CRUS - Cirrus Logic Likely Provides New Revolutionary Technology for Future iPhones

2023-09-13 14:48:50 ET

Summary

• Market analysts predict a decline in smartphone shipments in 2023, except for Apple's iPhone which is expected to see growth.
• IDC forecasts a 4.7% decline in worldwide smartphone shipments in 2023, with Apple's iOS expected to achieve 1.1% growth.
• But coming technology from Cirrus Logic likely gives Apple huge advantages.
• A time to buy Cirrus is coming.

Cirrus Logic ( CRUS ), Apple's ( AAPL ) true surrogate, is right at home enjoying all the warmth and sometimes cold nights. Several reports concerning the mobile phone market speak loudly about weakness minus the lone exception, Apple. Highly trusted analysts independently posted reports supporting opinions concerning the near-term future of mobile phones. The warmth faded a few days ago with China banning government iPhone use at work in retaliation. Companies with strong ties to Apple including Logic faded deeply. Do investors need gloves and hand warmers, or will the fire rekindle? We remind our readers of our continued coverage for Cirrus, our last article, Synergy Investing: Cirrus Logic's Coming Story discussed the next five years. And perhaps, asking where the future could take us, might be even more important? Let's head to the family room and find some warmth or maybe a cold shoulder.

The Predicted Marketplace

We begin with the current marketplace. Two highly respected groups wrote investor notes concerning the health of the mobile device markets. Both Counterpoint and IDC agree that 2023 will experience the lowest level of smartphone shipments in a decade.

"The long-term trend has been downward since 2017, mostly due to the fact that, well, new smartphones haven't been very exciting for many years. Development has plateaued, and most consumers now hold onto their phones for 3-4 years rather than 1-2 years."

IDC agrees with the earlier Counterpoint forecast.

Worldwide smartphone shipments are forecast to decline 4.7% year over year in 2023 to 1.15 billion units, the lowest volume in a decade […]

IDC expects iOS shipments to see 1.1% growth in 2023 to reach an all-time high share of 19.9% as iOS continues to remain more resilient to macro challenges than Android, which is forecast to decline 6.0% this year […].

But the two expect iPhone sales to continue relatively flat.

An independent and highly respected analyst, Ming Chi Kuo, expects higher performance from Apple .

Kuo, however, is holding strong at 80 million iPhone 15 units shipped [2nd half of 2023] while forecasting 250 million iPhone shipments across 2024. The analyst also believes Apple could top Samsung in units shipped in 2023.

At these levels, Kuo expects Apple to outsell Samsung for the 1st time in both 2023 and 2024. Importantly, investors should notice the 250-million-unit number he predicts in 2024 equals growth.

But again, China threw water on the fire a few days ago with news banning government use of iPhones at work in retaliation to Washington policy. From Seeking Alpha,

"On the recent China news over the last few days we believe in a worst-case scenario any China government agency iPhone ban is way overblown as to quantify its less than ~500k iPhones of roughly 45 million we expect to be sold in China over the next 12 months," analyst Dan Ives wrote in [a] recent note.

Ives also reminded investors , "Meanwhile, the company may find demand strong among its customers, given that around 25% of its 1.2 billion installed base has held off on an iPhone upgrade for four years," That equals 300 million and excludes the two-year exchangers such as us.

On the surface, the latter news is immaterial, but the market isn't taking it lightly with Apple stock down near $10. Cirrus followed down heavily. Of note, Bank of America estimates a different number, "saying that if there were such a ban to be enforced, they're looking at a headwind for Apple anywhere from 5 to 10 million units." Ives' record with Apple carries significant weight. Regardless, both estimates predict noise not catastrophe.

Warmth Coming from a Rekindled Fire

For Logic, a new codec with amplifiers and possibly a new haptics device is coming for use by Apple. (Cirrus management hasn't mentioned a haptics chip upgrade, yet). The ASPs will be higher in undetermined value. In our view, it's in the $2 range. In the past, when Cirrus upgraded codecs and amplifiers, it gained approximately that amount minus one of the changes where it dropped. When Cirrus developed the 22 nm devices several years ago, it stated its desire to add $2 in ASP. With new amplifiers and possibly a new haptics device, Carl Alberty, Vice President-Mixed-Signal Products, hinted that additional passive parts will be removed .

It gets more certain from two additional sources. From 9to5Mac , "Ace reporter Wayne Ma has a new scoop about a feature likely coming to Siri in iOS 18. The upcoming feature is revealed in a new report that details Apple's ongoing efforts to invest in conversational AI ." At a KeyBanc Conference, Venkatesh R. Nathamuni, Cirrus' Chief Financial Officer & Principal Accounting Officer, added,

"Two of those you alluded to, one is a codec, the 22-nanometer codec, which we've been shipping for multiple years, and now, we're expecting to go to the next generation of that product to be introduced sometime next calendar year. And that should - think of it as an incremental uplift in terms of ASP because it's on a higher process node, more value and such."

With this comment, Cirrus' stock price unexpectedly increased $3. The market took clear and present notice adding to the confidence that something big is on the way.

Could Apple Be…?

This new 22 nm chip brings exceptional possibilities with its lower power usage, smaller size, and significantly greater computational abilities. Having artificial intelligence located at the sensors allows access to the most valuable and essential analog data without dragging in a main processor. It is critical for Apple to enable major intelligent changes within Siri. For example, the Cirrus 22 nm codec can or will contain voice biometrics. A few years back, Logic developed a highly intelligent voice access capable of providing security similar to the facial approach. Apple was highly interested in it but passed for the time being. That might be changing. Again, an iPhone with this technology would possess a highly secure remote access (hands-free) or in time, a secondary approach for its facial security. This differs from Alexa, which is without robust security, thus this opens doors.

Another function possibly enabled with new hardware might be touchless interfaces. This technology exists and Cirrus was at least once teamed with a software business offering this functionality. Object movement near speakers apparently changes the response and can be analyzed with intelligent software. At one point, Cirrus issued news concerning gesture detection within its interfacing products. This did go silent. The power with this technology could bring without conductance abilities to access screens. Have you tried to touch a screen during heavy rainstorms or with gloves on in extreme cold? Need we write more about this frustration! With a fuller disclosure, we don't possess knowledge researched or otherwise on a touchless approach. We just know the functionality exists. We also remember, Steve Jobs introducing the first iPhone and his humorous discussion about using simple and robust techniques for interfacing with the screen.

In summary, we know that Apple was extremely interested in voice biometrics. With a level of confidence, it appears that Apple marches quickly toward a highly secured, highly intelligent mobile device with at least hand-less interfacing, more may be coming. This paradigm shifts the market with the employment of Cirrus' state-of-the-art products. In our view, this creates the first true, practical, intelligent and useful personal assistant.

The Stock Chart

With this being an article primarily concerning Cirrus Logic, we included a day chart of Cirrus generated using TradeStation Securities.

Our first comment, this is an example of a broken chart. Investors also with wise patience can enjoy lucrative lower price better-timed buying opportunities. It's coming. We just don't know the price. Second, notice the big up on the day of the last conference. The stock gained almost $3, an uncommon event, especially with Logic. Lastly, notice the huge fall on the Apple news. Our definition for letting dust settle involves the Bollinger Band. Waiting for a stock price to fall back inside and then for the lower band to turn back up toward the price qualifies for settled dust. For day charts, the time equals about three weeks or early October, minimum. At that point, our view on Cirrus likely changes from our hold to a buy, maybe a strong buy.

Risks

Risks abound. The world economies are still tittering between soft and hard landings. The decision from China on iPhones cratered Apple and Cirrus. But the price and timing are getting close to a buy for Cirrus, not yet, but close. Again, the dust must settle. Second, it's about timing. Buying in September, the weak market month is always risky, and we would avoid. But we also agree with several analysts that this is way overdone. Remember, Cirrus isn't for the faint of heart. A buy is on the way.

For further details see: