After quite a few giant acquisitions from chip design big Intel in 2015 and one other by AMD in 2022, I’ve written about how small chip design home Lattice Semiconductor (NASDAQ: LSCC) is the final FPGA pure-play firm left standing.

FPGAs (field-programmable gate arrays) are a sort of logic chip. They have the power to be reprogrammed utilizing software program to permit engineers to alter the FPGA’s operate — even after the chip has been manufactured and put into use. This makes FPGAs totally different from application-specific built-in circuits (ASICs), and even many CPUs and GPUs, that are designed and pre-programmed to behave a sure means.

Lattice could also be small, nevertheless it has been quietly profitable a market share battle with its two bigger rivals, Intel and AMD. As the semiconductor trade readies for a brand new progress cycle later in 2024, powered by new wants for synthetic intelligence (AI), Lattice might be in an distinctive place to maintain profitable.

Financial numbers paint an fascinating image

When excluding the large knowledge middle AI programs that Nvidia is producing, a lot of the semiconductor trade is definitely nonetheless within the midst of a cyclical droop. While indicators level to the brand new Nvidia- and massive tech-fueled bull market thawing out this downturn, maybe throughout the second half of 2024, Lattice simply launched some disappointing financials for the primary quarter of 2024.

Data supply: Lattice Semiconductor.

These outcomes successfully convey Lattice’s multi-year spate of progress to an finish.

As ugly because the current outcomes could seem, although, Lattice is faring much better than the comparable FPGA segments at Intel and AMD. For Intel, that is primarily Altera, the large FPGA firm it acquired in 2015, and the title of which it not too long ago resurrected with plans to finally spin it off as a publicly traded firm as soon as extra. And for AMD, that is the “Embedded” income section, acquired primarily through the megamerger with FPGA market chief Xilinx in early 2022.

Both Intel’s Altera and AMD’s Embedded segments fell by excess of Lattice’s FPGA-focused income did to kick off 2024. This means Lattice is scooping up FPGA chip market share on the expense of its two bigger friends.

Data supply: Intel and AMD.

Lattice is tiny however mighty

There’s typically large worth in having singular focus as a enterprise, particularly when that singular focus is paired with monetary self-discipline. While Intel and AMD have each struggled to take care of profitability throughout the chip trade downturn within the final year-plus (Intel rather more so than AMD), Lattice has remained worthwhile by all counts.

What’s Lattice’s secret? Historically, it has centered on low-end and “small” FPGAs, these with fewer logic cells that may be reprogrammed. These small FPGAs are utilized in issues like industrial tools and sensors, important purposes for issues like manufacturing unit automation and for management of many easy performance options in fashionable vehicles.

Lattice has additionally been transferring into mid-sized FPGAs with new product launches in current quarters. These “bigger” FPGAs with extra logic blocks are utilized in extra advanced features, like in some elements of knowledge facilities, high-end networking and telecom tools, and extra superior self-driving options in vehicles.

In current years, seeking higher monetary effectivity, each Intel and AMD have sunsetted a few of their small- and mid-sized FPGA product traces. This has left the door open for Lattice to broaden its buyer base and promote a broader vary of FPGA chips to present clients as soon as this present trade downtrend is over.

It’s not simply Lattice benefiting both. In its newest earnings name, Microchip additionally known as out Intel and AMD’s sunsetting of mid-sized FPGAs, an space of the trade that Microchip has been making waves in.

The upshot for Lattice

Now, whereas it might make monetary sense for Intel and AMD to try to tighten up their product lineups and cede some share for Lattice, this has a collectively constructive impact for Lattice. Less competitors means Lattice might promote extra and increase its revenue margins, too. And, in fact, with all kinds of AI purposes starting to proliferate throughout a number of industries, Lattice small- and mid-sized FPGAs might be extra necessary than ever earlier than.

The inventory does commerce for a premium of practically 60 instances current-year anticipated EPS. However, keep in mind that features the steep falloff in earnings in Q1 and anticipated earnings within the subsequent few quarters as Lattice rallies out of the chip trade downturn. I stay a contented shareholder with an eye fixed on this small firm’s potential for greater gross sales and revenue margins for years to come back.

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Nicholas Rossolillo and his purchasers 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 next choices: lengthy January 2025 $45 calls on Intel and quick May 2024 $47 calls on Intel. The Motley Fool has a disclosure coverage.

1 Small Chip Stock Outperforming AMD, Intel, and Others in a Crucial Area of AI was initially printed by The Motley Fool

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