Cirrus Logic's (NASDAQ:CRUS) mini stock market rally came to a screeching halt at the end of April after the chipmaker's fourth-quarter results and guidance failed to pass muster. Investors immediately pressed the panic button after it came out that Apple's (NASDAQ:AAPL) terrific iPhone sales wouldn't benefit a company that gets a huge chunk of its revenue from the iPhone maker.
The semiconductor specialist saw its shares fall close to 18% after the earnings report. But savvy investors shouldn't miss the factors that could help Cirrus Logic regain its mojo and soar once again.
Cirrus Logic's slowdown is temporary
Cirrus' Q4 2021 results and the accompanying guidance didn't meet expectations for a few simple reasons. First, the company was hamstrung by the global semiconductor shortage, which impacted sales during the quarter, as well as its outlook. CEO John Forsyth explained this on the latest earnings conference call:
Like many in the semiconductor industry, we have been experiencing strong demand in excess of supply. And while capacity constraints have not meaningfully affected the largest parts of our business, they did have some impact on our revenue for the last quarter as well as on our outlook for the first quarter of FY 2022.
Forsyth went on to add that demand is exceeding supply in some areas of Cirrus' business, and the company is trying to ramp up supply. The supply constraints restricted Cirrus' top line to $293.5 million during the quarter, an increase of 5% over the prior-year period and short of the $302.5 million Wall Street estimate. Non-GAAP earnings of $0.66 per share also fell slightly from $0.68 a year ago and failed to match the consensus estimate of $0.71 per share.
Cirrus' guidance wasn't great either. The company expects $260 million in revenue at the midpoint of its guidance range in Q1, slightly lower than the expectation. But the positive side is that Cirrus' revenue should increase 7% year over year if it hits the midpoint of its range, and the company may have done better had it not been facing supply constraints.
The second problem plaguing Cirrus Logic during the quarter was Apple's preparation for the next generation of the iPhone lineup. Cirrus management pointed out in a shareholder letter that the "sequential decline in revenue was driven by lower unit volumes of components shipping in smartphones reflecting typical seasonal trends."
Given that Apple accounted for 76% of Cirrus' revenue last quarter, a seasonal slowdown in orders was bound to harm sales. It is worth noting that the chipmaker's sales zoomed higher earlier this year when Apple was busy ramping up iPhone 12 production. So the near-term slowdown is likely to be temporary, as Apple is expected to boost its iPhone production in 2021.
Supply chain checks indicate that Apple could bump the initial build orders for the next iPhone series by 25% to 100 million units this year compared to the 2020 models. As such, Cirrus could start witnessing a jump in sales in a couple of quarters once the production ramp of this year's devices begins.
More importantly, Apple is likely to remain a multi-year growth catalyst for Cirrus -- it has become the dominant player in the 5G smartphone era, with 30% of the market share in the first quarter of 2021. However, Cirrus is now showing signs of reducing its dependence on Apple by breaking into another high-growth space.
The non-Apple business is taking off
Cirrus has long been considered a proxy for Apple's sales. It is now breaking out of that mold by making solid progress in the high-performance mixed-signal market, which is helping it expand its reach beyond traditional audio chips and into new applications such as haptic drivers and camera controllers.
The company generated nearly $58 million in revenue from this segment last quarter, a 41% increase over the year-ago quarter. The high-performance mixed-signal business produced almost 20% of Cirrus' revenue last quarter, up from around 14% in the prior-year period. The segment's strong growth helped Cirrus mitigate the impact of weak orders from Apple and supply chain constraints, as evident from last quarter's performance and the year-over-year jump predicted in the ongoing quarter.
The good news for Cirrus investors is that the high-performance mixed-signal market presents a solid growth opportunity for the company. The company anticipates this space to open a serviceable addressable market (SAM) worth $2 billion by 2024, compared to $240 million in 2019. That's faster than the audio market, which is expected to hit $3.5 billion in SAM by 2024 from $2.5 billion in 2019.
The company said on the conference call that it is "shipping new technologies to our customers across a range of end devices, including important new content in the high-performance mixed-signal category," which should help accelerate its revenue growth as the year progresses.
Investors looking for a potential growth stock can take advantage of Cirrus' pullback, as it trades at just 14 times forward earnings, and wait for its dual growth engines to boost its top-line momentum in the forthcoming quarters.