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Why Cirrus Logic, Inc. Stock Soared Thursday Morning

By Anders Bylund – Jul 28, 2016 at 11:37AM

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The audio specialist stands to benefit as the next generation of smartphones moves to a new standard for headphone connections. Yes, that includes Apple iPhones.

Next-generation headphones will be a big market for Cirrus Logic. Image source: Getty Images.

What: Shares of Cirrus Logic (CRUS -2.59%) jumped as much as 18.4% higher in early Thursday trading. The designer of analog and digital signal processing chips posted a solid first-quarter report on Wednesday night, looking ahead to refreshed growth in the just-started fiscal year as next-generation audio products enter the mainstream.

So what: First-quarter sales decreased 8.2% year over year, landing at $259 million. Adjusted earnings fell 18.5% to $0.44 per diluted share. The growth trends may have been negative, but analysts had expected even lower dips on both the top and bottom lines.

Revenue came in far below Cirrus' own forecast of roughly $270 million, but gross margin was stronger than expected and the company spent less on operating expenses than it had planned.

Looking ahead to the second quarter, sales should stop near $395 million. Assuming a stable tax rate, adjusted earnings would end up near $1.07 per diluted share -- a 30% improvement over the year-ago period.

Now what: Without naming names, CEO Jason Rhode noted that a very large customer is about to drop the traditional headphone jack from an upcoming blockbuster smartphone. That unnamed customer, which clearly refers to Apple (AAPL -2.12%), is following the lead of a few early headset-jack ditchers from the Android camp. Newer Class C USB ports are better equipped to manage audio signals than older versions, reducing the need for a dedicated audio plug.

Of course, that opens up the need for brand-new headsets as well as properly equipped phones, giving Cirrus two ways to dip into the rejuvenated revenue streams. So it's good news for Cirrus investors, and a pretty clear picture of what you can expect out of the next iPhone model.

Anders Bylund has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool also has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. Separately, the Motley Fool recommends Cirrus Logic.  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.

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