Despite solid top- and bottom-line growth last quarter, shares of audio chip developer Cirrus Logic (NASDAQ: CRUS) have been falling over the past three months and are down roughly 6% year-to-date. The reason? Cirrus has offered a fairly uninspiring revenue forecast for the remainder of the year, and investors appear to be growing uneasy about the lack of visibility into the company's growth. Here are the items I'll be watching most closely when the company reports its second-quarter earnings on Nov. 2.
For now, it's still all about Apple
Last quarter, Apple accounted for 76% of Cirrus' sales, which was down a bit from 79% in fiscal 2017. The new iPhone 8 and iPhone X models are expected to factor heavily into Cirrus' results for the remainder of the year. But predicting how much of a bump those new models provided for Cirrus' sales in the second quarter is a guessing game. On its last conference call, the company stated it expected production to ramp up for product launches in the transition period between Q2 and Q3, and that even small changes in timing could cause big revenue swings. There have also been reports of production issues with the iPhone X, and any manufacturing delays may cause Cirrus' revenue to come in below expectations this quarter.
Image source: Cirrus Logic
Additionally, at least one analyst thinks that Cirrus' Apple business is topping out right now. Bank of America Merrill Lynch recently initiated coverage on Cirrus with an underperform rating and a price target of $50, citing concerns that the company's iPhone content may peak in fiscal year 2018. Merrill analyst Adam Gonzalez expects Cirrus' revenue to decelerate from the 24% compound annual growth rate of the past decade to just a 5% CAGR from fiscal 2017 through 2020.
Where will revenue growth come from?
The big question on investors' minds is where does revenue growth go from here? Last year, revenue grew 32% to reach $1.54 billion. And in the first quarter, revenue was up a healthy 23.6% to $320.7 million as the company notched additional content wins with smartphone OEMs.
But Cirrus' growth is expected to stall this quarter, with revenue guidance from the company of $390 million to $430 million, which represents a 4% year-over-year decline at the midpoint. Analysts are only slightly more optimistic, with an average estimate of $410.3 million.
Beyond this quarter, Cirrus hasn't provided full-year revenue guidance, saying only that it expects "modest" growth for fiscal 2018. Analysts, on average, are expecting yearly revenue of $1.64 billion, which would represent 6.5% annual growth.