Does Cirrus Deserve This Apple-Induced Sell-Off?

Cirrus Logic is off 9% as Apple slides, are investors overlooking key trends for the company?

Eric Bleeker
Eric Bleeker
Jan 24, 2013 at 2:43PM
Technology and Telecom

Apple (NASDAQ:AAPL) is off 12% this afternoon after yesterday's earnings report failed to impress investors. It shouldn't shock any Cirrus Logic (NASDAQ:CRUS) investor that the company would be off big today as well; 79% of its revenue came from Apple in the previous quarter.

Yet as Fool analyst Eric Bleeker notes in the video below, what ails Apple might not always be a negative for Cirrus. Specifically, Apple's revenue -- while forecast below expectations next quarter -- isn't necessarily what's caused its months-long sell-off. Instead, concerns come from declining gross margin at the company, which could mean Apple could grow revenues at the high-end of its guidance next quarter (10%) and still see a year-over-year double-digit earnings decline.

With Cirrus Logic, in the near term its profits will be driven the most by units of Apple products. That is, if Apple's revenue and gross margin are affected negatively by cheaper iPad Minis, the higher number of iPad Mini units sold is a boon for Cirrus Logic. Also, contrary to earlier chatter that Apple might have seen a greater-than-usual amount of iPhone 4 and 4S sales in the past quarter, in last night's earnings it confirmed its ratio of older versus newer iPhone models was in line with historical norms. That's a key win for Cirrus Logic, as it has significantly increased the value of chips it has in the iPhone 5 versus previous models. If older versions like the 4 and 4S were selling at much higher rates, it'd be a near-term threat to the company's results.

In the end, it's very difficult to predict how Cirrus Logic will perform tonight. As Tim Cook elaborated on in Apple's earnings call last night, there are many data points that are unseen to investors and determine the company's component supplies on a quarter-to-quarter basis. However, it's also important for investors to detach themselves from the splashy Apple headlines when predicting how Cirrus Logic will be affected by the company's sales. To see Eric's full thoughts, watch the video below.