Audio chip developer Cirrus Logic (CRUS 2.21%) reported its fiscal third-quarter results after the market closed on Feb. 5. Revenue unexpectedly declined due to weak demand for smartphones in December, and the company's guidance calls for another drop in the fourth quarter. Cirrus is heavily dependent on Apple and the iPhone, and it seems that the latest batch of devices isn't selling as well as hoped. Here's what investors need to know about Cirrus' third-quarter report.

Cirrus Logic results: The raw numbers


Q3 2018

Q3 2017

Year-Over-Year Change


$482.7 million

$523.0 million


GAAP net income

$33.8 million

$122.0 million






Data source: Cirrus Logic. EPS = earnings per share.

A Cirrus Logic chip.

Image source: Cirrus Logic.

What happened with Cirrus Logic this quarter?

The company fell well short of its guidance due to unexpected weakness in smartphone demand.

  • Revenue from portable audio products tumbled 9.3% year over year to $438.7 million. Nonportable audio product revenue rose 12.1% to $44.1 million.
  • GAAP gross margin was 48.7%, down from 48.8% in the prior-year period.
  • The company blamed weak smartphone demand that materialized in December for the revenue decline, saying that its design position with key customers remains strong.
  • It generated 86% of its revenue from Apple, its largest customer, up from 82% in the second quarter.
  • At the end of the quarter, Cirrus had $413.2 million in cash and marketable securities and no long-term debt.
  • It announced a $200 million share buyback authorization, adding to the $60.2 million remaining from a previous authorization.

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

  • Revenue is expected between $300 million and $340 million, compared to $328 million in the prior-year period.
  • The forecast for GAAP gross margin is between 48% and 50%.
  • GAAP research and development and selling, general, and administrative expenses are expected between $130 million and $136 million.

What management had to say

In its quarterly letter to shareholders, the company laid out estimates for fiscal 2019 and beyond:

Based on our current visibility, we expect revenue for FY19 to be relatively flat year over year. Nonetheless, with a substantial portfolio of components and a solid product roadmap, the company is actively engaged in design activity with many of the leaders in the smartphone, digital headset and smart home markets. Based on these activities we anticipate a return to growth in the calendar 2019 timeframe. We are optimistic about our future growth potential and believe the company is poised to capitalize on these opportunities over the next several years.

Cirrus sees an opportunity to capitalize on the emergence of voice as a user interface, saying, "We are actively working with a variety of smart home customers directly and through reference designs via our Voice Capture Development Kit for Amazon Alexa Voice Services. We expect these products to be introduced as we move throughout the year."

Looking forward

Cirrus didn't come out and say it, but with the vast majority of its revenue tied to Apple, its third-quarter results indicate that demand for the new iPhones fell short of expectations. Its guidance for the fourth quarter predicts a small year-over-year decline at the midpoint, so the company isn't expecting things to get much better. So much for the "iPhone supercycle."

For a long time, Cirrus has been talking about diversifying beyond iPhones and into Android phones and other devices. But with Apple still accounting for more than 80% of revenue in the third quarter, the company's fate is still tied to the iPhone.