Apple captive Cirrus gagged

NEW YORK – With almost 60 percent of its business is coming from a single customer – in this case Apple, Inc., it’s not quite kosher to call Cirrus Logic an independent fabless chip company any more. For many in the electronics industry, Cirrus Logic today walks like a captive and talks like a captive company of Apple.

It’s clear that Cirrus Logic has little choice at this point but to do everything it can – from supply-chain management to specific investment choices – to satisfy its biggest customer’s wishes.

Cirrus is predicting its September quarter revenue to shoot up more than 70 percent sequentially – thanks to Apple. At a time when the rest of the industry will be grateful for single-digit growth in the third quarter, Cirrus’ projections are a gift horse that no company would look in the mouth.
Wall Street expects Cirrus Logic, come September, to get design wins in what could be Apple’s biggest product release in years – iPhone 5 or iPad Mini.

The Austin, Texas-based chip company has been gradually adding new technologies to advance its audio codec and secure its Apple design wins. This includes adding in its DSP package features like audio amplifiers and noise suppression and echo cancellation technology for the iPhone.

Cirrus’s chips are also believed to be a shoo-in for Apple’s highly anticipated mini iPad, a smaller-screen media tablet. Apple is reportedly looking to add a 7-inch screen tablet to complement its existing 9.7-inch iPads.

Getting ready with a steep product ramp -- without a hitch -- for the single biggest customer is no easy task. Rhodes talked about the importance of getting the device ready far in advance, securing capacity with fab partners, working with a number of back-end assembly partners and readying a broad array of advance packaging. However, Cirrus is no stranger to such meticulous preparations, noted Jason Rhodes, Cirrus Logic’s CEO. “Cirrus has been a fabless company since 1984 before fabless was cool,” he added.
   

Why such an intrigue?
Curiously enough, Cirrus Logic’s CEO and a cluster of financial analysts participating in a Cirrus Logic conference call Monday (July 30th) managed not to utter the word “Apple” even once during the Q&A session that lasted almost an hour. They danced around the topic by vaguely referring to “the biggest customer.”

When Rhodes was asked by a financial analyst whether September’s anticipated quarterly growth is due to unit-base growth or an average selling price increase, Cirrus Logic’s CEO responded that the question is a sensitive one to answer -- because it relates to its “customers.” Rhodes said, “It’s a little bit of all.”

Further, when asked about the overall tablet market trend in Q3, Rhodes declined to comment, leaving the impression that he’d been warned not to tip off Apple’s upcoming product (iPhone 5 or iPad mini) in Q3.

The Cirrus Logic CEO was also quizzed about the state of the company’s overall audio chip business “except for the biggest customer.”  Rhodes said the audio business for the broad consumer market had “a decent Q1” and expects reasonable demand in the second half of this year. Pressed further if the consumer market in general for the third quarter is dire, Rhodes pointed out that Cirrus Logic’s chip business except for the biggest company is rather small, implying that it’s not big enough to deduct the overall industry trend. “But it doesn’t look bad either,” he added.
 
Cirrus Logic’s behavior -- jealously guarding the name of its biggest customer -- and the financial community compliance strikes an odd note, especially since Cirrus Logic on Monday filed Form 10-Q with the SEC. In the form, it reported: “We had one end customer, Apple Inc. that purchased through multiple contract manufacturers and represented approximately 59 percent and 53 percent of the Company's total sales for the first quarter of fiscal years 2013 and 2012, respectively.”

Doesn’t an SEC filing make this hip-to-hip relationship pretty obvious?

But of course, Apple is famous for its almost totalitarian approach to non-disclosure agreements. One chip company on Apple’s 2011 Suppliers list released earlier this year said, “At my company, practically one third of our entire employees were asked to sign the NDA by Apple.”
 
It’s understandable that a component supplier shouldn’t be out there pre-announcing its customer’s product. But the gag order against uttering the magic word “Apple” all during the conference call with financial analysts was awkward at best and at worst, outright Orwellian. It undercuts the credibility of detracted from the company’s otherwise forthright business discussions.
 

Beyond Apple
Rhodes, meanwhile, tried to highlight the company’s efforts to broaden its customer base and expand its business.

Most notable for Cirrus Logic’s recent quarter is the design win in Philips’ A19 LED light bulbs.  (A19 is a type of light bulbs most commonly found today in the United States. It has a standard medium base and can screw into a variety of sockets.)

Philips A19 LED light offers a fully dimmable LED alternative to a standard light bulb and provides a soft white light by using Cirrus Logic’s LED controllers.

Cirrus Logic entered the LED market in March 2012 with the first product in its LED controllers, focused on solving dimmer compatibility issues. Fundamental to Cirrus Logic's LED product family is the company's digital technology, called TruDim, consisting of interface algorithms, LED driver topologies and system architectures. Cirrus Logic claims that TruDim digital intelligence allows the controller to identify the type of dimmer in use and adapt its dimmer compatibility algorithm to provide smooth dimming in much the same way the consumer has come to expect from decades of using incandescent light bulbs.

While providing near 100 percent compatibility with the world's installed base of dimmers, the company’s newest CS163X family provides “two-channel LED color mixing capabilities,” according to Rhodes. The company claims that it allows LED bulb manufacturers to more efficiently create warm, natural light quality while also lowering the cost barrier for two-channel LED retrofit bulbs.