Check out the latest Cirrus Logic earnings call transcript.

Audio chip developer Cirrus Logic (NASDAQ:CRUS) reported its fiscal third-quarter results after the market closed on Jan. 30. Revenue and profit once again tumbled, and the company's guidance calls for another rough quarter to close out its fiscal year. The culprit is weak demand for iPhones, a problem that doesn't appear to be going away anytime soon.

Cirrus Logic: The raw numbers

Metric

Q3 2019

Q3 2018

Year-Over-Year Change

Revenue

$324.3 million

$482.7 million

(32.8%)

GAAP net income

$29.9 million

$33.8 million

(11.5%)

Non-GAAP earnings per share

$0.91

$1.59

(42.8%)

Data source: Cirrus Logic.

What happened with Cirrus Logic this quarter?

  • Revenue from portable audio products was $288.6 million, down 34.2% year over year.
  • Revenue from nonportable audio and other products was $35.7 million, down 19% year over year.
  • Cirrus blamed the revenue decline on lower sales of portable audio products shipping in smartphones, as well as lower unit volumes of one of its digital headset products.
  • Cirrus generated 83% of its third-quarter revenue from Apple, its largest customer. That's up from 82% in the second quarter.
  • GAAP gross margin was 50.3%, down from 50.5% in the second quarter. Non-GAAP gross margin was 50.4%, down from 50.6%.
  • Cirrus added $200 million to its share buyback program. The company now has $250 million authorized for share buybacks.
  • Cirrus ended the third quarter with $444 million in cash, up from $396 million at the end of the second quarter.

Cirrus provided the following guidance:

  • Fourth-quarter revenue is expected to be between $200 million and $240 million, down 27% year over year at the midpoint. Weak smartphone unit sales will be partially offset by new-product ramp-ups and customer launches in the spring.
  • Fourth-quarter GAAP gross margin is expected to be between 49% and 51%.
  • Fourth-quarter GAAP research and development and sales, general, and administrative expenses are expected to be between $119 million and $125 million.
  • Cirrus is not providing any commentary on its revenue expectations for fiscal 2020 due to an uncertain macroeconomic environment and its impact on smartphone volumes. The company does expect to grow revenue generated from Android customers, but that could be swamped by weak iPhone sales.
A smartphone with a cracked screen.

Image source: Getty Images.

What management had to say

Cirrus Logic president and CEO Jason Rhode reassured investors about the company's future during the earnings call: "Cirrus Logic maintains a sizable cash position, no debt, and an expectation that we will continue to generate strong cash flow going forward. This positions the company to remain focused on long-term growth and invest in strategic initiatives that we believe will fuel new opportunities."

Rhode argued that the company's problems are out of its control:

In a flat unit environment, we would grow. Straight up, we would grow. We've got a good content story this year. We're making great progress on the Android side of things. We've got incredible traction with our new integrated amplifier that's out there. We're shipping amplifiers to a wide array of the top-10 handset manufacturers. Literally, everything that is under our control or has been under our control we feel like is going extremely well.

Looking forward

Cirrus' heavy dependence on the iPhone is wreaking havoc on its results. Apple is dealing with a slump in iPhone demand, driven by high prices, a longer upgrade cycle, and a slowdown in China. There's not much reason to believe that unit volume will rebound anytime soon, especially with the overall smartphone market now in decline.

Cirrus is winning business with Android phone makers, and it's expanding into nonsmartphone products. But none of that matters in the near term because Apple accounts for the vast majority of revenue. A prolonged slump in iPhone sales will make it tough for the company to return to growth.