LSCC: MOMENTUM GOING INTO 2000 IS STRONG
Prudential Securities
January 21, 2000
Hans C. Mosesmann (650) 320-1631
Tristan Gerra (650) 320-1637
- Lattice reported December quarter EPS of $0.42 before goodwill, $0.04 higher than our $0.38 forecast and $0.05 higher than the consensus. The results were of high quality and include the Vantis acquisition.
- Sales came in $3 million higher than forecast, to $115 million. Bookings and design wins activity were very strong.
- The Vantis integration is one year ahead of schedule. Cost efficiencies are taking place faster than expected, driving margins higher than expected.
- We are raising our calendar 2000 and 2001 EPS estimates to $2.01 from $1.79, and to $2.50 from $2.10, respectively. Accordingly, we are raising our target price to $75 from $56 and we reiterate our Strong Buy rating on Lattice.
Lattice reported a strong December quarter, driven by higher-than-expected top line growth and margin expansion. This was a record booking quarter for Lattice and design win activity was at an all time high in the high density arena. The high-density 3.3-volt product line is gaining momentum and now represents 20%-25% of total revenues. The faster-than expected integration of Vantis, one year ahead of schedule, resulted in the margin upside. The industry environment is strong and positive pricing is pushing profitability up. Lattice's momentum as it enters 2000 is strong, and management raised their revenues guidance for the first quarter to 7% sequential growth from 5% growth, and to 25%-26% growth for the full year from 20% growth.
Longer-term, we believe Lattice will enter the lucrative FPGA product segment which sets the stage for multiple expansion for the stock. At current prices, LSCC trading at 24 times our new 2001 EPS estimate of $2.50 appears to be a bargain given that the two other major PLD pure-plays XLNX and ALTR are trading at 41x and 34x, respectively. The combination of a broad-based market recovery and a better-than-expected profitability outlook for Vantis leads us to increase our earnings projection. The company's momentum in CPLDs (Complex Programmable Logic Devices) is accelerating.
We are raising our 2000 revenue and EPS estimates to $515 million and $2.01, from $502 million and $1.79, respectively. We are also increasing our 2001 revenue and EPS estimates to $622 million from $600 million and our EPS estimate to $2.50 from $2.10, respectively, and we are introducing quarterly EPS estimates for 2001. Our higher EPS forecast is driven by Lattice's strong top line and margin outlook. The top line is forecast to grow 26% on a pro-forma basis in 2000, and 21% in 2001. The company changed its fiscal year ended March to a December year. Our new target price of $75 is based on the stock trading at 30 times our new 2001 EPS estimate of $2.50.
Bookings And Design Win Activity Were Very Strong
Bookings were very strong, up over 39% sequentially, driven by high-density products (CPLDs, up over 50%). Backlog was also up sharply, with CPLD backlog up 44% sequentially and SPLD backlog up 27%. Lattice is entering the first quarter with backlog up 25% in the direct channel. We believe that backlog in the direct channel is the key measure to look at as it relates to true end demand. In the December quarter, design wins were twice the year-ago quarter levels, and high-density design wins were at a record high at three times the year-ago quarter. A number of design wins took place in data communication, telecommunication, and mass storage.
While the company has not elaborated on a new product line it will create as a result of the Vantis acquisition, we speculate that it will be an FPGA-class products line. Of the three major PLD markets, SPLDs, CPLDs and FPGAs (Field Programmable Gate Arrays), to date Lattice has only participated in the first two. While company management does not discuss new product directions, we believe that Lattice will soon leverage its development software expertise to introduce FPGA-class products based on Vantis hardware architectures. If this unfolds, we could see multiple expansion for Lattice given the higher multiples awarded to FPGA suppliers such as Xilinx and Altera. |
