Cirrus Logic Suffers Another Revenue Decline

Audio-chip developer Cirrus Logic (CRUS 0.27%) reported its fiscal second-quarter results after the market closed on Nov. 1.

Revenue once again declined at a double-digit rate, as weak demand for smartphones put pressure on the company's ability to grow. Cirrus is working to diversify and deliver content gains in Android devices, and the company hopes that will allow it to return to growth next year.

Cirrus Logic: The raw numbers

Data source: Cirrus Logic. GAAP = generally accepted accounting principles.

What happened with Cirrus Logic this quarter?

• Revenue from portable audio products was $324.0 million, down 15.1% year over year.
• Revenue from non-portable audio and other products was $42.3 million, down 3.2% year over year.
• Cirrus said that some revenue shifted into the second quarter from the third quarter, allowing the company to beat its revenue guidance. The company pointed to the timing of the Golden Week holiday in China for the shift.
• The year-over-year revenue decline was due to reduced unit volumes of one of Cirrus's digital headset products.
• Cirrus generated 82% of its revenue from Apple, its largest customer. That's up from 76% in the first quarter.
• GAAP gross margin was 50.5%, up from 48.9% in the first quarter.
• Cirrus ended the quarter with $396 million of cash, up from $386 million at the end of the first quarter.
• Cirrus spent $55 million on share repurchases during the second quarter.

Cirrus provided the following guidance:

• Third-quarter revenue is expected to come in between $360 million and $400 million, down from $482.7 million in the prior-year period.
• Third-quarter GAAP gross margin is expected to be between 49% and 51%.
• Third-quarter GAAP research and development and sales, general, and administrative expenses are expected to be between $122 million and $128 million.
• Cirrus remains confident in its ability to return to revenue growth in fiscal 2020.

Image source: Getty Images.

What management had to say

Cirrus CEO Jason Rhode gave an update on the company's Android progress during the earnings call: "Further, after our initial win in a single smartphone model last quarter, we expanded our footprint with one of the largest Android OEMs [original equipment manufacturers] and are now shipping boosted amplifiers and multiple models. We expect additional flagship devices utilizing our technology to launch over the next six months."

Rhode also discussed the company's fiscal 2020 outlook:

So just to be clear, we don't have any magic crystal ball as it relates to the macro situation and trade wars and all of that. So the commentary about return to growth is definitely not reflective of us being overly rosy as it relates to what the general market's going to do, but it is reflective of content gains that we expect to see with customers we've already had. We do expect in the Q4 time frame to get back to having a second customer that is north of 10%.

Looking forward

With demand for smartphones topping out in developed markets, and with Apple's iPhone no longer producing unit growth, Cirrus finds itself struggling to grow revenue. The company has been working to diversify away from Apple, but it still depends on the iPhone maker for the vast majority of its sales.

Cirrus is hoping for a return to growth in fiscal 2020, driven by content gains in Android devices. Until then, expect the current pattern of steep revenue declines to continue.