Lattice Semiconductor Corp: Bullish 5G Stock Trouncing the Market…

Lattice Semiconductor Stock Soars 113% Since March

We’ve been closely following Lattice Semiconductor Corp (NASDAQ:LSCC) for a while now. And for good reason: LSCC is a market-trouncing 5G cellular network tech stock that has seen its shares advance 40% in 2020.

More impressively, LSCC stock has advanced nearly 115% since it, along with the rest of the market, bottomed in mid-March as a result of COVID-19.

To put that growth into perspective, since mid-March, the Nasdaq has climbed 50% and the iShares PHLX Semiconductor ETF (NASDAQ:SOXX) has climbed 58.5%. Strong gains indeed, but only about half of what Lattice Semiconductor stock has been able to accomplish.

Despite its recent triple-digit returns, by all accounts this 5G stock is still undervalued and has plenty of room to run in the second half of 2020 and beyond.

Despite ongoing uncertainty around COVID-19, the Hillsboro, Oregon-based Lattice Semiconductor Corp reported solid first-quarter results.

Why the optimism about 5G stocks like Lattice Semiconductor stock? COVID-19 may have shut down the global economy, and 5G conspiracy theorists may have tried to link the virus outbreak with 5G networks, but the build-out continues.

5G Helped People Cope During COVID-19 Lockdown

Korea and China have been leading in bringing 5G networks online, and the U.S. has been expanding its own system, with most urban centers having at least some 5G connectivity. Europe and other parts of the world are not far behind.

According to the most recent data, there are over 63.6 million 5G connections around the world. That represents a 309% increase over the fourth quarter of 2019.  (Source: “5G Continues Progress Despite COVID-19,” GlobeNewswire, June 24, 2020.)

These systems are connected through 82 different 5G commercial networks, and that number is expected to soar to 206 by the end of 2020. On top of that, there are more than 100 commercial 5G device models available, supporting low-band mid-band, and millimeter-frequency bands.

By the end of 2020, 5G subscriptions are expected to reach 190 million, and by the end of 2025, 25% of the world’s mobile network data traffic is projected to be fixed wireless access. (Source: “Ericsson Mobility Report,” Ericcson, last accessed June 25, 2020.)

The fact is, 5G remains the fastest-growing generation of wireless technology. That title was actually boosted as a result of the COVID-19 pandemic, with smartphone users saying that information and communications technology helped them cope better with everyday life during the lockdown.

LSCC Stock Overview

Lattice Semiconductor is the leading provider of programmable, smart, connectivity technology. The company helps its customers implement their own designs, create lower development costs, and improve overall time-to-market. (Source: “Investor Presentation, Second Quarter 2020,” Lattice Semiconductor Corp, last accessed June 25, 2020.)

Being the only company to invest in small, low-power-field programmable gate array (FPGA) products has allowed it to gain a stronghold in end markets such as communications (5G wireless, switches/routers), computing (servers, client), industrial (Internet of Things, factory automation), automotive (infotainment, advanced driver assistance), and consumer and broadcasting (smart homes, wearables).

FPGA is an integrated circuit that can be programmed anywhere after being manufactured, meaning customers can create specialized integrated circuits for their own purposes. The build-out of 5G networks is expected to be a major growth driver for Lattice Semiconductor because FPGAs are used in telecommunications infrastructure.

Lattice Semiconductor Corp’s customers include Amazon.com, Inc. (NASDAQ:AMZN), Cisco Systems, Inc. (NASDAQ:CSCO), Dell Technologies Inc (NYSE:DELL), Nokia Oyj (NYSE:NOK), , and Sony Corp (NYSE:SNE).

Chart courtesy of StockCharts.com

Solid First-Quarter Results

On April 28, Lattice Semiconductor announced that its revenue for the first quarter of 2020 inched down 0.8% year-over-year to $97.3 million. (Source: “Lattice Semiconductor Reports First Quarter 2020 Results,” Lattice Semiconductor Corp, April 28, 2020.)

First-quarter net income was up 10.2% year-over-year at $8.2 million, or $0.06 per share. On an adjusted basis, second-quarter EPS improved to $0.15 per share, from $0.11 in the same prior-year period.

Jim Anderson, president and CEO commented, “I am pleased with the results we delivered in the first quarter of 2020 given the dynamic environment around COVID-19.”

He continued, “We are focused on continuing to build the momentum of the products we launched last year, including our NEXUS next generation platform, our CrossLink-NX FPGA, and our MachXO3D platform security product.”

Sherri Luther, CFO added, “For the first quarter 2020, diluted EPS was up 20% on a GAAP basis and up 36% on a non-GAAP basis compared to Q1 2019. We generated healthy cash flow from operations of $21 million, as we continue our focus on cash generation.”

Luther noted that the company took advantage of the current environment and pre-emptively drew down $50.0 million on its credit facility to solidify its cash position. Lattice ended the second quarter with $177.0 million in cash, providing the company with strong liquidity.

Q2 Financial Outlook

For the second quarter, Lattice Semiconductor expects to report:

• Revenue between $95.0 and $105.0 million, representing a year-over-year decrease of 1.9% at the midpoint
• Gross margin percentage of 60%, compared to 58.7% in the same prior-year period
• Total adjusted operating expenses between $36.0 and $37.0 million, compared to $35.5 million in the second quarter of 2019

(Sources: Ibid and “Lattice Semiconductor Reports Second Quarter 2019 Results,” Business Wire, July 30, 2019.)

Analyst Take

5G tech stock Lattice Semiconductor Corp has been on a great trajectory since the start of 2019 and has been seriously outpacing the broader market since stocks bottomed in March.

The company recently reported improved financial results and increased profitability, launched a number of new products, and provided solid guidance.

Thanks to the strong adoption and proliferation of 5G technology, the short- and long-term outlooks for Lattice Semiconductor stock remain robust.