With 2,500 customers worldwide, Cirrus Logic, Inc. (NASDAQ:CRUS) was listed on Forbes’ 100 fastest growing companies list in 2012. However, this year, the situation of Cirrus Logic, Inc. (NASDAQ:CRUS) has notably changed. Its stock has dropped 57% since the highs witnessed in October 2012. For the upcoming quarter, Cirrus Logic expects revenue to fall from $207 million to $160 million. What has led to this turnaround in fortune over such a short span of time? Let’s take a look.
Tracking financials
In the latest earnings report, the company reported a 39% increase in cash, no debt, and repurchased 1.5 million shares. Cirrus Logic, Inc. (NASDAQ:CRUS)’s EPS has exhibited a positive trend in the past five years. However, as is the case with so many small companies, volatility can take over in a very short time frame. Numerous sources suggest that more than 85% of the company’s revenue comes from services provided to Apple Inc. (NASDAQ:AAPL) for the audio chips for iPhones and iPads.
As iPhone 5 sales have been largely below analyst expectations, this has forced suppliers such as Cirrus Logic to revise their revenue expectations. Additionally, the company reported the possibility of a large inventory write-down, which could become a reality as Apple Inc. (NASDAQ:AAPL) products continue to struggle against stiff opposition.
Competition
Cirrus’ competition is having a tough time in the market. The company’s performance can be fairly gauged when compared to peers from the same industry. I would focus on Texas Instruments Incorporated (NASDAQ:TXN) and QUALCOMM, Inc. (NASDAQ:QCOM)
As more smartphone makers have begun developing their chips in-house, Texas Instruments Incorporated (NASDAQ:TXN) has been forced to shift its business strategy away from making chips for the mobile market. The company is facing stormy waters as it strives to find a new market for it products. Coupled with a higher price than Cirrus and a P/E value on the wrong side of industry average, Texas Instruments Incorporated (NASDAQ:TXN) is not my preferred chip stock at the moment. Instead, the company now focuses on building chips for embedded applications, including chips used in automobiles and industrial equipment.
QUALCOMM, Inc. (NASDAQ:QCOM), on the other hand, has greener pastures ahead of it as its Snapdragon powers the world’s first LTE-A smartphone. The company has long been associated with providing processors for Samsung’s Galaxy line of devices and it stands to benefit from the partnership further in future — more so than before — as Samsung continues to usurp Apple Inc. (NASDAQ:AAPL)’s market share.
Furthermore, QUALCOMM, Inc. (NASDAQ:QCOM) completed its final payment to become the second-largest shareholder in the Japanese electronics manufacturer Sharp. This will provide Qualcomm with greater opportunities to enter new markets. While Qualcomm is intrinsically a great buy, its growth prospects are now limited by the saturating handheld market; Cirrus Logic, on the other hand, can continue to expand in the long-term.
