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There's A Digital-Analog Asteroid Heading Toward Cirrus Logic


Cirrus Logic is a battleground today. It is something of a surprise for it to be moving upward, given what Apple has announced.

I think the move is happening because of the market thinking that the Cirrus Logic bullish thesis remains valid.

However, there's also strong reason to believe that a very bearish thesis can be constructed for Cirrus Logic, especially on account of the iPhone 7.

What drives those headphones matters

Cirrus Logic (NASDAQ:CRUS) is presenting a very interesting dilemma today. Both Apple (NASDAQ:AAPL) and Cirrus Logic reported earnings. Apple, for its part, gave out really terrible guidance for its next quarter. This guidance was even worse than the low end of my models previously indicated, and indicates volume losses are larger than expected. It's thus no surprise that AAPL is down 6.5% as I type this.

However, that's when surprises start. CRUS is actually up 9.0% on the same day that AAPL is down so much. Why is this a surprise? Well, AAPL is CRUS' largest customer - by far:

We had one end customer, Apple Inc. that purchased through multiple contract manufacturers and represented approximately 76 percent and 78 percent of the Company's total net sales for the third quarter of fiscal years 2016 and 2015, respectively. This same customer represented approximately 67 percent and 75 percent of the Company's total sales for the first nine months of fiscal years 2016 and 2015, respectively. Samsung Electronics represented 11 percent and 15 percent of the Company's total net sales for the third quarter and first nine months, respectively, of fiscal year 2006.

So if CRUS' most important customer by far is issuing horrid guidance going forward, why is CRUS still able to react positively? Apparently, this is down to the market believing the bullish thesis remains valid even in light of the massive AAPL letdown.

The Bullish Thesis

So what's this bullish thesis on CRUS? It has to do with the iPhone 7 launch. Beyond just the fact that the iPhone 7...