Cirrus Logic Expects Slow Growth This Year

Audio-chip developer Cirrus Logic (CRUS 2.42%) reported its fiscal second-quarter results after the market closed on Nov. 2. Revenue was down a hair year over year, while the company's dependence on Apple increased compared to the first quarter.

Cirrus sees a small revenue increase in the third quarter, and the company expects to produce modest revenue growth for the fiscal year. Here's what investors need to know about Cirrus' second-quarter report.

Cirrus Logic results: The raw numbers

Data source: Cirrus Logic.

Image source: Cirrus Logic.

What happened with Cirrus Logic this quarter?

• Revenue from portable audio products decreased 0.4% year over year, to $381.8 million. Revenue from non-portable audio and other products decreased 3.2%, to $43.8 million.
• GAAP gross margin was 49.7%, up from 49.4% in the prior-year period.
• The year-over-year revenue decline was the result of the sale of a lower cost component at a key Android OEM and average selling-price reductions on other portable audio products, partially offset by an increase in volume.
• Cirrus generated 82% of its revenue from Apple, its largest customer, up from 76% in the first quarter. The relationship "remains outstanding with design activity continuing on various products."
• Cirrus ended the quarter with $329 million of cash and marketable securities and no long-term debt.

Cirrus provided the following guidance for the third quarter of fiscal 2018:

• Revenue is expected between $510 million and $550 million compared to $523 million during the third quarter of fiscal 2017.
• GAAP gross margin is expected between 48% and 50%.
• GAAP research and development and selling, general, and administrative expenses are expected between $131 million and $137 million.
• Cirrus' guidance reflects the expected ramping of new product launches in the second half of the year, although it noted that customers sometimes change orders on short notice, which can make predicting revenue difficult.

What management had to say

Cirrus CEO Jason Rhode discussed the company's progress getting its products into Android devices:

Q2 was an exciting quarter for the company as we experienced strong demand for our sophisticated solutions and we began shipping boosted amplifiers, smart codecs and hi-fi DACs into a variety of flagship and mid-tier Android phones. In addition, several new wireless headsets were introduced that utilize Cirrus Logic technology, including our continuously adaptive ANC solution.

Management discussed the long-term opportunity of voice biometrics in its letter to shareholders:

We view voice biometrics as a disruptive technology with the potential to transform how we engage with electronic devices in our day-to-day environment. We are encouraged by our achievements in the September quarter, as the company's first 28-nanometer voice biometrics component was delivered from the foundry and is functioning as anticipated. We expect to begin sampling this technology with key customers in the December quarter. While still in the early stages of development, customer interest remains strong as voice is becoming a more frequently used interface on consumer devices and the fundamental need to provide a robust and secure user experience is increasingly critical.

Looking forward

After a few quarters of double-digit revenue growth, Cirrus' revenue declined slightly during the second quarter, although it expects a small increase in the third quarter at the midpoint of its guidance range. The company is diversifying, getting its products into Android phones, but the vast majority of its revenue still comes from Apple.

Cirrus still expects to produce modest revenue growth in fiscal 2018, down from 32% growth in fiscal 2017. The company sees areas like voice biometrics as long-term growth opportunities, but for the time being, its results are tied to the iPhone.