Fabless semiconductor company Cirrus Logic (CRUS -1.48%) will release its results for the fourth quarter of fiscal 2022 after the market closes on May 3, and investors can expect a terrific performance from the chipmaker based on the guidance that it issued earlier this year, as well as the upbeat prospects of its largest customer -- Apple (AAPL -1.22%).
Known for supplying audio and power conversion chips to Apple for the iPhone and other products, Cirrus is a mid-cap stock with a market capitalization of $4.4 billion. The stock, however, is having a forgettable year so far, having lost 16% of its value thanks to the broader sell-off in tech stocks. But a closer look at the company's prospects indicates that it may only be a matter of time before it steps on the gas. Let's see why.
Image source: Cirrus Logic.
Cirrus Logic is on track to deliver impressive growth
According to the guidance Cirrus issued at the end of January, revenue is expected to land between $400 million and $440 million in the fourth quarter of fiscal 2022. The midpoint of that range would translate into a 43% year-over-year jump in revenue to $420 million, which is in line with what Wall Street is looking for.
The chipmaker says that an increase in the content it supplies to smartphones, higher average selling prices, and stronger volumes will play a key role in driving its robust year-over-year growth. These factors are also expected to drive Cirrus' earnings to $1.40 per share from $0.66 per share in the prior-year period.
It is worth noting that the company has beaten Wall Street's earnings estimates handsomely in the last three quarters. It won't be surprising to see it repeat that feat thanks to Apple, which was its largest customer in the fiscal third quarter with 82% of the top line.
Why stronger-than-expected results are in the cards
We have seen that Cirrus depends on Apple for a large chunk of its revenue. The good part is that the relationship between the two companies has become stronger with the iPhone 13 lineup. That's because Apple now uses a power conversion chip from Cirrus in addition to the audio amplifier and the audio codecs it has historically sourced from the latter.
For instance, the iPhone 12 wasn't equipped with a Cirrus power conversion chip. In simpler words, Cirrus is making more money from each unit of the iPhone, and that should translate into terrific year-over-year growth for the company. Apple saw a 5.5% increase in iPhone revenue last quarter, which is a positive sign for Cirrus.
Additionally, the 5G-enabled iPhone SE that Apple launched last month is likely to increase Cirrus' revenue opportunity. Analysts expect Apple to sell 30 million units of its entry-level 5G smartphone in 2022, and it won't be surprising to see the device become a big hit in the long run by attracting budget-conscious users.
All this indicates that Cirrus' largest customer could help it crush Wall Street's expectations once again. What's more, Cirrus' entry into new markets could fuel terrific long-term growth for the company. In fiscal 2019, audio chips accounted for 88% of Cirrus' total revenue, with the rest coming from the high-performance mixed-signal (HPMS) business. So far in fiscal 2022, the contribution of the HPMS business has increased to 33% thanks to Apple, which has selected Cirrus' power conversion chip for the iPhone.
Cirrus expects HPMS to produce half its total revenue in the future, which bodes well for the company, as it sees a $3.5 billion revenue opportunity in this segment by 2025 as compared to $435 billion in 2020. Meanwhile, the serviceable addressable market of the audio business is expected to increase to $3 billion by 2025 as compared to $2.7 billion in 2020, indicating that HPMS presents a much bigger opportunity for Cirrus.
All of this indicates why Cirrus is expected to record 15% annual earnings growth for the next five years, which would be a big improvement over the flat bottom-line growth of the last five years. So, Cirrus looks well-placed to sustain its impressive growth beyond its upcoming results. And with the stock trading at just 18 times trailing earnings as compared to the S&P 500's multiple of 25, now looks like a good time to buy this semiconductor play before it steps on the gas.
