Cirrus Logic (CRUS -1.96%) crushed Wall Street's expectations with a terrific fiscal 2020 fourth-quarter report earlier this month. The chipmaker's revenue and earnings increased substantially during the quarter that ended in March, which is impressive considering the impact of the COVID-19 pandemic on smartphone markets across the globe.

Cirrus supplies audio chips to smartphone companies. Apple (AAPL 0.02%) is its largest customer, accounting for 75% of the total revenue last quarter, followed by an Android smartphone maker that supplies another 10%. Such a heavy reliance on smartphones should have ideally wrecked the chipmaker's quarterly performance as shipments plunged 11.7% during the first quarter of the year, according to IDC.

However, that didn't happen, and Cirrus beat the coronavirus blues. Let's see how.

Person holding a 5G smartphone.

Image source: Getty Images.

What's working for Cirrus Logic

Cirrus Logic's fourth-quarter revenue jumped 16% annually to $279.3 million, thanks to a combination of content gains in smartphones and an increase in unit volumes. For the full year, Cirrus recorded 8% revenue growth.

Fourth-quarter adjusted earnings shot up to $0.68 per share from $0.37 in the prior-year period. A favorable product mix, supply chain improvements, and cost reductions led to a slight improvement in Cirrus's non-GAAP gross margin during the quarter and led to earnings growth.

CRUS Gross Profit Margin Chart

CRUS Gross Profit Margin data by YCharts

Don't be disappointed by the guidance

The guidance, however, turned out to be slightly disappointing. Cirrus expects $200 million to $250 million in revenue this quarter, a 6% decline at the mid-point of its guidance range. The company blames the annual revenue decline on a drop in shipment volumes and lower smart codec content in Android smartphones.

But investors should note that the June quarter is usually a slow one for Cirrus. That's because Apple starts winding down the production of older generation iPhones during the quarter in preparation for new launches that typically happen in September. Cirrus's revenue was down as well by an identical margin in the June 2019 quarter for a similar reason, indicating that COVID-19 isn't going to have much of a negative impact on the business.

The trial production of new iPhones will reportedly begin in the month of June, which means that mass production will only happen during the September quarter. Then again, supply-chain rumors indicate that the novel coronavirus pandemic could force Apple to delay the launch of its next-generation iPhones by a month.

So, Cirrus's growth will only get back on track in the second half of the year when iPhone production begins.

Sitting on a big opportunity

The novel coronavirus outbreak isn't great news for the smartphone industry. Supply-chain disruptions and a potential demand weakness -- thanks to the economic fallout of COVID-19 -- are expected to dent shipments this year. Smartphone unit shipments were originally expected to hit 1.4 billion units this year, according to third-party estimates. The projection has now been whittled down to 1.34 billion units in light of the pandemic.

The good part is that Cirrus is well-equipped to handle this headwind. On its latest earnings conference call, Cirrus management pointed out that the company has no debt and is sitting on $600 million in cash. As a result, it plans to "invest through the downturn" to branch into new audio applications.

This should help Cirrus set itself up for the 5G smartphone revolution that has already begun. Strategy Analytics reports that 5G smartphone shipments in the first quarter of 2020 came in at 24.1 million units. By comparison, 18.7 million 5G smartphones were shipped last year.

The spurt in 5G smartphones last quarter was driven by the launch of new devices from the likes of Samsung, Huawei, and other Chinese vendors. Apple could join the fray later this year as it is expected to launch multiple 5G models in 2020, giving Cirrus Logic a nice shot in the arm in the back half of the year

This is why now looks like a good time to go long Cirrus stock. Its trailing price-to-earnings (P/E) ratio of 27 is much lower than the 2019 multiple of 42, making Cirrus Logic an ideal semiconductor pick to take advantage of 5G smartphones.