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Cirrus Logic Is a Long-Term Investment

April 16, 2014 | About:
jaggom

jaggom

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Cirrus Logic (CRUS) recently released its results with a disappointment due to a shift in the pricing structure and the product mix. To the dissatisfaction of the investors, Cirrus revenue dropped 29%. The adoption of voice as a key interface for mobile devices is expected to improve Cirrus performance in the future as quoted by CEO Jason Rhode. Apple (AAPL), a major customer of Cirrus, continues to grow on account of new devices and penetration into new markets that makes Cirrus positive regarding its future despite weak results. Cirrus is also targeting the new market of wearable devices.

Weak Performance

Cirrus Logic’s business is shrinking with 39% fall in fiscal third quarter net income and it also projected disappointing revenue for the next quarter as well. The fall in revenue for previous quarter beat the analysts’ estimate of $213.3 million to $218.9 million.

But, CEO Jason Rhode is positive about Cirrus’ improving performance in the future.

Apple’s Positives

Apple is looked upon improving the chip maker’s performance, given its 80% contribution to Cirrus’s revenue. Apple is planning to introduce a number of new devices this year with larger screens than the current display to compete against Android rivals who moved on to bigger devices long ago.

Apple is expected to launch two iPhones with one having screen size more than 4.5 inches and the other having a display size greater than 5 inches. Moreover, Apple is also expected to go all metallic with its next slate of iPhones. These innovations will help Apple tap the Chinese market with greater efficiency. The China Mobile partnership is expected to push Apple’s iPhone sales by as much as 24 million this year.

Cirrus is introducing a number of 55 nm products to tap exciting opportunities in audio and voice applications in order to improve its profitability. The 2015 future revenue growth is expected to be fueled by these products. Further, the company’s voice interface is targeted at improving growth in portable audio.

Targeting More Markets

Cirrus is looking for opportunities in Android mobile and automobiles. The company has launched Xiaomi's Mi3, one of the best selling phones in China. However, voice control is seen as the biggest opportunity in the future. Furthermore, with Google and Apple planning to introduce their operating systems in cars, it opens an entire new segment for expansion. This will give rise to the need for voice interface and Cirrus is aiming to provide the same with the new products.

Cirrus’s ultra-low power Cirrus Logic CS48LV12/13 voice processors with integrated SoundClear® technology enhance the user experience and improve voice recognition accuracy in smartphones, tablets and wearables by improving voice quality, eliminating background noise and delivering clear communications in any environment. These innovations are likely to help Cirrus get its growth back on track.

Conclusion

The company is having a strong cash position with 26% of its market cap in cash. Furthermore, a buyback authorization with the company will help it in boosting its earnings and come back to a profitable position. Cirrus is also very cheap. Investors must look toward Cirrus’ turnaround positively and bet on it for the future.


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