Lattice Semiconductor Stock Forecast [Patent Royalties Boost Profits]

Lattice Semiconductor Stock Forecast: Choosing where to invest is even harder than deciding on when to pull the trigger and open a position.

One strategy is to look at the things that people use every day, but if you limit yourself to that method, you’ll end up with a portfolio full of commodities and blue-chip brands.

That’s fine if that is what you are going for, but you could try digging deeper. Look at what is behind those common products. One of the most common examples of this strategy is semiconductors.

What are Semiconductors?

Semiconductors are the substances that make computer chips, transistors, and LEDs possible. They are at the heart of everything, conducting electricity.

Silicon Valley, home to next-gen tech and the people who develop it, is named because of the semiconductor silicon, which is used in most electronic devices to some degree.

Let’s look at one semiconductor stock in greater detail, Lattice Semiconductor, and figure out its stock forecast.

What Does Lattice Semiconductor Do?

Lattice Semiconductor [NASDAQ: LSCC], together with its subsidiaries, develop semiconductor-specific technologies. This includes the products themselves as well as the solutions that incorporate them and the design services that include them. Lattice also makes money by selling licenses. Its top clients include Cisco, Amazon, Sony, and Samsung.

Per its annual report, the company’s business is centered on “smart connectivity, control, and compute solutions, providing intellectual property (IP) and low-power, small form-factor programmable logic devices that enable global customers to quickly and easily develop innovative, smart, and connected products. [Lattice helps] their products become more aware, interact more intelligently, and make better and faster connections.”

Lattice [NASDAQ: LSCC] operates in three segments: Communications and Computing, Industrial and Automotive, and Mobile and Consumer.

–       Communications and Computing: Lattice works hard to help its customers “connect anything to everything.” In its Communications and Computing segment, the company helps its customers do more with less. Its solutions tend to occupy a smaller space and use fewer devices in general. This segment provides 30% of the company’s revenue.

–       Industrial and Automotive: In this sector, Lattice offers a range of products that enable intelligent automation. Its products are used in robotics, factories, surveillance cameras, driver assistance, and industrial handhelds. This segment makes up 42% of Lattice’s income.

–       Mobile and Consumer: Lattice also sells solutions for mobile applications and consumer goods. It works within the smartphones and wearables space as well as chargers, digital cameras, drones, and virtual reality headsets. Some 28% of Lattice’s sales come from this segment.

Is Lattice Semiconductor Stock a Buy?

There are lots of reasons to be excited about Lattice. The company is producing products that feature low power consumption and take up less space than some other options.

Given the rise of the Internet of Things and the increasing number of connected devices, power and size make sense as a value proposition.

Plus, Lattice is focused on doing all of this for less. At the same time, it is emphasizing reliability, ease of use, and a high level of security in all of its products.

The company is also innovative. Its semiconductors fall into two basic categories: Field Programmable Gate Arrays (FPGAs) and Video Connectivity ASSPs.

Traditionally, ASSPs and microcontrollers have been the technologies of choice. Newer FPGAs, including those offered by Lattice, are getting smaller and using less power while providing some architectural benefits that help end clients get products to market faster.

Lattice has been working on a series of new product rollouts, including the CrossLinkPlusTM FPGA family of products and it has been met with a fair amount of success so far.

Finally, Lattice is focusing on profitability as well as product development. It has been paying down its debt and improving the interest rate for the debt that remains. As of 3Q19, the company is on track for its financial targets. It is building its cash reserves too.

What are the Risks of Buying Lattice Semiconductor?

Lattice Semiconductor’s biggest competitors in the FPGA space are giants like Intel and Xilinx. Those corporations serve much higher density markets with different power needs and size requirements. Lattice FPGAs are lower power and take up a smaller footprint.

Within Video Connectivity ASSPs, Lattice is competing against system-on-a-chip products that have HDMI functionality built in as well as alternative HD connectivity options, such as Miracast. There are also OEMs that have their own in-house semiconductor teams with which to contend.

Lattice is banking on its patents and the royalty revenue those licenses bring in, but in an industry where technology is evolving so rapidly and its competitors have more resources, that’s not the big advantage it may be in a different industry. Patents expire and new technologies are developed all the time.

Further, Lattice doesn’t make its own silicon products. It has some strategic relationships and agreements in place – including ones with Fujitsu, United Microelectronics, Taiwan Semiconductor, and Seiko Epson – but there will always be a degree of uncertainty when a company doesn’t make its own stuff. One late shipment, defective batch, increase in import fees, new tariffs, or decline in quality could ruin everything.

Lattice Semiconductor Stock Forecast Summary

The industry is extremely volatile. Semiconductor stocks have a history of producing spectacular returns and major disappointments. They are the third-largest export in America, but some quarters they don’t outpace the S&P 500.

Yes, semiconductors, as a whole, will grow as more devices are developed that require them – but there is no guarantee that a particular company will be successful. Further, the technology will continue to evolve, introducing opportunities for particular companies to grow.

When a major brand chooses one semiconductor supplier to, say, power the new iPhone, its stock tends to soar. When the next model doesn’t use that semiconductor company and chooses the one offering the next big thing, the stock may plummet.

You can overcome these challenges to get a good return on your investment, but it takes some work. Do your research before you ante up. Lattice Semiconductor has some important reasons to be bullish, but it’s still an investment. Getting a return on your shares is not guaranteed.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.