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Will Apple’s Slowing iPhone Sales Impact Cirrus Logic?

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Financial performance of Apple suppliers 

Until now, we saw that decline in Apple’s (AAPL) iPhone sales had a contrasting impact on the March 2016 quarter earnings of its two RF (radio frequency) suppliers, Qorvo (QRVO) and Skyworks (SWKS). Apple’s audio chip supplier Cirrus Logic (CRUS) reported revenue declines in fiscal 4Q16 but topped analysts’ estimates, like Qorvo. However, Cirrus Logic reported weaker guidance, like Skyworks.

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Cirrus Logic beats analysts’ estimates

In fiscal 4Q16, Cirrus Logic’s revenue fell by 9% YoY (year-over-year) to $232 million, beating the analysts’ estimate of ~$226.7 million. The company earned 67% of its revenue from Apple and 17% from Samsung. Looking at the quarter-over-quarter comparison, Cirrus Logic’s revenue fell by 33%, reflecting its high exposure to Apple. The declines from Apple were slightly offset by growth in automotive, consumer, and other non-portable products.

Cirrus Logic’s non-GAAP (generally accepted accounting principles) EPS (earnings per share) fell by 42% YoY to $0.38, beating the analysts’ estimate of $0.21. The better-than-expected results sent CRUS stock soaring by 9.7% a day after the earnings announcement. Qorvo experienced a similar case, and its stock rose after it reported better-than-expected earnings.

As we discussed earlier, the estimates factored in declining iPhone sales and higher-than-estimated earnings. This shows the company’s strength to withstand these declines.

Profitability

Like Skyworks, Cirrus Logic improved its non-GAAP gross margin from 46.6% in fiscal 4Q15 to 49.8% in fiscal 4Q16 due to a favorable product mix. However, the company’s operating margin fell from 18% in fiscal 4Q15 to 15% in fiscal 4Q16 as its operating expenses rose by 8% YoY despite a 9% YoY decline in revenue.

The increase in operating expense was a result of 10% YoY growth in research and development expense in fiscal 4Q16 as the company accelerated its product development activity during the quarter.

It ramped up production of its new flagship multicore smart codec, mid-tier smart codec, and boosted amplifiers. It secured design wins for a new flagship high-performance codec, a HiFi headphone DAC, a boosted amplifier, and a next-generation mid-tier smart codec.

In the next part of this series, we will look at Cirrus Logic’s financial position and guidance for fiscal 1Q17. You can gain exposure to Apple’s suppliers by investing in the VanEck Vectors Semiconductor ETF (SMH). It has ~3.7% exposure in SWKS and 1.3% in QRVO.

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