When Apple Jumps, Cirrus Asks: "How High?"

Shares of audio chip designer Cirrus Logic (NASDAQ: CRUS  ) are singing today, jumping as much as 10.1% overnight. The springboard action repaired two days' worth of market damage in one fell swoop:

CRUS data by YCharts.

Cirrus didn't have any news to drive today's action, and it didn't do anything to deserve last week's punishment, either. But the chart starts to make sense when you add another ingredient to the market soup:

CRUS data by YCharts.

Cirrus dives 8% when Apple (NASDAQ: AAPL  ) drops 2%, and jumps right back up when Apple gets a second wind. That's because Apple is far and away Cirrus' largest customer. Every iPod, iPhone, and iPad sold today comes with Cirrus chips driving their speakers and headphone jacks. Cirrus bends over backwards to keep its biggest client happy, and every chip is a custom solution made to Apple's very specific orders.

Cirrus has been looking for secondary revenue streams for years, but Android phones don't reach for high-quality audio because they don't have Apple's ecosystem of music-centric accessories to support. The next big thing on Cirrus' agenda might be LED lighting power management, but LED lamps are still too expensive to really go mainstream. Just ask Cree (NASDAQ: CREE  ) investors how the LED market is coming along:

CRUS data by YCharts.

This turns Cirrus into a leveraged proxy for Apple. The businesses and share prices will tend to move in the same direction whenever Apple is in the news, but Cirrus moves faster. The long-term effects of this symbiotic relationship are pretty dramatic:

CRUS data by YCharts.

Apple has been under heavy fire in recent months. Investors have dropped the stock some 20% from the summer's all-time highs, based on a tasty smoothie of macroeconomic fears, a lack of obvious innovation out of Cupertino, and the magic aura of former CEO Steve Jobs finally fading out. Everyone expects the iPhone 5 and iPad Mini to set sales records in the current holiday quarter, but even all-time blockbuster numbers may not be enough to keep the stock afloat.

That bearish attitude finally took a break today, possibly fueled by hopes of a gentle step down from the onrushing fiscal cliff. If consumers can afford more iGadgets, Apple will prosper. And, by extension, so will Cirrus.

There is absolutely no argument that Apple is at the center of technology's largest revolution ever, and that longtime shareholders have been handsomely rewarded with over 1,000% gains. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and more importantly, your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.


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  • Report this Comment On November 20, 2012, at 1:09 AM, 29763 wrote:

    For what it's worth EPS estimates have been increasing over the last thirty days: from $2.74 to $3.47 for FY ending March 2013 and from $3.16 to $4.00 for FY ending March 2014. Price action looks better the last several days; crossing above 50 day Lower Limit of the Bollenger bands and slow stochastics showing the 15% line (12.78) crossing above the 5% line (9.98). Good signal to cover short positions and wait for the SS 15% line to cross above 20 to take a nibble on the long side.

    Consensus Target prices go from a low of $44 to a high of $64per share. Median Target is $55/sh which same as fair value estimate.

  • Report this Comment On November 27, 2012, at 10:11 AM, plange01 wrote:

    amazon selling its kindle for $129! has killed apple!

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