Audio-chip developer Cirrus Logic (NASDAQ:CRUS) reported its fiscal third-quarter results after the market closed on Jan. 27. Revenue growth slowed down dramatically compared to recent quarters, non-GAAP earnings slumped, and the company's guidance calls for a potentially large revenue decrease during the fourth quarter. Here are the details.

Cirrus results: The raw numbers


Q3 2016

Q3 2015

Growth (YOY)


$347.9 million

$298.6 million










Source: Cirrus Q3 earnings release. 

What happened with Cirrus this quarter?
Cirrus warned earlier this month of a weak third quarter, and revenue came in well below initial guidance issued in the company's second-quarter earnings report:

  • Cirrus originally expected revenue to be between $370 million and $400 million.
  • GAAP gross margin of 47.4% and non-GAAP gross margin of 47.5% were up 2.6 and 1.3 percentage points year over year, respectively.
  • Cirrus' largest customer, Apple, accounted for 76% of total revenue.
  • R&D expense rose by 26.7%, far faster than revenue.

In addition to reporting its third-quarter results, Cirrus provided guidance for the fourth quarter:

  • Revenue is expected between $210 million and $240 million, down from $255 million during the prior-year period.
  • GAAP gross margin is expected between 47% and 49%.
  • GAAP R&D and SG&A expenses are expected between $100 million and $104 million, compared with $101 million during the third quarter.

What management had to say
Cirrus CEO Jason Rhode is confident that the company will deliver strong growth in fiscal 2017.

"While short-term weakness for certain portable audio products drove our fiscal Q3 results and Q4 outlook lower than anticipated, we are on track to deliver 27% year-over-year growth for full FY16, based on the midpoint of Q4 guidance, and we remain confident in our ability to deliver strong growth in FY17," Rhode said. "With a comprehensive roadmap of innovative audio and voice products targeting the mobile-phone, smart-accessory, and digital-headset markets, the company is focused on execution, diversification, and sustained growth in the coming years."

In the company's third-quarter letter to shareholders, management lays out its strategy going forward:

"We believe the company is poised to expand content over the coming years as we continue to cross-sell smart codecs and amplifiers to existing customers, expand our market share with mobile OEMs ..., build upon our success in MEMS microphones, and gain momentum with our recently introduced smart codecs for the emerging digital-headsets market. With a variety of vectors for expansion, we are extremely optimistic about our prospects for sustained revenue growth in the future and our ability to deliver shareholder value."

Looking forward
With iPhone unit sales essentially flat during Apple's fiscal first quarter, and with Apple guiding for a revenue decline during the second quarter, Cirrus' heavy dependence on Apple has finally caught up with the company. At the low end of Cirrus' guidance, the company would post a small GAAP loss during the fourth quarter.

Cirrus has made an effort to diversify beyond Apple, and its plan involves winning market share at smaller OEMs, but the success of the iPhone is still the main driver of the company's results. The iPhone 7, and possibly a rumored 4-inch iPhone, both of which are expected to be launched this year, could provide a boost for Cirrus, but there's a real risk that meaningful iPhone unit growth isn't coming back.

The company does expect to post solid growth in fiscal 2017, but given how far off Cirrus was with its initial third-quarter guidance, it may be best to take that projection with a grain of salt.