Tickers in this Article: OVTI, OVTI, OVTI, OVTI, QCOM, QCOM, QCOM, QCOM, CRUS, CRUS, CRUS, CRUS, AAPL, AAPL, AAPL, AAPL
Investorswill sometimes look to related companies that have yet to be recognized by themasses or have not yet fully profited from a breakthrough technology.
When theinternet was gaining popularity in the 1990s, hundreds of companies were ridingthe wave of this new shift in the way we interacted. The internet was not just a new cooltechnology, it changed the way we lived and it had (has) the ability to act asan extremely powerful catalyst for all sorts of growth.
There weresome internet derivative trades that worked exceptionally well; Google GOOG, IBM Corp. IBM,Rackspace Holding RAX and more.
But today’sbear of the day isn’t am unrecognized company that is on the cutting edge oftechnology or on the precipice of meteoric growth; it’s a seasoned ‘old tech’company that is hanging on to another mature tech giant to generate themajority of its income.
The ties that bind
Cirrus CRUS generatesa great deal of their total revenue from one client, Apple (almost 90%according to several sources). Thecompany supplies Apple with audio chips for their mobile devices.
While itseems like a good deal to be in bed with one of the best and brightestcompanies out there, the relationship has its strains and Apple can not onlyhave what it wants from Cirrus, but at just about any reasonable price.
With Apple’sbrand strength waning and companies like Samsung and Blackberry BBRY nipping at theirheels, Apple not only needs to fight for market share, but keep costs down asthe average selling price for Smartphones has been on the decline.
Cirrus’smargins have been suffering as of late and their shares have tumbled from over$45 just 10 months ago to their current value just above $18. The company recently warned that lower productsales forecasts from an “unnamed” customer are going to hurt their futureearnings.
Not a goodsign…
Cirrus ismaking some strides in broadening their customer base and product mix, but theyhave to watch their cash and their limited resources in addition to keeping theirbiggest client happy.
As a ZacksRank #5 (strong sell), they haven’t been pleasing analysts orshareholders. While the P/E multipleseems attractive at 10.15 times forward earnings, one has to wonder just howbad earnings can get.
Analysts havebeen slashing their forecasts and the stock currently has a negative 23% ESPfor the coming quarter’s earnings. Thisnegative ESP, combined with the Zacks Rank of 5 makes for a high probability ofa miss.
I think thereis a future for Cirrus, but unless Apple’s new iPhone wows crowds and blows theever increasing competition away, Apple and Cirrus along with it may have along road to recovery.
If you arelooking for a chip maker or want to play on the smartphone revolutoion,checkout Omnivision Technologies Inc. OVTI – Zack Rank #1 or even Qualcomm QCOMwith a Zacks Rank of 3.
Jared A Levy is one of the most highly sought after tradersin the world and a former member of three major stock exchanges. That is whyyou will frequently see him appear on Fox Business, CNBC and Bloombergproviding his timely insights to other investors. He has written and publishedtwo tomes, “Your Options Handbook”and “The Bloomberg Visual Guideto Options”. You can discover more of hisinsights and recommendations through his two portfolio recommendation services:
Zacks Whisper Trader- Learn tobuy stocks likely to have robust earnings BEFORE they report.
ZacksTAZR Trader – Technical Analysis + Zacks Rank. Best of both worlds approachto find timely trades.
Follow Jared A Levy on twitter at@jaredalevy
Like Jared A Levy on Facebook