Tuesday, 21 July 2015

Lattice Semiconductor - A Value Play

Lattice Semiconductor (NASDAQ: LSCC)
Technology; Specialized Semiconductors; 25%-30% Upside

FPGAs and ASSPs are expected to lead growth for Lattice Semiconductor. The Silicon Image acquisition exposes the company to MHL prospects in emerging markets. Several valuation approaches reveal an upside of ~30%. Acquisition potential makes LSCC even more attractive.

Recent design wins indicate growth ahead for LSCC. The company recently revealed its design wins with Huawei and ZTE Corp. Huawei is using Lattice’s iCE40 FGPA in its P8 flagship for smart antenna switching functionality.  ZTE is also using this family of FGPAs in its Star 2 flagship for sensor hub function. As iCE40 is the world’s smallest FGPA, more flagship design wins are expected going forward. Now, Huawei and ZTE win is an indicator of growth because both the companies are rising in the smartphone arena. Huawei is currently the fourth largest smartphone maker by market share, which is growing at a faster pace as compared to other makers. Huawei increased its share from 3.4% in Q1 2012 to 5.2% in Q1 2015. Big players like Apple and Samsung have shed market share since 2012. This is indicative of Huawei’s success in emerging markets, which, in fact, will benefit Lattice going forward. ZTE is also aiming to double its smartphone market share during the next few years. As far as topline growth is concerned, recent design wins with ZTE and Huawei bodes well for Lattice. Note that Lattice customers also include Apple, Samsung, Lenovo and HTC etc.