Does Cirrus Deserve This Apple-Induced Sell-Off?

Apple (NASDAQ: AAPL  ) is off 12% this afternoon after yesterday's earnings report failed to impress investors. It shouldn't shock any Cirrus Logic (NASDAQ: CRUS  )  investor that the company would be off big today as well; 79% of its revenue came from Apple in the previous quarter.

Yet as Fool analyst Eric Bleeker notes in the video below, what ails Apple might not always be a negative for Cirrus. Specifically, Apple's revenue -- while forecast below expectations next quarter -- isn't necessarily what's caused its months-long sell-off. Instead, concerns come from declining gross margin at the company, which could mean Apple could grow revenues at the high-end of its guidance next quarter (10%) and still see a year-over-year double-digit earnings decline.

With Cirrus Logic, in the near term its profits will be driven the most by units of Apple products. That is, if Apple's revenue and gross margin are affected negatively by cheaper iPad Minis, the higher number of iPad Mini units sold is a boon for Cirrus Logic. Also, contrary to earlier chatter that Apple might have seen a greater-than-usual amount of iPhone 4 and 4S sales in the past quarter, in last night's earnings it confirmed its ratio of older versus newer iPhone models was in line with historical norms. That's a key win for Cirrus Logic, as it has significantly increased the value of chips it has in the iPhone 5 versus previous models. If older versions like the 4 and 4S were selling at much higher rates, it'd be a near-term threat to the company's results.

In the end, it's very difficult to predict how Cirrus Logic will perform tonight. As Tim Cook elaborated on in Apple's earnings call last night, there are many data points that are unseen to investors and determine the company's component supplies on a quarter-to-quarter basis. However, it's also important for investors to detach themselves from the splashy Apple headlines when predicting how Cirrus Logic will be affected by the company's sales. To see Eric's full thoughts, watch the video below.

There's no doubt 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.


Read/Post Comments (0) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2213925, ~/Articles/ArticleHandler.aspx, 10/20/2014 9:49:57 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement