Cirrus Logic (Nasdaq: CRUS ) lived up to its billing.
The audio-chip specialist came into Thursday's earnings report on a strong tailwind. Share prices have jumped nearly 40% since the start of the year, mainly thanks to the company's own pre-announcement of superb sales.
When the full third-quarter report came in, the stage was set for feast or famine. I can't follow up a climb like that with mediocre earnings and then expect to keep the gains.
As it turns out, Cirrus deserved all that market love. The 28% year-over-year revenue jump to $122.4 million was matched with 26% stronger non-GAAP earnings at $0.43 per share.
Piece by piece
The crucial audio division actually improved sales by an even stronger 45%. And yes, it's pretty much all thanks to Apple (Nasdaq: AAPL ) . When your largest customer reports a blowout quarter of epic proportions, you're bound to feel the benefits.
Not that Cirrus wouldn't like to broaden its smartphone appeal, mind you, but the iPhone is the only model that really matters to the audio specialist. "In order for one of our customers to get a lot of value out of those functions, they need to really be targeting differentiating on audio quality, making a premium audio product," explains CEO Jason Rhode. "To do that, you got to have a dock connector on your phone, and, frankly, there's really only one of those out there that matters, and it happens to be the one we're in."
So Cirrus is working on some new audio products that aim to make smartphones not named iPhone stand out from the crowd, but those design cycles are still in the early stages. Stay tuned as this story unfolds.
The next stage
The next Apple-less growth opportunity isn't a sound processor at all, but a power management module for LED lighting systems. That product is already in production with an order backlog in place, and should churn out as many as 10 million units in 2012 at $0.50 apiece. That's a faster start than the well-documented audio division saw, and the potential for dramatic acceleration is definitely there.
Remember that traditional light bulbs are being forced out of the American market (and many others) by government decrees demanding higher efficiency. While some of that business will go to fluorescent tubes, fresher alternatives stand ready to enter the market in a big way. Cirrus would build on the LED lighting wizardry of Cree (Nasdaq: CREE ) , Osram, and Philips Lumileds.
Most of these companies are vanishingly small segments of multinational giants, but Cree and Cirrus give us a more direct way to invest in the LED trend. You can get even more exotic with OLED lighting panels, which play a large part in my thesis for owning OLED expert Universal Display (Nasdaq: PANL ) . That's my personal preference, but only by a hair -- there's nothing wrong with tried-and-true LED technologies either. Maybe you don't see it yet, but the alternative lighting markets will absolutely explode in 2013.
Cirrus is setting itself up to ride that sea change as hard as it can. Meanwhile, the audio success provides a stable and growing operating base, even if it's tied to just one enormous customer. And Rhode expects a pretty smooth transition in that relay race: "Once LED starts to ramp, we wouldn't expect that to be in a kind of a one-time, lumpy fashion," he says. "LED lighting is more of a kind of design-in and razor blade, hopefully, model where people are ordering more and more as it goes on."
Sounds good to me. Cirrus is one of the best performers in my all-star CAPS portfolio so far, and I expect that stellar trajectory to continue for years to come. Cirrus is one of the three best smartphone plays on the market today, and then there's that lighting revolution as a big, juicy cherry on top. Get a free report on the massive opportunities for investors in the smartphone market right here. It won't be available forever -- hurry up and get yours before it's gone.