Cirrus Logic, Inc. (NASDAQ:CRUS) May Be In For Trouble As Sales Fall

Cirrus Logic, Inc. (NASDAQ:CRUS) is one company that is bearing the brunt of the stagnating sales of Apple’s iPhones. The semiconductor company almost entirely relies on Apple for its revenues. As business for Apple dwindles, Cirrus and the other suppliers are the natural victims.

Cirrus Logic financials

Interestingly, the effects are already reaching into the company’s financials. In its latest financial results, the company reported revenue of $366 million. Interestingly, this is a substantial fall by (13.92) % compared to the earnings at the same time last year.

Further, the company’s earnings per share are down (15.45) % to $0.93 as well as a 20.64% fall in net income. Interestingly, the company reported losses in almost all important aspects of the financial statement for Q2 2018.

For instance, the company reported huge losses in its income from operations. During Q2 2108, Cirrus Logic only managed a little over $55 million compared to over $90 million in Q2 2017. Subsequently, the firm reported a net income of $58.173 million against $73.3 million for Q2 2017.

Furthermore, Cirrus maintains an asset balance of $1.40 billion against $1.40 billion in liabilities. As much as the company lacks debts, it maintains a large amount of physical assets. Further, the firm controls a very huge amount of inventory that is weighing the balance sheet down.

Interestingly, the physical assets and inventory alone make up 24% of the total assets. As such, this makes the value of the liabilities to be worth more than the asset value.

Stock price

The past 12 months saw Cirrus’ share price fluctuate due to uncertainties in the industry. Like earlier mentioned, the company relies on Apple for over 80% of its revenues.

However, the worst challenge came when the company revised its guidance Q3 earnings. In particular, the share price sunk 6% in the immediate aftermath of the news.

At the moment, the stock is trading at $37.95. However, the price faces resistance at the same price for the 50-day moving average. In addition, the 200-day moving average puts the price resistance at $39.83. This is an indication that the longer-term performance of the company is likely to be positive.

In the same breath, the future cash flow value of Cirrus’ share price stands at $81.77. As such, the company remains heavily undervalued considering that it is trading at $37.95. This is a substantial discount in the region of 40%.

However, the share price remains overvalued against the average performance of the US semiconductor market.

Growth prospects

Recent reports indicate that the smartphone market is declining, especially for Apple. As such, the company’s suppliers are feeling the pinch as evidenced by the forecast cuts. Further, it is likely for the growth to stall further given that Apple might want to renegotiate terms with suppliers.

It is always untenable to rely on one client for majority of sales. This is the reality Cirrus is facing at the moment. Interestingly, the Apple and Cirrus enjoyed a fruitful relationship in the peak period of iPhone sales. However, the deprived unit sales mean that Apple is no longer requesting for more semiconductors.

Nonetheless, the expected growth for the company is positive. The consensus earnings growth for the company is 6.7% compared to the market’s 14.1%.

Citing “weaknesses in the smartphone market”, Cirrus cut Q3 revenue expectations “from $360 million and $400 million to $300 million and $340 million.” Interestingly, the amount is still lower than the $366 million for Q2, which was still a loss.

Further, the company revised the expected gross margin to between 49% and 51%. As such, it is apparent that the company expects slower growth in the coming quarters.

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