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Cirrus Logic (Nasdaq: CRUS ) has gone from strength to strength in 2012. Shares of the audio-chip designer have soared 77% this year, with most of the gains tied to two stellar earnings reports. Will Cirrus follow up with equally impressive gains in the second half, or is this steam train running short on coals?
If you know Cirrus at all, you're already familiar with the role of Apple (Nasdaq: AAPL ) in the company's health. Cirrus makes audio processors for the majority of Cupertino's hot-selling gadgets and provides more than half of Cirrus' total revenue. As long as Apple puts iPhones and iPads in the hands of eager consumers, Cirrus will continue to do well.
This joined-at-the-hip relationship makes it impossible to judge Cirrus as an investment without analyzing Apple first.
The biggest potential catalyst for Apple in the second half of 2012 is undoubtedly the next iPhone release. And it could be a big one, because Apple's tick-tock model of doing major redesigns every other year is due for one of those huge changeups now. The iPhone 4S largely added some more firepower and fresh software to an already established design.
That's both exciting and a little bit scary for Cirrus investors. The exciting part is simple: A really fresh design will probably keep iPhone demand strong for another year or two. On the downside, Apple just might go with different chips from different designers if the redesign is radical enough. Wolfson Microelectronics never stopped improving its audio products (or crying over the lost Apple contract, for that matter). Texas Instruments (NYSE: TXN ) just announced a brand-new sound processor for mobile applications, too. There's no shortage of rivals ready to steal Cirrus' thunder.
So that's a concern, but there's no reason to believe that Apple is turning elsewhere this year. I mean, you don't get sales projections like these from a company that's about to lose its largest contract: "[Because of] the timing of various product introductions later this year, the company expects to transition to a sharply higher level of revenue beginning in the September quarter."
The company is also diversifying into power controllers for LED lights, which should reduce the symbiotic importance of Apple in coming years. That coming boom won't make much of a difference in 2012, but long-term investors should take it to heart.
Our senior technology editor totally believes in Apple, through 2012 and beyond. Learn how Cupertino will keep Cirrus investors happy for years to come by downloading this premium report. If you want a broader picture of the smartphone revolution, find out why investors are so excited about this exploding trillion-dollar revolution.