Cirrus Logic (CRUS 2.42%), a well-known chip supplier to Apple (AAPL 1.27%), reported its fiscal second-quarter results and issued guidance for its fiscal third quarter. Revenue, excluding the contribution from Wolfson Microelectronics, which Cirrus recently acquired, came in at $197.2 million. Non-GAAP earnings per share came in at $0.68. Those figures compare favorably with analyst consensus of $187.52 million and $0.54, respectively.
Strong guidance, with or without Wolfson
Additionally, Cirrus forecasts revenue for its third fiscal quarter of between $265 million and $285 million, handily topping analyst consensus of $216.8 million. These numbers do include the Wolfson revenue, but management declined to disclose how much of third-quarter revenue is expected to come from Wolfson-related sales.
Nevertheless, Cirrus did report $13 million from "approximately five weeks of contribution from the Wolfson acquisition." Naively assuming a similar run rate for the full 12 weeks of the upcoming quarter implies a $31.2 million contribution from Wolfson. Excluding this hypothetical revenue, Cirrus is still on track to generate about $243.8 million in revenue at the midpoint of its guidance, crushing analyst estimates.
In all, it looks as if Cirrus delivered a strong quarter and is expecting yet another strong quarter.
What's going on with Wolfson?
On Cirrus' earnings call, Erik Rasmussen from Stifel pointed out that Cirrus is seeing a "step up in R&D" from the acquisition of Wolfson, but that Cirrus isn't going to be "hitting [its] accretion target for the quarter." In other words, the acquisition doesn't look as if it'll show signs of the expected payoff during the current quarter.
CEO Jason Rhode suggested that the "short-term lack of accretion" was mostly due to the weakness at the high end of the Android smartphone market. Rhode also declined to comment on revenue for future quarters, but he did say he expects that the "combined company" will be able to "grow faster" than the two companies could have as separate entities.
The taxman cometh
Cirrus Logic is well known to have a very low tax rate, Feltl's Jeffrey Schreiner has been vocal in pointing out that this proverbial party is set to come to an end. In fact, in a note Schreiner published back in April (via Barron's), he observed that Cirrus' deferred tax assets will run out by fiscal 2016, "forcing another step down in non-GAAP" earnings per share.
On the company's most recent earnings call, Cirrus CEO Jason Rhode, in an answer to Feltl's Shannon Richter (filling in for Schreiner), stated that Cirrus' deferred tax assets and tax credits will be "basically completely depleted by the end of the year."
Though Rhode expects Cirrus' effective tax rate to be at most 4% over the next few quarters, he did signal that Cirrus should see a 30% average tax rate during fiscal 2016. On the bright side, Rhode pointed out that fiscal 2017 should be better in terms of tax rate as the company starts generating more of its revenue and profits offshore.
Apple is now "only" 73% of revenue
It has been common knowledge for quite some time that approximately 80% of Cirrus' revenue came from sales of chips to Apple. While the Apple business has allowed Cirrus to flourish, the extremely high concentration has left Cirrus fairly vulnerable to Apple's whims. That's why many investors have been watching closely for a diversification story.
According to Stifel's Erik Rasmussen on the earnings call, Cirrus' largest customer, Apple, made up approximately 73% of Cirrus' revenues for the quarter. That's still very high, and a good part of the dilution from 80%-plus was probably due to the added Wolfson revenue, but diversification is diversification.
Looking forward, Rhode had some positive commentary about Cirrus' potential opportunities at other mobile customers. In particular, he pointed out that features such as louder speakers, karaoke functionality, and improved signal-to-noise ratio performance were key differentiators that smaller customers were looking for in order to differentiate.
Foolish bottom line
As long as Cirrus can continue to ride the Apple gravy train while expanding into other customers and opportunities, then the long-term story should remain solid. It's up to Cirrus to really execute, but as the company's most recent financial results show, there's little doubt that it can.
