What happened

Shares of Cirrus Logic (CRUS 1.18%) rose 13.7% in February 2023, according to data from S&P Global Market Intelligence. The gains hinged on a strong third-quarter earnings report, which also inspired a plethora of bullish analyst notes.

So what

The designer of audio processors and other mixed-signal microchips saw third-quarter sales rise 8% year over year, landing at $591 million. Adjusted earnings decreased from $2.54 to $2.40 per diluted share. The average Wall Street analyst would have settled for earnings of roughly $1.99 per share on revenue near $545 million.

Cirrus CEO John Forsyth noted that solid demand for smartphones in the holiday period lifted his company's business above the high end of guidance. More specifically, Cirrus shipped record unit volumes to its largest customer, Apple. Apple's line of iPhone devices, equipped with Cirrus audio chips, played catch-up after a couple of quarters with slower sales due to supply chain issues.

Now what

The semiconductor supply chain is getting better but isn't quite back to normal yet. Furthermore, Cirrus has to estimate future demand for its chips before bidding for a piece of the limited chipmaking capacity.

"When we're supply constrained, what we absolutely don't want to do is leave a customer in the lurch," Forsyth said on the earnings call. "Either we bid for a socket or we don't. And if we aren't confident we can supply it, we're not going to bid."

Hence, due to the lengthy and unpredictable chip manufacturing shortage, Cirrus folded early in the bidding for many of this holiday season's Android smartphones. Cirrus' trailing sales stand at all-time highs, but the market seems ready to support an even stronger order flow when the manufacturing problems have been settled.

Forsyth isn't entirely comfortable with the supply-side situation yet, so negotiations for new device contracts should continue to favor Apple for the next few quarters. In other words, Cirrus is pumping the brakes on its ambition to expand is presence in the Android market and will largely rely on Apple's iPhone business for the foreseeable future.