine imaginative and prescient, robotics, ADAS, video surveillance, and drones”. Moreover, Lattice has highlighted that its FPGAs are additionally utilized in automotive ADAS and Infotainment programs by enabling parallel sensor processing, low-power interfaces and “hardware-based safety” capabilities. For example, Lattice’s FPGAs are also used to support ADAS “facet radar purposes” for Mazda’s (OTCPK:MZDAY) CX-60 and CX-90 SUV. We highlighted a robust demand for ADAS purposes with a market CAGR of 18.7%.
Outlook
End Market |
Forecast CAGR |
Data Center |
39% |
AI-enabled PC |
50% |
ADAS |
18.7% |
Average |
35.9% |
Source: Counterpoint Research, Acumen Research, Khaveen Investments
The table above consists of the market CAGR of AI applications including data centers, AI-enabled PCs, and the ADAS market. Overall, we calculated the average CAGR to be 35.9%. In addition, the company management also expects higher AI-related revenue in the next few years as highlighted by the quote below.
We expect our AI-related revenue to more than double over the next few years based on the growing pipeline of AI-related design wins. – James Anderson, CEO.
Hence, from the management guidance of Lattice’s AI-related revenue to be $200 mln, we assumed the company to achieve this in the next three years and accordingly calculated the CAGR to be 26%. Compared with our derived average market CAGR of 35.9%, it surpasses management’s forecast and therefore we believe management’s guidance of $200 mln in AI-related revenue could be reasonable.
End Markets Growth Outlook for FPGAs
Lastly, we examined the tip market outlook for FPGAs and subsequently forecasted the corporate’s income. Lattice’s Avant and Nexus are low and mid-range FPGAs, that focus on applications in Communications, Computing, Industrial & Automotive.
Communications and Computing
According to Lattice, the company provides solutions for “computing programs equivalent to servers and shopper units, 5G wi-fi infrastructure, switches, routers, and different associated purposes” on this phase. For Computing, FPGAs can speed up information facilities and their computing capabilities by releasing up processor sources and decreasing energy consumption. In response to Intel, FPGAs can carry out higher than GPUs when “the appliance calls for low latency and low batch sizes”. In our previous analysis of Microsoft (MSFT), we estimated that the cloud market will be growing by a forward average of 23% driven by data volume growth. We believe data center demand to be a good gauge of FPGA demand in Computing, as FPGAs are used in data center servers to offload “compute-intensive duties from the CPU and GPU” on account of their low latency and vitality effectivity. For Communications, given their low latency and the flexibility for parallel processing, FPGAs are suitable for processing huge information stream required within the 5G RAN. We highlighted in our previous analysis of Qualcomm that the penetration price of 5G units is projected to “attain 83% by 2027 from 62% in 2023”, boding properly for the demand for 5G providers.
Industrial and Automotive
For this phase, the corporate gives options to “industrial Web of Issues (“IoT”) and “Industry 4.0”, machine imaginative and prescient, robotics, manufacturing unit automation, superior driver help programs (“ADAS”), and automotive infotainment.”
For Industrial, from our previous analysis of ADI (ADI), we highlighted sturdy progress within the semicon industrial market with a CAGR of seven.21%, pushed by good grid deployments and digitalization of factories. Intel’s case study explains how FPGAs might allow the transformation of good factories with their parallel computing capabilities. Furthermore, Lattice’s Automate 3.0 answer stack can also be used to speed up good automation system improvement, together with “robotics, embedded real-time networking, predictive upkeep, practical security (FuSa) and safety”.
For Automotive, the ADAS market is anticipated to develop at a CAGR of 18.7%. Furthermore, McKinsey expects the automotive software program market to develop at a CAGR of 9.4%, pushed by Software program-defined Automobiles as shoppers demand safer and extra superior automobiles. FPGAs might assist automobile producers improve numerous options and allow SDVs, equivalent to zonal architectures, energy effectivity, real-time networking, and infotainment interfaces. Lattice claimed that its FPGA gives 2x sooner connectivity pace and 5x extra unbiased sensor interfaces. The chart beneath summarizes how Lattice’s software program is utilized in numerous automotive purposes.
Client
In the Consumer segment, the company’s products are used in applications including “good residence units, prosumer units, sound bars, high-end projectors, Augmented Actuality (“AR”) / Digital Actuality (“VR”), and wearables”, FPGAs can accelerate processing energy, allow real-time sensor fusion and object recognition for AR purposes, and optimize energy consumption. We highlighted that the AR/VR market CAGR is 42.24% in our earlier evaluation of Apple (AAPL), driven by demand in consumer and enterprise applications.
Outlook
Segment Revenue ($’000s) |
Our Previous Forecast (2023) |
Actual Revenue (2023) |
Difference |
Communication and Computing |
326,092 |
257,536 |
-68,556 |
Growth % (YoY) |
18.7% |
-6.3% |
-25.0% |
Industrial and Automotive |
397,793 |
433,482 |
35,689 |
Growth % (YoY) |
24.5% |
35.7% |
11.2% |
Consumer |
49,064 |
46,136 |
-2,928 |
Growth % (YoY) |
0.0% |
-6.0% |
-6.0% |
Licensing and Services |
15,730 |
-15,730 |
|
Growth % (YoY) |
-8.2% |
8.2% |
|
Total Revenue |
788,678 |
737,154 |
-51,524 |
Growth % (YoY) |
19.4% |
11.6% |
-7.8% |
Source: Company Data, Khaveen Investments
In our previous coverage, we projected the company’s 2023 revenue based on its historical 5-year average growth rate. Our forecast was higher compared to its actual 2023 revenue growth of 11.6%, attributed mainly to the unanticipated market headwinds highlighted by management.
End Market Growth |
Market CAGR |
Lattice’s 5Y Average |
Computing and Communication |
14.6% |
16.6% |
Industrial and Automotive |
12.96% |
23.7% |
Consumer |
6.60% |
-9.3% (4Y average) |
Source: Grand View Research, Khaveen Investments
Comparing the market CAGR and the company’s 5-year historical average revenue growth, we observed that these two are slightly in line with the Computing and Communication segment (14.6% and 16.6%). However, for the Industrial & Automotive and Consumer segment, the market CAGR differs significantly from the company’s historical average growth. Therefore, we believe that basing our forecast on its historical growth is more in line than using market CAGR. However, we also took into account the management guidance for the company in 2024 where management expects Q1 revenue to be between $130 mln to $150 mln with Q2 unexpected to rise significantly but H2 revenues to be higher than H1, reflecting improving market conditions and its new Nexus and Avant product launches in that period.
Lattice Revenue Forecasts ($’000s) |
2023 |
2024F |
2025F |
2026F |
Communications and Computing |
257,536 |
236,241 |
264,274 |
305,582 |
Growth % (YoY) |
-6.3% |
-8.3% |
16.6% |
15.6% |
Industrial and Automotive |
433,482 |
392,581 |
472,879 |
580,030 |
Growth % (YoY) |
35.7% |
-9.4% |
23.7% |
22.7% |
Consumer |
46,136 |
47,771 |
41,740 |
37,854 |
Growth % (YoY) |
-6.0% |
3.5% |
-9.3% |
-9.3% |
Total Revenue |
737,154 |
676,592 |
778,893 |
923,466 |
Growth % (YoY) |
11.6% |
-8.2% |
18.9% |
18.6% |
Source: Company Data, Khaveen Investments
Overall, we forecasted the company’s total revenue to decline by 8.2% in 2024 based on management guidance reflecting the anticipated market headwinds highlighted in the first half and the potential recovery in the second half. In 2025 and beyond, we forecasted the revenue growth for each segment based on the updated 5-year historical growth rate. Particularly for the Consumer segment, we used 4-year past growth as the company restructured this segment in 2019 by winding down its smartphone products.
Danger: Competitors in FPGAs
AMD (Xilinx) lately announced the event of low-cost Spartan UltraScale+ FPGAs highlighting their excessive I/O-to-logic-cell ratios and superior safety features, together with “NIST-approved post-quantum safety” and tamper-resistant circuits. This development is likely to pose challenges to Lattice’s low to mid-range FPGAs. As AMD is the leading player in the FPGA market by market share, we believe Lattice may face increased competition, prompting them to innovate further to maintain their competitive edge in the low-cost FPGA segment. Furthermore, we believe that Renesas, a new entrant into the FPGA market, may further lead to intensifying competition.
Verdict
All in all, despite expected market growth headwinds in 2024, our analysis indicates a strong potential for Lattice to sustain growth by expanding its product portfolio in low- and mid-power FPGAs. We anticipate significant strides from the company’s expansion into the mid-range FPGA market. However, we also take note that while Lattice’s mid-range FPGAs outperform Microchip’s offerings, they still lag behind industry leaders like AMD and Intel, though the company’s roadmaps indicated future product developments which could see improvements in product performance to better compete against leading players. Furthermore, we believe that Lattice could benefit from the strong growth in AI-related applications such as data centers, AI-enabled PCs, and ADAS systems as our market analysis showed an average CAGR of 35.9%, surpassing the management’s forecasts. Delving deeper into end-market prospects for FPGAs, we identified key growth drivers across various end markets and how Lattice is capitalizing on these drivers. Overall, we believe that Lattice is poised to capitalize on the growing demand for AI applications, further strengthening the company’s position in the FPGA market.
Based mostly on a reduction price of 13.4% (firm’s WACC), and terminal worth primarily based on its 5-year common EV/EBITDA of 49.77x, our mannequin reveals an upside of 25.95%. As well as, our up to date mannequin reveals a better upside as we beforehand used the business’s EV/EBITDA ratio, which was solely 20.13x. We up to date the ratio as the corporate’s historic EV/EBITDA was considerably larger than the business common (27.78x). Based mostly on our up to date DCF, we obtained a worth goal of $99.57 and improve the corporate to a Purchase score.