On Thursday, Rhode told investment analysts that the company’s gross margin level probably will drop in the second half of 20013 as the company runs into pricing pressure in the smartphone market.
The company has already guided for a profit margin of between 50 percent and 52 percent for the current quarter, which ends in June on sales of between $150 million and $170 million.
But second half gross margins are expected to fall to the “mid-40s range,” Rhode said.
“A lot of our business is in the smartphone (market),” Rhode said in a transcript of the meeting provided by SeekingAlpha.com. “We’re getting a lot of pricing pressure in that space as you can imagine given the size of the market. So we expect our margins to be more in the mid-40s range as we move into the second half of this calendar year. So that’s obviously not what we want to hear or what anyone that’s familiar with us really wants to hear.”
Cirrus is careful not to talk directly about its largest customer, Apple Inc., but analysts say the Austin company’s pricing pressure is probably coming from Apple, which is the second largest smartphone maker, and which is coming under intense competition from competitors in the smartphone market. Cirrus supplies Apple with audio-related chips including those that can cancel out unwanted noise for phone users.
Analysts speculate that Apple may introduce a low-cost iPhone this year to fend off competitors. If that happens, they say, there could be more price pressure on Apple suppliers.
Canaccord Genuity on Friday downgraded Cirrus’ stock rating from “Buy” to “Hold” and lowered its price target for the stock from $25 a share to $18. It also lowered its estimate of Cirrus revenue for this calendar year to $762 million, down $49 million from the previous estimate.
“We find management’s cautious (fiscal 2014) revenue and gross margin commentary (to be) unnerving,” wrote analyst Bobby Burleson. “In our view, this indicates more limited visibility in (Cirrus’) key relationship with Apple than our earlier understanding and highlights the risks of such a close tethering to one customer.”
Rhode has said that his company pursues close relationships with large customers in growth markets. The company tries to do customized chips for those customers and expand the number of chips it can supply to customers’ products.
Its ties to Apple helped Cirrus report 90 percent revenue growth for the year ended in March. Apple accounted for about 85 percent of the Austin company’s sales in the latest quarter.
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