OmniVision reported fourth-quarter results last month and stunned short sellers by earning $0.31 per share. The consensus estimate was just $0.21 per share. OmniVision also provided guidance for the current quarter: $0.35-$0.52 per share on revenue between $355 million-$390 million. The upbeat outlook was enough to push shares up another 20% in a day, fueled by a nearly 15% short float.
Negatives weigh on the stock
Heavy competition in the smartphone market is expected to hurt unit growth in the next few years. In fiscal 2012, unit growth for portable audio products was 35%, but Barclays expects it to fall to 20% in 2014 and as low as 13% in 2016.
Weak quarterly earnings
Cirrus Logic, Inc. (NASDAQ:CRUS) earned $0.59 per share, missing estimates by $0.22. Sales were $206.9 million, but missed estimates by around $3 million.
Weak outlook
For the current quarter, Cirrus Logic, Inc. (NASDAQ:CRUS) expects sales of between $150 million-$170 million. This is well below the $195.2 million consensus. In April, the company warned that it would write-down more than $20 million in product. It is very likely that the lowered forecast was due to Apple slowing down production of the iPhone 5.
Positives beyond the quarter
The weak short-term outlook could be a buying opportunity. Apple is planning on refreshing the iPhone 5, and if Cirrus Logic is selected as the audio chip supplier, its shares will be oversold. This will give investors a chance to accumulate shares in the interim. Cirrus has a strong IP portfolio, exposure to fast growing markets, and has a business in the LED lighting market.
LED lighting
Investors holding a position in Cree, Inc. (NASDAQ:CREE) will appreciate the short-term negative fluctuations leading to buying opportunities. Cirrus Logic is targeting the retrofit LED lighting market. As this market grows from 1% in 2011 to the double digits within a few years, Cirrus Logic will benefit.
The LEDs from Cirrus Logic, Inc. (NASDAQ:CRUS) support dimmers and the technology is protected by an extensive IP portfolio. They are also programmable, which will expand its market in the commercial and tubes market.
Foolish bottom line
Cirrus Logic, Inc. (NASDAQ:CRUS) has no debt and $237 million in cash. A share buyback is ongoing, with more than 100 million shares still scheduled to be bought back. Investors should expect gross margins to decline below 50%, which is already reflected in its share price. In the fall, Apple will likely announce a new iPhone. Investors could build a position in Cirrus ahead of that.
Chris Lau has no position in any stocks mentioned but could buy shares after the allowed restriction time elapses. The Motley Fool recommends Nuance Communications. The Motley Fool owns shares of Cirrus Logic and Nuance Communications.
The article This Stock Plunged, But Expect a Rebound Soon originally appeared on Fool.com.
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