MU - Cirrus Logic's Crazy Revenue Signature

2023-04-20 12:05:59 ET

Summary

• Cirrus' June revenue might be lower than in June 2022.
• Revenue for September and beyond might be significantly higher year-over-year even without the new touch haptics device.
• With any kind of stable economy, Cirrus might report $8.5 or greater earnings in its FY-2024.
• Risks do exist and we encourage investors to be vigilant.

Going forward, Cirrus Logic ( CRUS ) will likely experience lumpy revenue with the latter half of the year still being one of growth. In our last article, Weighing Apple Using 3 Distinct Scales : Skyworks Solutions, Qorvo And Cirrus Logic , a lot of valuable sales information was presented helping investors better predict future revenue. During the next twelve months, a set of older generation Cirrus chips, closed loop controls ((CLC)), will be replaced with newer higher ASP chips. Also, in at least the iPhone Pro models, Apple ( AAPL ) had planned to add haptic functions provided by Cirrus adding an additional $1 ASP. That disappeared according to one report. Even with or without the haptics device, Cirrus' performance seems poised for earnings growth in fiscal 2024. The CLC replacement likely forces Apple camera OEMs to liquidate excess older parts negatively effecting June revenue. For Cirrus, 2023 calendar year revenue likely continues the crazy and lumpy pattern.

PC & Mobile Device World

At its last conference , Micron ( MU ) presented interesting and valuable commentary about the coming year and a vision for the future. The conference report included:

• PC commentary with increasing demand starting in the 2nd half of the year.
• Smart phone unit volume expected to be slightly lower in calendar 2023.
• Looking past 2024, management discussed major increases for memory with the onslaught of AI technology.

Although PC inventories fell significantly in the December quarter, high inventory levels still exist. In addition, with respect to the mobile market, Micron management expects product volumes to also increase in the 2nd half of the year.

Assembling Cirrus Revenue for 2023 Calendar Year

Our estimate begins with details concerning new ASPs followed by a revenue of the next few quarters. With news dated April 11th reporting that Apple deleted the buttonless functions from the iPhone 15 due to technical issues, an updated estimate without the chip follows as well as one with the haptics chip included. Cirrus management also noted that its products for PC are being designed into more products going forward with the 1st codec/amplifier designed specifically for PCs hitting the market in the 2nd half. Management offered detailed comments concerning the CLC,

It’s worth noting that as a consequence of increased attach rates, higher ASPs and a more favorable mix over time, we have grown the total value of our camera products in each of the last three smartphone generations. And we expect this trend to continue with our next-generation camera controller, shipping later this year... Obviously beginning at baseline back in – back three generations ago where we indicated it was in line with an amplifier, and then we saw a step up that was of the order of $0.20-ish from there. And then saw something similar beyond that.

An additional $0.10 per pair might be expected. In the latest models, Apple used four CLCs. Our estimate is that the increase will be approximately $0.25. With respect to the haptics parts , rumors, now pretty much unconfirmed, state that Cirrus will not provide new haptics device for Apple's iPhones. Our expectation was for approximately a $1 increase. With ASP estimates in play, two tables, similar to the table found in our last Seeking Alpha article, Weighing Apple Using 3 Distinct Scales: Skyworks Solutions, Qorvo And Cirrus Logic , follows. The first includes the $1 haptics devices, the second excludes it.

* i-14 plus $1.25

** Minus new CLC and haptics or $1.25

*** Assumed Pro Series will be the primary product sold.

**** Equals $1.5 greater than the iPhone 14 mix primarily with i-14 ASP carry over and the gain in ASP with i-15.

The ASP difference for the two cases equals about $0.70 or for a full year at 50% margin and 210 million iPhones sold yearly approximately $60 million in cash profit. The news also states correctly or not correctly that the function is delayed a year not canceled. That remains to be seen.

March Quarter

For the March quarter, we simply use our estimate in the Weigh article at $400 million. A Foxconn report for March indicates a 20% drop year-over-year adding confidence for our Cirrus estimate being approximately down the same percentage year-over-year.

June - December Quarters

For this set of quarters, June through December, a table showing an estimate for iPhone sales history, was generated. The first includes the haptics chip.

* Used Apples revenue number for that quarter and divided by $900.

** Reduced units by 3% following Micron's statement for minor weakness.

*** Used $6 with still iPhone 14s in the mix early in the quarter plus $1.5 extra for the 12 million extra parts shipped.

For this set of quarters, a table showing an estimate for iPhone sales history was generated excluding the haptics chip follows.

The June quarter, in our view, will be less than impressive. Our expectation is for lower iPhone sales with a possible significant revenue hit from the CLC replacement. A few million lower iPhone sales drops revenue $5 times 2 equaling $10 million. Each Pro phone carries 4 CLC chips estimated at $0.60 per pair. A reduction in 5 - 10 million pairs equates to approximately $5 million. When comparing last June's $400 million with the coming June adjustments, the company may report in a range between $375 -$390 million.

The next two quarter estimates explain the crazy and lumpy sales often experienced with Cirrus. With modestly lower iPhone unit sales, year-over-year, the company could report revenue of $540 million plus $20 million equaling $560 million for September. For December, the total revenue of $660 million plus is possible ($590 plus $70 million). The March quarter next year might also experience significant revenue, increases with increasing ASPs.

From the last call, management mentioned a newly released codec and amplifier chip set targeted specifically for PCs. The set starts shipping the 2nd half of the year in at least one product. Micron continues its drum beating a message that PC unit volume shipments will improve significantly in the latter half of calendar 2023. With Cirrus having won sockets in many new PC designs, this more positive environment adds revenue. Qorvo continued its messaging that shipments into the China cell phone business will also improve by the September quarter. Each of these more positive changes adds revenue for Cirrus.

With a few estimates in place, let's take a look at earnings summarized in the next table.

* Calculation equals revenue times 0.51 minus $125 million non-GAAP OE times 0.78 (22% tax rate down 2% from last year) divided by 54 million shares (down slightly from the 56 million in December).

** Our estimate.

Adding reasonable March quarter earnings similar to, but lower than, September, Cirrus might earn $8.5 plus in FY-2024, a number far different than analysts. But, before investors consider that difference ludicrous, consider this. Analysts' record over the past few years reflects a dismissal result. The difference between analysts and actual for the last four quarters by quarter are 0.61 0.29 0.55 and 0.41 or $2, which is exactly the difference between ours and theirs. In reality, Cirrus' results will depend much more on iPhone sales remaining reasonable.

With possible earnings approaching near $10 this coming year and even more in the future, we again must ask the question, is management now forced into paying some level of dividend? It seems that this will be the case.

Risks

In our view, two primary risks exist: a deep recession lowers unit sales much more than a few percentage points and a potential China takeover of Taiwan. In our view, the markets won't take China's action kindly. Investors must take this into consideration going forward. For us, the potential outweighs the risk. We continue to hold our shares but are not adding. The revenue signature will likely be lumpy with June likely lower than in 2022. It might create a better buying opportunity for investors wanting to enter. With Cirrus, the crazy appearances never cease. Owning Cirrus isn't for the faint of heart.

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