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Cirrus Logic Inc. reported first quarter 2013 adjusted earnings of 16 cents per share, which was in line with the Zacks Consensus Estimate. The adjusted or non-GAAP earnings per share exclude amortization of acquisition-related intangible assets, but include stock-based compensation expense. The quarter’s earnings dropped 24.7% from the year-ago level.

Despite the miss, the company’s shares leaped 23%, reflecting positive investor sentiment on the back of strong revenue guidance.

Revenue

Total revenue for the first quarter was $99.0 million, up 7.3% on a year-over-year basis. This was slightly below the Zacks Consensus Estimate of $101.0 million, affected by lower sales of Apple Inc.’s iPhone, iMac and iPod. Apple happens to be Cirrus’ prime customer, with 62.0% share of 2012 revenues.

Segment-wise, Audio Product revenue increased 13.5% year over year to $80.7 million, while Energy product revenue came in at $18.3 million, down 13.6% year over year.

Operating Results

Reported gross margin in the quarter was 54.0%, up from 51.7% in the year-ago quarter.

Operating margin was 10.6% versus 15.5% in the year-ago quarter. The company’s total operating expenses increased 28.8% on a year-over-year basis. Higher operating expenses were mainly due to 32.7% and 23.6% year-over-year increases in research and development (R&D) and selling, general and administrative (SG&A) expenses, respectively.

Net income on a GAAP basis was $6.9 million or 10 cents per diluted share compared with $9.2 million or 13 cents in the year-ago quarter.

Excluding the amortization of acquisition-related intangible assets but including stock-based compensation expense, non-GAAP net income for the first quarter was $10.6 million or 16 cents per diluted share compared with $14.5 million or 21 cents in the year-ago quarter.

Balance Sheet

Cash and short-term investments were $166.7 million versus $181.9 million in the previous quarter. The company has no long-term debt.

Outlook

Management has provided an upbeat outlook for the second quarter. Revenue is expected to be $170.0–$190.0 million, with gross margin in the 52–54% range and total operating expenses of between $49 million and $53 million.

Cirrus affirmed that its new products would hit the market very soon, increasing consumer acceptance and boosting its sales. As a part of that effort, the company is heavily investing in R&D, which it believes will soon start paying off.

Based on the new launches, higher sales of mobile devices and SSDs (solid state drives) and wins at Apple, Cirrus forecasts solid growth for the rest of fiscal 2013.

The Zacks Consensus Estimates for second quarter and fiscal 2013 are pegged at 34 cents and $1.48 per share, respectively.

Our Take

Cirrus posted a weak first quarter with the bottom line matching the Zacks Consensus Estimate and the top line missing the same. Revenues could be better but lower iPhone sales took a toll on the company. But Cirrus provided an upbeat second quarter guidance, which was enough to encourage investors.

We are also positive about the strong demand for its analog and mixed-signal integrated circuits for audio products.

However, keeping in view Apple’s weak third quarter results (announced last week) and uncertainty regarding the ramp of iPhone 5, we believe that the guidance is a bit aggressive.

Overdependence on Apple and stiff competition from the likes of Texas Instruments Inc. , STMicroelectronics , ON Semiconductor and Maxim Integrated Products leads to a Zacks #4 Rank, implying a short-term Sell rating.

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