No Surprises In Lattice Semiconductor’s (NASDAQ:LSCC) Q3 Sales Numbers But Stock Drops
Semiconductor designer Lattice Semiconductor (NASDAQ:LSCC) met Wall Street’s revenue expectations in Q3 CY2024, but sales fell 33.9% year on year to $127.1 million. On the other hand, next quarter’s revenue guidance of $117 million was less impressive, coming in 11.4% below analysts’ estimates. Its non-GAAP profit of $0.24 per share was 1.5% above analysts’ consensus estimates.
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Lattice Semiconductor (LSCC) Q3 CY2024 Highlights:
- Revenue: $127.1 million vs analyst estimates of $127.1 million (in line)
- Adjusted EPS: $0.24 vs analyst estimates of $0.24 (beat by $0)
- Adjusted Operating Income: $33.76 million vs analyst estimates of $33.73 million (small beat)
- Revenue Guidance for Q4 CY2024 is $117 million at the midpoint, below analyst estimates of $132.1 million
- Adjusted EPS guidance for Q4 CY2024 is $0.19 at the midpoint, below analyst estimates of $0.26
- Gross Margin (GAAP): 69%, down from 70% in the same quarter last year
- Inventory Days Outstanding: 241, up from 235 in the previous quarter
- Operating Margin: 5.9%, down from 29.6% in the same quarter last year
- Free Cash Flow Margin: 31%, down from 40.5% in the same quarter last year
- Market Capitalization: $7.20 billion
Ford Tamer, Chief Executive Officer, said, "Through my meetings with employees, customers, and partners, since joining Lattice, I’m even more convinced that we are in an excellent position to expand market share over the long-term. Third quarter 2024 results were inline with the Company's prior expectations, which reflects the disciplined execution of our strategy and a continued focus on operational efficiency. After careful consideration, we proactively took action in the third quarter to better align our resources to the current business level, while maintaining the stability and integrity of our leadership product roadmap, customer support and demand creation infrastructure. Importantly, we do not expect any additional reductions will be needed. While we expect continued near-term industry headwinds, I am excited about the opportunity to build on Lattice's strong foundation. "
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 performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, Lattice Semiconductor’s sales grew at a mediocre 7.1% compounded annual growth rate over the last five years. This shows it couldn’t expand in any major way, a tough 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.
We at StockStory place the most emphasis on long-term growth, but within semiconductors, a half-decade historical view may miss new demand cycles or industry trends like AI. Lattice Semiconductor’s history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 5.2% annually. 
This quarter, Lattice Semiconductor reported a rather uninspiring 33.9% year-on-year revenue decline to $127.1 million of revenue, in line with Wall Street’s estimates. Management is currently guiding for a 31.4% year-on-year decline next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 2.5% over the next 12 months, an improvement versus the last two years. While this projection shows the market thinks its newer products and services will catalyze better performance, it is still below the sector average.
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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 241, which is 86 days above its five-year average, suggesting that the company’s inventory has grown to higher levels than we’ve seen in the past.
Key Takeaways from Lattice Semiconductor’s Q3 Results
It was encouraging to see Lattice Semiconductor narrowly top analysts’ EPS expectations this quarter. On the other hand, its revenue guidance for next quarter missed analysts’ expectations and its operating margin shrunk. Overall, this was a softer quarter. The stock traded down 5.9% to $49 immediately following the results.
Lattice Semiconductor underperformed this quarter, but does that create an opportunity to invest right now? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.
