The battered tech stock could turn into a parabola after Wall Street expectations are smashed

shares Cyrus Logic (cross 0.84%) It’s been zigzagging lately — it’s down 18% year-to-date, but it’s also up 4.5% after the company’s latest results were released on May 3. For the fourth quarter of fiscal year 2022 (ending March 26), the numbers turned out to be far better than expected.

The chip maker is known for providing audio codecs (used to compress audio data) and power management chips (used by smartphone makers such as apple). The stock’s positive reaction to the latest results came as no surprise as it was walking on some serious tailwinds in its quarterly report.

Let’s take a closer look at Cirrus’ numbers and check why semiconductor stock is up this year.

Image source: Getty Images.

Cirrus’ results have been beyond expectations

Cirrus Logic announced fourth-quarter fiscal 2022 revenue of $490 million, a huge 67% jump from the same period last year and ahead of the company’s guidance range of $400 million to $440 million. The chip maker’s net profit more than tripled year-over-year to $2.01 per share, well above Wall Street expectations of $1.40 per share.

Cirrus attributed its impressive year-over-year growth to rising smartphone volumes, content gains in the High-Performance Mixed Signal (HPMS) business, increasing average selling prices (ASP), and growing demand for its fast-charging chipsets for smartphones. The increase in demand for audio chips used in laptops also led to Cirrus giving an injection into his arm.

However, a closer look indicates that Apple played the biggest role in Cirrus’ growth in the last quarter. The tech giant captured 79% of Cirrus’ top line, and strong demand for its latest iPhones was critical to Cirrus’ astronomical growth last quarter. That’s because Cirrus provides an additional power switching chip for Apple for the iPhone 13 range as well as audio codecs and speaker chips. Previous iterations of the iPhone used only audio chips from Cirrus.

Which explains why recent Cirrus contributors said it saw higher content and ASP this time around. In addition, the growth in iPhone volumes in the last quarter of last year also positively affected Cirrus’ results. Apple was the only largest smartphone maker to increase shipments in the first quarter of 2022, according to Canalys. The company’s iPhone shipments increased 8% year over year during the quarter to 56.5 million units, giving it an 18% share of the global smartphone market.

Cirrus’ close relationship with Apple is expected to bear fruit in the current quarter as well. The chip maker expects revenue to reach between $350 million and $390 million this quarter. The midpoint of this guidance will translate into year-over-year revenue growth of 33%, driven by higher demand for smartphone chips and an increase in ASPs.

Buying stocks is a no-brainer right now

Cirrus ended fiscal 2022 with a 30% year-over-year revenue increase to $1.78 billion. The company’s forecast is that it’s off to a strong start into the new fiscal year, and is likely to maintain that momentum. That’s because Cirrus’ biggest customer is enjoying amazing growth in iPhone sales thanks to the growing adoption of 5G smartphones. Apple has expanded its iPhone lineup in a bid to lure more customers into its fold, which could lead to a sharp increase in iPhone shipments in the coming years.

But at the same time, Cirrus is trying to expand its business with Android smartphone makers as well. It’s starting to ship large amounts of the haptic driver – a chip that allows touch devices to provide vibrating feedback to the user when the screen is touched. It will be used in a recently launched Android smartphone. Cirrus expects more Android devices powered by its hardware to hit the market over the next year.

It’s good to see that Cirrus is taking steps to diversify its customer base outside of Apple, as relying on a single customer for a large chunk of revenue also has its drawbacks. For example, if Apple decides to build audio codecs and power conversion chips in-house, Cirrus’ business will take a hit. However, analysts say Apple is unlikely to bring in Cirrus-made chips due to high barriers to entry and protection of intellectual property.

Moreover, Apple and Cirrus’ relationship has grown over the years as the adoption of power-switching chips in the latest generation of iPhone indicates. Cirrus’ R&D team works closely with its customers’ product teams to create products that can be deployed across multiple platforms. So it would not be surprising to see this close partnership continuing for the long term.

It is also worth noting that Cirrus is one of the leaders in the audio codecs market. As per a third party estimate, the global audio coding market generated $6.1 billion in revenue last year. By comparison, Cirrus generated $1.59 billion, indicating that it controls just over a quarter of that space — and that puts it in a strong position to benefit from future growth.

All this indicates that Cirrus Logic appears poised to maintain its high growth pace. With stocks trading at only 14 times more profit compared to Nasdaq 100A dividend multiple of 29, investors looking to buy tech stocks right now should take a closer look at Cirrus Logic since it’s likely to go up quite a bit — and maybe even a parabola, which means, in simpler words, that the stock can go up really fast in short period.

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