Cirrus Logic Inc (CRUS) 2021 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Cirrus Logic Fourth Quarter and Full Fiscal Year 2021 Financial Results Q&A Session. (Operator Instructions) 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's Chief Executive Officer; and Chelsea Heffernan, our Director of Investor Relations.

Today, we announced our financial results for the fourth quarter and full fiscal year of 2021 at approximately 4 p.m. Eastern. The shareholder letter 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.com. This call will feature questions from our analysts covering our company and as well as questions submitted to us via e-mail at investor@cirrus.com.

Please note that during this 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. By 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.

Thank you, Thurman, and thank you, everyone, for joining the call today. In the past year, Cirrus Logic made excellent progress on the key growth factors and strategic initiatives that we believe will contribute to our continued success in the quarters and years ahead. We increased the penetration of our audio solutions and smartphones. We gained momentum with audio and haptic solutions in exciting categories beyond smartphones and we brought innovative products to market in new technology domains, expanding the range of product areas where Cirrus is recognized for its leadership.

We are particularly pleased with the progress we've made in driving product diversification in the high-performance mixed-signal area, which we have 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's also especially important to take a moment to thank our employees for everything that they have done over the past year. Amid many, many challenges, they have shown extraordinary dedication, both to supporting our customers with their 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 '21 revenue of $1.37 billion, up 7% year-on-year, and non-GAAP EPS of $4.58, up 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 in excess of supply. And while capacity constraints have 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 '22.

Today, we still see demand in excess of supply in some areas of our business, most typically in older products and in some cases, in 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.

In the coming months, we will begin shipping new technologies to our customers across a range of end devices, including important new content in the high-performance mixed-signal category. And based on these factors, we expect to accelerate revenue growth in FY '22. With this pipeline of new products and the R&D investments we are making to further strengthen our road map 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, in accordance with our policy, we do not discuss specifics about our business relationship.

Operator, we are now ready to take questions.

(Operator Instructions) And our first question comes from the line of Matt Ramsay of Cowen.

John, I -- in light of the results and some of the stock action tonight, I think it's appropriate to ask the question. You guys have talked a bit openly to the extent that you can about content expansion expected in premium devices, both in the power domain for upcoming this fall and also in work that you've been doing on the 22-nanometer Kodak for future products. And maybe just -- I know you can't give a ton of details and all of us have lots of questions about those things, but maybe you could just talk about if -- has any of those expectations changed in terms of penetration, content, ASPs, visibility on those programs from the update you might have given us a quarter ago?

Thanks for the question, Matt. Yes. I, obviously, will stress that we don't disclose details of our customers' products, but you are absolutely asking about some of the things we are most excited about. So I do want to provide a little more color as we are a little further along the road than we were 1 quarter ago.

So in -- specifically there, you're referring, in part, to the power conversion and control IC that we've talked about. We're very excited about that. It's an 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 an attach rate of 1. That's its kind of natural state, I think. And we believe there's a compelling case for there being 1 in every phone. And we believe it's going to have a pretty healthy attach rate straight out of the gate. We're obviously still early in the year to say more from that. But we're very excited about it also because of its value in ASP terms, which I previously said was meaningfully higher from the closed-loop controller. So indicatively, 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 us seeing silicon that we were really happy with and being deeply engaged with customers. We don't have a product vehicle that we're ready to talk about there yet. But we do see multiple applications for that technology on our road map that we are really excited about.

As a reminder, the reason you would invest in 22 nanometer is either to pack in more digital processing close to the analog and/or to make something that is radically smaller and more power efficient. So we can see multiple applications for that IP investment across different device categories and products. We have some particular routes to market that we're obviously working on that we've alluded to previously, but nothing more specific to say today.

Got it. I appreciate the color and also the sensitivity on it. For my follow-up question, Thurman, I wanted to ask about 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 it's a little bit of throwing darts from the outside to see if we can model that right. But I think the concerns that I've gotten in my calls in my inbox tonight are around the March quarter prints, given the upside that your largest customer showed in their results last night.

I would have imagined back in the December quarter, as -- and in January, when you were giving the guide for March, you guys would have been able to understand the units that you had shipped into support from their phones and other devices and calibrate the guidance accordingly if you had overshipped 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 was any other factors you mentioned, supply constraints, et cetera, that might have affected the March quarter?

Matt, maybe I'll just chime in quickly with a couple of thoughts on that because the last time, I spoke a little bit about the difficulty of drawing a straight line between what we ship and recognize versus what our peers or customer ships.

In particular, the closed-loop controller content with the module assembly phase that, that's got, we talked at the time about the possibility that, that just put things a little out of sync on the scheduling of our revenue versus customers and so on. I think we're seeing that. That's pretty visible now. If you look at our Q3, we were 30% up year-on-year. We took a lot of success there on the back of that content. And I think that's obviously been feeding product for our customers for some time since.

In the March quarter, I think -- and you may be alluding to at least the possibility of this, so I'll clarify. We've been able to serve all the demand from our large customers -- our largest customers that we've had. So supply constraints haven't impeded us there. That's really just affected our ability to grab upside in some of the smaller areas of our business.

Thurman, if you have any other additional content or color you want to add to that, please go ahead.

Well, and also, as we noted, we had a -- we were able to service our larger customers, but we were constrained on some of our general market customers in the quarter. But again, we fulfilled most of that, and that really didn't -- none of those were factors in our results for the quarter.

Our next question comes from the line of Blayne Curtis of Barclays.

You kind of changed your reporting segments. I'm assuming the easy answer is that your growth coming from these new products, the CLC and the power chip. But just kind of curious your thought process around that, beyond that. And really, just when you look at the segment, I guess, audio was kind of flat year-over-year and quarter-over-quarter. It's the first time we're seeing these numbers throughout the history, but how do you think about the growth rate of these 2 new segments [so far]?

You're absolutely right, Blayne, the -- part of the thinking there is really to eliminate the growth that we anticipate in line with the strategic plan, where we believe we've got great opportunities now and in the future around high-precision mixed-signal category.

The growth rates, going back to what I've said about strategic growth vectors, we see opportunity for growth in audio. The 2 primary areas there being the expansion of our footprint that we've talked about in Android and then in other nonsmartphone categories, but we do think the growth rate in high-performance mixed-signal is going to be higher. And so over time, you'd see that as a larger portion of our revenue mix.

Got you. And I just want to ask, it's obviously harder to kind of back out and analyze now, but just your performance in the Android world in the March quarter. And then I think you mentioned in your letters a positive outlook going forward. But just in perspective as to how that business charged it through you in March and into June.

I think, broadly, in Android, our story there has been -- obviously, we're coming from a content headwind in '21 with the smart codec disappearing. So we've got -- we had some room to make up there. In our key Android customers, momentum was pretty slack during most of the last calendar year, but then really accelerated in the first part of this calendar year. And it sets us up for an FY '22 in Android terms, which I think was -- would probably -- looks, at least from where we are today, at being at least as strong as any would see.

And our next question comes from the line of Tore Svanberg of Stifel.

Just a question on the segments. You talked about some of the growth. But what about profitability? Is there a gross margin differential between the new segments?

Broadly, no. The new products that we introduced are really consistent in gross margin profile, whether they're in audio or high-performance mixed-signal, Tore.

There are 1 or 2 obvious exceptions to that in -- we've mentioned in the small print, which you may not have got to yet, but there are some legacy products that sit in high-performance mixed-signal, which typically do have high margin. They're very low volume so they don't really move the needle around. So broadly, across both of those categories, the gross margin would be consistent with the corporate model.

Very good. And when it comes to capacity, you said it's still tight, but you were able to increase your 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 in the second half or no?

No. We actually -- the constraints that we're seeing now are across a lot of products. And we're doing what we can to build that. But as far as equilibrium, we think that the capacity constraints will actually flow through FY '22 and even possibly beyond.

Again, it's not going to affect any of our ability to meet our ramp schedules or our -- that we have at the back of -- back half of the year. What it will -- [the fact] is we still are seeing strong upside demand that we may or may not be at [full volume] -- likely will not be able to meet all of that. And we're continuing to work the process but -- and try to find capacity where we can. But that's really how we look at it for this year.

(Operator Instructions) Our next question comes from the line of Christopher Rolland of SIG.

Around maybe the PMIC and timing in the back half as well, if you guys can talk about, from a timing perspective there, are there any details around -- is there a preassembly for this? Or is there anything that can pull in the timing for that part? And then as we transition into these next handsets, are there -- is there an update of any parts so we might be seeing a drawdown of inventory today in order to ramp up a new part in the back half? Just any sort of details as to a transition that may be taking place would be great.

Let me take a run at that, and you can let us know in the follow up whether we -- whether I hit the nail on the head there, Chris. So first of all, on timing, there's nothing really out of the ordinary. We are, with the power conversion device, preparing for a ramp that takes us through a full launch of a product. It's going to be a steep ramp, as I said. We're expecting a pretty healthy attach rate straight out of the gate. So there's a lot of wafers and content to move between now and then, a lot of work to do. But is the basis for our optimism and kind of our upbeat tone about FY '22, as you'll have picked up. But there's nothing really out of the ordinary from a scheduled perspective there.

And then the -- you may be alluding to this in the second part of your question. That product, in particular, the power conversion and control IC, that's not replacing anything. So there's nothing that gets phased out or impacted from a legacy product inventory perspective by that.

One thing that I haven't touched upon elsewhere in the call, though, that may be looking in the background there is, of course, we have mentioned previously, and there's been discussion about it, that our camera controller device has given attach rates. We -- again, without saying anything about our customers' products, and there's a lot of stuff that we don't know about our customers' products, however, it would be very consistent with what we've seen in many of our customers' products over the years if that attach rate were to go up over time with cascading of kind of high-end camera features through their product tiers. So again, we think that's likely to happen, but there's nothing -- there's no particular drawdown of old inventory or anything like that associated with that ramp.

(Operator Instructions) Our next question comes from the line of Derek Soderberg of Colliers.

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 I have a follow-up.

No. Our ASPs, we see normal declines on our -- on a year-over-year basis on our ASPs with most of our older products. So I wouldn't say that there was anything abnormal in our ASPs this time or anything that was different from history. I'd say that probably the bigger effect would be pricing for us in terms of we saw some pricing pressure because of the capacity constraints. On that side of it, we did see some effect.

Got it. And then, John, I'm wondering if you could describe, to the extent you can, how the pandemic maybe opened up new opportunities and new products that use sort of voice authentication and interface? In the early days of the pandemic, there was a lot of talk about this new normal, we're going to be using voice more. I guess I'm wondering if that's playing out at all? I think you called out some new products in the shareholder letter. Is that leading to 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 certainly, in part, on the back of the pandemic is just through the increased use of laptops, tablets and mobile devices. We've seen, consistent across those categories and across our different customers, a desire for higher quality audio. I think because of the fact that the [AV] and the video conferencing experience and the sheer amount of screen time has become so central to people's lives for working from home and so on.

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 are 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 when it comes to audio and haptics. As they get thinner and thinner, they're going to want exactly the same kind of boosted amplifiers, haptics drivers to replace mechanical controls and so on, which represent a great opportunity for us that gives us the ability to expand audio in new nonphone categories.

So I would say that's one of the biggest areas where we've seen growth and new customer interest on the back of the pandemic, and it's certainly a meaningful part of the demand that we have sitting in the pipeline for FY '22.

And our next question comes from the line of Christopher Rolland of SIG.

Just a quick follow-up. You did mention laptops and haptics in your note here. And I think you actually said there were a couple of customers that were interested there. Perhaps talk about that.

And then I don't know if you want to maybe illuminate what mixed-signal products, besides, I think, the PMIC that you're most interested in for '21 or even '22 as we look out?

Sure. Yes. I think I may have just hit on most of my talking points around the PC space. But just to recap, there's a really interesting transition. There are a couple of meaningful changes taking place, in particular, around Ultrabooks, where their architecture and industrial design is becoming more and more akin to smartphones and encountering many of the same problems.

So we anticipate that many of the mechanical assemblies in laptops, as they get thinner and thinner, will be replaced by haptic devices. And we've seen that in some products with track pads, and we've talked about our technology and collaborations around that, which we're really excited about, and we've been seeing great customer interest and traction there.

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 the desire for higher voltage, boosted amplifier sitting close to the micro speakers. And again, that's something which has been hugely successful for us in smartphones. We believe there will be, and we are seeing, a transition towards that in the Ultrabook space as well. So for sure, that's been an exciting avenue of opportunity that's opened up over the past year or so.

On the subject of the high-performance mixed-signal areas, I'm saying we're not in the standard PMIC business here. Obviously, over time, we'll be able to share more details about what we're doing in the power conversion and control product that I talked about. But we're really not replacing anything there. 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 2 reasons. One is because of the avenues it opens up longer term. We believe it's relevant to a whole load of battery-based systems and is -- has a whole road map of innovation around it, where we can continue to grow value and bring new stuff to our customers, but also because of the real-world, near-term revenue impact for us. That's a meaningful ballpark dollar additional content that we anticipate seeing from the fall of this year. And therefore, will be very meaningful in FY '22 and even more meaningful in the full cycle in FY '23.

(Operator Instructions) And there are no further questions in 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 comments.

Thank you, Chelsea. In summary, we're proud of the year-on-year growth and the strategic progress that we have delivered in FY '21. We're also incredibly proud of our employees' 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 in compelling audio and high-performance mixed-signal solutions, we're excited about the opportunities ahead of us in FY '22 and beyond.

I'd also like to note that we'll be participating in conferences hosted by Cowen, 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 Ask the CEO section of our investor website.

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.