Cirrus Logic, Inc. (NASDAQ:CRUS) with its valuation of $1.41 billion is a small cap player in the tech sector. Little Cirrus Logic’s fate is tied to behemoth Apple Inc. (NASDAQ:AAPL)’s fate in that Apple is its biggest customer. Cirrus Logic develops analog and mixed-signal integrated circuits (IC) for a broad range of consumer and industrial markets. Building on its diverse analog mixed-signal patent portfolio, Cirrus Logic delivers optimized products for consumer and professional audio, automotive entertainment, and targeted industrial applications.
What is New at Cirrus Logic?
Bullishness started growing on Cirrus Logic after the company reported impressive Q4 2014 results on April 24 as the chart below shows.
In the last one year shares of Cirrus Logic have traded down to a low of $16.46 but the recent bullishness surrounding the Q4 earnings has been pushing the stock back towards its 52-week high.
Highlights of Q4 2013 Earnings
Cirrus Logic reported non-GAAP earnings of $0.41 per share on total revenue of $150 million to beat analyst estimates. The company reported gross margin of 49%, GAAP diluted earnings per share of $0.20 and non-GAAP diluted earnings per share of $0.41. Another interesting thing about the Q4 earnings is the optimistic guidance for the current quarter (Q1 2015). Cirrus Logic expects revenue in the range of $135 million and $155 million even though analysts are expecting revenue to peak at $135 million.
The Apple Connection
I have already mentioned that Apple is one of Cirrus Logic’s biggest customers and this is exemplified in Apple’s contribution to Cirrus Logic bottom line. Sales of products to Apple accounted for $138 million out of the revenue of $150 million that was reported in the last quarter. It is estimated that Cirrus Logic will generate 60% to 70% of its revenue from Apple going forward. Hence, the level and speed of growth in Apple will determine the level of growth in Cirrus Logic.
More than Just an Apple Supplier
Cirrus Logic is working towards diversifying its customer base as it seeks to expand its offerings with the proposed acquisition of Wolfson Microelectronics Plc with a bid of $467 million. It is expected that the acquisition will allow Cirrus Logic enter the huge Android smartphone market as opposed to relying on the success of Apple’s iOS platform. It might interest you to know that Android is the fastest growing mobile platform and an entry into the android market with an acquisition of an existing player is a better strategic move than attempting to build android offerings from the scratch.
How to Trade CRUS Options
Options trading volume has increased for Cirrus Logic as investors and option traders react to the news regarding the proposed acquisition. Short term calls are very much in demand given the fact that you can easily decode where Cirrus is headed based in where Apple has been. I am bullish on Cirrus Logic because I am bullish on Apple and because I am enticed by the possibilities, that Cirrus Logic’s entrance into the android market holds. I am looking at the near-the-money CRUS Sep 2014 23.000 call (CRUS140920C00023000)