NEW YORK – With almost 60 percent of its business is coming from a single customer – in this case Apple, Inc., it’s not quite kosher to call Cirrus Logic an independent fabless chip company any more. For many in the electronics industry, Cirrus Logic today walks like a captive and talks like a captive company of Apple.
It’s clear that Cirrus Logic has little choice at this point but to do everything it can – from supply-chain management to specific investment choices – to satisfy its biggest customer’s wishes.
Cirrus is predicting its September quarter revenue to shoot up more than 70 percent sequentially – thanks to Apple. At a time when the rest of the industry will be grateful for single-digit growth in the third quarter, Cirrus’ projections are a gift horse that no company would look in the mouth.
Wall Street expects Cirrus Logic, come September, to get design wins in what could be Apple’s biggest product release in years – iPhone 5 or iPad Mini.
The Austin, Texas-based chip company has been gradually adding new technologies to advance its audio codec and secure its Apple design wins. This includes adding in its DSP package features like audio amplifiers and noise suppression and echo cancellation technology for the iPhone.
Cirrus’s chips are also believed to be a shoo-in for Apple’s highly anticipated mini iPad, a smaller-screen media tablet. Apple is reportedly looking to add a 7-inch screen tablet to complement its existing 9.7-inch iPads.
Getting ready with a steep product ramp -- without a hitch -- for the single biggest customer is no easy task. Jason Rhode (left), Cirrus Logic's CEO, talked about the importance of getting the device ready far in advance, securing capacity with fab partners, working with a number of back-end assembly partners and readying a broad array of advance packaging. However, Cirrus is no stranger to such meticulous preparations, noted Rhode. “Cirrus has been a fabless company since 1984 before fabless was cool,” he added.
Why such an intrigue?
Curiously enough, Cirrus Logic’s CEO and a cluster of financial analysts participating in a Cirrus Logic conference call Monday (July 30th) managed not to utter the word “Apple” even once during the Q&A session that lasted almost an hour. They danced around the topic by vaguely referring to “the biggest customer.”
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...
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.
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.
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.
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 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.