Lattice Semiconductor (NASDAQ:LSCC) is one rising stock that you should not miss. The maker of programmable chips is on a terrific run, driven by customers such as Cisco (NASDAQ:CSCO) , China Mobile, and potentially Google (NASDAQ:GOOG) (NASDAQ:GOOGL) . The stock price has also tagged along nicely with Lattice's terrific financial performance, shooting up around 51% so far in 2014. This colossal surge in the share price has been made possible to the sturdy performance of Lattice over the past few quarters.
When Lattice reported its first-quarter results in the last week of April, the company showed investors why it should be bought on pullbacks after the share had fell almost 7% in trading. Revenue for the first quarter was up 36% year over year to $97 million, while the bottom line jumped five-fold to $0.10 per share. The company's results were miles ahead of analysts' expectations of $89 million in revenue and EPS of $0.06.
- Warning! GuruFocus has detected 4 Warning Signs with LSCC. Click here to check it out.
- LSCC 15-Year Financial Data
- The intrinsic value of LSCC
- Peter Lynch Chart of LSCC
Lattice is on a dream run and its performance has been much better than industry peers Altera and Xilinx. Now, almost all companies in this industry have identical growth drivers, and they count both Cisco and China Mobile as clients. So, it all comes down to the product differentiation and efficiency that each company delivers to its clients in this industry.
So far, Lattice has done quite well for itself in this regard, which is why its revenue and earnings have been growing at a robust pace compared to peers. Its new products have gained solid traction, as revenue from new products in the first quarter increased more than 23% year over year.
Innovation is the key
Lattice's new products, such as iCE40 which can be used to create ingenious mobile products has enjoyed sustainable demand in the markets because of its ability to offer low-cost solutions. Now, Lattice is working on a next-gen product, the ECP5 device, to keep its growth streak intact. The company has managed to multiply its single design wins at certain large OEM customers into multiple design wins across different platforms. As Lattice is continuously looking to innovate and accelerate the time to market for its customers, its solutions are being readily adopted.
It is because of such characteristics that Lattice has gained good ground with key customers such as Cisco and Google. On the previous conference call, management cited the Internet of Things as a major growth opportunity. This is not surprising, as Cisco has placed a $19 trillion figure on the potential of the Internet of Things by 2020, and the networking behemoth is now investing in start-ups to implement this concept.
While the potential of IoT is a bit ambiguous however, it is certain that some fragmented markets in Government, automobile, healthcare sectors will be at the center of this massive business phenomenon. Given the huge number of devices that are expected to connect to the Internet in the coming years, the need for programmable chips should increase. This would lead to an increase in the addressable market for Lattice going forward.
Project Ara could be big for Lattice
Google is working on an ambitious plan to deliver the world's first platform for modular smartphones for consumers, dubbed Project Ara. Basically, the company intends to launch an open hardware portal for smartphones and as such, a Project Ara user will have the facility to swap unwanted modules of a smartphone rather than replacing the smartphone itself. Google is targeting 5 billion people who don't yet have a smartphone, which could be a huge opportunity for Lattice.
Ara will allow consumers to design their own smartphones, and the tech giant has chosen Lattice's field programmable gate arrays, or FPGAs, for its first prototype and reference module implementations. Google stated that is has selected Lattice because its FPGAs meet critical size, power, and performance requirements, apart from simplifying and speeding up development of the project's modules.
This is how Lattice is looking to differentiate itself from peers such as Xilinx and Altera. However, if you are keen on an investment in Lattice, then you might have to pay a little extra. Currently, Lattice has a forward P/E of around 19.97 as compared to industry's figure of 19. However, Lattice is the fastest-growing company of the lot, as far as the opportunities and financials are concerned and hence a slight premium is justified.
In addition, the company's new products are on a roll, and with big opportunities such as Project Ara and the Internet of Things ahead, Lattice's rise should continue.