1 Small Chip Stock Outperforms AMD, Intel and Others in a Crucial Area of ​​AI - Latest Global News

1 Small Chip Stock Outperforms AMD, Intel and Others in a Crucial Area of ​​AI

After a series of large acquisitions from the chip design giant Intel in 2015 and another from AMD In 2022 I wrote about what a small chip design house is like Lattice semiconductors (NASDAQ:LSCC) is the last remaining FPGA pure play company.

FPGAs (Field Programmable Gate Arrays) are a type of logic chip. They can be reprogrammed using software, allowing engineers to change the function of the FPGA – even after the chip has been manufactured and put into operation. This distinguishes FPGAs from application-specific integrated circuits (ASICs) or even many CPUs and GPUs, which are designed and pre-programmed to behave in a specific way.

Lattice may be small, but it has been quietly winning a market share battle with its two larger competitors, Intel and AMD. As the semiconductor industry prepares for a new growth cycle later in 2024, driven by new demands for artificial intelligence (AI), Lattice could be in an exceptional position to continue winning.

Financial figures paint an interesting picture

If you exclude the large data center AI systems, this is the case Nvidia In fact, much of the semiconductor industry is still in the midst of a cyclical downturn. While there are signs that the new bull market driven by Nvidia and the big tech companies will thaw this downturn, perhaps in the second half of 2024, Lattice just reported some disappointing financial results for the first quarter of 2024.

Metric

1st quarter 2024

% change (YOY)

revenue

141 million dollars

(24%)

GAAP Earnings Per Share (EPS)

$0.11

(73%)

Free cash flow (FCF)

$26.1 million

(28%)

Data source: Lattice Semiconductor.

These results effectively end Lattice’s multi-year growth phase.

LSCC Sales Chart (TTM).

LSCC Sales Chart (TTM).

As ugly as the recent results may seem, Lattice performs far better than the comparable FPGA segments from Intel and AMD. For Intel, that’s primarily Altera, the large FPGA company it acquired in 2015 and whose name it recently revived, with plans to eventually spin it off again as a publicly traded company. And for AMD, that is the “Embedded” revenue segment, which was acquired primarily through the mega merger with the FPGA market leader Xilinx at the beginning of 2022.

Both Intel’s Altera and AMD’s embedded segments declined far more than Lattice’s FPGA-focused sales at the start of 2024. This means that Lattice is gaining market share in FPGA chips at the expense of its two larger competitors.

Pursue

Sales in the 1st quarter of 2024

YOY % change

Intel Altera

$846 million

(46%)

AMD Embedded

342 million dollars

(58%)

Data source: Intel and AMD.

Grid is tiny but powerful

There is often tremendous value in having a single focus as a company, especially when that singular focus is coupled with financial discipline. While both Intel and AMD struggled to maintain profitability during the chip industry downturn last year (Intel much more so than AMD), Lattice has remained profitable by any measure.

INTC Free Cash Flow ChartINTC Free Cash Flow Chart

INTC Free Cash Flow Chart

What is the secret of Lattice? In the past, the focus has been on low-end and “small” FPGAs, those with fewer logic cells that can be reprogrammed. These small FPGAs are used, for example, in industrial equipment and sensors, in critical applications for things like factory automation, and to control many simple functional features in modern cars.

Lattice has also focused on mid-sized FPGAs with new product launches in recent quarters. These “bigger” FPGAs with more logic blocks are used for more complex functions, such as in some parts of data centers, in high-end networking and telecommunications devices, and in more advanced self-driving functions in cars.

In search of better financial efficiency, both Intel and AMD have discontinued some of their small and medium-sized FPGA product lines in recent years. This has left the door open for Lattice to expand its customer base and sell a wider range of FPGA chips to existing customers once this current downtrend in the industry is over.

It’s not just Lattice that benefits from this. In its most recent earnings release said Microchip It also noted that Intel and AMD have exited the mid-range FPGA market, an area of ​​the industry where Microchip has been making waves.

The result for Lattice

While it may make financial sense for Intel and AMD to streamline their product lineup and give some share to Lattice, it has an overall positive effect for Lattice. Less competition means Lattice could sell more and also increase its profit margins. And of course, as all kinds of AI applications become more prevalent across various industries, Lattice’s small and medium-sized FPGAs may be more important than ever.

The stock trades at a premium of nearly 60 times expected earnings per share for the current year. However, keep in mind that this includes the sharp decline in earnings in the first quarter and expected earnings in the next few quarters as Lattice recovers from the downturn in the chip industry. I remain a happy shareholder with an eye on this small company’s potential for increased sales And Profit margins for the coming years.

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Nicholas Rossolillo and his clients have positions in Advanced Micro Devices, Lattice Semiconductor, Microchip Technology and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends Intel and recommends the following options: long $45 January 2025 calls on Intel and short $47 May 2024 calls on Intel. The Motley Fool has a disclosure policy.

1 Small Chip Stock Surpassing AMD, Intel, Others in a Crucial Area of ​​AI was originally published by The Motley Fool

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