Cirrus Logic (CRUS 0.56%) investors were in for a positive surprise after the company released results for its fiscal 2025's third quarter (ended Dec. 28) on Feb. 4, as robust demand for its semiconductors, which are used in smartphones and laptops, helped it exceed the higher end of its guidance range.
Best known for supplying chips used in Apple's products such as iPhones and iPads, Cirrus saw quarterly revenue of $556 million, which was well ahead of its original guidance range of $480 million to $540 million. Even though the chipmaker's top line was down 10% from the year-ago period, investors reacted positively to the better-than-expected results.
The good part is that Cirrus is set to return to growth from the current quarter. Does this mean it is time for investors to buy shares of this company, which gets almost all of its revenue from a single customer? Let's see.
NASDAQ: CRUS
Key Data Points
Cirrus Logic is set to return to growth
Apple accounted for a whopping 91% of Cirrus' top line in the latest quarter. Relying on a single customer for so much revenue isn't ideal, as any move by Apple to add more suppliers for the chips that it buys from Cirrus could dent the latter's business. However, Cirrus management points out that its "relationship with our largest customer remains outstanding, with continued strong design activity across a wide range of products."
This probably explains why the midpoint of Cirrus' revenue guidance for the current quarter points toward a slight year-over-year improvement. After all, sales of Apple's iPads and MacBooks have started picking up, thanks to the addition of artificial intelligence (AI) features. The tech giant's revenue from sales of iPads and MacBooks increased 15% year over year in the previous quarter, thanks to the availability of Apple Intelligence features in these devices.
Sales of the iPhone were down in the fourth quarter of 2024, but there was a silver lining. CEO Tim Cook remarked on Apple's recent earnings conference call that sales of the iPhone 16 models were stronger in markets where Apple Intelligence features are available. This could pave the way for growth in Apple's iPhone sales as the company has been rolling out its AI features gradually across the globe.
A pick-up in iPhone sales should be a tailwind for Cirrus, since the company is reportedly supplying multiple chips for Apple's flagship product. Cirrus has historically supplied audio codecs (which handle ) for Apple devices, but the latter is reportedly using camera controllers and haptics products designed by the chipmaker as well in the iPhone 16 models.
Apple is expected to ship at least 240 million iPhones in 2025, according to Wedbush Securities. That would be an improvement over the company's estimated 2024 shipments of 232 million units. So, Cirrus could benefit from a mix of higher-volume shipments and more revenue from each unit of the iPhone as the year progresses.
Meanwhile, Cirrus is trying to diversify into more markets. The company's audio solutions are now featuring in laptops as well, as management pointed out on the latest earnings conference call. Additionally, Cirrus supplied three components for a flagship smartphone from a "leading Android OEM" (original equipment manufacturer) in the previous quarter.
A potential uptick in earnings growth and an attractive valuation
All this indicates that Cirrus' growth is likely to pick up going forward. Analysts are expecting the company's earnings to grow just 7% in the current fiscal year to $7.05 per share, followed by a small drop in the next one.
CRUS EPS Estimates for Current Fiscal Year data by YCharts
However, Cirrus is expected to deliver double-digit growth in fiscal 2027, as seen in the chart above. But don't be surprised to see Cirrus doing better than that thanks to its diversification moves as well as the favorable tailwinds arising out of Apple's improving MacBook and iPad sales along with a potential recovery in iPhone sales.
As Cirrus is trading at just 19 times earnings right now, investors are getting a good deal on this chipmaker that seems capable of clocking faster earnings growth that could lead to healthy gains on the market. After all, Cirrus' 12-month median price target of $135 points toward a 29% jump from current levels, and the stock may be able to hit that mark thanks to the catalysts discussed above.
