Shares of audio chip specialist Cirrus Logic (NASDAQ:CRUS) were down nearly 10% at 3 p.m. Thursday. The shares remain up about 70% year to date, but today's drop is much larger than the declines seen in the Nasdaq composite or in the iShares PHLX Semiconductor ETF (NASDAQ: SOXX), an exchange-traded fund that's designed to track the performance of the PHLX Semiconductor Index, which represents United States-listed semiconductor stocks.

Image source: Cirrus Logic.

Let's take a closer look at what seems to be behind Cirrus shares taking a drubbing today.

Bad news about its largest customer

Cirrus has made solid progress in diversifying its business from its largest customer, Apple (NASDAQ:AAPL), but the reality is that sales to Apple made up a whopping 78% of Cirrus Logic's revenue last quarter. Cirrus Logic's financial performance is tightly linked to Apple's financial performance.

What might be driving this decline, then, is a report today from DigiTimes claiming that Apple "has begun to reduce orders for iPhone 7s as initial sales momentum has started fading." This report seems to jibe with a recent research note from UBS analyst Steve Milunovich (via Barron's) claiming that Apple's "procurement numbers for [December] are revised down to 74 [million] units from 75 [million] units, a 1% decline year-over-year."

If these reports are accurate, then slow sales of Apple's iPhone could translate into lower-than-expected unit sales, and ultimately revenue, for Cirrus Logic.

Is it time to panic?

We must wait for Apple to report financial results for its first fiscal quarter, which ends at the end of December, and provide financial guidance for its second fiscal quarter to know exactly what's going on, but it would be unwise for investors to dismiss multiple independent reports about potential Apple iPhone order cuts.

That said, even if Apple's iPhone 7 cycle ultimately fizzles, there is a lot of optimism for Apple's next-generation iPhone models. KGI Securities analyst Ming-Chi Kuo (via MacRumors), for example, says that companies in Apple's supply chain are "setting ramp-up targets for new iPhone pull-in of somewhere between 120 [million] and 150 [million] units, exceeding previous iPhone 6, 6s, and 7 cycles of 110-120 [million], 100-110 [million], and 90-100 [million] units, respectively."

"In other words," Kuo elaborates, "ramp up for [second half of fiscal year 2017] pull-in may exceed the previous peak for iPhone 6 and hit a historical high."

If Apple does end up setting unit shipment records with its next-generation iPhone models, that would clearly be huge for Cirrus Logic. In that case, investors might quickly forget about any potential weakness around the iPhone 7 series smartphones, though their concerns might then become, "How will Apple top the iPhone 8 super-cycle with its next-generation iPhones?"

Beyond Apple, Cirrus has been working to expand its customer base within smartphones. Cirrus' acquisition of competitor Wolfson Microelectronics gave it significant exposure to Samsung (NASDAQOTH: SSNLF) smartphones, for example.

Zooming out a bit more, Cirrus is trying to expand its business beyond just smartphones and mobile devices. For example, the company recently announced a new Smart Codec that "expands advanced audio features beyond flagship smartphones."

"Our newest smart codec enables us to deliver important audio and voice technology to new segments of the market, including a broader range of smartphone models and emerging applications such as high performance digital headsets," the press release read.

Investors with longer-term investment horizons probably shouldn't panic over potential iPhone 7 order cuts. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.