The smartphone market is going through a lean patch, and Cirrus Logic (NASDAQ:CRUS) is feeling the heat. The audio-chip specialist is a key supplier to one of the biggest smartphone companies on the planet -- Apple (NASDAQ:AAPL) -- but Cupertino hasn't been spared the slowdown.

Smartphone shipments actually fell for the first time ever in 2017, according to IDC. Looking ahead, more weakness is in the cards as smartphone demand is waning in China and consumers are increasingly opting for less expensive devices. This is bad news for Cirrus Logic as it relies heavily on Apple, getting nearly 80% of its revenue from the iPhone maker.

Person holding a smartphone.

Image source: Getty Images.

Apple's no longer a catalyst for Cirrus

Cirrus has been consistently getting a huge amount of revenue from Apple, but this hasn't led to any top-line gains over the past few quarters.

Period

Q4 FY16

Q1 FY17

Q2 FY17

Q3 FY17

Q4 FY17

Q1 FY18

Q2 FY18

Q3 FY18

Q4 FY18

Revenue from Apple (percent of total revenue)

62%

68%

78%

85%

79%

76%

82%

86%

79%

Quarterly revenue (in $millions)

$232

$259

$429

$523

$328

$321

$426

$483

$303

Data Source: Cirrus Logic's quarterly earnings reports. FY = fiscal year.

Apple was initially a big catalyst for Cirrus, driving its quarterly revenue to over $500 million at one point when it was sourcing a huge number of chips in preparation for the launch of the iPhone 7 toward the end of 2016. But the latest-generation iPhones haven't managed to hit the highs that the iPhone 7 achieved.

In fact, iPhone sales during the lucrative holiday 2017 period fell by 1 million units as compared to the year-ago quarter. This was followed by a meager jump of 3% in sales during the March-ended quarter. And Cirrus failed to land new iPhone content during the last refresh. What's more, Bank of America Merrill Lynch projects that the company's iPhone content will peak in 2018, triggering a sharp decline in its top-line growth.

Moreover, iPhone builds are about to drop as the iPhone maker seems to be content selling higher-priceds device to push up its average selling price to make up for the weak unit volumes.

Cirrus' outlook clearly indicates the negative impact of a decline in iPhone production. Cirrus expects its top line to drop north of 28% year over year during the ongoing quarter, and a recovery isn't happening anytime soon.

Has Cirrus missed the boat?

Smartphone makers, including Apple, have been launching expensive devices, but consumers don't seem to be lapping them up as warmly as anticipated. For instance, fabrication-equipment supplier Applied Materials recently said that sales of high-end smartphones have been tracking below expectations, as evidenced by weak demand for OLED displays that are used in flagships.

Chipmaker Synaptics was singing a similar tune last quarter, stating that the broader adoption of premium features, such as in-display fingerprint sensing, is taking longer than anticipated. So consumers aren't witnessing a lot of value in such expensive phones, instead looking at the budget end of the market where great features are available at attractive prices.

This is why sales of Chinese smartphone OEMs (original equipment manufacturers), such as Huawei and Xiaomi, are gathering pace and Apple is stagnating. For instance, Huawei's sales shot up 14% annually during the first quarter of 2018, while Xiaomi recorded astounding growth of 129%. This is where Cirrus needs to focus in a bid to boost sales.

However, it looks like Cirrus isn't gaining much traction at these key Chinese accounts. The company said that it scored its "first high-volume socket in the mid-tier platform at a key Android account" last quarter, with shipments already on the way. But the steep year-over-year decline in revenue this quarter indicates that this new contract won't spark a turnaround.

Nothing is clicking for Cirrus

A slide in Cirrus' latest earnings presentation indicates that it doesn't see much growth in the smartphone market but does see opportunity in smart accessories such as headsets.

Slide showing Cirrus Logic's total addressable market. Smart accessories are growing.

Image source: Cirrus Logic.

But the company hasn't made much progress in the non-smartphone space, despite working in areas such as voice biometrics and accessories for more than a year.

Additionally, expecting smartphone accessories such as headsets to drive sales looks like a far-fetched dream, given the scattered nature of this market. Cirrus will have to score design wins across several companies that manufacture these accessories in order to make a dent.

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends Cirrus Logic. The Motley Fool has a disclosure policy.