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Apple captive Cirrus gagged

Jealously guarding the biggest customer's name
7/31/2012 12:58 PM EDT
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eewiz
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re: Apple captive Cirrus gagged
eewiz   7/31/2012 2:07:13 PM
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Cirrus Logic would have been a good acquisition target for Apple if not for its current market valuation of 2.4B which is 10 times its 2009 valuation. The current valuation is basically because of its Apple business and the day Apple finds another vendor, Cirrus logic stock will nose dive, which will again make it a good acquisition target for Apple. Convoluted hah? http://www.google.com/finance?q=NASDAQ%3ACRUS

junko.yoshida
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re: Apple captive Cirrus gagged
junko.yoshida   7/31/2012 2:15:28 PM
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Convoluted, but makes sense.

abraxalito
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re: Apple captive Cirrus gagged
abraxalito   8/1/2012 3:38:19 AM
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Surely Apple just has to _announce_ that Cirrus lost the contract in order to trash their price? They can change their minds later - like they did with EPEAT.

krisi
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re: Apple captive Cirrus gagged
krisi   7/31/2012 2:25:22 PM
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Interesting thought @eewiz...use Cirrus Logic for gen1, find an alternative supplier for gen2, wait for the stock to go down the drain, aquire Cirrus Logic then and get them to design gen3! Kris

old account Frank Eory
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re: Apple captive Cirrus gagged
old account Frank Eory   7/31/2012 5:07:05 PM
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Except that Apple used a different audio vendor for Gen 1, maybe also Gen 2, and Cirrus beat them out of that socket for successive generations. Could Cirrus be displaced in the future? Anything is possible, but once you're this deeply entrenched and making custom ICs for your biggest customer, I think you'd have to really screw up badly to lose the business at this point.

junko.yoshida
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re: Apple captive Cirrus gagged
junko.yoshida   7/31/2012 2:37:03 PM
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OK. I got the logistics of how Apple can buy Cirrus at a reasonable price. What I don't understand is the reasons why Apple would every want to buy any perifpheral chip companies (including Authentic acquisition announced yesterday: http://www.eetimes.com/electronics-news/4391386/Apple-to-acquire-fingerprint-chip-firm-Authentec) Would anyone care to walk me through its pros and cons?

eewiz
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re: Apple captive Cirrus gagged
eewiz   7/31/2012 2:58:11 PM
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Apple would want to acquire chip/other companies for several reasons. 1) it has 100B cash in Bank and investors are pestering them to use it somehow :D 2) Block access to key & uncommon tech to competition (Anolbit,Authentec) 3) Bring inhouse the key and high value components (CPU, maps) so that there dependency on others are reduced. (PAsemi, integrity, C3 ,Placebase) Actually Cirrus logic doesnt fall into key tech/uncommon/high value components. Hence Apple will have less motivation to acquire them.

junko.yoshida
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re: Apple captive Cirrus gagged
junko.yoshida   7/31/2012 3:13:33 PM
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I agree with your assessment -- especially on Cirrus front. But then, here's the thing. That means, while Apple has everything to win, Cirrus will everything to lose, once it gets designed out. Shouldn't Cirrus get compensated for this very lopsided position they are now in?

pmartel
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re: Apple captive Cirrus gagged
pmartel   7/31/2012 7:27:45 PM
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You mean other than "Cirrus is predicting its September quarter revenue to shoot up more than 70 percent sequentially "?

junko.yoshida
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re: Apple captive Cirrus gagged
junko.yoshida   7/31/2012 7:51:25 PM
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OK, fair enough, Cirrus is compensated by getting an incredible revenue growth. But isn't it true that Cirrus is putting its life on the line by being Apple's captive? Once Cirrus loses Apple's account [which could happen], I can't imagine how possibly Cirrus can recover from such a devestating damage.

DMcCunney
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re: Apple captive Cirrus gagged
DMcCunney   7/31/2012 8:48:33 PM
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"But isn't it true that Cirrus is putting its life on the line by being Apple's captive? Once Cirrus loses Apple's account [which could happen], I can't imagine how possibly Cirrus can recover from such a devestating damage." I can't either, but what *can* Cirrus do? I'm sure they'd be happy to get more customers and diversify their revenue stream, but such efforts will be constrained by the need to take care of Apple first. Apple is the majority of their business, and they have every possible incentive to retain it. You may assume that they are talking to Apple daily about what it wants and what Apple plans to do in the future, and are actively working on designs intended to address Apple's expressed future needs. Can they lose the account? Sure. But given their current position, what would it take for someone else to take it away from them? What incentive would Apple have to switch? The most likely would be a significantly component lower cost, but I'm not sure any other player could undercut Cirrus enough to tempt Apple and still make money and provide the sort of quality Apple will demand. I don't see Apple being dumb enough to switch without a very good reason. Moves that will kill a key supplier aren't ones that help you longer term. I don't see any reason for Apple to buy them, either. Cirrus isn't doing anything proprietary that Apple would acquire them for to keep it out of other's hands. Right now, Apple has the best of both worlds - a captive subsidiary, for practical purposes devoted to them, but which they do not own and have no financial ties to save as a customer. If Cirrus suffers reverses and books large losses, Apple may need to qualify a different supplier, but is otherwise unaffected.

krisi
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re: Apple captive Cirrus gagged
krisi   7/31/2012 9:04:32 PM
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Companies like Apple don't rely on one supplier for too long...you need to keep everyone on their toes...my bet is that they will switch to another vendor in 3-5 years time...Kris

mcgrathdylan
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re: Apple captive Cirrus gagged
mcgrathdylan   8/1/2012 4:35:07 AM
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I agree. Cirrus may be in a precarious situation having so much revenue come from one customer, but on the other hand, at least they are getting that revenue. Is it guaranteed to last? No. But what is? I am sure they are trying hard to get more customers, but in the meantime, might as well keep riding this cash cow all the way to the bank.

junko.yoshida
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re: Apple captive Cirrus gagged
junko.yoshida   7/31/2012 3:33:00 PM
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I have another separate question for everyone. i wrote in this story: Cirrus Logic’s behavior -- jealously guarding the name of its biggest customer -- and the financial community compliance strikes an odd note, especially since Cirrus Logic on Monday filed Form 10-Q with the SEC. In fact, in the 10-Q, Cirrus Logic reported: “We had one end customer, Apple Inc. that purchased through multiple contract manufacturers and represented approximately 59 percent and 53 percent of the Company's total sales for the first quarter of fiscal years 2013 and 2012, respectively.” So, I am still scratching my head why NOBODY in the conference call would NOT mention the name Apple at all.

TarraTarra!
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re: Apple captive Cirrus gagged
TarraTarra!   7/31/2012 9:40:06 PM
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Apple does not like its suppliers mentioning possible design wins and has penalized suppliers in the past for jumping the gun with announcements. Cirrus is also sworn to secrecy which seems to have scared them into not mentioning Apple at all.

junko.yoshida
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re: Apple captive Cirrus gagged
junko.yoshida   7/31/2012 10:08:44 PM
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Exactly. But the thing is that Apple already released its major supplier list in January this year. Cirrus Logic's name is on the document Apple released to public. Further Cirrus also disclosed Apple as its biggest customer in its 10-Q filed to SEC. Clearly Apple is scaring every chip supplier because they can!

abraxalito
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re: Apple captive Cirrus gagged
abraxalito   8/1/2012 4:11:11 AM
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Fear has long been a management tactic in Apple's playbook. Fear of litigation is a huge one. Only a company like Samsung has deep enough pockets to take them on and even in their case its looking somewhat marginal.

Larry M
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re: Apple captive Cirrus gagged
Larry M   8/3/2012 7:54:09 PM
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Can you say "Wolfson?"

jaybus0
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re: Apple captive Cirrus gagged
jaybus0   8/1/2012 11:55:51 AM
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Because it is an incredibly risky thing for stockholders. Regulations require them to report it in the 10-Q, but the execs are still hoping to downplay the risk. After all, their own stock and options have seen a 10x gain since 2009. You asked previously what's in it for Cirrus. Well, the major shareholders and execs were handed what amounted to a 10x gain. No doubt exec bonuses have been nice since 2009. You're right. There doesn't seem to be much in it for Cirrus at this point, but that's because the major shareholders and execs have already been paid in advance. They just have to maintain for a while in order to slowly cash in. BTW, another method to get the price down for a takeover is for the major shareholders to dump their stock and cash out.

krisi
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re: Apple captive Cirrus gagged
krisi   7/31/2012 3:35:18 PM
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Everyone knew it was Apple?

junko.yoshida
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re: Apple captive Cirrus gagged
junko.yoshida   7/31/2012 3:47:42 PM
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Yes. It was a wink, wink, nudge nudge situation.

phlei
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re: Apple captive Cirrus gagged
phlei   7/31/2012 10:57:48 PM
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Cirrus Logic is looking for new revenues like AC/DC offline Digital LED lighting. The market is huge and if they can penetrate in the coming years.

mcgrathdylan
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re: Apple captive Cirrus gagged
mcgrathdylan   8/1/2012 4:32:43 AM
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I think this is an interesting dynamic in the analyst calls, and it's not just with Cirrus. Executives at many companies bend over backwards not to mention specific companies, even when it's clear to everyone involved who they are talking about. Texas Instruments has at least a few times blamed declining wireless chip sales on "lower demand from a major customer." That customer is Nokia, and everyone knows it. But TI most of the time avoids mentioning this major customer by name. And most analysts, for whatever reason, seem to play along with it. It's all wink, wink, nudge, nudge.

GREAT-Terry
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re: Apple captive Cirrus gagged
GREAT-Terry   8/1/2012 5:29:20 AM
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The LED lighting is a big market but it is also very crowded and the profit margin is quite thin now. Anyway, it is necessary for Cirrus to expand the market base. Having Apple helps to boost their revenue but sooner it can become a big risk and big hole in business is always waiting ahead.

junko.yoshida
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re: Apple captive Cirrus gagged
junko.yoshida   8/1/2012 9:53:54 AM
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Exactly. Name a chip company who was well prepared to mitigate the risks -- well before it got booted out by Apple.

Greg1975
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re: Apple captive Cirrus gagged
Greg1975   8/1/2012 2:47:10 PM
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Like Dylan, I was going to point to TI. I think they show that losing a large customer does not equate to bankruptcy/irrelevance/etc. I think as long as Cirrus plans appropriately and continues to invest in new arenas then if they lose Apple they'd be fine. Sure they'd lose that massive revenue, but I think Cirrus would still be Cirrus. In the end, it was Cirrus that attracted Apple anyway. I would think they could land another lucrative deal, even if much smaller.

junko.yoshida
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re: Apple captive Cirrus gagged
junko.yoshida   8/1/2012 2:58:06 PM
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True...but I was thinking more in line with PortalPlayer. At one point, 90 percent of PortalPlayer's revenue came from Apple's iPod design win. Imagine how devestated they were when they lost that socket. The company, however, was sold to Nvidia in 2007 at about $357 million -- so...may be it wasn't the end of the world...

yalanand
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re: Apple captive Cirrus gagged
yalanand   8/2/2012 9:00:03 AM
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@junko, but why did NVIDIA buy PortalPlayer for $357 million ? I believe NVIDIA is more interested in GPU's right.

junko.yoshida
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re: Apple captive Cirrus gagged
junko.yoshida   8/2/2012 11:36:11 AM
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Again, remember, the deal took place back in January, 2007. Things were much different then.

krisi
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re: Apple captive Cirrus gagged
krisi   8/1/2012 3:12:54 PM
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$357 million!?, not bad for the devastating loss of the Apple account ;-)...Kris

eewiz
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re: Apple captive Cirrus gagged
eewiz   8/2/2012 11:54:08 AM
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Portalplayer's MP3 chip line was pretty much finished by then. But they had an mobile application processor line which morphed into NVidia's Tegra CPUs. Not a bad deal for Nvidia either.

mcgrathdylan
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re: Apple captive Cirrus gagged
mcgrathdylan   8/1/2012 6:15:55 PM
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This just in: "Mad Money" host Jim Cramer likes Cirrus and attributes Apple's stock resurgence to Cirrus' guidance. http://www.cnbc.com/id/48418106?__source=yahoo|headline|quote|text|&par=yahoo

junko.yoshida
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re: Apple captive Cirrus gagged
junko.yoshida   8/1/2012 6:33:54 PM
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Wow, thumbs up from Cramer? This is turning into a mainstream news story!

yalanand
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re: Apple captive Cirrus gagged
yalanand   8/2/2012 9:03:12 AM
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@junko, who is the competitor to Cirrus ? If Apple decides to choose another vendor over cirrus who would it be ?

junko.yoshida
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re: Apple captive Cirrus gagged
junko.yoshida   8/2/2012 11:32:08 AM
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Wolfson, Dialog and Maxim. I am looking into that, yalanand.

Neo10
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re: Apple captive Cirrus gagged
Neo10   8/2/2012 2:37:08 AM
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We are all speculating but I'm sure both Apple and Cirrus are working hard to not to overly dependent on each other when at the same time they are in a hard embrace. They both know the rules of the market, I hope Cirrus has got parallel design teams churning out other products which can then replace with Apple's when and if they eventually divorce. In that case, IMO, they would see a dip for some time but should still hold on well.

RS100
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re: Apple captive Cirrus gagged
RS100   8/2/2012 7:07:28 PM
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I remember back in 1995, Cirrus was talking very big and touting themselves as the next $1 billion semiconductor company. Their stock went over $60 that Spring before ending the year around $20. It basically spent the next ten or so years declining all the way to $4 and that was before further losses during the 2008/2009 crash. On the good side, Jason Rhode was still toiling at UMD during that period.

SR656601
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re: Apple captive Cirrus gagged
SR656601   8/3/2012 1:28:17 AM
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Hate to bring up this nit when the discussion is on more important topics, but, it is "zealously guarding" not "jealously guarding." SR

junko.yoshida
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re: Apple captive Cirrus gagged
junko.yoshida   8/3/2012 8:07:55 PM
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Actually, "jealously guarding" is correct in this sentence; becauase if they are "zealously" guading Apple's name, it means they are doing it "enthusiastically." But that was not my intent here.

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