Cirrus Logic Inc. (
CRUS) is a fabless OEM of analog, mixed-signal and digital processing integrated circuits.
Over the last few years, the company has been restructuring operations, revising its product strategy, increasing focus on engineering and R&D activity, transferring production to external foundries and gradually changing its distribution system. As a result, CRUS now has a strong IP (900 patents) concentrated on its core analog and mixed-signal products.
Although the automotive market remains weak, car manufacturers are increasingly incorporating electronic products for entertainment. Management expects this trend to have a positive impact on results, especially since it is strongly placed at Bose, one of the leading manufacturers of audio products into this market. Management expects several new products to start ramping in calendar 2006, which could further boost revenue. Cirrus is already a leader in the home entertainment systems segment.
While the sale of the video business undoubtedly helps margins, Cirrus will miss the revenue contribution. Additionally, the consumer market, which has positively influenced the mixed signal and embedded segments, weakened further last quarter. A positive product mix helped margins last quarter. However, the consumer market has not met expectations. This will have a negative impact on the product mix. Further, with energy costs and oil-based raw material costs on the rise, the company is seeing an up tick in freight and production costs.
The company reported $44 million in revenue, slightly below our estimate, but good op. ex. Control resulted in an EPS slightly above our estimate and well above consensus. The second quarter guidelines are close to our estimates so we are making no changes. Our recommendation remains a BUY. Based on a PE ratio of 25, our estimate of the growth in EPS of 20% and our $0.31 estimate of 2009 earnings our price target is $8.
