When Rhode was asked by a financial analyst whether September’s
anticipated quarterly growth is due to unit-base growth or an average
selling price increase, Cirrus Logic’s CEO responded that the question
is a sensitive one to answer -- because it relates to its “customers.”
Rhode said, “It’s a little bit of all.”
Further, when asked about
the overall tablet market trend in Q3, Rhode declined to comment,
leaving the impression that he’d been warned not to tip off Apple’s
upcoming product (iPhone 5 or iPad mini) in Q3.
The Cirrus Logic
CEO was also quizzed about the state of the company’s overall audio chip
business “except for the biggest customer.” Rhode said the audio
business for the broad consumer market had “a decent Q1” and expects
reasonable demand in the second half of this year. Pressed further if
the consumer market in general for the third quarter is dire, Rhode
pointed out that Cirrus Logic’s chip business except for the biggest
company is rather small, implying that it’s not big enough to deduct the
overall industry trend. “But it doesn’t look bad either,” he added.
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
the form, it 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.”
an SEC filing make this hip-to-hip relationship pretty obvious?
of course, Apple is famous for its almost totalitarian approach to
non-disclosure agreements. One chip company on Apple’s 2011 Suppliers list released earlier this year
said, “At my company, practically one third of our entire employees were
asked to sign the NDA by Apple.”
It’s understandable that a
component supplier shouldn’t be out there pre-announcing its customer’s
product. But the gag order against uttering the magic word “Apple” all
during the conference call with financial analysts was awkward at best
and at worst, outright Orwellian. It undercuts the credibility of
detracted from the company’s otherwise forthright business discussions.
Rhode, meanwhile, tried to highlight the company’s efforts
to broaden its customer base and expand its business.
notable for Cirrus Logic’s recent quarter is the design win in Philips’
A19 LED light bulbs. (A19 is a type of light bulbs most commonly found
today in the United States. It has a standard medium base and can screw
into a variety of sockets.)
Philips A19 LED light offers a fully
dimmable LED alternative to a standard light bulb and provides a soft
white light by using Cirrus Logic’s LED controllers.
entered the LED market in March 2012 with the first product in its LED
controllers, focused on solving dimmer compatibility issues. Fundamental
to Cirrus Logic's LED product family is the company's digital
technology, called TruDim, consisting of interface algorithms, LED
driver topologies and system architectures. Cirrus Logic claims that
TruDim digital intelligence allows the controller to identify the type
of dimmer in use and adapt its dimmer compatibility algorithm to provide
smooth dimming in much the same way the consumer has come to expect
from decades of using incandescent light bulbs.
near 100 percent compatibility with the world's installed base of
dimmers, the company’s newest CS163X family provides “two-channel LED
color mixing capabilities,” according to Rhode. The company claims that
it allows LED bulb manufacturers to more efficiently create warm,
natural light quality while also lowering the cost barrier for
two-channel LED retrofit bulbs.
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?
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.
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?
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.
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?
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.
"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.
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.
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.
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.
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!
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.
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.
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.
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.
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.
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...
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.
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.