Cirrus Logic Inc. Reports Big Revenue Increase in Second Quarter

Audio-chip developer Cirrus Logic (CRUS 2.44%) reported its fiscal second quarter results after the market close on Oct. 28. The company posted a big increase in revenue, driven by demand for its smart codecs, while non-GAAP profits fell slightly year over year. The company's guidance calls for continued revenue growth in the third quarter, and Cirrus pointed out a variety of long-term growth opportunities in its letter to shareholders.

Cirrus results: The raw numbers

Source: Cirrus Q2 earnings release

What happened with Cirrus this quarter?
Cirrus posted strong revenue growth in the second quarter, although non-GAAP profits took a hit:

• Revenue growth was driven by increased shipments of 55-nanometer and 65-nanometer smart codecs and boosted amplifiers.
• GAAP gross margin of 46.4% and non-GAAP gross margin of 46.5% were down 1.4 percentage points and 2.2 percentage points year over year, respectively.
• Apple, Cirrus' largest customer, accounted for 63% of revenue.
• R&D expenses rose by 50.9% year over year, slightly faster than revenue.
• $200 million was authorized to be used for share buybacks, in addition to $32.5 million remaining from the company's previous share repurchase program.

In addition to reporting its results, Cirrus provided investors with guidance for the third quarter.

• Revenue is expected between $370 million and $400 million, up about 29% year-over-year at the midpoint.
• GAAP gross margin is expected to be between 46% and 48%.

What management had to say
"We are pleased with our results for the September quarter, as strong demand for our smart codecs and amplifiers fueled sequential and year-over-year growth," said CEO Jason Rhode. "FY '16 has been a great year for Cirrus Logic as share gains and content increases have driven strong growth. We are excited by the progress we made this past quarter toward the strategic initiatives that are expected to drive continued growth in FY '17."

In Cirrus' letter to shareholders, long-term opportunities discussed include digital headsets and other wearables. "Addressing this emerging market, our solution integrates a low-power DSP and an advanced mixed-signal codec that provides high performance audio/voice and a new adaptive active noise cancellation system." Cirrus states that it is currently in the qualification process and that it expects to gain momentum in this market over the next 12 to 18 months.

Cirrus also pointed out that features previously found in high-end handsets were increasingly being deployed in mid-tier models. "We continue to view the proliferation of audio and voice features across flagship and mid-tier smartphones as a meaningful growth driver in the coming years."

Looking forward
With so much of Cirrus' revenue still coming from Apple, the success of the iPhone 6s is the most important factor for the company. Cirrus' dependence on Apple has decreased over the past couple of years -- during the second quarter of fiscal 2014, Apple accounted for 80% of revenue, far higher than today. As Cirrus' products gain traction in mid-tier devices, this percentage could continue to decline going forward. However, if iPhone sales stumble at some point in the future, Cirrus remains heavily exposed.