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Cirrus Logic Inc.'s shares plunged in Thursday trading as concerns about a future revenue slowdown overshadowed the chipmaker's otherwise strong quarterly earnings.
THE SPARK: The company reported second-quarter earnings and a third-quarter forecast were much better than the market anticipated, due largely to its ties to Apple Inc.'s iPhone. However, in a letter to shareholders, Cirrus said it expects its revenue for its March quarter to be down 15 percent sequentially due to the cyclical nature of its business. It also said it expects its gross margin to remain flat due to its mix of products and pricing pressures.
THE BIG PICTURE: Cirrus is an Austin, Texas, company that makes chips used in audio and energy products.
The company reported late Tuesday that its quarterly net income surged to $34.4 million, or 51 cents per share, from $6.9 million, or 10 cents per share, last year. It earned 81 cents per share for the quarter on an adjusted basis.
That beat the 71 cents per share that analysts polled by FactSet expected. Its revenue nearly doubled to $193.8 million. Analysts expected revenue of $180.8 million Cirrus attributed the gains to a boost from its largest customer, which it does not disclose as a matter of policy but is widely known to be Apple.
The company also issued a third-quarter forecast that beat market expectations, as it expects its revenue growth will more than double year-over-year as it reaches full production for some new products. But the thought of this party slowing down at any point appears to have a few investors worried.
Cirrus declined to comment on the share action.
THE ANALYSIS: Stifel Nicolaus analyst Tore Svanberg reiterated a "Buy" rating on the company's shares.
The analyst said that while many companies continue to face challenges with the weakening macro environment, Cirrus remains somewhat insulated given its exposure to Apple. As a result, he continues to recommend Cirrus.
He said while there are some concerns about its business being too focused on certain customers, he believes the company is enhancing and expanding its relationships with customers through its investments in its business and products.
SHARE ACTION: Shares fell $4.64, or 11.4 percent, to close at $36.14. Its shares have largely been on an upward trend, more than doubling in value from the beginning of the year until Wednesday.