Cirrus Logic rally comes out of nowhere

Cirrus Logic Inc. (Nasdaq: CRUS) raced up 1 15/16, or 24 percent, to 9 15/16 Thursday on word that it might be on the verge of exiting a joint chipmaking venture with International Business Machines Corp. (NYSE: IBM).

Cirrus, which has seen its stock tank in the past year, readily admits that sales and earnings will be slow in the first half of fiscal 2000. Right now, it's just trying to get its manufacturing program settled and begin capitalizing on the more than 800 intellectual property patents it holds.

Thursday's rally on volume of 1.4 million shares, or roughly five times its average daily volume, suggests that something big is brewing for the Fremont, Calif. chipmaker.

Some analysts believe that after holding a corporate meeting Wednesday, Cirrus officials have decided to get out of a joint venture with IBM called Micrus. Established in September 1994, the joint company was to manufacture mixed-signal wafers for both parent companies using IBM's sub-micron manufacturing technology.

No one is exactly sure how much this change of heart is going to cost Cirrus, but initial estimates place the buyout cost around $150 million.

"Getting out of the deal with IBM is probably the only news that could make this stock rise so fast right now," said Brian Alger, an analyst at Preferred Capital Markets. "Even if they had landed some nice design wins, they probably couldn't begin manufacturing until the second half of the year."

Cirrus Logic officials were not immediately available to comment on the possibility that it would abandon the IBM partnership or the details of Wednesday's meeting.

Last quarter, Cirrus Logic topped fourth-quarter earnings estimates, raking in $6.3 million, or 10 cents a share, on sales of $127.4 million. But including a raft of restructuring charges, it actually lost $214 million, or $3.55 a share.

First Call consensus expects it to lose 1 cent a share in the first quarter but make 11 cents a share in fiscal 2000.

"To their credit, they've been very forthright about the outlook," Alger said. "They still have some serious execution issues, but the stock is a good long-term investment right now."

Cirrus Logic shares peaked at 13 7/16 in November after falling to a low of 5 9/16 in October.

Three of the five analysts following the stock rate it a "hold."