Dependence on Apple Pays Off for Cirrus Logic

Image source: Cirrus Logic.
Audio-chip developer Cirrus Logic (NASDAQ: CRUS) reported its fiscal third-quarter results after the market close on Feb. 1. The company exceeded its own guidance, with strong demand for its portable audio products driving year-over-year revenue growth in excess of 50%. Profits soared as well, and guidance called for slower but still solid revenue growth during the fourth quarter. Here's what investors need to know about Cirrus' third-quarter report.
Cirrus Logic results: The raw numbers
Metric |
Q3 2017 |
Q3 2016 |
Year-Over-Year Growth |
---|---|---|---|
Revenue |
$523.0 million |
$347.9 million |
50.3% |
GAAP EPS |
$1.83 |
$0.63 |
190.5% |
Non-GAAP EPS |
$1.87 |
$0.82 |
128% |
GAAP = generally accepted accounting principles; EPS = earnings per share. Data source: Cirrus Logic.
What happened with Cirrus Logic this quarter?
Cirrus exceeded its revenue guidance, driven by stronger-than-expected demand for certain portable audio products:
- GAAP gross margin expanded by 140 basis points year over year to 48.8%, and GAAP operating margin jumped 10 percentage points to 28%.
- GAAP operating expenses grew 7.9% year over year, far slower than revenue.
- Cirrus generated 85% of its revenue from Apple, up from 78% during the second quarter and 68% during the first quarter.
- Cirrus expanded the number of mid-tier devices sporting its chips, with several mid-tier smartphones launching during the quarter with Cirrus' smart codecs.
- Shipments of new boosted amplifiers and hi-fi digital headset codecs accelerated during the quarter.
Cirrus expects a steep sequential decline in revenue during the fourth quarter due to seasonality:
- Fourth-quarter revenue is expected in the range of $300 million to $340 million. At the midpoint, this represents year-over-year growth of 37.9%.
- GAAP gross margin is expected to be between 48% and 50%.
- Combined GAAP R&D (research and development) and SG&A (selling, general, and administrative) expenses are expected between $110 million and $116 million, compared to $109 million during the third quarter.
What management had to say
Cirrus Logic CEO Jason Rhode talked about the company's recent growth and its future opportunities:
In the company's letter to shareholders, management assured investors that it was working to diversify:
Looking forward
Cirrus' efforts to diversify haven't stopped Apple from dominating its customer list. The iPhone maker accounted for the vast majority of Cirrus' revenue during the third quarter, a blessing given the strong performance of the iPhone 7, but also a potential curse if iPhone sales don't remain as strong in the future.
It was a solid quarter in terms of revenue and profitability, and the company expects to continue growing at a blistering pace on a year-over-year basis during the fourth quarter. Revenue guidance fell a bit short of analyst expectations, but Cirrus will still finish out its fiscal year on a high note.
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Timothy Green has no position in any stocks mentioned. The Motley Fool owns shares of and recommends AAPL. The Motley Fool has the following options: long January 2018 $90 calls on AAPL and short January 2018 $95 calls on AAPL.
The Motley Fool recommends Cirrus Logic. The Motley Fool has a disclosure policy.