Why Cirrus Logic’s Shares Have Risen Despite Weaker Guidance
The Blowback of Falling iPhone Demand for Qorvo, Cirrus—and Apple
Cirrus Logic’s updated revenue guidance
In the previous part of the series, we saw that Qorvo’s (QRVO) revenue for the remainder of fiscal 2016 will likely be impacted by Apple’s (AAPL) move to cut iPhone 6s and 6s Plus outputs by 30%. The move would also impact portable audio products supplier Cirrus Logic (CRUS), which earns more than 70% of its revenue from Apple.
Cirrus Logic, which is due to release its fiscal 3Q16 results on January 27, 2016, has lowered its revenue guidance for the third quarter from the range of $370 million to $400 million to $347 million. Analysts had estimated that the company would report revenues of $386 million in fiscal 3Q16 after reporting expected revenues of $298.6 million in fiscal 3Q15. The lower revenue is expected to continue in fiscal 4Q16 as well. However, the company expects the growth to revive in fiscal 2017, driven by new product launches.
Despite weak guidance, Cirrus Logic’s stock rose by approximately 4% to close at $27.80 on January 8, 2016. This is because the company is rumored to be the earbuds supplier for iPhone 7.
Cirrus Logic’s analyst ratings
Northland analyst Tom Sepenzis has recommended a “buy” for Cirrus Logic’s stock and has set the price target at $45 as he sees growth potential in the long-term. He expects the impact of weak iPhone sales on CRUS would likely fade as new headphone product launches take the stage in calendar 2016. The company would also likely attract new customers for its smartphone products as Apple sales stagnate for a while.
Pacific Crest Securities has upgraded Cirrus stock to “overweight” and has set a price target of $40. The firm expects that the opportunity to supply earbuds for iPhone 7 will outweigh the current weakness in iPhone 6s and 6s Plus sales. The current decline in the company’s stock price is a buying opportunity as the stock’s long-term growth prospects are strong.
The growth would be driven by continued investments in the audio segment and expansion in the LED (light emitting diodes) market. However, the company would face tough competition from STMicroelectronics and Texas Instruments (TI).
The iShares Russell 3000 ETF (IWV) has a 0.05% exposure in CRUS. Now let’s analyze what Cirrus Logic’s recent robust may—or may not—mean.
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