Cirrus Logic's Turnaround Looks Like a Pipe Dream

Cirrus Logic is probably losing more business from Apple.

Jun 26, 2014 at 12:30PM

Cirrus Logic's (NASDAQ:CRUS) problems are getting worse. If posting a 28% year-over-year drop in revenue in the fourth quarter, seeing its earnings slashed in half, and overpaying for an acquisition that might not add much value to its business in the long run was not enough; losing more business from Apple (NASDAQ:AAPL) will certainly raise another red flag for investors who have bet on a turnaround.

Running on fumes
Remarkably, Cirrus shares have gained more than 15% this year, even though the company's performance has been downright bad. Over-reliance on Apple for a major portion of its revenue has proved to be Cirrus' Achilles Heel, and now it looks like this relationship is taking a turn for the worse.

Earlier in June, Pacific Crest Securities reported that Cirrus is losing content at Apple to Maxim Integrated Products (NASDAQ:MXIM). According to Pacific Crest analyst John Vinh (via Investor's Business Daily), "We believe that Maxim has won multiple audio amplifier sockets on Apple's upcoming new products. Maxim's win is primarily due to better dynamic power performance." 

Now, Vinh points out that this probable loss will cost Cirrus $0.50 of content per unit, and reduce its earnings in the next fiscal year by $0.20 to $0.25 per share. This expected loss will compound Cirrus' problems further, as the company's bottom line is already expected to erode at the rate of 3% for the next five years. 

Maxim's running away
It won't be the first time that Cirrus is losing business to Maxim if Pacific Crest's report is credible. Last year, it had conceded the audio amplifier slot in the iPad Air to Maxim. Now, it seems like Maxim will land higher content in Apple's iPhone 6 and the rumored smartwatch. In fact, according to Pacific Crest, Maxim might see additional revenue anywhere between $73 million and $329 million as a result of its content wins. 

This is bad news for Cirrus. Investors are already betting against the stock as a short float of almost 21% indicates. The bulls might hope that Cirrus' acquisition of Wolfson, for which it had paid a premium of 75% earlier this year, will help it gain traction at Samsung. However, content losses at Apple signify Cirrus' innovation is losing steam and its competitors are coming up with better products.

Will Wolfson come to the rescue?
Wolfson supplied chips for the Samsung Galaxy S5, but even then, the company's revenue was down almost 40% year-over-year in the previous quarter. The massive decline was a result of an anticipated transition from 3G to 4G smartphones, as a result of which phone manufacturers didn't buy enough chips from Wolfson. This indicates that Samsung alone wasn't capable of pulling up Wolfson's revenue, which is why the company had to endure such a steep revenue drop.

Moreover, the Wolfson acquisition might not bring a big level of diversity to Cirrus' business. Fool analyst Evan Niu is of the view that Apple will still contribute around 70% to Cirrus' top line after the acquisition. So, the purpose of buying Wolfson, i.e. diversification, would not be fulfilled.

Don't be hopeful
Finally, Cirrus' valuation is not in its favor. The stock trades at 14.4 times last year's earnings, but its forward P/E multiple is higher at almost 17x. This indicates a decline in earnings, which is no surprise given Cirrus' recent performance and the troubles that it is facing.

It would be a good idea for Cirrus bulls to reconsider their position. Although the stock has gained this year, it is running on fumes with no solid catalyst in sight. Moreover, Apple's upcoming iPhone will be a driver for several component suppliers, but not Cirrus. For example, last quarter, even though iPhone sales increased, year over year, Cirrus' revenue dropped. Since the chip maker is now probably losing content at Cupertino, things could get worse.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Harsh Chauhan has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and Cirrus Logic. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers