Shares of Cirrus Logic CRUS dropped as much as 8.5% to close at $31.35 on Jan 3. Moreover, during the trading session, shares touched a new 52-week low of $31.25.
This downside is attributed to Apple AAPL, a key customer of Cirrus, announcing a cut in its first-quarter fiscal 2019 guidance over declining iPhone sales.
Further, the lower view has hit other Apple suppliers as well. Notably, Qualcomm, Skyworks SWKS, Qorvo QRVO and Broadcom fell 2.96% to $55.7, 10.65% to $60.72, 9.1% to $55.64 and 8.9% to $230.96, respectively, on Thursday. Skyworks and Qorvo also slipped to new 52 week low levels.
Coming to Cirrus, we note that dampened smartphone demand and an increased reliance on Apple do not bode well for this Zacks Rank #4 (Sell) near-term performance. The company has witnessed a significant price decline in the past year and negative earnings estimate revisions for the current fiscal year.
Notably, the stock has shed 41.8% of its value in the past year, substantially underperforming the 8.6% decline of its industry.
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Soft Smartphone Demand: A Major Headwind
Cirrus Logic may have to pay the price of relying much on Apple as the company generates approximately 82% of its revenues through selling audio chips used in iPhone devices. This is because Apple warned that iPhone sales will decline on a year-over-year basis, primarily due to weak demand in Greater China and fewer upgrades to its flagship device. This, in turn, is likely to thwart Cirrus Logic’s top- and bottom-line results.
We note that sluggish demand in the overall smartphone market has been hurting the company for quite some time. In the last reported quarter, the top line fell 14.1% year over year to $366.3 million. Portable audio product revenues (88.5% of the total revenues) came in at $324 million, down 15.1% year over year during the period.
Per International Data Corporation (IDC) latest estimates, in 2018, worldwide smartphone shipments are expected to decrease 3% before returning to low single-digit growth in 2019 and through 2022.
IDC mentioned that one of the reasons for low growth in the third quarter of 2018 was the slowdown of smartphone shipment in China. This weakness is likely to persist in the ongoing quarter as the market is estimated to have dipped 3% in the final quarter of 2018.
Cirrus’s management also predicts this tepid demand in the smartphone market to continue for some time now, eventually hurting the company’s top line. Management is a bit conservative about visibility as the markets to which Cirrus Logic caters to are maturing, thereby recording decelerating growth.
Southbound Estimates
The negative sentiment regarding the market is further reflected in the company’s revenue outlook for third-quarter fiscal 2019. The company lowered its revenue estimates to $300-$340 million from its earlier forecast of $360-$400 million.
Further, analysts have been increasingly growing bearish on the stock over the past couple of months with all estimates being revised downward while no movement has been noticed in the opposite direction for the ongoing quarter as well as the full fiscal.
The Zacks Consensus Estimate for third-quarter fiscal 2019 earnings moved south from 84 cents to 79 cents in the past 30 days. Further, earnings estimates for fiscal 2019 have been lowered from $2.68 to $2.62.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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