Cirrus Logic Inc. CRUS announced its preliminary results for the third quarter of fiscal 2016 yesterday. It expects lower revenues in the quarter due to poorer demand for certain portable audio products. The company is scheduled to report its full third-quarter results after the market closes on Jan 27.
Following the news, the company’s shares fell approximately 4.8% in after-hours trading yesterday to $25.50.
Cirrus Logic now expects revenues of $347 million compared with $370 million to $400 million guided previously. The company cited weak demand for the guidance cut.
As per revenue segments, Portable audio products revenues accounted for 84% of total revenues in the last reported quarter (second quarter of fiscal 2016). Cirrus Logic generates a significant portion (approximately 70%) of its revenues from Apple Inc. AAPL.
This means that the company is at a position in which it will either gain from higher adoption of Apple’s products, (especially from strong iPhone sales) or will be at a risk of losing an Apple design contract, which will hurt its financial performance.
Digging into the Details
Apple shares fell over 4.2% in yesterday’s trading session, following speculation that it is cutting down on production of iPhone 6s and 6s Plus. According to Japan-based Nikkei, the company is "expected to reduce output of the iPhone 6s and 6s Plus by around 30% in the January-March quarter compared with its original plans."
Cirrus, which makes audio chips for Apple will be significantly affected by this. The situation will likely prevail in the March quarter too. Investors were also disappointed as there were not many changes in 6s Plus compared to its predecessor 6s.
Regardless of these near-term headwinds, the company expects year-over-year growth for both fiscal 2016 and 2017, buoyed by new product innovations.
Continued investments in the audio segment are expected to have a positive impact in the long run. Additionally, synergies from acquisitions and expansion in the LED market will continue to drive growth.
Cirrus Logic is a supplier of high performance analog circuits and advanced mixed-signal chip solutions. Founded in 1981, the company’s products are used in many professional and consumer entertainment devices like tablets, smartphones, and televisions, to name a few.
We think that some caution on Cirrus shares may be in order however since the ongoing global economic pressures might affect its business potential. Competition from the likes of Texas Instruments Inc. TXN and STMicroelectronics NV STM also makes the going tough.
Cirrus carries a Zacks Rank #3 (Hold).
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