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junko.yoshida
Actually, "jealously guarding" is correct in this sentence; becauase if they are ...
Larry M
Can you say "Wolfson?"
Apple captive Cirrus gagged
Junko Yoshida
7/31/2012 8:58 AM EDT
Jealously guarding the biggest customer's name
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.”
Doesn’t an SEC filing make this hip-to-hip relationship pretty obvious?
But 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.
Beyond Apple
Rhode, meanwhile, tried to highlight the company’s efforts to broaden its customer base and expand its business.
Most 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.
Cirrus Logic 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.
While providing 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.
Related stories:
-Teardown slideshow: Inside the third-generation iPad
-Cirrus enters LED lighting market with digital controller delivering high Triac dimmer compatibility
-Report: Cirrus snafu bites Apple
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.”
Doesn’t an SEC filing make this hip-to-hip relationship pretty obvious?
But 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.
Beyond Apple
Rhode, meanwhile, tried to highlight the company’s efforts to broaden its customer base and expand its business.
Most 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.
Cirrus Logic 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.
While providing 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.
Related stories:
-Teardown slideshow: Inside the third-generation iPad
-Cirrus enters LED lighting market with digital controller delivering high Triac dimmer compatibility
-Report: Cirrus snafu bites Apple
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eewiz
7/31/2012 10:07 AM EDT
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
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junko.yoshida
7/31/2012 10:15 AM EDT
Convoluted, but makes sense.
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abraxalito
7/31/2012 11:38 PM EDT
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.
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iniewski
7/31/2012 10:25 AM EDT
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
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Frank Eory
7/31/2012 1:07 PM EDT
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.
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junko.yoshida
7/31/2012 10:37 AM EDT
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?
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eewiz
7/31/2012 10:58 AM EDT
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.
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junko.yoshida
7/31/2012 11:13 AM EDT
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?
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pomartel
7/31/2012 3:27 PM EDT
You mean other than
"Cirrus is predicting its September quarter revenue to shoot up more than 70 percent sequentially "?
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junko.yoshida
7/31/2012 3:51 PM EDT
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.
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DMcCunney
7/31/2012 4:48 PM EDT
"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.
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iniewski
7/31/2012 5:04 PM EDT
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
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dylan.mcgrath
8/1/2012 12:35 AM EDT
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.
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junko.yoshida
7/31/2012 11:32 AM EDT
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.
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MikeSmith2011
7/31/2012 5:40 PM EDT
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.
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junko.yoshida
7/31/2012 6:08 PM EDT
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!
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abraxalito
8/1/2012 12:11 AM EDT
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.
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Larry M
8/3/2012 3:54 PM EDT
Can you say "Wolfson?"
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jaybus
8/1/2012 7:55 AM EDT
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.
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iniewski
7/31/2012 11:35 AM EDT
Everyone knew it was Apple?
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junko.yoshida
7/31/2012 11:47 AM EDT
Yes. It was a wink, wink, nudge nudge situation.
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phlei
7/31/2012 6:57 PM EDT
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.
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dylan.mcgrath
8/1/2012 12:32 AM EDT
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.
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GREAT-Terry
8/1/2012 1:29 AM EDT
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.
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junko.yoshida
8/1/2012 5:53 AM EDT
Exactly. Name a chip company who was well prepared to mitigate the risks -- well before it got booted out by Apple.
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Greg1975
8/1/2012 10:47 AM EDT
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.
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junko.yoshida
8/1/2012 10:58 AM EDT
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...
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yalanand
8/2/2012 5:00 AM EDT
@junko, but why did NVIDIA buy PortalPlayer for $357 million ? I believe NVIDIA is more interested in GPU's right.
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junko.yoshida
8/2/2012 7:36 AM EDT
Again, remember, the deal took place back in January, 2007. Things were much different then.
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iniewski
8/1/2012 11:12 AM EDT
$357 million!?, not bad for the devastating loss of the Apple account ;-)...Kris
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eewiz
8/2/2012 7:54 AM EDT
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.
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dylan.mcgrath
8/1/2012 2:15 PM EDT
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
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junko.yoshida
8/1/2012 2:33 PM EDT
Wow, thumbs up from Cramer? This is turning into a mainstream news story!
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yalanand
8/2/2012 5:03 AM EDT
@junko, who is the competitor to Cirrus ? If Apple decides to choose another vendor over cirrus who would it be ?
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junko.yoshida
8/2/2012 7:32 AM EDT
Wolfson, Dialog and Maxim. I am looking into that, yalanand.
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Neo1
8/1/2012 10:37 PM EDT
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.
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RS100
8/2/2012 3:07 PM EDT
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.
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SR656601
8/2/2012 9:28 PM EDT
Hate to bring up this nit when the discussion is on more important topics, but, it is "zealously guarding" not "jealously guarding."
SR
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junko.yoshida
8/3/2012 4:07 PM EDT
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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