Chip designing company Cirrus Logic (NASDAQ:CRUS) expects to report its last quarter 2014 earnings on Thursday. The company has been a major audio chip supplier to tech giant Apple (NASDAQ:AAPL). Cirrus’ third-quarter results were disappointing mostly on account of lower demand from Apple. It also guided for a weak fourth-quarter, down both sequentially and year over year.
It’s true that Cirrus has its fate closely tied to Apple. But there are certain other factors that could support its growth. Let’s find out.
Possibility to Grow Share in Portable Audio Market
According to Consumer Electronics Association (CEA), demand for wireless or portable audio solutions is growing. Voice communications are a prime area of portable devices like smartphones, tablets and other wearable devices. And Cirrus is playing the right chord with plans of launching a new chip and making a strategic acquisition.
- Warning! GuruFocus has detected 5 Warning Signs with CRUS. Click here to check it out.
- CRUS 15-Year Financial Data
- The intrinsic value of CRUS
- Peter Lynch Chart of CRUS
Cirrus has rolled out a new low-power voice processing chip this February that improves voice recognition capability of mobile devices. The chip features SoundClear technology from Acoustic Technologies. The technology helps in delivering clear communications removing the background noises.
Last October, Cirrus acquired audio solutions provider Acoustic Technologies. Acoustic specializes in providing solutions for noise reduction, echo cancelation and voice enhancement technologies. The acquisition strengthened Cirrus’ technology and software expertise in its portable audio applications. It can now offer audio-enhancement and voice-processing solutions in addition to its existing portfolio. All these will enhance the quality of the headphones in the smartphones and make voice-communications easier.
The newly launched chip and advanced technologies from Acoustic should help Cirrus to pounce on the growing opportunity in the booming portable audio solutions market.
Huge Potential in Car Infotainment Space
Cirrus serves the auto industry with its audio chips that are being used in the car infotainment systems. Its blue-chip customer list includes Ford (NYSE:F), Honda Motor (NYSE:HMC), Hyundai Motor (HYMTF) and Harman (NYSE:HAR).
According to research firm Researchmoz.us, global revenue in the automotive infotainment market grew only 4.2% year over year to $30.1 billion in 2013. But it now expects revenue to grow by a decent 12.3% to $33.8 billion in 2014, and a stunning 51.5% to $45.6 billion in 2016, compared with 2013. Now this seems to be a great opportunity for the automakers, and suppliers of infotainment products and software.
To keep market share intact and remain profitable in the maturing auto industry in many countries, automakers are largely betting on advanced in-car infotainment systems to attract car buyers, in addition to launching new models at competitive prices.
This should bode well for Cirrus. Close association with auto giants and growing demand for auto-infotainment systems is expected to bring in more revenues.
Prospects in China
Cirrus has wide operations in China, the world’s largest market for smartphones. Last year, revenue from China constituted 86.5% of total revenue and grew 138% year over year. So China is a prime end-market for the chip designer. Last September, Cirrus clinched a deal with Chinese smartphone-maker Xiaomi and this could boost the audio chip-maker’s growth in China.
Xiaomi recently hit the headlines with two positive developments. Its Hongmi Redrice and Mi3 smartphones have been listed in the world’s top 10 bestselling models. Not just this, the company has already sold 11 million phones in the first three months of 2014. It also aims to sell roughly 40 million to 60 million units this year and around 100 million by next year.
Cirrus’ CS42L73 DAC chips (generally used in iPhones) will be used in Xiaomi’s Mi3 smartphones. This means ample opportunity for Cirrus.
It’s difficult to judge Cirrus’ prospects in isolation from Apple. Customer concentration is not a good thing and Cirrus is trying hard to reduce dependency on Apple. It would take some time for the company to find other ways to decrease reliance on the Cupertino company. But the above-mentioned factors can support Cirrus’ growth going forward.