The Real Deal With Cirrus Logic

I've been accused of putting a negative spin on Cirrus Logic (Nasdaq: CRUS  ) and its business prospects. Notably, I couldn't help but take notice when the rumor mill indicated Apple (Nasdaq: AAPL  ) might be going elsewhere for audio chips in the next generation of iPhones and iPads. Making it clear we were talking about rumor and not fact wasn't enough to appease the critics, though the backlash quickly subsided when Cirrus took pains to debunk the incorrect rumors.

So let me take a moment today, on the eve of earnings reports from both Apple and Cirrus, to say that I don't hate Cirrus at all. In fact, I think it's one of the best chip stocks on the market in stiff competition with processor underdog Advanced Micro Devices (NYSE: AMD  ) , memory maker Micron Technology (NYSE: MU  ) , and networking aficionado Marvell Technology Group (Nasdaq: MRVL  ) . AMD is undervalued, Micron even more so, and Marvell is dominating in a wireless world -- yet none of these companies can boast the bright future and lack of proper discussion that Cirrus can.

Apple plays a large part in Cirrus' strength and will continue to serve the company well over the next couple of years, but ultimately serves more as a launch pad for a bigger and better future rather than the end-all definition of what Cirrus can do.

Edging out Wolfson Microelectronics as Apple's audio provider of choice put rocket boosters under Cirrus, and the company is now busy building that platform into further wins in audio and power management designs. Mobile audio is a big part of the Cirrus equation today, but the company is also big in Blu-ray players, home audio systems, and non-Apple smartphones. Even if you assume that Android will destroy the iPhone and the iPad in three years' time (not bloody likely, for the record), Cirrus would have enough business to keep on trucking without Apple.

That being said, I'm sure that Cirrus will continue to ride Apple's coattails for as long as possible, which includes smashing demure analyst expectations in both this week's quarterly report and the holiday-powered one we'll see in three months. Despite overwhelming proof that both iPad and iPod sales have gone through the roof, not a single analyst tracked by Yahoo! Finance has adjusted expectations to account for the outperformance in the past 60 days. That's why small, obscure, and underfollowed stocks seldom receive the right valuation until all the cards are on the table, and why Cirrus is a virtual lock to keep beating the market for the foreseeable future.

Follow Cirrus Logic more closely by adding it to your watchlist.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. Apple is a Motley Fool Stock Advisor recommendation. The Fool owns shares of Apple and Marvell. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


Read/Post Comments (11) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 18, 2010, at 2:29 PM, jargonific wrote:

    Dear Anders Bylund,

    Thank you for the overview on CRUS. More please...

    We were particularly interested in reading this: "Apple plays a large part in Cirrus' strength and will continue to serve the company well over the next couple of years, but ultimately serves more as a launch pad for a bigger and better future rather than the end-all definition of what Cirrus can do".

    Fair enough, so why is the stock lagging behind Apple? If you look at a comparison chart for AAPL and CRUS you see an interesting trend starting to develop. Where AAPL begins to go up nicely as of 10/13/10, CRUS goes down at that point in what looks like a near match pattern. Is that due to a short sale that occurred recently? Is it the media/rumors?

    We invested after reviewing the stock a while back after seeing it as a manufacturer contributing to latest Apple technologies. It seems that has not changed, so is there going to be a magic moment when people reinvest and the stock peaks after their earnings report comes out? If so, what number would you set your limit order to?

    Thanks!

    Jargonific!

  • Report this Comment On October 18, 2010, at 3:01 PM, tradefortoys wrote:

    YOU'RE ASKING ONE OF THE SHORT SELLERS OF CRUS AND ONE WHO CONSTANTLY SLAMMED THE STOCK DURING THE THAT TIME PERIOD-JUST LOOK AT PREVIOUS WRITINGS FROM MF.

    MF HAS CHANGED THEIR TUNE AND IS NOW OBVIOUSLY LONG THE STOCK.

    HANG IN THERE CRUS WILL RECOVER AFTER EARNINGS. THEIR BEST CUSTOMER IS APPL-38% OF THEIR BUSINESS.AND THE RELATIONSHIP WITH AAPL HAS SPANNED OVER A 5 YEAR PERIOD. WALL STREET JUST DOESN'T QUITE GET IT YET....IMHO

  • Report this Comment On October 18, 2010, at 3:40 PM, 1batitude wrote:

    CRUS earning not until 10-21 - 8:00 AM ET

    September 30, 2010Cirrus Logic Earnings Conference Call Set for October 21

    AUSTIN, Texas, Sep 30, 2010 (BUSINESS WIRE) -- Cirrus Logic Inc. (Nasdaq: CRUS) will hold its quarterly conference call to discuss second quarter, fiscal year 2011 financial results on Thursday, October 21, 2010, at 10:30 a.m. EDT. Cirrus Logic will release the company's financial results at approximately 8:00 a.m. EDT on the same day.

  • Report this Comment On October 18, 2010, at 3:47 PM, TMFZahrim wrote:

    "not until" 10-21, 1batitude? In my book "this week" counts as imminent earnings

    tradefortoys, MF hasn't changed its attitude -- if you've seen someone "slamming" Cirrus recently, that would be a different writer speaking his or her own mind. We don't have a company line.

    jargonific, a two-week period is too short to tell anything important about a stock from the stock chart, barring some cataclysmic event causing a definite pop or plunge. In Cirrus' case, I contend that the market will eventually get with the program, but over a matter of quarters and years rather than days or weeks. This may not be your best bet for day-trading -- I like Cirrus in the long term.

    Anders

  • Report this Comment On October 19, 2010, at 7:58 AM, tradefortoys wrote:

    No I am correct. He is from Motley Fool, they have slammed the stock for months. Just look at previous writings from them. I have read them all. It is a shame that they have the ability to express their opinions to be rendered in the "NEWS" section of stocks. How convenient for them.

    Come on, now they are long to earnings, so the tune is more positive, and that is the "real deal"

  • Report this Comment On October 19, 2010, at 9:34 AM, albersdg wrote:

    As a responsible and credible investment adviser and / or journalist, you have check out and corroborate its veracity. You don't just pass it along.

    Any grade school adolescent can pass along what he / she heard on the playground at recess.

    It takes no skill, intelligence, or training to pass along a rumor. Unless you were educated in the bucket brigade methodology of journalism? In which case you wasted your money and that makes you a poor financial adviser as well as a worthless journalist.

    Only after it has been proven to be factually accurate should it be reported. More importantly, if it is found to be false, it needs to be discredited.

    That is the fundamental job of a journalist and an investment adviser - to sift through the facts and the falsities and to ignore / discredit the falsities and accurately convey the facts.

    Because if a journalist does not have integrity and credibility, he / she has nothing.

    That is why Edward R. Murrow and Walter Conkite and John Cancellor and David Brinkley and Chet Huntley and Frank McGee and Peter Jennings will be remembered and the screamers on cable and the internet will be forgotten.

    Corroborate facts. Never pass along a rumor!

  • Report this Comment On October 19, 2010, at 10:00 AM, lmgava wrote:

    @Anders Bylund

    but to others posting here too...

    You went from one extreme to the other:

    "the backlash quickly subsided when Cirrus took pains to debunk the incorrect rumors."

    what you call debunk is this (following the link):

    "Cirrus' department of corporate communications felt the urge to notify me of this re-reading"

    In that re-reading we only see this about CRUS:

    "That article mentioned Cirrus and others only briefly, and actually only to point out that they probably would stay in Apple's good graces."

    So they responded to the supposed rumor citing an article saying they "probably" will continue to supply Apple.

    I knew that already.

    So the rumor does not actually exist, and their reply isn't denying the fact the could have lost Apple as a customer. OK ?

    Bye.

  • Report this Comment On October 19, 2010, at 12:58 PM, 1batitude wrote:

    I don't agree with the statement - "So let me take a moment today, on the eve of earnings reports from both Apple and Cirrus" as being accurate - even if they are in the same week - "Eve" means the night before, which I believe the article came out the DAY of Apple's earnings after market. CRUS earnings announcement is Pre-Market on Thursday. "Eve" is not the proper term to use, and had me wondering if I had missed something. "Looming", or "upcoming", or "This week" would have been appropriate without causing more concern.

  • Report this Comment On October 20, 2010, at 6:56 PM, basementfrog wrote:

    Are the rumors true... Micron is in play?

    Oracle (Larry 'samurai' Ellison) said they were going to look around for a semi-conductor purchase.

    Didn't they try to buy Micron once before. I think I remember something like that.

    Micron Technology, Inc. – Renewed rumors that the memory chip maker could be the target of a leveraged buyout by private equity investors looking to take the company private inspired an options feeding frenzy today. Micron’s shares responded to speculative musings by rising as much as 6.30% to an intraday high of $7.76. Just before 2:00 p.m. in New York trading, one big options market participant initiated a large-volume bullish spread in the April 2011 contract. The debit call spread serves to position the trader to benefit handsomely should buyout rumors wind up having some truth to them ahead of April expiration. The options strategist picked up 21,750 calls at the April 2011 $9.0 strike for a premium of $0.71 each, and sold the same number of calls at the higher April 2011 $11 strike at a premium of $0.27 a-pop. Net premium paid for the transaction amounts to $0.44 per contract. Thus, the investor is prepared to make money should Micron’s shares surge 21.65% over today’s high of $7.76 to exceed the effective breakeven point on the spread at $9.44 by expiration day next year. The trader may pocket maximum potential profits of $1.56 per contract if the chip maker’s shares jump 41.75% to trade above $11.00 by April expiration. Investors populating Micron options during the session exchanged more than 7.1 calls on the stock for each single put in play as of 3:25 p.m. in New York. A total of 146,615 option contracts have changed hands on Micron Technology with 35 minutes to go before the closing bell.

  • Report this Comment On October 20, 2010, at 9:53 PM, jargonific wrote:

    I've learned a lot. Thanks.

    As the CRUS saga continues down the home stretch...why does it feel like that even though the snow isn't falling and there are no fake icicles hanging from the homes around here yet? Cirrus Logic will be the audio chip in the Iphone your kids will use to text their requests to Santa. Will the stock itself actually make it to 21.75? Is this all there is? No it's just that Santa came early for the Hedge Fund owners and the CEOs and VPs at CRUS needed to keep the prices down before distributing the stock to their employees. Reading too much of the news in fact lately, usually trying to figure out whether or not to sell CRUS. So it's a boon for media fools anyhow.

  • Report this Comment On October 21, 2010, at 11:41 AM, naughtyguy wrote:

    so much for all this blah, blah, blah. NOW check out the earnings report and stock price decline!

    It swpeaks for itself!

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