Shareholders of Cirrus Logic (CRUS, Financial), a semiconductor company with no foundry of its own, are sitting on year-to-date gains of over 60%. The company manufactures a host of analog and mixed-signal integrated circuits, or IC, for consumer and industrial applications. The company sustained the momentum of prior quarters into the fourth-quarter fiscal 2015 and exited fiscal 2015 on a sound note.
Looking back
The semiconductor company posted fourth-quarter revenues of $215 million, thrashing consensus estimates by a solid $22.99 million. The sales growth of 70% year-over-year was on the back of solid demand for portable audio products. Cirrus exited the fiscal 2015 with around 15% year-over-year organic growth and 20% operating profit on consolidated revenue of $916.6 million.
As a result of solid revenue growth during the fourth-quarter, Cirrus clocked earnings of $0.66 per share, well ahead of consensus estimates of $0.47 per share. The company has a good track-record of posting positive earnings surprises:
| Earnings History | Jun 14 | Sep 14 | Dec 14 | Mar 15 |
| EPS Est | 0.30 | 0.54 | 0.76 | 0.47 |
| EPS Actual | 0.37 | 0.68 | 0.97 | 0.66 |
| Difference | 0.07 | 0.14 | 0.21 | 0.19 |
| Surprise % | 23.30% | 25.90% | 27.60% | 40.40% |
Huge mid-tier smartphones market potential
The market growth for high-end smartphones is stagnating and it is the mid-tier smartphones that will be driving the smartphone boom. For example, HTC has largely been a laggard in the high-end market which is dominated by the likes of Apple (AAPL) and Samsung.
HTC decided to focus on mid-tier segment as part of its turnaround strategy. It was not surprising that HTC posted good first-quarter results and analysts expect the second-quarter to be better. Cirrus has been developing solutions for high-end smartphones. Once it starts porting its portfolio to mid-tier segment, this will present a huge growth opportunity in the long run.
Wolfson acquisition is helping
Cirrus had acquired Wolfson Microelectronics in the middle of last year and this has been proving to be a good growth driver. Jason Rhode, President and CEO, said:
“This acquisition strengthens Cirrus Logic’s core business as a leader in audio signal processing components, enhances our ability to differentiate our products with software, and adds new product categories such as MEMS microphones to our portfolio.”
This acquisition acted as a catalyst for growth as Cirrus started cross-selling amplifiers with the smart codecs derived from the Wolfson acquisition.
Other form-factors is huge opportunity
Currently, Cirrus develops technology that addresses the smartphone market. However, other form factors like automotive, smart home, wearables, and smart mobile accessories have a huge untapped market potential. Going forward, when Cirrus starts porting its technology to these segments it will significantly increase its total addressable market, or TAM, and thus drive growth further.
Guidance is strong
Buoyed by strong performance in the fourth quarter, Cirrus issued a strong guidance for the first-quarter fiscal 2016. The company now expects revenue of $260M-$280M, well above $222.2M consensus and also year-ago sales of $152.6M. Besides its top-client (Apple assumed), the company will get a lift from Samsung’s S6 sales also.
Earnings for fiscal 2016 are expected to be in the range of $2.15 to $2.35 per share.
Wrapping up
Cirrus Logic exited fiscal 2015 on a strong note and its forecast for the first-quarter 2016 is above consensus estimates. The company will be launching mid-range smart codecs providing functionality currently available only on the high-end and this will boost growth in the years ahead. Next five years compound annual growth is pegged at 10.55% and forward P/E of under 15 is enticing.
Hence, this is a must have stock. I recommend a buy.
