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Doom and Gloom Set to Continue for This Apple Inc. (AAPL) Play?

Apple Inc. (NASDAQ:AAPL) Cirrus Logic, Inc. (NASDAQ:CRUS) is one of the most well-known Apple Inc. (NASDAQ:AAPL) derivative plays out there, as the company gets a substantial portion of its revenue from the smartphone behemoth (85% in the March quarter). Hence, it is not surprising that Cirrus has had a torrid time this year, with the stock down close to 30%.

Shares have been beaten up on more than one occasion this year as Cirrus felt the effects of product transition at Apple Inc. (NASDAQ:AAPL), leading it to issue depressing guidance for the fiscal first quarter, which it is due to report on July 25.

While a shallow outlook for the June quarter was more or less expected as Apple Inc. (NASDAQ:AAPL) slowed down production of its older generation products and prepared for the new one, it looks like Cirrus Logic, Inc. (NASDAQ:CRUS)’ woes would continue even as Apple ramps up production of the next generation devices. The company seems to be struggling with its gross margin and has met with a few downgrades in the past few months as a result.

Considering these, the upcoming earnings report and the guidance will be very important if Cirrus is to provide some relief to troubled investors.

On revenue

Analysts, according to Yahoo! Finance, are expecting Cirrus Logic, Inc. (NASDAQ:CRUS) to post revenue of $160 million for the first quarter, which is right at the mid-point of the company’s own estimate of $150 million to $170 million. So, there shouldn’t be much difficulty in at least meeting this estimate, since Cirrus had reiterated this guidance at the Barclays tech conference as well.

However, this is much below the original expectation of $191 million by analysts, which means that the estimate has been revised downward substantially. Nevertheless, if Cirrus manages to achieve its revenue target, it would translate into an impressive growth of 62% from the year-ago period. So, the company should meet estimates and also turn in an impressive year-over-year growth figure, even though it won’t stand for much since the estimate is already low enough for it to stumble over it.

On earnings

Analysts are looking for earnings of $0.49 per share in the first quarter, impressively ahead of the $0.22 per share that it had reported in last year’s first quarter. The company has trumped earnings estimates in the last four quarters and it might do the same again. Cirrus had reported earnings of $0.59 a share in last year’s fiscal fourth quarter with a gross margin of 40.4%. Revenue in that period was $207 million.

However, management guided for a gross margin of between 50% and 52% for the first quarter. Since the gross margin is expected to grow strongly and revenue is expected to be down almost 22% on a sequential basis, one can count on Cirrus to at least meet the earnings estimate.

So, it seems that the company will at least satisfy the already depressed estimates, but the real trouble begins when one starts figuring out the possible outlook that Cirrus will issue.

Dark clouds ahead

While Cirrus management had stated that the company’s gross margin would return to the 50%-52% level in the first quarter on the previous earnings call, it caught everyone on wrong footing at the Barclays conference when the company stated that gross margin is expected to decline to the “mid-40’s” range in the long run.

This sent the shares packing and a look at the analyst estimate table for the September quarter suggests that Cirrus’ growth is expected to halt. Analysts are looking for revenue outlook of $190 million, down 2% from the year-ago period, while the earnings projection stands at $0.54 a share, way below $0.79 last year.

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