Cirrus Logic Looking to Diversify with Phones, Lighting
Apple, through multiple contract manufacturers, accounted for 91 percent of Cirrus Logic sales in fiscal Q3 2013, the chip maker said in a 10-Q filing. Apple products’ share of Cirrus Logic sales rose in the first nine months of fiscal 2013 to 82 percent from 62 percent in fiscal 2012, the company said. Cirrus Logic reported fiscal Q3 sales of $310 million, up from $122 million in the year-ago quarter and profit of $68 million compared with $17 million in the fiscal 2012 quarter.
CEO Jason Rhode on Cirrus Logic’s earnings call Thursday cited the “intense market interest related to our largest customer,” but citing company policy, he wouldn’t discuss specifics about the business relationship with Apple or even refer to the company by name. He said Cirrus Logic continued volume shipments of multiple custom portable audio products in Q3 and has diversified its customer base, shipping catalog products to several mobile phone makers.
Rhode referred to a design win with a tier-one handset maker for a new low-power general market analog-to-digital converter for multi-microphone applications that will “improve the voice experience.” He added that design activity “remains strong” with the company’s low-power DSPs and audio amplifiers. Looking ahead, he said Cirrus Logic is optimistic about custom and general market opportunities in audio “as portable devices will continue to become more complex, requiring sophisticated mixed signal processing” to deliver a quality voice and audio experience.
Cirrus Logic is shipping the DAC, a product it hasn’t announced, to a customer that “hasn’t announced their product,” Rhode said, so he wouldn’t elaborate on the relationship with the handset maker, but said Cirrus has worked hard to develop a catalog portfolio of products “that other mobile phone manufacturers can use.” The company hopes to give handset companies a way to differentiate product based on audio performance, he said. “We've got the voice experience that enables us to help our customers differentiate” in a way that’s scalable, he said. One caveat is that mobile phones are “pretty complicated devices” requiring regulatory approvals resulting in a delay between production and shipping, Rhode said.
A “huge percentage” of Cirrus’s catalog value derives from establishing itself with a new customer and building a relationship that leads to development of more profitable custom products, Rhode said. “The economics of that can be difficult,” he said, as costs run from $3 million-$5 million to develop a new part or even “more millions” in the case of a highly integrated product. “We have to ship quite a lot of units in order to warrant a custom development,” he said.
Catalog products present a good opportunity for both companies to check each other out, he said. For Cirrus, it means determining whether volumes are going to “shake out,” and so far, the company has largely avoided the tablet market as a result, Rhode said. Cirrus had “many opportunities” over the past couple of years to develop custom products for tablet suppliers, “and I'm proud to say we passed on most of them, because most of those products haven’t shipped enough units that would have warranted the development effort,” he said.
Cirrus completed the announced shutdown of its Tucson design center during the quarter and moved the operations -- including development efforts for motor control technology -- to its Austin, Texas, headquarters, according to the SEC filing. About 25 employees were eliminated in the restructuring, representing four percent of the workforce, Cirrus said. Twenty positions, mostly in R&D, were relocated to Austin, it said. The company took a one-time $3.5 million charge for the restructuring, and headcount at the end of fiscal Q3 2013 was 637 versus 644 at the end of Q2, it said.
In its LED lighting business, Cirrus has added SKUs, regions and customers, Rhode said on the call. The company remains “engaged with all meaningful tier-one accounts” and expects to add another customer this quarter, with a “significant number” to follow in 2014, Rhode said, citing longer development cycles for the lighting market than in audio. On the LED lighting opportunity overall, Rhode cited Datapoint figures forecasting growth of retrofit LED bulbs from 230 million units in 2012 to one billion units in 2016. Cirrus Logic is forecasting revenue of $200 million to $220 million for fiscal Q4 2013 ending in March.