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Why Cirrus Logic's Acquisition of Wolfson Microelectronics Makes Sense

Earlier today, Cirrus Logic (NASDAQ: CRUS  ) and Wolfson Microelectronics plc tentatively agreed upon terms that would allow Cirrus Logic to acquire Wolfson at about a 75% premium per share. As such, Wolfson shares are up nearly 73% given their closing price yesterday. Considering Cirrus Logic's President and CEO Jason Rhode has publicly reiterated time and time again that Cirrus Logic would only use its cash for acquisitions that make sense -- think Acoustics Technology, last October) -- it was only a matter of time until his company identified yet one more takeover target.

Unfortunately, for the past several months, Cirrus Logic's stock has taken a beating that the vast majority of investors obviously felt it deserved, losing roughly a third of its value in a matter of months. However, for investors who stayed the course and continued to build their positions (something akin to a dollar-cost averaging investing strategy) now stand ready to reap the benefits of their conviction.

Making its move
Although most Cirrus Logic investors anticipate many of the latest technology advancements (e.g., 55-nanometer builds) to hit the company's financials in yet one more year, the past six months now point to what's really coming down the pipeline. With its acquisition of Acoustics and then the relatively quick turnaround to push for acquiring Wolfson, Cirrus Logic is quickly cornering the audio market by augmenting its industry-leading capabilities with outside IP and technology that add complementary value to what it already does well.

This cannot be any clearer than with what Cirrus Logic recently released in its low-power voice processor offerings. In its latest round of catalog releases, Cirrus Logic's CS48LV12/13 processor incorporates Acoustics's SoundClear technology that better isolates, and then delivers, the actual speaker's language, filtering out background and ambient noise.

Considering Wolfson has similar complementary capabilities, Cirrus Logic has already proven itself capable of quickly turning around and transitioning to an integrated offering that combines the best of the best such that customers have a more integrated audio solution that will likely simplify the production process from their end.

More customers to serve
Interestingly, just like its Acoustics acquisition allowed, Cirrus Logic's acquisition of Wolfson opens doors that perhaps were previously closed or proving harder to open. Seeing as Wolfson already has many customers in Silicon Valley, as it stated in today's quarterly results press release, Cirrus Logic likely already has a strategy in place that involves leveraging its acquisition to gain additional client relationships. In fact, in the same press release from today, Wolfson asserts it has "strengthen[ed] its relationship with Samsung with a number of design wins across a widening rang of products, including its GALAXY range of smartphones (including LTE models), tablet computers, digital still cameras, televisions, and personal computers."

Perhaps now investors clamoring for Cirrus Logic to do more about diversifying itself away from Apple, (NASDAQ: AAPL  ) will pull back and look at what long-term investors have always seen, but Cirrus Logic is now doing. Cirrus Logic has been very prescient with its acquisition strategy, not only focusing on companies with similar cultures (as it has stated in the past), but also by discovering smaller, well-placed companies. These acquisition targets can help it both on the product side as well as the client-building side.

Foolish final thoughts
What investors now need to determine is how much these latest acquisitions will determine future growth for Cirrus Logic. Despite many claims to the contrary, Cirrus Logic has maintained a strong relationship with Apple over all these years, and Apple has a proven track record of being a very difficult customer to even adequately serve.

As such, once Cirrus Logic gets in the door at new customers given its latest round of acquisitions these past few months, investors can expect Cirrus Logic's world-class offerings to find their way into customer products once these new clients get a feel for how customized Cirrus Logic's approach to service is. For investors looking for a strong derivative Apple play that is simultaneously diversifying its customer base, Cirrus Logic still looks like a great place to start researching, especially given the latest developments.

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9/3/2015 3:59 PM
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