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Summary

  • Apple's China Mobile deal could add strong growth momentum in iPhone (5s and 5c) sales in China.
  • Next product cycle update from Apple in the later half of this year can provide strong growth opportunity.
  • Voice interface market could be next big growth driver for the company's top line. Voice processors strengthen the company's offering in the audio segment.

Cirrus Logic (NASDAQ:CRUS) derives more than 80% of its revenue from Apple (NASDAQ:AAPL), and any potential threat of losing an Apple design can affect the financial performance of the company. Despite Cirrus Logic's fortunes tied to Apple, there are some catalysts that can add value to its top line.

A glimmer of hope for Cirrus Logic

Apple has posted its highest quarterly iPhone unit shipments of 51 million in the first quarter of fiscal-year 2014, which was below analyst's estimates of 55 million. The expectation was higher because of holiday season and sales figures of iPhone 5s and 5c being included in the quarter ending Dec. 28, 2013. For the second quarter of 2014, Apple has given revenue guidance of $42 billion to $44 billion, which denotes flat year-over-year growth. Despite this, the company looks perfectly positioned to add strong growth momentum from China after its deal with China Mobile (NYSE:CHL) in December . Currently, Apple's iPhones (5s and 5c) are being sold in 16 cities with China Mobile, and this number is projected to grow to 300 cities by the end of this year.

This deal is a new tailwind opportunity for Apple's audio chips' supplier Cirrus Logic, which was retained in the latest iPhone 5s and 5c. The company has been the preferred supplier of Apple for audio codec, and audio amplifiers for its iPad and iPhone products. Cirrus Logic, which depends heavily on Apple, had a reported 29.5% year-over-year revenue decline in the quarter ending Dec. 28, 2013. The slowing down of Apple sales and losing out an amplifier socket in iPad Air, can be considered prime reasons for this revenue decline. Thus this deal has a bright side for Cirrus Logic, as market estimates suggest that at least 12 million incremental iPhones will be sold through China Mobile in 2014. Cirrus Logic will therefore have a multi-million revenue potential to add to its top line. In addition, an expected product cycle update from Apple in the second half of this year will also be an important revenue growth driver for the company's top line.

Other growth driver

Though Apple remains an important driver of the company's top line, the company is broadening its product line and diversifying its revenue mix. Last year, the company acquired Acoustic Technologies, which specializes in noise reduction, echo cancellation, and voice-enhancement technologies and solutions. This acquisition provides audio-enhancement and voice-processing solutions to Cirrus Logic, thereby strengthening its audio product offering.

Cirrus Logic recently launched an ultra-low power voice processor, which improves voice-recognition accuracy in smartphones, tablets, and wearables. This processor incorporates Acoustic's SoundClear technology that eliminates background noise and delivers clear communications. SoundClear technology has been popular among leading smartphones, tablets, and automotive entertainment systems with more than 75 million units being cumulatively shipped using this technology. In addition, low power consumption of this processor will address the needs of OEMs for power efficiency.

Voice interface is the key market for growth for Cirrus Logic, and the company expects to add strong value to its top line starting in 2015. Voice-communication usage is growing at a rapid pace in mobile devices, with OEMs Apple and Samsung already bringing the voice assistant to their products. Now, with the introduction of SoundClear technology, OEMs can provide a better user experience during voice communication. In addition, Cirrus Logic will launch a number of 55-nanometer products in coming months that will target audio and voice applications. This will broaden the company's product offering, thereby strengthening Cirrus's strategy for targeting the voice-interface market.

Conclusion

In the past few months Cirrus Logic shares has been victim of Apple's weak quarter guidance and below expected first-quarter iPhone sales. Although, in the latter half of this year, Cirrus Logic's top line will be positively affected by Apple's China Mobile deal and the update of Apple's product cycle. The company is targeting new market opportunities in voice interface, but the risk of Apple adversely affecting Cirrus Logic's fundamentals remain high. I recommend to hold Cirrus Logic until some positive update being reflected from China Mobile in iPhone sales.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Cirrus Logic: Hold Until Next Apple Update