This Under $50 Semi Stock is Trading Near 2-Year Low. Should You Buy?

Shares of Lattice Semiconductor (NASDAQ: LSCC) are trading below the $50 mark once again following the most recent selloff in chip stocks. LSCC stock price is trending near the 2-year low and over 40% below the all-time high set in November.

Robust Industry Outlook

The global semiconductor chip industry is projected to hit $600 billion in valuation in 2022, which amounts to a 10% growth rate. The higher-than-average growth is expected to be driven by the increasing importance of semiconductor chips and content in cars, data centers, phones, computers, appliances, and more. 

The chip shortage has battered numerous industries over the past two years. This is because a single essential chip can hinder the sale of a product that costs thousands of dollars. Analysts estimate that the global chip crunch led to revenue misses of over $500 billion between semiconductor and customer industries, while the car industry alone missed more than $210 billion in sales last year. 

Semiconductor revenues are hovering around a very steep trend line and are likely to remain there as the industry enters a period of strong growth. Chip shortage and supply chain challenges are expected to persist in the first half of 2022 and start easing in the second half of this year and in 2023. 

In addition to chip shortage, the semiconductor industry is also grappling with a talent shortage, which is expected to increase as more assembly plants are built outside China, South Korea, and Taiwan. This is because the growing demand for software developers who are programming and integrating chips into markets is expected to additionally weigh on the shortage. 

While the chip shortage has landed heavy blows on certain customers, the chip industry itself is growing healthily. The Philadelphia Semiconductor Index (SOX) surged 117% over the past two years, compared to the Nasdaq’s growth of just 90% over that period. 

Furthermore, analysts expect the ongoing digital transformation within the semiconductor industry to keep advancing and accelerating. Multiple chipmakers are already moving their operations towards digital, though some of these companies are adjusting their transformation process in a response to outside pressures. 

Strong Results Recognized

Lattice Semiconductor has won the 2022 Cyber Security Global Excellence Awards® for a second consecutive year, with its Lattice SupplyGuard™ service and Lattice Sentry™ offerings winning gold and silver awards, respectively.

“As the security needs of our customers continue to evolve, leveraging programmable FPGA and software-based solutions make it easier to add layers of protection to their applications and systems,” said Eric Sivertson, Vice President of Security Business at Lattice Semiconductor. 

“We thank the Globe Awards for once again recognizing our SupplyGuard security service and Sentry solution stack for helping developers integrate strong firmware security and cyber resiliency throughout the system’s life cycle.”

The global awards have been created to recognize achievements in the cyber and digital security sector around the world. The winner of the award is chosen by over 55 executives and professionals across a number of industries.  

How Did Lattice Perform in Q4?

Lattice Semiconductor reported Q4 adjusted EPS of 32c, up from 19c in the year-ago quarter, and consensus estimates of 28c per share. Revenue came in at $141.8 million in the quarter, up 32% year-over-year and beating the consensus projection of $134.1 million.

R&D expenses totaled $30.2 million in the period, up 34% year-over-year. The company reported a Q4 adjusted gross margin of 65.1%, up from 61.6% in the year-ago quarter and topping the expected 64%. The adjusted operating margin was 32.9%, up from 26.6% in the year-ago period.

The semiconductor chip maker expects Q1 2022 revenue to be in the range of $141 million to $151 million. Non-GAAP gross margin percentage in Q1 2022 is estimated to be 66% plus or minus 1%. The company expects non-GAAP total operating expenses in the first quarter to range between $46 million and $48 million. 

Conclusion 

For the patient, long-term investors, Lattice stock could yield serious returns given that the company offers exposure to both the chip and rapidly-rising cyber security sectors. Shares are trading near the 2-year low with a potential return to the all-time high could translate into a 70% gain from current levels.  

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