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Cirrus Logic warns of shortfall

The chipmaker says it will miss earnings estimates for the next two quarters, citing a shifting product mix and an inventory charge.

Chipmaker Cirrus Logic said Friday it will miss earnings estimates for the next two quarters, citing a shifting product mix and an inventory charge.

Cirrus now expects to earn 4 cents to 8 cents per share in the fourth quarter, far below the 25 cents expected by analysts in a First Call survey. Revenues for the quarter are expected to be between $195 million and $200 million, compared with the $380 predicted by analysts.

The fourth-quarter shortfall will also make the company miss estimates for the full fiscal year; analysts were expecting Cirrus to post a profit of 90 cents per share on sales of $939.98 million. Instead, the company said diluted earnings per share would likely be between 70 cents and 74 cents, on sales of between $775 million and $780 million.

The company's shares closed down 63 cents, or 4 percent, at $14.94.

Cirrus makes semiconductors for highly specialized markets, including system-level integrated circuits based on analog and digital technologies.

A shift toward lower-margin magnetic storage business was one reason cited for the shortfall. The company did not give details regarding the inventory charge.

"I remain confident that our analog and mixed signal technology strengths and strategic focus will enable us to outperform industry growth rates in our core business," CEO David French said in a release. "Our analog and Internet businesses are well positioned in their respective markets, design-win activity remains strong and I believe we can maintain and extend our leadership positions," he said.

Cirrus Logic
Stock price from March 2000 to present.  
Source: Prophet Finance
Revenues from the analog and Internet business are expected to pick up in the first fiscal quarter, French said, but that won't be enough to meet targets. The company said earnings for that quarter should be between 10 cents and 15 cents per share, compared with the 16 cents per share predicted by analysts.

The company told analysts in January that it expected revenues for the March quarter to be flat compared with a year ago. But it's not alone in seeing an even further slowdown. Competitor Dallas Semiconductor warned investors earlier this month that it would miss targets. And Analog Devices lowered estimates in February.

News like that, combined with the general slowdown in the semiconductor sector, prompted at least two analysts to make moves even before getting the official word from Cirrus.

Thomas Weisel Partners analyst Eric Ross lowered estimates on the stock Thursday, citing slow growth in magnetic storage, analog devices and CD-recordables. He also lowered his price target from $45 to $25.

"Continued softness in (the) PC market is likely hurting magnetic storage, PC audio and CD-RW business more highly than anticipated," Ross wrote. He also speculated that although demand for Cirrus' audio IC products, which are used with DVD players, should be strong, sales of its broadband analog products, including ones used for Ethernet and VoIP (voice over Internet Protocol) products, could slack off.

And Adams Harkness & Hill analyst Richard Faust downgraded the stock from "buy" to "market perform" Wednesday, saying he also expected a pullback in magnetic storage.

"We anticipate the magnetic storage business may come under substantial pressure into the second half of calendar 2001, due to weakening demand, increasing competitive pressures and pricing pressures, driven by the continued cyclical decline in the magnetic storage industry," he wrote.