Cirrus Logic, Inc. (CRUS), Apple Inc. (AAPL): Is a Low-Cost iPhone Behind This Company’s Decline?

As Apple Inc. (NASDAQ:AAPL) transitions from a high-growth company to a more mature, blue-chip company, Cirrus will undoubtedly feel the pain. Apple has been pushing its old iPhone 4 to increase sales, and this seems to be hurting Cirrus the most since it relies on Apple for the majority of its products. So, even though iPhone sales jumped 20% from the year-ago period, Cirrus wasn’t able to capitalize as older iPhone models are still selling well, and this might be pressuring its margins.

Going forward, there is yet another logical reason why Cirrus might face a period of depressed margins. CEO Jason Rhode had stated at the Barclays conference in May that Cirrus’ gross margin would hover in the mid-40s in the long run, and a low-cost iPhone might have something to do with it. According to Jefferies analyst Peter Misek, the production of a lower cost iPhone is already underway and the company might be retailing it for somewhere between $300 and $400, which is at the mid-point of my own estimate.

So, if Apple evenly splits its production of 25 million to 30 million units between the iPhone 5S and a cheaper version as Misek suggests, then suppliers like Cirrus will probably have to sell more low-margin content as well.

The takeaway

Going by analyst estimates, Cirrus’ days of supersonic growth are over, and the possible product moves of its biggest client suggest that more margin woes are on the way. However, once Cirrus achieves the new normal of its business, which would be undoubtedly below where it is presently, then it might be worth a look again.

Harsh Chauhan has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and Cirrus Logic.

The article Is a Low-Cost iPhone Behind This Company’s Decline? originally appeared on Fool.com and is written by Harsh Chauhan.

Harsh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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