Q4 2021 Cirrus Logic Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Cirrus logic fourth quarter and full fiscal year 2021 financial results Q&A session.
At this time all participants are in a listen only mode. After a brief statement, we will open up the call for questions from analysts.
Instructions for queuing up will be provided at that time.
As a reminder, this conference call is being recorded for replay purposes.
I would now like to turn the conference call over to Mr. Thurman case, Chief Financial Officer. Mr. Case, you may begin.
Thank you and good afternoon, joining me on today's call is John Forsyth, Cirrus logic, Chief Executive Officer, and Chelsea Heffernan, our director of Investor Relations.
Day, we announced our financial results for the fourth quarter and full fiscal year of 2021 at approximately four P M. Eastern.
The shareholder letter of discussing our financial results the earnings press release, including a reconciliation of non-GAAP financial information to the most directly comparable GAAP information along with the webcast of this Q&A session are all available at the company's Investor Relations website at Investor Cirrus Dot com.
This call will feature questions from our analysts covering our company and as well as questions submitted to us via email at Investor at Cirrus Dot com.
Please note that during the session, we may make projections and other forward looking statements that are subject to risks and uncertainties that may cause actual results to differ materially from projections.
Providing this information the company expressly disclaims any obligation to update or revise any projections or forward looking statements, whether as a result of new developments or otherwise.
Please refer to the press release and shareholder letter issued today, which are available on the Cirrus logic website and the latest form 10-K as well as other corporate filings made with the Securities and Exchange Commission for additional discussion of risk factors that could cause actual results to differ materially from the current expectations.
Now I'll turn it over to John.
And.
Thank you Kevin and thank you everyone for joining the call today.
And the past year Cirrus logic made excellent progress on the key growth vectors and strategic initiatives that we believe will contribute to our continued success in the quarters and years ahead.
And we increased the penetration of our audio solutions and smartphones, we gained momentum with audio and haptic solutions and exciting categories beyond smartphones, and we brought innovative products to market and new technology domain and expanding the range of product areas, where cirrus is recognized for its leadership.
We are particularly pleased with the progress we've made and driving product diversification and the high performance mixed signal area, which we've highlighted as a key pillar of our strategic vision for the company's future.
The introduction of our first camera controller contributed to 55% year on year revenue growth in the high performance mixed signal category.
I feel it is also especially important to take a moment to thank our employees for everything that they have done over the past year.
And many many challenges they have shown extraordinary dedication both the supporting our customers with the current products and to keeping on track. The many important development programs that we believe will be central to our and our customers' future success.
Turning now to our results Cirrus logic delivered FY 'twenty, one revenue of $1 $37 billion up 7% year on year, and non-GAAP EPS of $4 58 of 27% year on year, driven largely by content gains and higher unit volumes.
Like many in the semiconductor industry, we have been experiencing strong demand and excess of supply and while capacity constraints of not meaningfully affected the largest parts of our business. They did have some impact on our revenue for the last quarter as well as on our outlook for the first quarter of FY 'twenty two.
Today, we still see demand and excess of supply and some areas of our business, most typically and older products and in some cases and parts of our audio business that we've added during the supply constrained period and our experienced team is working closely with our supply chain partners to meet that demand as rapidly as possible.
And the coming months, we will begin shipping new technologies to our customers across the range of and devices, including important new content and the high performance mixed signal category and based on these factors, we expect to accelerate revenue growth in FY 'twenty two.
With this pipeline of new products and the R&D investments, we're making to further strengthen our roadmap of compelling audio and high performance mixed signal solutions, we're extremely excited about the coming year.
Before we begin the Q&A I'd also like to note that while we understand there is always intense interest related to our largest customer and accordance with our policy, we do not discuss specifics about our business relationship.
Operator, we're now ready to take questions.
As a reminder to ask a question you will meet the press star one on your telephone to withdraw your question press the pound or hash key please standby, while we compile the Q&A roster.
And our first question comes from the line of Matt Ramsay of Cowen. Please go ahead. Your line is open.
Thanks, very much and good afternoon guys.
John.
And in light of the results and some of the stock actions and I think it's.
Appropriate the asked the question you guys have talked of.
And did openly.
To the extent that you can about com.
Content expansion expected and premium devices, both and the power of domain.
And for all coming this fall and also.
And work that you've been doing on the 22 nanometer codec for future products and.
Maybe you could just I know you can't give a ton of details and and all of us have lots of questions about those things, but maybe you could just talk about of any of those expectations change.
And in terms of penetration content asps.
Visibility on those programs from the update you might have given it a quarter ago.
Thanks for your question Matt.
Yes, obviously, we will stress that we don't disclose details of our customers' products, but you're absolutely asking about some of the things. We are most excited about so I do want to provide a little more color.
We are a little further along the road than we were one quarter ago.
K and specific specifically day, you're referring in part to the power conversion and control IC. The we've talked about.
We're excited by that it's and expansion again into another high performance mixed signal area for us.
We have said as I've said previously that we think that device will trend towards and attach rate of one <unk>.
And it's.
And kind of natural state I think.
And we believe there's a compelling case for the being one and every phone and <unk>.
We believe it's going to have a pretty healthy attach rates straight out of the gate.
We were obviously still early in the in.
And the year to say more from that but we're very excited about it also because of its.
The value in ASP Toms.
Which I previously said was.
The meaningfully higher and the closed loop controller.
So indicative of Lee I think it's best to think of the value of that as being about $1.
You also asked about 22 nanometer again, we've made really good progress there I previously talked about.
Seeing silicon and that we were really happy with and being deeply engaged with the with customers. We don't have of product vehicles, where we're ready to talk about that yet but.
But we do see multiple applications for that technology on our roadmap.
And what we're really excited about as a reminder of the reason you would invest and 22 nanometer is is either to pack and more digital processing close to the analog and.
And all to make something that is radically smaller and more power and power efficient. So we can see multiple applications for that IP investment across different.
The device categories and products, we have some.
Some particular routes to market that we're obviously working on that we've alluded to previously but nothing more specific to say today.
Okay.
Got it thanks guys.
I appreciate the color and and also the sensitivity on it.
For my follow up question.
And I wanted to ask about the.
And the printed results for the March quarter, I think most of us that follow the company realized that the June quarter is always transitional and.
Seasonally down and and.
That's a little bit of throwing darts from from the outside the see if we can model of that right, but I think the concerns that I've gotten and my colleagues and my inbox and <unk>.
The March quarter print and given the upside that your largest customer showed in their results last night, I would've imagined back and and the December quarter edge and.
And in January when you were giving the guide from March you guys would of been able to understand the units that you had shipped into support from from their phones and other devices and calibrate the guidance. Accordingly, if you had over ship versus what they had sold through so.
Maybe you could give us some color there about how you guys were thinking about that with the March quarter results and then if there is any other factors you mentioned.
Supply constraints et cetera that might have affected the march quarter.
Maybe ill just chime and quickly with a couple of thoughts on that because of the last time I spoke a little bit about the difficulty of <unk>.
Drawing a straight line between what we ship and recognize and versus what our peers or customer ships in particular, the closed loop control of content with the module Assembly phase of that Scott.
<unk>.
We talked at the time of the possibility that that just put things a little out of the zinc on the.
On the schedule and of our revenue versus the business customers and so on and I think we're seeing that.
And thats pretty visible and now if you look and look at our Q3, we were 30% up year on year.
We took a lot of the.
The success there on the back of that content.
And I think that's obviously been feeding.
For our customers.
And sometimes in the March quarter.
And you may be alluding to at least the possibility of day. So I'll clarify we've been able to serve all of the demand from our large customers.
Logic customers.
We've had sort of supply constraints have and indeed it is there.
That's really just affected our ability to grab upside and some of the the small.
Areas of about 30.
And if you have any other additional content or color you want to add to that please go ahead.
Well and also has.
As we noted we had.
We were able to the.
Service of our larger customers, but we were constrained on.
Some of our general Mark of customers in the quarter, but again, we fulfill the most of that and that really did the.
None of those were factors in our results for the quarter.
Okay.
Our next question comes from the line of Blayne Curtis of Barclays. Please go ahead. Your line is open.
Kind.
The change the reporting segment.
Im assuming the easy answer is that your growth coming from these new products with the.
And the power chip, but just kind of curious sort.
The process around that beyond that it really just when you look at the segment I guess, the audio kind of flat year over year and quarter over quarter first time, we're seeing these number of cloud the history, but how do you think about the growth rates of the acute and segment.
Youre absolutely right Blaine the.
The.
Part of the thinking areas is really too.
To illuminate the the growth that we anticipate in line with the strategic plan, where we believe we.
Got great opportunities now and in the future of around the high day high precision and mixed signal category.
The growth rates.
Going back to what I've said about strategic growth vectors, we see opportunity for growth and audio.
The two the two primary areas that being the expansion of the.
And of our footprint that we've talked about and Android and then in other non smartphone categories, but we do think the growth rate in high performance mixed signal is going to be higher and so over time and you would see that as a larger proportion of our revenue mix.
Got you and I just want to ask the hot.
Got it back out and analyze now, but just your performance in the air.
Android portal and the March quarter, and then I think you mentioned in your letter.
Positive outlook going forward, but.
<unk> how that business.
And it for you in March and into.
The channel.
I think broadly and in Android.
Sure.
Of story there has been obviously, we were coming coming from.
The content headwind and.
In 'twenty, one with the the smart codec <unk>.
Disappearing. So we've got we had some room to make up there.
And our key Android customers momentum was pretty slack during most of the last calendar year, but then really accelerated in the third.
And as part of this calendar year and.
And it sets us up for and FY, 'twenty, two and Android terms, which I think would.
Probably looks at least from where we ought to day.
The at least the strong day, we've seen.
And our next question comes from the line of tore Svanberg of Stifel. Please go ahead. Your line is open.
Yes. Thank you.
Just a question on the segments you talked about some of the growth, but a lot of.
The profitability is there of gross margin differential between the new segments.
Yeah.
Broadly the new products that we introduced.
Really consistent in and.
Gross margin profile, whether theyre and audio or high.
High performance mixed signal sorry.
There are one or two albeit the exceptions to that and that.
We've mentioned in the in the small print, which you may not have got two yet.
There are some legacy products that sit in and high performance mixed signal, which typically do have high margin and a very low volume. So they don't really move the needle around.
So broadly.
Across both both of those categories. The gross margin will be consistent with the.
The corporate model.
Very good and when it comes to the capacity you said, it's still it's still tight the you were able to increase of inventory days.
I'm just wondering as we think about the June quarter, do you think that you'll sort of be back into equilibrium before the ramp and the second half or no.
No.
We actually.
The constraints that we're seeing now.
Of course, a lot of products and.
We're doing what we can to build out as far as equilibrium and we think that the.
Capacity constraints will actually flow through.
FY 'twenty, two and even possibly beyond.
Again, it's not going to affect any of our.
The ability to meet our ramp schedules or our debt we have at the back of back half of the year of what it will affect us. We still are seeing strong upside demand that we may or may not be we will likely will not be able to meet all of that and.
And we're continuing to work the process and try to find capacity, where we can but that's really how we look at it.
And again, if you would like to ask a question. Please press Star then one on your telephone keypad.
Our next question comes from the line of Christopher Rolland of FRG. Please go ahead. Your line is open.
Hey, guys. Thanks for the question.
Round.
Maybe the <unk> and timing and the back half as well.
And if you guys can talk about.
From the timing perspective, there are there any details around.
Free assembly for the or is there anything that came.
Poland and the timing for the long haul and.
And can you transitioning into these next handset.
Is there an update of any parts. So we might be seeing the draw down of inventory today and will be the ramp up of new part in the back half.
Just any sort of details and two.
Two of transition that may be taking place would be great.
Let me take a run of that and you can you can let us know and the follow up whether we.
The hit the nail on the head the cause.
The first of all on timing and Theres, nothing really out of the ordinary.
With the power conversion.
Device.
And preparing for a ramp the it takes us through a full launch of the product it's going to be a steep ramp as I said, we're expecting pretty.
Pretty healthy attach rates straight out of the gate. So there's there's a lot of lot of wafers and content to move between now and then a lot of work to do.
But is the basis for us.
Our optimism and kind of upbeat tone about FY 'twenty two.
As you lose a deal of picked up but theres nothing really out of the ordinary from a schedule perspective, there and then the.
The.
You may be alluding to this and then the second part of your question that that product and particular, the power conversion and control of IC, that's not replacing anything. So there is nothing that gets phased out or impacted from a from a legacy product inventory perspective.
By that one thing that I haven't touched on elsewhere and the call, though that may be looking and the background. There is of course, we have mentioned previously and as being the special about it.
Our camera controller device has given the attach rate.
And again without saying anything about.
Our customers products and there's a lot of stuff that we don't know of customers products. However, it would be very consistent with what we've seen.
And many of our customers' products over the years, if that attach rate would go up over time.
The cascading of kind of high and camera features.
Through through the day.
The productivity.
So again, we think thats likely to happen.
But theres nothing.
And there is no particular drawdown of old inventory or anything like that associated with the.
With that.
That ramp.
Thank you and as a reminder to ask the question. Please press star one on your telephone keypad.
Our next question comes from the line of Derek Soderberg of colors. Please go ahead. Your line is open.
Hi, guys. Thanks for taking my questions Thurman I'm wondering if you could provide any detail around the pricing environment.
Our asps in terms of ASP declines, having an abnormal impact on results or guidance and then looking forward do you expect ASP declines to be anything out of the ordinary this year any thoughts on the pricing environment would be helpful. And then all of a follow up.
Now our asps.
We've seen normal declines on our non and year over year basis.
And <unk> with most of our older project products. So I wouldn't say that there was anything abnormal and <unk>.
Is this time or anything that.
What's different from historic.
And it probably the bigger effect would be pricing for us in terms of and saw some pricing pressure because of the.
Capacity constraints on that side of it we did see some of that.
Got it and then John.
I'm wondering if you could describe to the extent you can how the pandemic may be opened up new opportunities and.
And new products that you sort of voice authentic.
Authentic.
Authentication and.
Interface and.
And the early days of the pandemic.
There was a lot of talk about this new normal we're going to be using voice more and I guess I'm wondering if that's playing out at all I think you called out some some new products and and the shareholder of leather.
Is that leading to the shipments into any of these types of applications.
Not in particular around those technologies, although I would say that one of the exciting areas of growth for us.
Which is suddenly and part on the back of the pandemic is just through the increased use of of laptops tablets and mobile devices.
You've seen.
The consistent across those categories and across our different customers of desire for.
Higher quality audio I think because of the the.
The fact of the AAV and the video conferencing experience and the sheer amount of screen time and it becomes so so central to the peoples peoples.
People's lives of four.
For working from home and so on.
And so we've actually seen going from really having almost no.
PC related business, a year ago, we've seen a high degree of customer engagement and.
And starting to gain real momentum and traction there, which we're excited about because we do believe that those devices are going through a transition where they have.
Many of the same challenges that we've seen in smartphones and when it comes to audio and haptics as they get thinner and thinner the kind of what exactly the same kind of boosted amplifiers haptic drivers to replace and mechanical controls and so on.
<unk> represents a great opportunity for us that the.
It gives us the ability to expand audio and and new non phone and categories.
I would say that's one of the biggest areas where we've seen.
<unk> seen growth and.
The.
New customer interest on the back of the pandemic and its.
Certainly a meaningful part of the.
And the demand that we have.
The sitting in and.
And the pipeline for FY 'twenty two.
And our next question comes from the line of Christopher Rolland of hygiene.
Please go ahead your line is open.
Hi, guys just a quick follow up on you did mention laptops and happy.
Senior note here.
And I think you actually said there were a couple of customers that were interested there.
And perhaps talk about that and then I don't know if you want to maybe illuminate.
What mixed signal product.
I think the <unk> debt, you're most interested and for 'twenty, one or even 2002 and we look out.
Sure, Yes, I think I may have just hit on most of my talking points around the the PC space, but just to recap the bears and it really interesting transition there are a couple of meaningful changes taking place and.
In particular around ultra books.
There.
And the architecture.
And the industrial design and is becoming more and more akin to smartphones and encountering and many of the same problems. So.
We anticipate that many of the mechanical assemblies and in.
Laptops as they get thinner and thinner will be replaced by haptic devices and we've seen that in some products. We track pads and we've talked about are our technology and collaborations around that which we're really excited about it and we've been seeing great customer interest and and traction of that.
In addition to that the challenges that people face with smartphone audio was really partly as a result of wanting better and better audio out of thinner and thinner devices and that drove a desire for higher voltage boosted amplifiers sitting close to the micro speakers.
And again that that's something which has been hugely successful for us and smartphones.
Aleve, there will be and we are seeing of transition towards that.
And the ultra book space as well so for sure that that's been.
The exciting avenue of opportunity that.
Opened up over the past the over the past year or so.
On the subject of the high performance mixed signal areas.
And.
And say, we're not in the standard the <unk> business here.
Obviously over time, we will be able to share more details about what we're doing and the power conversion and control product that I talked about but we're really not replacing anything there and we're doing something new that we believe has a lot of value to certain kinds of battery based system and so that in particular is.
Very interesting and exciting for us for two reasons, one is because of the avenue that opens up longer term. We believe it's relevant to a whole load of battery based systems and is.
It has a whole roadmap of innovation around it where we can continue to grow value and bring new new stuff to our customers.
But also because of the real world near term revenue impact for us.
And as a meaningful.
Ballpark dollar additional content that we anticipate seeing.
And from the from the fall of this year.
And therefore, we will be very meaningful and FY 'twenty, two and even more meaningful and the full cycle and FY 'twenty three.
Thank you I appreciate it.
And again, if you would like to ask a question. Please press star one on your telephone keypad.
Okay.
And there are no further questions and the queue I will turn the call back over to Ms. Heffernan.
Thank you operator, there are no additional questions. So I'll turn it over to John for final comment.
Thank you Chelsea in summary, and we're proud of the year on year of growth and the strategic progress that we have delivered in FY 'twenty, one and we're also incredibly proud of our employees the ability to execute on new product development and to provide outstanding support to our customers. Despite the challenges associated with the COVID-19 pandemic.
With an extensive intellectual property portfolio and continued investment and compelling audio and high performance mixed signal solutions. We're excited about the opportunities ahead of us in FY 'twenty two and beyond.
I'd also like to note that we'll be participating in conferences hosted by Cowen and Bank of America and Stifel. This quarter. Please check our investor website for the details.
If you have any questions that were not addressed here you can submit them to us via the ASP of the CEO of section of our Investor website.
And I'd like to thank everyone for joining the call today Goodbye.
Ladies and gentlemen, this concludes today's conference call again. Thank you for your participation you may now disconnect.
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And.