Investors in audio-chip developer Cirrus Logic (NASDAQ: CRUS) haven't had much reason to celebrate in 2017, with shares down around 13% year to date. Despite results in the most recent quarter that beat top- and bottom-line estimates, concerns about future growth linger, and the company's uninspiring revenue guidance for full-year 2017 hasn't helped matters.
Over the last month, Cirrus CEO Jason Rhode, CFO Thurman Case, and VP of Marketing Carl Alberty presented at a pair of investor conferences, helping shed some light on where the company's business is likely to head over the coming years. Here are my top three takeaways.
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1. There may still be some good growth left in the smartphone market
Cirrus has seen significant growth in its smartphone content over the past several years as handset manufacturers have continued to add premium audio features like noise and echo cancellation, as well as multiple microphones and speakers to improve overall audio quality. That growth was driven primarily by higher-end devices manufactured by the company's two largest customers, Apple and Samsung.
But Cirrus still sees growth opportunities in the handset market with other Android-based phone manufacturers who are now looking to differentiate their lower-priced products from one another. Alberty said:
2. An accelerating opportunity in digital headsets
The emergence of USB-C connectivity coupled with the elimination of the headphone jack in the Android market allows new digital headsets to be powered by the phone rather than a separate battery. And that is fueling the addition of premium audio features like noise cancellation, which are right up Cirrus' alley.
While Cirrus has been shipping products for digital headsets and adapters for over a year now, it believes momentum is picking up as more and more manufacturers ditch the headphone jack. Alberty talked about the size of the potential market this opens up for Cirrus:
3. The most important thing is to keep innovating
It's apparent that Cirrus isn't getting the benefit of the doubt when it comes to its near-term growth prospects. The company is reliant on Apple for the lion's share of its revenue, and with the most recent iPhone models already unveiled earlier this year, there aren't many obvious catalysts that have the potential to move the needle for Cirrus over the next 12 to 18 months.
However, Case talked about the need to keep investing in research and development regardless of what's happening with its current customers:
The company has several other longer-term initiatives in the works, from a voice biometrics chip that can positively ID a user using their voice to its MEMS microphones business, which it believes it can increase from tens of millions of units annually to upwards of a billion units over time. But these aren't expected to contribute meaningful revenue anytime soon.
Rhode noted that over the longer term, while it may not be clear where future growth will come from, the company has no shortage of options to pursue.
While it may take time, so long as you believe management can capitalize on these opportunities, the fact that several of them are "large relative to the size of the company" ought to give patient investors reason to stick around.
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Andy Gould owns shares of AAPL and Cirrus Logic. The Motley Fool owns shares of and recommends AAPL. The Motley Fool has the following options: long January 2020 $150 calls on AAPL and short January 2020 $155 calls on AAPL. The Motley Fool recommends Cirrus Logic. The Motley Fool has a disclosure policy.