Story Stocks^®

Cirrus Logic (CRUS -8%) is heading lower following its Q2 (Sep) results last night. CRUS reported a huge EPS beat, its sixth consecutive beat of at least $0.20. However, this was its smallest beat during that period. Revenue rose a heathy 12.6% yr/yr and 45% sequentially to $541.9 mln, at the higher end of prior guidance of $490-550 mln, due to strong demand for products shipping into smartphones.

• The main problem was downside revenue guidance for Q3 (Dec) at just $480-540 mln. CRUS is known for being conservative on guidance, but this downside was quite severe and seems like more than just its usual conservatism. Also, guidance last quarter was well to the upside, so this was a negative surprise and seems to be the main driver of weakness in the stock price today.
• CRUS's largest customer by far is Apple (AAPL), which represented 87% of FY24 sales (up from 83% in FY23 and 79% in FY22), so there is a high correlation between the two companies. Last week, Apple reported Q4 (Sep) results that were modestly better than expected with modest upside for iPhone sales relative to street ests. However, Apple's Q1 (Dec) revenue guidance was a tad lighter than expected.
• On the call, the first question was about the guidance. CRUS explained that SepQ benefitted from an extra week of higher volume production associated with the peak ramp period, so that impacted DecQ guidance. Also, DecQ last year saw more Android production than it would normally see in that period. This was due to a large Android customer ramping their product earlier than they normally do. As such, that impacted this year's yr/yr growth rate.
• In its flagship smartphone audio business, CRUS was excited to begin shipping its next generation custom boosted amplifier and its first 22-nanometer smart codec in recently launched smartphones. The new amplifier provides significant power and efficiency improvements, while the smart codec offers meaningful advances in audio and mixed signal processing capabilities.
• Also, CRUS continues to expand into new applications and markets outside of smartphones. In particular, it's excited about its laptop business. While still in the early stages of revenue contribution, CRUS secured its first high-volume mainstream design win with its latest PC codec in SepQ. CRUS also shipped its first power product designed specifically for laptops in multiple Tier 1 customers' devices.

Overall, while CRUS reported nice upside in SepQ, the DecQ revenue guidance is unnerving investors a bit. The company tends to be conservative with guidance, but this guidance seems to be more than just its usual lean toward conservative guidance. We did have concerns going into this report after peer Qorvo's (QRVO) very weak results last week. However, Qorvo has more Android exposure and that was where it saw softness. As such, we were surprised to see this guidance from CRUS.