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Austin American-Statesman Plugged In column
[December 01, 2012]

Austin American-Statesman Plugged In column

Dec 01, 2012 (Austin American-Statesman - McClatchy-Tribune Information Services via COMTEX) -- While most of the chip industry has been in a funk this year, business at Cirrus Logic is booming.

And the boom is almost entirely due to "our largest customer," which is how the Austin chipmaker carefully refers to Apple Inc.

While much of the electronics industry has been stagnant this year, Apple has introduced a few popular products this fall -- including the next-generation iPhone and the iPad Mini. And each of those two products contain multiple Cirrus chips.

Cirrus told investors early this year that it had high hopes for some custom-design audio chips that, among other features, included noise cancellation.

Analysts say it appears those chips have made their way into the latest Apple products.

No one is entirely sure because Apple won't talk about it and Cirrus avoids saying anything specifically about Apple.

But when tear-down analyst companies took apart the new iPhone 5 and the iPad Mini, they found three Cirrus chips inside, instead of the single audio chip that had been in previous Apple mobile devices.

What this translates to for Cirrus is lots more revenue than it had before. The chipmaker reported $193.8 million in revenue for the quarter ended in September, which was up a heady 91 percent from the year before. It has provided guidance that the current quarter, which is normally the peak sales quarter for consumer electronics, should be even stronger, with revenue in the range of $270 million to $300 million. Apple accounted for about 79 percent of Cirrus' revenue in the latest quarter.

All this is a far cry from several years ago, when the company struggled to keep revenue above $50 million a quarter.

Cirrus avoids talking directly about its work with Apple. But the company talked more generally about new audio products in October, saying that is has created custom chips that can deliver voice-related features, such as noise suppression, for mobile devices.

In Austin, the effect of the boost in business has been further growth, particularly in product development jobs.

The company had 523 employees in Austin at the end of September, which was up more than 17 percent from a year ago. And the company continues to recruit and hire new people from its new downtown Austin headquarters.

While investors are pleased with Cirrus' growth, some of them are nervous about the share of its revenue that comes from "our largest customer." "Apple is the virtue or vice of their story," said analyst Vernon Essi with Needham & Co. "Some weeks, it is the greatest thing, but in other weeks investors can get in a panic. It depends on the psychology around Apple." For many investors, Apple could do no wrong as its mobile products produced more revenue and profit over the past five years. But Apple has shown some chinks in the armor recently. The new maps function for the latest iPhone had so many flaws that the company issued a public apology. And that was followed by the departure of some senior executives at the company.

"People are starting to see that Apple is a mortal company," said analyst Patrick Moorhead with Moor Insights & Strategy. "Investors get nervous when you have more than 50 percent of your business from one customers, which is looked at as risky and potentially on the way down." Apple, which saw its stock peak above $700 a share in September, saw its share price drop by 25 percent over the next two months, before rebounding a bit two weeks ago.

Cirrus stock got caught in that two-month downdraft.

Its stock price dropped from $44.88 a share in early September to $28.07 on Nov. 15, a drop of 37 percent despite reporting very strong sales and an even stronger growth outlook.

That's why analysts say they are not surprised that Cirrus announced a $200 million stock buyback program on Nov. 20.

"The point is to instill confidence and let people know that they are not sitting back on their heels," Essi said.

"The buyback is management saying they have faith in the company's direction," Moorhead said, "and they are asking investors to have faith." The buyback appeared to have an effect. Cirrus' stock price, which gained ground after the company announcement, was trading at just above $30 a share last week.

Cirrus CEO Jason Rhode says simply that a buyback is a good investment for a company that is growing fast and expects to be generating an ample amount of cash.

Buybacks reduce the number of shares outstanding and tend to reduce the volatility of the stock price, Rhode said. "It is another way to provide support for our long-term shareholders." Cirrus in 2008 did a $150 million buyback when the stock was trading at about $6 and reduced the outstanding shares by one-third, Rhode noted.

In the meantime, the company keeps expanding to support its expected continued strong product growth. Shareholders who stayed with the stock have benefited.

"We are growing as fast as we can hire people," Rhode said. But he added that the company chooses its new hires very selectively, both for their technical skills and their ability to fit with the company's team-oriented culture.

___ (c)2012 Austin American-Statesman, Texas Visit Austin American-Statesman, Texas at Distributed by MCT Information Services

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