Mixed-signal processor designer Cirrus Logic (CRUS 0.01%) reported solid third-quarter results on Monday, February 1. More to the point, the company will be less dependent on its single largest customer in future reports.

Cirrus' third quarter by the numbers

In the third quarter of fiscal year 2021, Cirrus Logic's sales rose 30% year over year to $486 million. Adjusted earnings jumped 51% higher, landing at $2.13 per diluted share. Your average Wall Street analyst would have settled for earnings of approximately $1.86 per share on revenue near $459 million. The top-line result also exceeded the high end of management's guidance for the quarter, which topped out at $480 million.

Looking ahead, Cirrus targets fourth-quarter revenues of roughly $300 million, right in line with the Street's consensus estimates. The company also refilled its share buyback policy with another $350 million authorization, having nearly exhausted the previous stock repurchase program during the third quarter.

A wide-eyed young woman with earbuds gasps at her smartphone.

Image source: Getty Images.

The big picture

The revenue surprise in the third quarter sprung from strong consumer-level demand for recently launched smartphones featuring Cirrus Logic's power controllers, audio processors, and haptic touch chips. The chief product in that basket of successful flagship phones was obviously the Apple (AAPL -0.74%) iPhone 12 range. Cirrus Logic's strong results underscored Apple's own report from last week, which showed solid demand for iPhones with support for 5G networking.

Apple still provides the lion's share of Cirrus Logic's business results, but that's about to change. Cupertino accounted for 81% of Cirrus' total sales in fiscal year 2018 and 87% of sales in this report. The percentage of Apple sales is most likely peaking right here, because Cirrus has its sights set on shipping power controllers and audio solutions into a wider range of Android devices this year.

"During the quarter, we were especially pleased with customer evaluations and design-in activity across our product lines," according to the press materials. "We expect a variety of new end products utilizing our boosted amplifiers, truly wireless headset smart codecs and haptic solutions to be introduced in the first half of the calendar year."

A growing client list

On the earnings call, recently appointed CEO John Forsyth provided some more clarity around this vision.

"First, we anticipate strengthening our position as the leading audio supplier in smartphones. Second, we are focused on increasing sales of audio components in certain applications beyond smartphones," Forsyth said. "And third, we are drawing on our extensive mixed-signal engineering expertise to develop technology in new product areas that we believe will drive diversification beyond the audio domain."

The company is already shipping power and audio controllers into flagship smartphone models from several of the largest Android players. These relationships will expand into mid-range and finally lower-end phone with high shipping volumes over time, while Cirrus also gets to cross-sell other product lines such as haptic touch controllers and wireless audio chips to the same clients.

Silhouette of a man breaking his shackles against a colorful sunrise.

Image source: Getty Images.

Is Cirrus Logic a buy today?

Now, the semiconductor industry as a whole is kind of congested these days. One major concern facing Cirrus Logic right now is the fact that third-party chip foundries have maxed out their production capacity and promised to give a little extra attention to automotive chips this year. In other words, Cirrus Logic's financial results this year will be constrained by limited access to manufacturing lines.

That's a relatively nice problem to have, and I wouldn't be surprised to see Cirrus Logic's profit margins expanding during this period of off-kilter supply demand balance. And when the chip industry gets back to more normal operating conditions again, there should be pent-up demand for Cirrus Logic's high-quality solutions. That's where we'll see the Apple-to-Android ratio swinging away from Cupertino for real.

The stock isn't exactly cheap right now, trading a few percent below January's all-time highs, but Cirrus Logic is going places in the long run. Growth investors should take a closer look at this company, even at these lofty prices. The broader market reach should serve shareholders well in 2022 and beyond.