Please ensure Javascript is enabled for purposes of website accessibility

Cirrus Logic's Android Success Not Enough to Halt Revenue Decline

By Timothy Green – May 2, 2019 at 5:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A weak smartphone market and slumping iPhone sales are big problems for the company.

Audio-chip developer Cirrus Logic (CRUS 0.84%) reported its fiscal fourth-quarter results after the market closed on May 1. Revenue and profit continued to decline as a weak market for smartphones took its toll. The company made some progress getting its chips in Android devices, but it so far hasn't been enough to reverse the negative impact of weakening iPhone sales.

Cirrus Logic results: The raw numbers

Metric

Q4 2019

Q4 2018

Year-Over-Year Change

Revenue

$240.4 million

$303.2 million

(20.7%)

GAAP net income

$6.2 million

$12.0 million

(48.7%)

Non-GAAP earnings per share

$0.37

$0.51

(27.5%)

Data source: Cirrus Logic.

What happened with Cirrus Logic this quarter?

  • Revenue from portable products was $207.1 million, down 21.2% year over year, while revenue for nonportable and other products was $33.3 million, down 17.5% year over year.
  • The sales drop was mostly due to lower sales of portable products shipping in smartphones, particularly Apple's iPhones. An increase in amplifier sales at Android customers partially offset this decline.
  • Cirrus generated 66% of revenue in the first quarter from Apple, its largest customer.
  • GAAP gross margin was 51.8%, up from 50.3% in the prior-year period. Non-GAAP gross margin was 52%, up from 50.5% in the prior-year period.
  • Cirrus spent $10 million repurchasing shares during the fourth quarter. It had $240 million remaining on its current share repurchase authorization as of March 30.
  • Cirrus ended the fourth quarter with $445 million of cash, up slightly from the third quarter.
A smartphone with a cracked screen.

Image source: Getty Images.

What management had to say

Cirrus laid out the progress it's made diversifying in its letter to shareholders:

We significantly expanded our penetration of the Android market, including the addition of a second 10 percent customer in the fourth quarter, as sales of boosted amplifiers accelerated. Additionally, we gained momentum with our haptic driver product line as we continue to move beyond audio and voice into adjacent markets. Our components are now shipping in six of the top 10 smartphone manufacturers, including four in China.

Cirrus' second-largest customer accounted for 15% of total revenue in the fourth quarter.

During the earnings call, CEO Jason Rhode talked about the company's philosophy on acquisitions:

We'd love to find M&A, if we find quality companies where we believe it would be a great addition, where it would be a key addition to our strategy, where it's philosophically and culturally aligned with what we do. ... They're rare. They're very hard to find, far more of them are things that don't end up adding a ton of shareholder value in the long term and we're very careful to make sure we avoid those.

Looking forward

Cirrus provided the following guidance for the first quarter of fiscal 2020:

  • Revenue between $200 million and $240 million, down 13.4% year over year at the midpoint. Compared to the first quarter two years ago, revenue will be down 31.5% at the midpoint.
  • GAAP gross margin between 49% and 51%.
  • Combined GAAP research and development and selling, general, and administrative expenses between $120 million and $126 million.

Cirrus called fiscal 2019 a challenging year financially, with fewer growth opportunities than expected in the smartphone market. The company successfully increased its share of the Android market, and it developed a slate of new products set to launch in the next 18 months, but a weak smartphone market pushed down revenue and profit.

Despite its diversification, Cirrus is still highly dependent on the iPhone. If the next generation of Apple's pricey phones falls short, Cirrus' results will continue to suffer.

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

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Cirrus Logic, Inc. Stock Quote
Cirrus Logic, Inc.
CRUS
$73.97 (0.84%) $0.62

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
327%
 
S&P 500 Returns
105%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.