First things first
First of all, let's just get Cupertino out of the way. Cirrus can't really say much about Apple's contribution to the top and bottom lines, because the iGuru protects its air of mystique by slapping gag orders on all its component suppliers. However, Cirrus concedes that its largest customer "continues to make up a considerable percentage of our revenue and our relationship with them remains outstanding, with great visibility and ongoing design activity for innovative and challenging projects."
So yeah, the iPhone 5 should launch in September or October to cheering crowds, and Apple is certainly ordering up plenty of Cirrus' audio chips to feed that frenzy. But that's absolutely not the whole story.
In this quarter's letter to shareholders, Cirrus noted that the third quarter should ramp even higher than the second one because "many of our customers are ramping their products for the holiday season." This is not all about one gadget, but "a variety of new products."
Moreover, CEO Jason Rhode told analysts that the strong guidance rests on both high unit volumes and rising prices per chip. "It's a little bit of both, or I guess I would say a lot of both," he said.
Put all of these tidbits together, and you have to reach two important conclusions:
- Cirrus is reaching more devices than ever before.
- The company must have new chips up its sleeve and is ready to charge a premium for the new products.
Two roads diverged in a yellow wood
Cirrus Logic's growth strategy is two-pronged right now, and only one of the fork's tines includes Apple at all.
Audio chips remain the most important ingredient in the revenue mix and probably will remain so for years to come. But even so, Cirrus is finally getting some interest from device builders outside Apple. The company sees "solid design activity" for a brand-new amplified audio processor, currently on field tests with "numerous potential new customers."
So Cirrus has finally found an audio niche outside Apple's high-end sound-quality ambitions. Sometimes it's good enough just to be louder than the competition. You're nodding along if you've heard the loudness wars being fought on the radio over the past decade or two.
Decent amplification could be a difference-maker in tablets and smartphones, which are often equipped with tinny little speakers and hard to hear without slapping the gadget to your ear. Doing that to a 10-inch tablet might be bad for your social life.
The road less traveled
So there's something fruit-free going on in the audio department, and then there's the second tine of the strategic fork.
Cirrus is going big on power controllers, specifically the kind that regulates the electron flow to LED lamps. That's a tiny business at the moment; Cirrus just saw its first consumer-level product hit store shelves this quarter, as Philips Electronics (NYSE: PHG ) introduced a Cirrus-based LED bulb for European light sockets. American-style bulbs should follow later this year.
The company is starting out with a modest unit goal for 2013 of 5 million to 10 million units, but the market for LED bulbs should explode eightfold over the next five years. By 2016, Cirrus predicts that the industry should ship out 1.2 billion LED lights a year as traditional light bulbs become obsolete. You don't need a huge slice of that market to collect enormous revenues.
In a few years, the audio side of this business could very well play second fiddle to the power controllers. Hard to believe right now, but that's where Cirrus is going.
The Foolish takeaway
All that being said, the LED-controller operation will take years to mature. For now, smartphones and tablets make up the lion's share of Cirrus Logic's sales, and Apple is this company's bread and butter for the foreseeable future. Just keep in mind that you're getting a free call option on a massive future business along with the shorter-term audio opportunity.
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