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One of the more befuddling events out of the Apple (Nasdaq: AAPL ) component supplier chain was Cirrus Logic's (Nasdaq: CRUS ) massive guidance for the upcoming quarter. At the midpoint, Cirrus projected sales of $180 million while analysts had expected just $130 million. That guidance put Cirrus' iPhone 4S ramp-up to shame.
The iPhone 5 ramp was going to be bigger than the already mind-boggling expectations, or else Cirrus Logic had won even more chip content into each phone -- that is, it's getting more money per each iPhone sold. On the post-earnings conference call, CEO Jason Rhode confirmed both of those situations were playing out by saying bullish guidance was the result of both unit increases and content ASP in each iPhone.
What are the new chips Cirrus is offering?
In trying to digest Cirrus' massive guidance ramp, investors were left scrambling to figure out just how much more content ASP the company had per phone. The main focus of the last iPhone was Cirrus' audio codec, which estimates had placed at $1.25 per iPhone. Yet Cirrus has been creating a suite of adjacent audio products that could easily boost the amount of money it makes for each phone sold, if only it could get buy-in from phone makers like Apple. Here's how Jason Rhode told it when I last interviewed him in February:
"Well, it was really cool to see some meaningful shipments of our first portable audio DSP. We launched that thing a while back, and that really brings an unbelievable level of processing power at a fairly low electrical power level, so it enables us to attack opportunities like noise cancellation, echo cancellation, noise suppression, things like that."
Jason went on to say the company had some tablet wins with its portable DSP, but that the space was challenging because most tablets don't ship in volume. Well, I know a certain company that ships not only phones, but also tablets in volume ...
Verifying Cirrus' wins?
So last week, when Barclays initiated coverage on Cirrus (with a buy rating), it wasn't surprising to see the company list possible wins in just the same categories Jason had rattled off in the above quote. Cirrus has been doing its best to telegraph gains for a while. Looking at quotes from Jason once again in the second half of our February interview, when asked about what areas investors should be watching with the company, he seems to imply that it's difficult for the company to talk about Apple because of the secrecy requirements Apple places on its customers, but the tea leaves pointed to more design wins.
Then on Thursday night, Apple supplier Audience (Nasdaq: ADNC ) stunned investors with news it was "unlikely" its audio technology would be used in the iPhone 5. The stock plummeted 64% yesterday on the news. Audience had previously provided hardware into the iPhone 4 but transitioned to licensing its earSmart technology to Apple, starting with the iPhone 4S.
As you can see from that chart demonstrating Audience's technology, it looks eerily similar in functionality to some of the advancements Jason Rhode had been touting earlier this year. The key here is that Cirrus was making a big investment in noise suppression, Audience specialized in noise suppression, and now guidance from Cirrus points to its putting more audio solutions into the iPhone.
I'm sure there are some nuances between the differing technologies that could make this an invalid conclusion, but on the surface, what happened to Audience looks pretty straightforward: Cirrus Logic took its spot.
In the long run, Cirrus has always looked to me to be one of Apple's more secure suppliers. That's why I've repeatedly bought the stock not just on the portfolio I managed on Fool.com, but also in my personal portfolio. Compared with the shifting sands of areas like power amplification and radio-frequency chips where massive content shifts occur generation to generation with companies such as TriQuint, Avago (Nasdaq: AVGO ) , and Skyworks (Nasdaq: SWKS ) battling for more valuable content in the iPhone and certain iPad models, Cirrus continues to expand its presence. With all key iPhone suppliers trading at pretty steep multiples, that security is what makes Cirrus my continuing favorite play in the space even after gaining 246% since my first buy.
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