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Cirrus Logic Inc. (CRUS - Snapshot Report) reported third quarter 2013 adjusted earnings of $1.55 per share, surpassing the Zacks Consensus Estimate of $1.34. Adjusted or non-GAAP earnings per share exclude amortization of acquisition-related intangible assets, but include stock-based compensation expenses.

Revenue

Total revenue for the third quarter soared 153.4% from the year-ago quarter to $310.1 million, boosted by higher sales of Apple Inc.’s (AAPL - Analyst Report) iPhone 5, which generated good demand for the company’s products. Apple takes parts from Cirrus logic to manufacture its audio products. That’s a healthy part of the company’s business, and overall we see a big opportunity to continue to increase the company’s audio revenue.

Segment wise, Audio Product revenue surged 184.6% year over year to $300.0 million while Energy product revenue came in at $10.1 million, down 40.3% year over year.

Operating Results

Reported gross margin in the quarter was 51.0% versus 54.0% in the year-ago quarter as a result of higher costs.

Operating margin was 34.2% versus 21.6% in the year-ago quarter. The company’s total operating expenses increased 96.7% on a year-over-year basis. Higher operating expenses were mainly due to 27.9% and 15.4% 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 $67.9 million or 99 cents per diluted share compared with $16.7 million or 25 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 third quarter was $1.55 per diluted share compared with 39 cents in the year-ago quarter.

Balance Sheet

Cash and short-term investments were $87.5 million versus $67.8 million in the previous quarter. The company has no long-term debt.

Outlook

Management has provided upbeat outlook for the fourth quarter. The company expects revenues to be between $200.0 million and $220.0 million. Gross margin is expected to be between 50.0% and 52.0%. Combined R&D and SG&A expenses are expected in the range of $49 million to $51 million.

 Our Take

Cirrus posted a stellar third quarter, with the bottom line comprehensively beating the Zacks Consensus Estimate. Expecting the momentum to persist, Cirrus provided decent fourth quarter guidance, which was enough to encourage the investors.

We remain optimistic about the strong demand for its analog and mixed-signal integrated circuits for audio products.

Though stiff competition from the likes of Texas Instruments Inc. (TXN - Analyst Report), STMicroelectronics (STM - Snapshot Report), ON Semiconductor (ONNN - Analyst Report) and Maxim Integrated Products (MXIM - Analyst Report) are concerns, good support from Apple Inc will help the company in the long run.

The company has a Zacks Rank #3 (Hold).

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