What to Consider Before Investing in Cirrus Logic Following the Recent Warning

In response to a warning from Ming-Chi Kuo the shares of Cirrus Logic plunged. Kuo advised that Apple is reverting to its traditional physical buttons in the iPhone 15 instead of adopting the solid-state design of its buttons.

This could be a serious chance, since Apple is responsible for nearly 90% of the revenue of Cirrus. However, Cirrus can still expand its operations by taking advantage of other promising avenues.

Supply Chain Risks

In the wake of Ming-Chi’s claim it was true that Apple (NASDAQ.AAPL:AAPL) would not utilize Cirrus Logic’s technology on the coming iPhone Cirrus Logic’s share price fell dramatically. This is particularly concerning as Apple is the biggest share of Cirrus’s revenue.

There is room for expansion over the top clientele. The Audio chips of the company can be found in many products including laptops. Also, there are plenty of potential markets including adaptive noise cancelling headsets as well as auto voice control.

Though Cirrus is a promising company but it’s crucial to consider that the risks to supply chain management can hinder the growth of Cirrus. In particular, the government’s oversight and interventions in U.S.-based production of semiconductors increase the risk of chip sabotage not just in China. To address this threat it is essential that policymakers develop standards regarding security of semiconductors that can be used by all important producers and users of semiconductors. It could reduce the possibility of hackers and sabotage, and also protect U.S. hardware’s reputation.

Reliance on Apple

Cirrus Logic could see a increase of more than 12 percent in its stock drop in response to an analyst’s assessment about Apple’s (AAPL) forthcoming iPhone 15 series phones. The company is the exclusive supplier of a controller chip used by the iPhone’s the new buttons that are solid-state.

TF International Securities analyst Ming-Chi Kuo said in a note dated April 12 that the new design will be “particularly detrimental” in the case of Cirrus Logic because it had been expecting Apple to increase its revenues and profits through a shift away from physical buttons.

AAPL is seeing low sales of smartphones, however they are expected to start increasing production of the next-generation iPhone at the end of September. This should drive Cirrus the growth of its unit volumes. as it gets ready for coming of the September release of new iPhones Cirrus has seen lower revenue during the previous quarters.

Growth Opportunities in Other Markets

When renowned tech analyst Ming-Chi Kuo expressed concerns over Cirrus Logic CRUS shares, the shares fell by 12%. After Kuo declared that Apple is going to eliminate solid-state buttons in their iPhone 15 Pro Max and Pro Max models, shares fell by 12%.

The result could be a decrease in demand of Cirrus’ Logic’s chip-based audio chip and haptic engine. In the fiscal year 2013, 88% of its revenue was from Apple thus it’s very dependent on Apple.

However, Susquehanna analyst Christopher Rolland believes that the partnership that exists between Apple and Cirrus Logic is tightening and leading to a significant growth rate for the firm. Furthermore, Rolland believes that the business’s robust financial position, its balance sheet and lack of longer-term debt, and its share purchasing policy may result in a positive P/E multiple.

Digital and mixed signal high-precision circuits made by the company are extensively used in consumers and for industrial use. Its portable audio products are sold to mobile device makers, in contrast, its non-portable music and related products are targeted at industries and energy sectors.

Value

Cirrus The company provides analog, mixed-signal, and audio DSP integrated Circuit (IC). The chips it makes are utilized in various industrial as well as consumer products, such as portable audio devices, mobile phones and tablet computers, fully wireless headphones, home theater systems automobile entertainment systems as well as professional software.

The main lines of business are High Performance and Audio Mixed-Signal. The company’s Audio division produces low-power and high-precision audio products for the consumer and mobile market.

High-Performance mixed-signal is the division which provides a range of digital-to-analog converters (DACs, ADCs), and other products. The products it offers are utilized in the automotive, energy and industrial sectors.

The company’s revenues are largely contingent on its largest customer, Apple. The decrease on iPhone 7 shipments due to the headphone port being removed could affect the company’s profits. If users stop using its product, its business may as well be affected.