Audio chip developer Cirrus Logic (NASDAQ: CRUS) delivered a relatively low-drama earnings report on Aug. 2, with results coming in largely as expected. While the company managed to grow revenue by double digits, it also confirmed its tepid forecast for the remainder of the year and didn't provide much clarity about how the anticipated launch of the new iPhone later this year will impact future quarters.
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Solid top-line and bottom-line growth, but now what?
In Q1, Cirrus' revenue grew 23.6% to $320.7 million, as the company benefited from content gains in smartphones, along with strong demand for its digital headset codecs and boosted amplifiers. That was roughly in line with the midpoint of the company's guidance -- a range of $300 million to $340 million -- as well as analyst expectations of $320.2 million. Cirrus said that these results reflected expected demand for its portable audio products, and that design activity and product development remain at healthy levels. Strong gross margins of 50.4% benefited from supply chain efficiencies, helping boost GAAP earnings per share to $0.64, up from $0.27 a year ago.
But Cirrus is anticipating a large slowdown in growth later this year, guiding for Q2 revenues in the range of $390 million to $430 million, which represents a 4% year-over-year decline at the midpoint. Q2 gross margin is expected to remain near current levels, with guidance for a range of 48% to 50%. Consistent with its previous guidance, Cirrus also reaffirmed that it expects only "modest" revenue growth for fiscal 2018.
CEO Jason Rhode said that Cirrus expects to be ramping production for product launches in the back half of the year -- specifically in the period between Q2 and Q3. He also noted that because customers frequently change orders on short notice, Q2 and Q3 revenue are particularly difficult to predict, as small changes in timing could cause large swings in revenue.
Apple remains the most important customer by far
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On the earnings call, CEO Jason Rhode said (transcribed by Thomson Reuters):
"Our relationship with our largest customer remains outstanding with design activity on various products."
Apple contributed 76% of sales in Q1, down from 78% last quarter, with the pending launch of the new iPhone expected to weigh heavily on the company's results in the back half of the year. That's a lot of revenue tied to a single customer, and there's been speculation that Cirrus is at risk of losing some of its Apple business after the tech giant pulled contracts from a couple other chip suppliers earlier this year.
For now, however, things appear to be humming along with Cirrus' largest customer, and the company continues to slowly diversify its revenue base as it notches additional wins with Android OEMs, pushing more of its technology into mid-tier smartphones.
Longer-term opportunities abound
Looking beyond this year, the company has a lot of irons in the fire. Cirrus continues to broaden its MEMS microphones product line. The company also has a voice biometrics chip in "tape-out" stage (when final designs are sent to manufacturing). Last but not least, Cirrus believes it has a major adjacent opportunity in smart home devices and launched its Amazon Voice Capture development kit during the quarter. Rhode reminded investors, however, that "meaningful" revenue from these products is still years away.
In the nearer term, look for Cirrus to stay focused on expanding its presence in mid-tier Android phones. The transition of Android devices to the USB-C interface also appears to be a more immediate opportunity, as it should increase the demand for digital headsets (because they can now be powered by the phone rather than a separate battery).
While this quarter looked pretty healthy in isolation, big question marks remain on the horizon about where future growth is going to come from, and earnings are likely to remain quite lumpy. Cirrus continues to make further inroads with Android-based OEMs and has plenty of other growth initiatives in the pipeline, but Apple -- with the expected launch of the iPhone 8 this fall -- will be the primary driver of Cirrus' earnings for the foreseeable future.
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