Needham: Cirrus Logic Investors Should Wait For Clarity On iPhone Numbers, Non-Apple Business

Cirrus Logic, Inc. CRUS disappointed investors on Monday with a revenue-and-EPS miss in its fiscal third-quarter 2018 report and full-year sales guidance below the Street's estimates.

The Analyst

Needham's Rajvindra Gill downgraded Cirrus Logic's stock rating from Buy to Hold with no assigned price target.

The Thesis

Cirrus Logic cited its notable third quarter miss due to "unanticipated weakness in smartphone demand," Gill said in the downgrade note. (See the analyst's track record here.) 

Given the fact that one single customer, Apple Inc. AAPL, accounts for more than 80 percent of total revenues, investors can expect a certain degree of quarterly volatility in Cirrus Logic's results, the analyst said. But now that Apple plans to cut production volumes, it is prudent for investors to move to the sidelines, he said. 

There is no reason to suggest that Cirrus Logic will be forced out of Apple's supply chain, and the company is insulated from the pricing pressure faced by commodity suppliers, Gill said. While Cirrus Logic does have multiple growth drivers outside of Apple, any actual growth would be contingent on new product design wins and ramp, he said.

For example, Cirrus will be ramping products in digital headsets and audio amplifiers in the Android market, and this was expected to be a fiscal 2018 event — it may not occur until calendar 2019, according to Needham. 

Bottom line, while Gill said he doesn't like downgrading a stock at its 52-week low, there is nevertheless "little in the way of upside" in the near-term.

Price Action

Shares of Cirrus Logic hit a new 52-week low of $39.51 on Tuesday and were last seen trading down 4.10 percent at $43.15.

Related Links:

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KeyBanc: Apple Supplier Cirrus Logic Has 'Limited Catalysts'

Photo courtesy of Apple.