The iPod, iPhone and iPad have served Cirrus Logic Inc. well but the Austin chipmaker has seen the light, and it’s on the verge of diversifying its business by jumping into the burgeoning market for light-emitting diodes.
Cirrus Logic recently disclosed it developed a controller designed to enable light dimmer switches for incandescent lights to operate with energy saving light-emitting diodes, or LEDs. The company expects to sell several million units of the new controller this year alone.
The shift, which has required significant investment by Cirrus Logic (Nasdaq: CRUS), may prove to be a crucial move toward the company’s efforts to reduce its growing dependence on supplying components for hugely popular Apple Inc. (Nasdaq: AAPL) products. For years, Cirrus Logic has supplied audio processing chips for wildly popular devices such as the iPhone.
Sales to Apple accounted for 70 percent of Cirrus Logic’s revenue during its third quarter, which ended in December, and 47 percent of its revenue during fiscal 2011, according to regulatory filings.
Although industry observers said Cirrus Logic’s relationship with Apple has been solid and beneficial to both companies, it also raises flags for cautious investors who know how demanding Apple can be on suppliers.
“I think it’s been a good thing for [Cirrus Logic] versus a bad thing,” said Jeffrey Schreiner, managing director of semiconductor industry for California-based Capstone Investments. “But what they need to do is assure investors that there’s a longer-term relationship. There’s always that risk that they would be designed out of Apple, and what would happen then?”
Cirrus Logic, founded in 1984, develops analog, mixed-signal and embedded integrated circuits. The company, which employs about 375 workers in Austin, operates offices in Tucson, Ariz.; Europe; Japan; and Asia.
The company has been on somewhat of a rebound during the last four years. Its stock price has doubled from $12 to $24 in the last 18 months.
This month, Cirrus Logic is scheduled to report its earnings for fiscal 2012, which ended March 28. The company nearly doubled its annual revenue during the previous three fiscal years from $174.6 million in fiscal 2009 to $369.5 million in fiscal 2011.
In January, Cirrus Logic reported a $16.7 million profit on $122.4 million in revenue during the third quarter of fiscal 2012, compared with a $24.6 million profit on $95.6 million in revenue during the same three months the year before.
Lighting a path to diversification
The seeds of Cirrus Logic’s new products were planted about three years ago, when engineers there began work on solving an issue involving dimmer switches when they’re used with LEDs. The company sought to avoid the problems that occurred when compact fluorescent lights were introduced. Some of the lights didn’t work with dimmer switches, and retailers were forced to deal with a flood of returns, said Tom Stein, vice president and general manager of Cirrus Logic’s energy, exploration and lighting division.
A new controller is being produced by an unnamed lighting company, and Cirrus Logic is now projecting to ship 5 million to 10 million LED controllers this year. The controller is priced at 81 cents in quantities of 100,000.
Early returns are good for the new line of business. Cirrus Logic already has a backlog of orders while it begins promoting a second generation of controllers it’ll promote to lighting companies, officials said.
The market for LED controllers is projected to reach $3.5 billion by 2015, according to Strategies Unlimited, a California-based research company.
Competitors in the market for LED controllers include Dallas-based Texas Instruments Inc. (Nasdaq: TXN) and The Netherlands-based NXP Semiconductors NV (Nasdaq: NXPI).
While Cirrus Logic enters the LED controller market, it’s also making another type of move — from its 197,000 square feet of leased space on Via Fortuna in Southwest Austin to a $30 million gleaming new downtown headquarters. The high-profile location off West Sixth Street, which will measure more than 134,000 square feet and hold hundreds of workers, is scheduled to be completed in June.
At the end of fiscal 2011, the company reported 570 full-time employees, an increase of 65 employees, or 13 percent, versus the end of fiscal 2010. Of its workers, 54 percent were in research and development; 34 percent were in sales, marketing, general and administrative activities; and 12 percent were in manufacturing-related activities, according to a regulatory filing.
For fiscal 2011, 2010 and 2009, Cirrus Logic had one distributor, Avnet Inc. (NYSE: AVT), a Phoenix-based company that has acquired two Austin-based companies in recent months.
In March, Avnet agreed to acquire consulting firm Ascendant Technology LLC for an undisclosed amount. In December 2011, it acquired electronics recycler Round2 Technologies Inc.
Meanwhile, Cirrus Logic’s close association with Apple has been a contributing factor in Cirrus Logic’s success. Yet it has also created a need for more diverse sources of revenue for the company, said Vernon Essi, a senior analyst for New York-based Needham & Co. LLC.
“Certainly, it’s a double-edged sword,” he said. “It’s in all of [Apple’s] products, but it’s certainly a risk.”