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Cirrus Logic, Inc. (CRUS) CEO Jason Rhode on Q4 2020 Results - Earnings Call Transcript

May 04, 2020 10:46 PM ETCirrus Logic, Inc. (CRUS)1 Comment
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Cirrus Logic, Inc. (NASDAQ:CRUS) Q4 2020 Earnings Conference Call May 4, 2020 5:00 PM ET

Company Participants

Thurman Case - VP, Finance, CFO & Principal Accounting Officer

Jason Rhode - CEO & Director

John Forsyth - President

Chelsea Heffernan - Director, IR

Conference Call Participants

Matthew Ramsay - Cowen and Company

Tore Svanberg - Stifel, Nicolaus & Company

Blayne Curtis - Barclays Bank

Adam Gonzalez - Bank of America Merrill Lynch

Christopher Rolland - Susquehanna Financial Group

Charles Anderson - Dougherty & Company

Ariel Shusterman - Needham & Company

Rajvindra Gill - Needham & Company


Ladies and gentlemen, thank you for standing by. Welcome to the Cirrus Logic Fourth Quarter and Full Fiscal Year 2020 Financial Results Q&A Session. [Operator Instructions]. As a reminder, this conference call is being recorded for replay purposes.

I would now like to turn the conference call over to Mr. Thurman Case, Chief Financial Officer. Mr. Case, you may begin.

Thurman Case

Thank you and good afternoon. Joining me on today's call is Jason Rhode, Cirrus Logic's Chief Executive Officer; John Forsyth, the company's President; and Chelsea Heffernan, our Director of Investor Relations.

Today, we announced our financial results for the fourth quarter and full fiscal year 2020 at approximately 4:00 p.m. Eastern. The shareholder letter discussing our financial results, the earnings press release, including the reconciliation of non-GAAP financial information to the most directly comparable GAAP information, along with the website -- webcast of this Q&A session are all available at the company's Investor Relations website at investor.cirrus.com.

This call will feature questions from the analysts covering our company as well as questions submitted to us via e-mail at investor.relations@cirrus.com.

Please note that during this session, we may make projections and other forward-looking statements that are subject to risks and uncertainties that may cause

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Comments (1)

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Some Thoughts on Cirrus Going Forward

Owning Cirrus Means Paying Attention to Change

We have written much concerning Cirrus Logic over the past several years. Our stance has always been bullish with this caveat, that investors must pay attention to changes. This is especially true when changes reflect negative sediment. We remember a spring in the early 2000’s, when David French telegraphed through a governmental filing in mid-Spring the company’s plans to jettison a key business. The price of the stock never flinched until. . . It wasn’t until the news was made formally and public did the price dive. And it did! We aren’t telegraphing a major price change, but we believe it is important to understand that the probability of a content switch rather than a content gain is coming in the September/October. It will likely have stock price growth implications at least for the next 3-5 quarters.

Content Switch

Comments added by Jason Rhode during Cirrus last conference (not everything is up and to the right) coupled with a news report concerning Apple’s new iPhone missing in-the-box headsets, plus news claiming Cirrus won a very sticky socket indicating Cirrus likely will switch a headset convertor for a camera socket. A few years ago, Cirrus won two convertor chips with iPhones for converting Apple’s new digital output into either an analog headset convertor or to directly drive the in-the-box earbuds. Each of these parts have been valued at $0.90 a piece totaling approximately $1.80 in content. Apple eliminated the analog headset convertor part earlier. It appears that Apple will eliminate the EarPods from an in-the-box part with the next iPhone. An article titled, “'iPhone 12' predicted to ship without EarPods, will boost AirPods sales, on Appleinsider, claims that the new phone will ship without the part hoping to enhance unit sales of its AirPods. “In a note to investors, TF Securities' Ming-Chi Kuo says that he believes that Apple will leave out the $29 Lightning EarPods when the "iPhone 12" ships to consumers.” He expects Apple to announce “a promotion for AirPods." Another analysis claims that the 3rd generation AirPods with noise cancelation will be released later in the year. King disagrees that the new noise cancelation devices are Beat’s headsets, a device that will likely sell a lot fewer units than AirPods. Our belief is that any coming implementation of ANC are coming in a newer version of the Beat’s devices, devices that contain batteries.

We noticed the following Cirrus comments describing growth in its most recent investor presentation:

• Increased concentration of stereo smartphones with dual loudspeakers
• Boosted amplifier penetration increasing across global smartphone market • Increased adoption of seamless, always-on voice activation
Increasing demand for truly wireless headsets

Digital convertor technology growth is missing. We fully expect that the digital headset convertor will be missing in the 12.

Apple’s latest version of the AirPod contains two Cirrus amplifiers valued at approximately $0.50 each. But we can’t conceive any increase for AirPod will completely replace lost revenue from the digital convertor.

The economics for this change are uncertain, but can be estimated. The loss of 70% for the digital convertor might equal $120 million for FY 2021 and $30 million FY 2022. The gain from the camera chip seems equal to $1 times 90 million units or $90 million. Also on the positive side will be the increase in sales for AirPods at approximately a dollar a set. This might reach $10 million. There seems to be a neutral to slight net loss of revenue for equal units.

Coupled With Content Loss

Cirrus announced that it had lost a codec socket with a major Android OEM (believed to be Samsung). The value of this socket could be $1.50 times 60 million units time 0.66 equaling $60 million. Cirrus also announced that it had won an haptics device valued at $0.50 in a major Android product. We also believe that this is with Samsung. The revenue gain might be 60 million units times $0.50 or $30 million, a net lose equaling $30 million a year.

We should also note that although we are a little generous for added closed loop revenue, we left out revenue adders for new haptics devices, amplifiers. We believe more are coming.

Summing Puts & Takes

Rhodes commented during the last two conferences that with the coming content wins would be some loses. Not everything would be up and to the right this year. He also added, “I didn't talk about the content gains we expect to see from other new technologies within handsets in calendar '21, while calendar '21 is likely larger than what we see right now.”

It appears to us that this coming fiscal year for Cirrus is revenue content neutral. Revenue will be primarily driven by unit sales.

We also noticed in the last report a significant cut in cash operating costs, enough that if these continue lower at the same rate of $20 million/year would eliminate the effects of slightly lower revenue on earnings. It seems that for constant units Cirrus will earn a similar amount.


For us, without significant changes in ASPs, the price of the stock will be highly driven by market action and 5G growth perception.

We also aren’t predicting any significant change in the value of the long-term strategies which are and will drive Cirrus growth. We view this as a speed bump, one for which some thought must be given to investment strategy and plans.
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