Why You Should Hold On to Cirrus Logic

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Sometimes one negative seems to overshadow the positives. Audio-chip maker Cirrus Logic (NAS: CRUS) faced this experience during its last earnings release, three months back. The company met Street expectations on all counts but failed to provide an optimistic outlook for the ongoing quarter -- and its shares declined 17%.

However, Cirrus has recently upgraded its guidance for the current quarter to around $122 million, ahead of analysts' expectations of $108 million. With its next earnings release in the offing, let's see why Cirrus bounced backed and how it may fare in 2012.

A match made in heaven
Weak demand for Cirrus' chips due to global economic uncertainties was the key reason behind the company giving a gloomy update the last time around. But when you are riding the coattails of one of the biggest companies on Earth, recession shouldn't be much of a hindrance.

Cirrus generates almost 60% of its revenues by supplying audio chips to Apple (NAS: AAPL) . And, considering how Apple's sales surged in the holiday period a month back, the increased guidance shouldn't come as a surprise to anyone. iPad sales grew 30% from 2010, and the latest iPhone sold around 30 million units as consumers bought and gifted Apple products extensively. Cirrus rode the Apple bandwagon to good effect, and this will probably show in its earnings later this month.

The road ahead
Cirrus customizes its chips according to Apple's needs so that they blend seamlessly into the end products. This explains why Cirrus' chips are the ideal choice for Apple's products, and why the question of replacing the company with another vendor shouldn't really arise.

This has laid the foundation for a strong relationship between the two companies, and makes me feel positive about Cirrus' prospects. With Apple slated to release its next version of the hugely successful iPad along with the much-anticipated iPhone 5 this year, Cirrus could see its top line go further north in 2012.

Cirrus has started the year with a bang and has the potential to carry the momentum forward. To stay on top of the latest developments at Cirrus, add it to My Watchlist by clicking here.    

Fool contributor Harsh Chauhan owns none of the stocks mentioned in the article. The Motley Fool owns shares of Cirrus Logic and Apple. Motley Fool newsletter services have recommended buying shares of Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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