LSCC

Publicly traded companies mentioned herein: Arrow Electronics Inc (ARW), Intel Corp (INTC), Lattice Semiconductor Corp (LSCC), Microchip Technology Inc (MCHP), Weikeng Industrial Co Ltd (3033 TT)

Highlights

The presenter is short shares of Lattice Semiconductor Corp (LSCC), a field programmable gate array (FPGA) company that competes in a 4-player market. There are two main players at the high end of the market (INTC-owned Altera Corp, and Xilinx Inc), MCHP operates at the mid-level, and LSCC is at the low end but has been gradually working its way up-market. The current management team took over in 2018 and has led a well-executed turnaround with new product introductions and price increases. However, much of that pricing has been driven by secular dynamics. LSCC and its peers have benefited from a strong market environment over the past two years, in which supply shortages and long lead times have allowed for significant price increases. That tailwind has mostly unwound at this point, and the other FPGA players and most broad-based analogs have discussed slowdowns and cut guidance, causing multiples to compress. In contrast, LSCC’s valuation has remained elevated due in part to management guiding 2H’23 above 1H’23. He ultimately expects LSCC to realize this secular slowdown, forcing the Street to lower its 2024 EPS from the current $2.44 towards his $2.10 estimate.