Apple Lovers, Rejoice: Cirrus Unveils a Colossal Cupertino Quarter

Apple (Nasdaq: AAPL  ) investors just got a reason to expect great news in the next earnings report.

Audio-chip specialist Cirrus Logic (Nasdaq: CRUS  ) makes the sound-processing circuits for every kind of Apple gadgetry. The company is also looking for design wins outside Cupertino, but it's a tough slog. In July, CEO Jason Rhode said that non-Apple smartphone wins won't come for a while. "The reality is there's just not that many people making a phone that's differentiated on audio quality," he said.

So Apple accounts for about half of Cirrus' sales today, and that percentage is only growing. When a parts supplier is this committed to a single customer, the supplier becomes a great barometer of demand for its dearest client.

Cirrus' shares opened 12% higher today thanks to a tremendous business update. Two weeks ahead of its full quarterly report, Rhode felt compelled to tell us that third-quarter sales will land at roughly $122 million -- far ahead of the $105 million analyst consensus.

Energy products will account for $17 million of those sales, down from $18 million in the previous quarter. All the rest is audio sales. That's a 25% boost to that division from one quarter to the next. Let's put that number into a seasonal perspective: In 2010, Cirrus' sales fell 5% between the second and third quarters. And that performance was good enough to nearly double Cirrus' share price between the two reports.

I'll read the tea leaves for you: Apple's sales will be terrifying in their holiday-fueled glory. Now the main question is, exactly how strong will Apple's revenue surprise be? And then, how much of the extra sales can CEO Tim Cook shepherd down to the bottom line? And I'm saying this as a long-term Apple skeptic, my friend. There's just no denying the explosive power of the coming report.

Add Apple and Cirrus to your watchlist and stay tuned for the answers -- Apple and Cirrus report only two days apart, like the soulmates they truly are. In the meantime, check out this short list of the three best smartphone plays from the chip industry -- including a detailed analysis of Cirrus. It's free today but might be gone tomorrow, so get your copy right away.

Fool contributor Anders Bylund holds no position in any of the companies mentioned. The Motley Fool owns shares of Apple and Cirrus Logic. Motley Fool newsletter services have recommended buying shares of and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check out Anders' holdings and bio, or follow him on Twitter and Google+. We have a disclosure policy.


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  • Report this Comment On January 11, 2012, at 1:14 PM, beetlebug62 wrote:

    Funny you mention your article from 2 years ago, where you called Apple the worst stock to own in 2010.

    Have you considered going back and analyzing your reasoning when Apple was trading at about $200?

    You said Apple was overpriced due to its valuation being 26x forward earnings, but what if those forward earnings estimates are wrong?

    You said nothing separated Apple from commoditization, and yet, what has happened?

    And, of course, you screwed up the math on sales of iPhones, as you confused shipments with sales. You had iPhone sales up 7% in the prior quarter, when actually shipments were up 7% and sales were up 41%. Of course, you never corrected yourself.

    Then you combined the last two thoughts into Apple being forced to sell the iPhone for lower margins, due to commoditization. That hasn't happened either.

    How is it possible that you can keep a straight face after such poor prognostication?

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