Shares of Cirrus Logic (CRUS +0.12%) have been zigzagging lately -- down 18% year to date, but they also rose 4.5% following the release of the company's latest results on May 3. For its fiscal 2022 fourth quarter (ended March 26), its numbers turned out to be way better than expectations.
NASDAQ: CRUS
Key Data Points
The chipmaker is known for supplying audio codecs (used for compressing audio data) and power management chips (used by smartphone makers such as Apple). The stock's positive reaction to the latest results doesn't come across as a surprise since it was riding on some serious tailwinds going into its quarterly report.
Let's take a closer look at Cirrus' numbers and check why this semiconductor stock could soar even higher this year.
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Cirrus' results were way ahead of expectations
Cirrus Logic reported fiscal 2022 Q4 revenue of $490 million, a big jump of 67% over the prior-year period and well ahead of the company's guidance range of $400 million to $440 million. The chipmaker's bottom line more than tripled year over year to $2.01 per share and was well ahead of the Wall Street expectation of $1.40 per share.
Cirrus credited its terrific year-over-year growth to higher smartphone volumes, content gains in the high-performance mixed-signal (HPMS) business, an increase in average selling prices (ASPs), and growing demand for its fast-charging chips for smartphones. An increase in the demand for audio chips used in laptops also gave Cirrus a shot in the arm.
However, a closer look indicates that Apple played the biggest role in Cirrus' growth last quarter. The tech giant accounted for 79% of Cirrus' top line, and the robust demand for its latest iPhones was critical to Cirrus' astronomic growth last quarter. That's because Cirrus is providing an additional power conversion chip to Apple for the iPhone 13 lineup in addition to the audio codecs and audio amplifier chips. Earlier iterations of the iPhone used only audio chips from Cirrus.
This explains why Cirrus' latest shareholder letter says that it saw higher content and ASPs this time. Additionally, the growth in Apple's iPhone volumes last quarter also rubbed off positively on Cirrus' results. Apple was the only top smartphone maker to have increased its shipments in the first quarter of 2022, according to Canalys. The company's iPhone shipments increased 8% year over year during the quarter to 56.5 million units, giving it an 18% share of the global smartphone market.
Cirrus' close relationship with Apple is expected to pay off in the current quarter as well. The chipmaker anticipates revenue to land between $350 million and $390 million this quarter. The midpoint of that guidance would translate into year-over-year revenue growth of 33%, driven by higher demand for smartphone chips and an increase in ASPs.
Buying the stock is a no-brainer right now
Cirrus closed fiscal 2022 with a 30% year-over-year increase in revenue to $1.78 billion. The company's outlook indicates that it is getting off to a solid start in the new fiscal year, and it looks likely to sustain that momentum. That's because Cirrus' largest customer is enjoying impressive iPhone sales growth thanks to the growing adoption of 5G smartphones. Apple has expanded its iPhone lineup in a bid to lure more customers into its fold, which could lead to a sharp increase in iPhone shipments in the coming years.
But at the same time, Cirrus is trying to expand its business with Android smartphone makers as well. It has begun volume shipments of its haptic driver -- a chip that allows touchscreen devices to provide vibrating feedback to the user when they touch the screen. It will be used in a flagship Android smartphone that was introduced recently. Cirrus expects more Android devices powered by its components to hit the market over the next year.
It is good to see that Cirrus is making moves to diversify its customer base beyond Apple, as relying on one customer for a large chunk of the revenue has its disadvantages as well. For instance, if Apple decides to make audio codecs and power conversion chips in-house, Cirrus' business would take a hit. However, analysts are of the opinion that Apple is unlikely to bring the chips that Cirrus makes in-house owing to high barriers to entry and intellectual property protection.
Moreover, Apple and Cirrus' relationship has grown closer over the years as the adoption of the power conversion chips in the latest iPhone generation indicates. Cirrus' research and development team works closely with the product teams of its customers to make products that could be deployed across multiple platforms. So it won't be surprising to see this close partnership continuing in the long run.
It is also worth noting that Cirrus is one of the leading players in the audio codec market. According to a third-party estimate, the global audio codec market brought in $6.1 billion of revenue last year. By comparison, Cirrus generated $1.59 billion, indicating that it controls just over a quarter of this space --and that puts it in a solid position to take advantage of future growth.
All this indicates that Cirrus Logic looks set to sustain its high pace of growth. With the stock trading at just 14 times trailing earnings compared to the Nasdaq 100's earnings multiple of 29, investors looking to buy a tech stock right now should take a closer look at Cirrus Logic as it has the potential to go much higher -- perhaps even parabolic, which, in simpler words, means that the stock could rise at a really fast pace in a short period.
