Cirrus Logic (CRUS) Posts “Cirrusly” Good SepQ, iPhone Softness Not Really Impacting CRUS

2:22 pm Wednesday, November 02nd, 2022

Cirrus Logic (CRUS) is trading sharply higher following its Q2 (Sep) earnings report last night. It reported huge beats for EPS and revenue and offered in-line revenue guidance for Q3 (Dec). Given its high exposure to Apple (AAPL) at 79% of FY22 revs, we were a little nervous considering that iPhone revenue came in a bit light in Apple’s report last week. However, CRUS reported huge upside.

Revenue rose 16% yr/yr and 37% sequentially to $540.6 mln, pretty much demolishing the $450-490 mln prior guidance. Granted, CRUS is known for being conservative with guidance. However, the analyst consensus was below the mid-point of that guidance, so clearly the analyst community was nervous like we were.

The revenue upside was driven by higher smartphone unit volumes associated with customers’ new product ramps as well as higher ASPs and high performance mixed-signal content gains. Non-GAAP gross margin dipped to 50.2% from 51.3% a year ago and 51.5% in JunQ, but it was roughly in-line with the midpoint of guidance. DecQ gross margin is expected in the 49-51% range.

Another concern going into this report was CRUS noting last quarter that it saw a slowdown in laptop demand. And with the well-publicized PC slowdown and inventory glut, we had trepidation going into this report. CRUS says PC demand remains soft, but helping to mitigate that is CRUS’s view that it sees laptops as an area where it can expand.

Specifically, there is a greatly increased emphasis from customers and end users to add higher quality audio experiences in laptops. This is being driven by the growth of remote and hybrid working and a transition to thinner and lighter form factors. OEMs are evolving towards more of a smartphone-like audio architecture that leverages multiple boosted amplifiers. CRUS has been engaged with multiple customers in design activity around its first amplifier designed specifically for laptops.

Overall, it is clear that our concerns about Apple’s iPhone softness impacting CRUS was misplaced. Given its inclination to guide conservatively, CRUS is known for reporting upside. However, this was very robust upside even for CRUS and the guidance for the holiday DecQ period was solid as well. The stock had been down 23% since mid-August heading into this report, but this result showed that investors were perhaps too pessimistic heading into this report.