Cirrus Logic, Inc. (CRUS) Earnings Call Transcript & Summary

All right. Welcome back. I'm Blayne Curtis, semiconductor analyst at Barclays for the day 2 of the Global Virtual TMT Conference. Very happy to start off today for my companies with Cirrus Logic from the company of John Forsyth. He is President and soon-to-be CEO in January.

John, I was thinking, maybe a good way to start. Obviously, you've been at the company since the Wolfson acquisition been very instrumental in a lot of the progress. I've been covering the company since was doing video and losing money. So a very long time. It's come a long way. Obviously, Jason deserves a lot of credit. And it may be too early to ask you this, but I'm kind of curious, you've been involved in the strategy. I'm kind of curious if you had some thoughts as to where you want to take this company with your new role starting in January?

Right. Yes. Thank you. Thank you, Blayne. And yes, I agree. I mean, Jason, and many other people who are still on the leadership's staff at Cirrus, I think, there's a tremendous credit for what they've accomplished over the past 13 years of Jason being CEO. From my part, I think the first thing I'd say is that I've been collaborating closely with Cirrus leadership, obviously, over the past few years, developing the strategy that we're currently executing. So I'm a very big believer in that. But to be clear, that's really kind of threefold story of how we take the company forward, and how we drive growth. First of all, expand our content in audio in smartphones. So continue to do that. Secondly, expand our audio content in other devices, especially battery-centric, power-sensitive device categories. And thirdly, broaden our reach to other mixed-signal domains with an initial focus on smartphones. But the third, in particular, I think, is key in that -- I think Cirrus is a great company with extraordinary qualities, both from the point of view of the standard of engineering and just the commitment and focus to our customers. And so it's always been my view that we can make an impact in many areas beyond audio. And that's really been the vision as well. That's why even our vision being first choice in signal processing doesn't specifically talk about audio. Audio just happen to be a really, really successful driver of the business over the past decade or so. So I think we're in the early innings of that expansion into other mixed-signal domains where we can leverage our expertise and kind of specialize in some key areas. And I'm very excited about where that can take us. And I think that's the next phase of evolution for Cirrus.

That's a great lead-in. I mean, this year, you ramped with this closed-loop controller and the cameras and Apple. It's been turn open, and you're talking about a power conversion control chip for next year. So I really want to talk about that core IP that the company has. Obviously, audio started as kind of a converter. Obviously, you've added a lot of kind of digital on top of it, and then you moved into amps, smart amps. Kind of just -- maybe you can just give us -- what are the core competencies of Cirrus? And how does that apply to these new products that you're bringing forward this year and next?

Yes. Yes, of course. I mean, you touched on a couple of the key things there, actually. That ability to pack a lot of digital close to the analog-digital boundary is really key. So when you look at opportunities that are kind of Cirrus shape, they tend to be ones where as was the case in the closed-loop controller where really low latency signal processing matters a lot, right? The kind where you're doing some stuff in the digital domain, you're processing stuff that's being converted into digital, but you don't have time to offload it to the AP, and we're doing it faster in terms of the number of times you can modulate some kind of output per second, it makes a real difference to the user experience as is the case in cameras, obviously. And that's really kind of underlying -- one of the key underlying competencies. It's partly a particular engineering focus, it's partly also investment in deep submicron nodes for mixed signal IP, where we're able to combine a lot of digital processing with high-precision analog and mixed signal -- in high-precision analog mixed signal devices. So that's a part of it. And then I think also the power element, a lot of that has come out of our investment around boosted amplifiers and haptics, where just over time, a lot of that investment is in doing high-voltage stuff at again, kind of advanced, in an -- advanced process where we are both -- with our boosted amplifier, we're not just taking a signal and boosting it and sending it down to a transducer and getting about it. We're monitoring very closely what's happening in that transducer all the time in terms of the coil temperature, the excursion. So you've got that feedback loop, but one of the things that we discovered as we've continued to ramp the voltage of our boosted amplifiers and the constraints have become kind of tighter and tighter about what we can do there is that we have to look upstream as well. The impact we're having on power and the battery at the system level. Because when you're driving one of the peak current events in the device's life cycle, you could brown out the rest of the system. So we're leveraging a lot of investment in power that we've done for the boosted amplifiers, but that's also taken us into this domain where we needed to think much more about power in that upstream system-level sense, and that's given us a foundation. It's not that there isn't a lot of new IP to develop because there is, but it's given us a really good foundation for expanding into this new adjacency.

It's good lead-in. When you think of power, you think of the bigger analog names, like ADI Linear or Texas Instruments and when you see Cirrus, moving into the power world that you kind of -- I think people confused initially with power management, maybe you can just distinguish between power conversion and power management and why is Cirrus going to be the solution that wins in this market?

Yes. I would say -- I mean, 1 thing, obviously, what we're talking about here is, as we've seen, it's a custom product. So we're kind of -- we're scheduling based on certain details about it. And to be clear, some of the names that you mentioned, I fully expect them to be -- the people that we lose sleep over. I fully expect them to be interested in what we're doing there. I'm under no illusions about that, but we're not getting into the kind of general-purpose power management space at all. We're not interested in kind of managing the various power domains across the device, where we have a very specific kind of profile. I think the most I can say about it is if you think about what I said in relation to boosted amplifiers. We -- our particular angle of expertise is around this kind of peak current events where you have these kind of extreme events in the life cycle of a product, that's where we felt, okay, we've got something that's valuable and is -- we've got credible track record in addressing and thinking about those problems that differentiate us from the other guys who have abundant expertise and kind of general-purpose power.

I want to ask you, just the expansion from the lead customer, obviously, you came from Wolfson. I think in audio, it seems like Apple is the one who pays for premium audio and the rest of Android, it's not always a big number that pays for premium audio. I'm kind of curious as you move into these other new areas, something like a camera, do you think you can actually expand the business beyond Apple and get a bigger android piece that is paying for the premium tier?

I'd maybe debate you a little, we might get into Android. I'd maybe debate you a little on some of your comments there because I think in the flagship space in Android, people have [indiscernible] audio, without question. Regarding our other new product areas, I think over time, it's possible that we leverage those into other smartphone customers or things in that space, but that's not our focus right now. We don't have a plan for that. I think I appreciate that it's possibly restraining on the outside at times that we, at Cirrus, don't talk more expansively about some of what we're planning to do, but one of the things I think is really great, going back to your first question, that Jason has cultivated in the company a very strong sense of focus. We try not to do too many things. We just try to absolutely nail what we are doing. And then take care of what's in front of you and then build beyond that. So right now, we're very focused on executing for our kind of primary customers in those new spaces.

I do want to ask, it's always tricky to ask your leading customer, but you have made some public comments. So I want to ask you. In terms of the closed-loop controller that's out, it's shipping. In terms of your content next year, is there any way you can dial this in? You guys have always done a good job of kind of giving us the bright crumbs and say, is this content is kind of like similar to this component, power conversion control, I have no idea where to kind of put that in a range. Have you guys kind of quantified that or can you dial this in any bit as to how to think about the tailwind into next year?

Yes, I don't know. I mean, sometimes, I think when we give a range, it's not that helpful, to be honest. I think the initial comment we gave on the closed-loop controller was, hey, it's between an amp and a codec, which is a very big range. And so more helpfully, it was amp light. I think in the -- and to be clear, while we're in the new stuff, the power conversion stuff, I mean, we know where we stand regarding the product, right? We know how much silicon is there. And obviously, we've discussed the cost of that, pricing of that with our customer. During the year running up to the launch of products, though, I mean I'm going to hedge because we have seen variables around attach rates and SKUs in the past, which affect the outlook. So I think we know what it's like on an individual device basis. As yet, we don't have a clear enough picture, I would say, to make a public comment about what we think the expectations are. Obviously, we'll break from that as we get more of a picture. I would, though, emphasize, I think for us, we think this is a bigger opportunity from the closed-loop controller. It's a fairly significantly larger opportunity over time for us, and that's also at the individual level -- the individual device level, it's a kind of meaningfully higher ASP piece of content.

I appreciate that. I did buy the one, the pro max, so you can't see it goes to the background, but I did buy the one with the higher content, I'm helping you out. Going back to Android, I give you a lot of hard time about the trajectory of Android since the Wolfson deal. It actually saw a nice pickup. Obviously, there were some things like Samsung that was kind of out of your control. Can you just talk about the pickup in Android? I think the market's actually quite hot. We had RF companies yesterday, all sound quite good. So can you just talk about the trajectory of your Android business you're seeing into the end of the year?

Yes, yes, absolutely. I mean, I don't want to take too much of a victory lap on the pickup because that's a pickup relative to a pretty atrocious by quarter earlier in the year. I think things were pretty turbulent in the Android space. That said, in -- as we talked at the last earnings, we saw Android kind of start to come back on stream in the last quarter. We're expecting that to continue through our Q3 and Q4, and that kind of continued strength there. That certainly -- it's certainly been very, very conspicuous on our supply chain side that Android guys have come on very strong in terms of their plans. But for calendar '21, I think that bodes well. There is some sense that people think a certain amount of market share is upward grabs depending on what happens to Huawei's business. So everybody is planning to take a big slice of that. It probably will add up to more than 100% of that share. But we've certainly seen a really solid recovery. And as we indicated on the call, I think we've seen some of our -- I mean, both in the -- our largest Android customer is kind of going back online, but also a lot of demand from, for example, Xiaomi Group, very aggressive and very enthusiastic about audio in the next round of products.

Got you. Because you've talked about amps and haptics. I think you said 8 or 10 OEMs, you have wins and you look at the absolute number per quarter, and it's fairly small. You back out Samsung is even smaller. So I guess my comment on premium audio, maybe they do care, but maybe those SKUs aren't the mega SKUs, right? But I guess with haptics, maybe it's a little broader. I mean, can you walk us through where you think Android could be over the next 3 to 5 years? Or things like haptics can actually drive a bigger revenue number because I feel like audio, the premium audio has been kind of hits and misses with certain SKUs, and outside of Samsung has never really amounted that much.

I think -- well, I mean, there's some truth in that. It's not everyone's focus. I think we've seen growing interest in higher excursion speakers, which are going to require higher voltage amplifiers and that speaks -- that's where our kind of leading-edge is focused in our amplifier roadmap. So at this point, we feel -- we probably got -- we, for sure, got the best boosted amplifier you can get for an Android device, but I feel pretty confident we've got the second best as well and probably the third best beyond that, and we've got a few price points covered, which give us, I think, good coverage across flagship and some of the mid-tier of Android in terms of what we can address and what's relevant to our customers at a range of price points. And if you think about that in terms of volume, it's probably -- for us, I think it's in the region of 150 million flagship category, Android devices, all of which are going to be stereo. So call it, ballpark 300 million amplifiers there. And then we think there's probably in the region of a couple hundred million more amplifiers in the mid-tier space that we can address with our portfolio. So not all of those are stereo, some of them are so that's more of a mix, but in total, there's a market where our products are highly relevant and well positioned for somewhere in the kind of 450 million to 500 million units versus amplifier range.

That's helpful. I wanted to ask you about ANC. You guys brought out products, I guess, a couple of years ago, I'm losing track of time. As always, very high and elegant solution, I would say, some success, but it hasn't been a big business. I think you're in ANC devices with maybe some amps, if you look at your largest customer, but in terms of ANC, where you're doing the codec with the algorithms haven't seen as much. I'm kind of curious your perspective on the ANC opportunity. You saw Apple launch some very high-end over-the-ear headsets. Can you just talk about ANC and -- as an opportunity? And if you had anything to comment on the one that Apple launched as well?

Yes. I think generally, we got that partly wrong in that I think we built fabulous ANC technology, but with a strong emphasis on wired devices and a power profile that wasn't going to be ready for the kind of truly wireless with a really, really tightly constrained power envelope. So -- and there's always going to be a -- I think as long as I can remember, there's always been a big chunk of the ANC market where it's just about having letters on the box. Like we're not going to address that. We are always going to be focused on the segment that cares about performance. Where we've been focusing our energies is on transitioning our technology from what we have into something that can be delivered in a truly wireless kind of package. And we announced a codec -- or we mentioned in the last earnings call that we're shipping the first codec that does that to some of our customers for expected product launch in the first half of next year. But yes, I mean, it's an area that continues to be, I think, very good for us in terms of our technology portfolio. It's -- when I think about the big growth markets for us, I think, long term, a lot of the wireless earbud stuff will be integrated with radio. So there's a certain -- there's a big chunk of that market, which based on what we have today is not going to be for us, but in the places which -- where performance is really, really key, I think we've got great products.

I do want to ask you that. So the opportunity, you've actually gained amp content at your largest customer. It seems like their SoC kind of spit out the analog, and you were able to get a discrete amplifier. So in that situation, if the codec's getting integrated, does that -- with an SoC with the radio, does that make the amp market, not only at the leading customer, but in other OEMs, does that create a market over time for you?

I think there are varying architectures there. Actually, a lot like our other business, the architectures between what our largest customer does and other people, they can be quite different. So if you look at the products that we're selling into wireless headsets in the general market in the Android space and so on. Those tend to be based around something that is a relatively standalone radio chip combined with a smart codec. And that's -- we're providing smart codec is doing the analog mixed-signal and providing a DSP for a whole bunch of additional smart features. Some of our other devices, as you said, are focused on providing a discrete amplifier, and we're obviously delighted to be doing that. I think it's a great product. We'd like to find ways of growing value of that if we can. Some architectures are kind of favorable to that, some less so.

I do want to ask you on competition. I would say, for the most part, for all the fears that people have had and haven't lost much at all, Maxim gained some share and then kind of gave it away, and not really pursuing anymore, and I have ADI later today. I don't think they're going to change that direction. NXP, I think, has been kind of in and out, and I'm not sure that's a focus either. So just competitive landscape. Obviously, the codec, there's platform sales, but in terms of merchant competition in codecs and amps, can you just give us a perspective of do you see anybody as a concern?

Are you asking specifically around our largest customer or across...?

I think just broadly, I guess?

Yes. I mean, I think the experience with our largest customer, by and large, and of course, some of the names that you mentioned, that kind of -- maybe even just seem like they blow hot and cold a bit on that. The truth is with our largest customer, when there were big customer opportunities, those can be of such significant stand-alone value that they get -- everybody pays attention and perhaps more than their strategy of record might always indicate. The -- more broadly, I think in the rest of the market, the codec market in smartphones is largely -- has been in decline for a while. It's not news now. We had our own headwind in Android content with the smart codec going away. I think that's not really a territory which anybody is fighting over. But boosted amplifiers, for sure, we see continued competition there. I think there's no doubt if you really care about the audio, your -- you want to pick Cirrus, but as soon as you get into that kind of mid-tier space that I talked about even the upper end of the mid-tier, there are, for sure, offerings from people like TI and then [indiscernible] and so on, which get plenty of attention. So that's an area, which is, for sure, still highly competitive.

I do want to ask maybe a time for more question. Just on the really on the R&D side, the decision to pursue this opportunity for next year. I think you've kind of walked away from -- took the MEMS team and kind of moved them. It seemed pretty obvious, at least the way Jason described is like, "hey, there's a known opportunity, all we got to do is execute." So maybe just talk about the decision. I mean, I think that decision kind of -- it's probably already made, right? I'm assuming that design as well, maybe not done, but well underway and then kind of how you think about kind of prioritizing opportunities for next year?

Yes. That particular product is, if not completely done, is yes, close to. I think we had -- I think we mentioned in the last shareholder letter that we had the first silicon back from that, which we were pretty happy with. So yes, that is well progressed, but when we when we look beyond that, I mean, one of the things that Cirrus is very good at, I think, is getting into a socket and then growing the value. And so we -- one of the things that we do in the strategy cycle that we've kind of just been through for this calendar year, it culminates in December, is we look at what we believe the headroom for value growth is in each of our key areas. And then you have to go and investigate a whole bunch of things, but within any one of those areas, but it was pretty clear for us, for example, that in the power space, it is very much version one that we're doing right now, and there is a laundry list of stuff that we have, our customers very much the same. They've got a laundry list of things. They want to see us exploring. And so a big priority for us is like, okay, so overinvest in that area for now, like stack more chips on that, get a lot of A-list talent on that stuff because we can already see a bit of a roadmap there, and there's going to be a lot of opportunity to develop innovative IP that grows the value of that socket over time. So that's -- even though we're getting there with the first product, that's a big priority for us in R&D terms.

Great. Okay. With that, we're out of time. We really appreciate you joining and supporting the conference and take care.

Thanks a lot for having us. Appreciate it.

Bye.