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Cirrus Logic Unveils Its Positive CY-2020 ASP Growth Vision Likely Driving Significant Revenue Growth

Mar. 11, 2020 1:59 PM ETCirrus Logic, Inc. (CRUS)AAPL, QRVO3 Comments
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  • Cirrus Logic expects significant ASP growth within wearables, laptops, tablets, and phones during CY-2020.
  • Waiting until Cirrus updates its March guidance might be the prudent action before buying.
  • Growth in ASPs isn't restricted to CY-2020 but will extend far into the future.
  • Amplifiers, haptics, a closed-loop device, and, possibly, a new codec win within wearables fuel the ASP growth.

We expect Cirrus Logic's (NASDAQ:CRUS) share price to significantly increase over the next few years. At the last conference, the company explained that it expects strong ASP growth from many growth vectors during CY-2020 and beyond. With at least constant unit sales volumes, revenue grows, but beginning later in the year, strong unit volume growth is also expected driven by 5G conversion. Even during volatile markets, understanding coming growth is essential. Jason Rhode, Cirrus's CEO, answered in the January call, "We're excited about the new stuff that we've got going on this year. We've got further new content that we're excited about for the following year." From the call, the new content seems deep, meaningful and broad in scope. Let's get started.

Reviewing Last Quarter

We begin by reviewing last quarter's results. Revenue for the December quarter was $375 million, significantly above guidance driven mainly by new sockets in Android and higher iPhone unit sales with Apple (AAPL). As expected, non-GAAP earnings of $1.41 handily beat analysts' estimates. At the conference, Cirrus's guidance significantly beat analysts' estimates ranging between $250 million and $290 million. With the recent Apple revenue warning, it seems clear that that guidance will be updated lower possibly toward the end of March or early April.

As expected, Cirrus shut down its microphone development endeavor. Most of the resources successfully transitioned to other more valuable projects.

Describing What is Coming

The company noted in the shareholder letter:

As we move through the next 12 to 18 months, we are excited to have a number of new products coming to market that we expect to bolster our leadership position in audio and voice and establish a strong foothold with other signal processing components beyond these traditional domains."

This growth includes expansions with new and existing customers. Understandably, Cirrus offered nothing

This article was written by

Patient Tech Investor profile picture
I have been an investor for several decades enduring the 87 crash, 2000 crash, and 08 crash. I do use trading systems developed with TradeStation. I have enjoyed the rewards from both buy and hold and trading. My professional experiences includes several decades as a process control engineer. I hold a JD from an eastern law school.

Analyst’s Disclosure: I am/we are long CRUS. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (3)

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Riding Cirrus Logic’s ASP Hedges Through Grave Uncertainty

With the world economic uncertainly thriving, companies such as Cirrus Logic with its dependency solely on consumers, face unprecedented unpredictability. Yet, an alternate financial view might add understanding and predictability to this coming fiscal year.

It is clear that the June quarter smart phone unit sales won’t be stellar. Rumors abound claiming significant delays for delivering Apple’s newest iPhone, Cirrus’ most lucrative revenue generator. To add further uncertainty, Cirrus’ announced the loss of two sockets, the $1.50 codec in the newest Galaxy and approximately a $1.00 in-the-box convertor with the iPhone. Cirrus is countering those losses with a recently won amplifier within the AirPod Pro and a camera stabilization closed loop controller within a significant portion of the newest iPhone. The net appears to be ASP neutral with Apple and a minor loss with Samsung of $30-$40 million. Still unit sales for consumer devices hold significant uncertainty.

The Hedge

Perhaps this can only be considered a view, but a change in ASP within Apple’s new iPad Pro offers an interesting reason for optimism. Cirrus through several different conferences offered investors important in sight into the magnitude for the gain. The device has 11 Cirrus parts one of which is a codec valued at $1.50, a controller of some kind valued in our mind probably near $1 and 9 other devices most likely amplifiers. The company’s presentation includes a slide showing ASP’s for it products. Mobile amplifiers range from $0.40-$0.75. At its lowest amplifier ASP, the total of the 11 devices equals $6. At $0.5 per amplifier, the total ASP is $7.00. The ASP in older iPads was about $1.5 from the codec. The difference in ASP between devices probably ranges from slightly less than $5 to $6. To help investors to understand the meaning of this change, consider that revenue lost from an iPhone with an ASP equivalent of $4.25 requires 0.85-0.70 units of the iPad Pro to maintain a constant revenue year over year. For example, if Apple sells 15 million less iPhone, it take only 10-12 million iPad Pros to hold revenue constant on a year over year basis. How certain are we that this new iPad as an ASP this large? Right before the last quarterly report, we had guessed Cirrus’ revenue for March at $250-$260 million. They reported $280 million. That difference of $25 million was likely or could have been made up by this higher ASP. If Cirrus delivered 5 million units worth of parts, $5 times 5 million equals $25 million our difference. It seems that something change significantly and this is most likely the change.

In the past, Apple has sold between 10-15 million iPads per quarter or approximately 55 million a year. During the last quarterly conference call, Apple made it clear that tablets and other devices such as watches were selling much better than seasonal. The reasons for this increase leave us more than hopeful that units sales for tablets will at least follow similar historical patterns. iPhone sales have been known to have plummeted. The question becomes that at what percentage of the total is the newest tablet. Is it 25% or 50% or 75%? Our guess is that it will be at least 50% or close to 30 million units this year. Constant revenue between Apple phones and tablet sales can be maintain even if phones sales drop by 30-45 million year over year.

The Story Doesn’t End With This

Jason Rhode wrote, “Wearables. Other categories of wearables is still in front of us, still on track. We're still really super excited about it. Laptops are a little further out.” We expect an iWatch or something of similar size coming soon probably with an ASP between $0.50 and $0.75. But our real interest, is in the laptops. We believe that will come with Apple’s conversion to its own processors should include a new sound system very similar to the iPad Pro. If so, additional $5-$6 of additional ASP is coming beginning later in the year. This change won’t be as dramatic possibly near $5-$10 million a quarter beginning in December, but still it would carry the additional revenue 2-3 million phone units.

It appears to us that Cirrus’ new significantly design wins when viewed financially as hedges against uncertainty with the idea of holding earnings/revenue at least constant seems powerful. With this look, Cirrus likely earns at least $4.00 once again during FY-2021.

And More Is Coming

Cirrus broadcasted that wearable wins and significant haptics socket wins are expected over the next 6 months. We aren’t sure as to exact values, but a single chip haptics solutions on the way is likely to bring $0.75 or more. Those might begin as early as the March quarter.

The Totals

Growth from known new sockets plus major changes in tablet ASPs act strangely similar to hedges against uncertainty. The value seemed best measured in numbers of phone units primarily since there seems to be stability in the tablet business with many frozen at home.

Obviously, everything has some risk, but with this kind of assumption, the hedges might replace the revenue for the lost of 35-40 million Apple phones. That might seem like a lot of reduction in phones, but it is possible. June quarter rumors claim iPhone sales in April collapsed. Apple admitted that it wasn’t expecting good phone numbers during its report. Down 10 million units or more in June remains likely. If the expected iPhone 12 release moves from September to October, expect another 5-10 million for September. With a later release for the December quarter plus unknown weakness from unemployment around the world, a 10-20 million unit drop in that quarter is possible. That leaves March, which might be much stronger, but still unknown.

A stable tablet business might dampen this risk. Continuing with this view, iPhone units sales of 150-160 million between June and March quarters would still yield $4.00 in earnings. Changes to earnings either positive or negative could be figured by roughly $0.35 per 10 million phone units. For example, a year over year constant unit sale would add a little more than a dollar bringing earnings for FY 2021 over $5. In this case, Cirrus is extremely underpriced. Taking a more bearish case, Cirrus could likely end up with at least the same earnings year over year with the current price being modestly undervalued.

Certainly this is a strange way to look at an earnings evaluation, but this seemed the easiest view in which to put one’s arm around how the coming year might unfold.

We also noticed that Cirrus announced its earnings date on the second day of the new quarter. It likely had a good June quarter in compared with guidance. As a reminder for gauging June earnings, Cirrus tends to under guide. At $250 million, the top end of guidance, earnings equal $250 million times 0.52 minus $95 million times 0.90 divided by 58 million shares of stock fully diluted equaling $0.55. This compares with $0.35 last June or roughly the same. Each $10 million adds almost 10 cents.

FY 2021 for Cirrus will be challenging, but we don’t see it as catastrophic.
Tnx for the interesting article. My main concern with Crus is its dependency on Apple for about 75% of revenu. Did the CEO mention something about differentiating more?
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Yes he did. All amps haptics and devices like that are non-Apple.

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