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

I'll do my best.

It's endemic anyway. I wanted to really dive into the -- you mentioned placing big bets and putting all the energy of the company behind the big bets. You have a couple of things that are, would say, relatively newer into the portfolio. One is to go after the PC market. One is to go after some of the power conversion spaces. Whichever order you like, maybe we could kind of walk through some of the new bigger bets you're making?

Yes, absolutely. And they're quite different but very complementary. Maybe just to back up a second. When we talk about our strategy, we typically talk about 3 kind of prongs to that. First of them being maintain and build our leadership in smartphone audio. The core new products that I talked about earlier on, the smart codec and the boosted amplifiers are really kind of enshrine that. The second prong is about expanding our content within smartphones beyond audio in what we call the high-performance mixed signal space. And then the third prong is leveraging a lot of that IP across audio and high-performance mixed signal into new markets. So in the case of the PC market, just to take that first, we're very excited about our momentum there. But one of the key attributes is that we're able to leverage a lot of the IP that we've developed for our smartphone products into PC products, which may need to be repackaged, may need to be -- they are dedicated products for PCs, but they're leveraging a lot of IP investment we've made over the years. So in the PC space, we're still in relatively early innings, but we have a great pipeline of opportunity, and we think we're building really, really good momentum. We see a lot of customer activity driven by the reference design, Intel's Lunar Lake reference design, where we have multiple pieces of silicon on there. That means we see serious silicon coming to market this year in products. We've already seen that, but we're going to see a lot more as we get into the next calendar year. And I'll just park the PC stuff there for a moment. I'm sure we can get into it in more detail. But to go back to your point about power, when I say high-performance mixed signal and expansion within the smartphone, camera represents a significant component of that. Haptics too, but one of the biggest kind of new, unconquered or only partially conquered bits of territory for us is around power. And so we did, a few years ago, ship our first power conversion and control chip. Since then, we've been making a lot of IP investment in developing additional technologies around the battery, both upstream and downstream of the battery. We see that as an area where we have something unique and innovative to bring to the market. So that represents a pretty significant chunk of what drives our SAM expansion over the coming years.

Maybe just to pick up on that last point. Within investor circles and my conversations, we have a lot of conjecture about what is AI going to be in a smartphone? What is AI going to be in a PC? I kind of come at it. I don't claim to know, but I come at it from a little bit of a technical angle, which is, in these devices, you can pretty much tell that to bring onboard on-device inference, the processing and the memory parts of the device are going to have to take more power. And then I would imagine that the people that make these devices with limited battery life are trying to figure out how the heck to get power from everything else. Is that short summary, the driver behind what you guys are investing in?

I think that's a very fair analysis. I would throw into that board space as well. So I think the requirement for additional onboard processing. If you're going to -- you have to take a simple example, you're going to have some kind of generative AI capability on the device. You're going to be running a model that's going to require substantial memory and most likely additional processing cores relative to what are there today. All of that is going to require more space as well as more power. And so we think of power and board space as being at a premium, probably that premium increasing relative to the way it has been over the past few years. That creates a huge opportunity for us. For a start, everything we do is incredibly power-efficient. So if you compare Cirrus mixed-signal devices to our competitors in various categories, we're typically significantly ahead of them in terms of the geometry that we work at. That's expensive and it's hard. But the way it benefits you is greatly increased power efficiency, higher processing density, so the ability to do more processing within a given space and the ability to shrink the chip further. So we are really, really well positioned to deliver some of the key benefits that are going to be required -- these key attributes that are going to be required as a consequence of on-device AI. Specifically in the power space, I think what we have done in the power conversion and control chip is actually a really good kind of signpost to some future opportunities because one of the things that, that chip is doing is managing the state of the battery and how the system draws charge from the battery during peak power events. So there are various things which drive kind of peak demand on the battery. One of them is, in fact, the use of kind of neural cores. When you fire all those up, lights everywhere else in the system kind of go dim. And that can damage the battery, but it can also really harm the user experience elsewhere. If you're trying to use the camera at the same time and it starts to drop frames or something, that's a terrible user experience. So what our chip does is manage the power across those different demands during these peak events in a way that preserves the battery health and preserves the user experience. I can only see that getting more important over time.

Maybe just as a follow-up on the kind of AI question. If you look at some of the recent [indiscernible] accomplishments, it seems like they are thinking [indiscernible]. Can you just talk about any future opportunities or anything you are working on there, with respect to how the interaction with phone or [indiscernible] changes?

Yes, I certainly think anything that drives the voice interaction side has the potential to benefit Cirrus. We are in the voice path. So ironically, you can hear that my own voice is recovering right now from a child born virus over the weekend. But yes, we're in the voice path. And actually, we added significant value to the system during that first era of the voice-driven interface, when the first voice assistance came, there was a voice wake. It was a kind of a novel feature and so on. All of that is centered around the codec and the kind of processing that we are able to do on the codec. So I don't want to talk about specifics in relation to that, but we do think of that as being fundamentally interesting set of opportunities there, yes. And the same would go in the PC space. I mean I was kind of referring to smartphones there, but we're now shipping codecs into a lot of PCs. And again, all the microphones are connected to our codec. We're going to see all the signals, means we can do a lot of useful, valuable processing.

Getting on to the PC conversation. I guess I have two questions on, I guess, different topics, but one is the motivation in the PC industry to start to pull the high-performance stuff that you guys have into the PC market, right? Just that first principles like, what's the motivating factor that -- I mean, Intel's point you guys into reference designs and there's pulls now. Is it as simple as Apple has 10-hour battery life and the Windows ecosystem has to figure out what they have to do? And now they're trying to -- I mean, at the first order? Or are there consumer features that require more audio? I'm just trying to get to the root cause of -- because I've been asking you and asked Jason the same thing before, like there's these adjacent market opportunities. Like it seems like that pull could happen before, but it's happening now. So just trying to wonder what the difference is?

Yes, both the pull and we have very deliberately set out to chase them as well. So that's been a very, very conscious ambition and choice on our part. I think for many years, we were running just to stand still to keep up with our largest customer. I think we achieved the kind of scale of R&D where we could actually say, okay, like now can we leverage more of this IP into attacking other markets. So that's a big part of what's driven our engagement with the PC landscape. But there has been a pull as well. And that's twofold. In the audio space, that's very much driven by a couple of things, but one above all, the experience of having meetings through the screen, which obviously accelerated very significantly with COVID. Coming out of COVID was kind of when we started engaging with our laptop customers. So we're in design with all of the top 5 laptop vendors. And we heard pretty consistent stories from all of them about the fact that in the past, it just didn't matter. I mean, honestly, PC-based audio was not good, I'd say, whereas that had started to show up because nobody bothered with PC audio. So nobody was aware that it wasn't that good. When you're having meetings through the screen every day, both audio and the input side, to the quality of the processing of the voice signal and on the output side, so can I clearly hear everybody that I'm talking to, is there adequate volume to have a meeting with a group of people. All of that started becoming significantly more important. At the same time, yes, the competitive benchmark moved quite significantly with custom silicon from our largest customer. That meant that you needed to be able to deliver more processing or more capability for longer in a thinner chassis. These things like, pick one. It's very, very hard to achieve all of those, but our technologies do significantly contribute towards being able to achieve them. The reason for that is one, on the audio side, a shift to a boosted amplifier architecture allows you to create much higher volume with a much smaller cavity. So if you want to make something loud, you got to move a lot of air. And typically, in a relatively inexpensive laptop, there'll be like a big volume of air around the speaker, the transducer. But you can't afford that in something that needs to be really slim. So you've got a tiny back cavity for the transducers. It means you need to drive those speakers much higher voltage. That means you need a boosted voltage, so higher voltage than you're getting from the battery. And this is really what happened in smartphones like 10 years ago. It's happening now in the laptop space. So we have quite significantly the best boosted amplifier architectures for smartphones. We leverage those into the PC space, then people can build really thin laptops that still sound great, where you've got a loud volume play back at high quality. On the power side, our goal is to provide the most efficient power conversion. So whether you're charging the battery or taking power from the battery and feeding it to various devices, there will be various stages of power conversion, so from one voltage to another, for example. Every time you do that, the efficiency really, really matters because if you're inefficient, you're generating heat. You are losing some of that energy through heat. And if you want to build the thinnest possible device, ideally fanless, that has a good user experience, then you're going to want the most efficient power conversion you can possibly get because you're really designing to a thermal envelope. And that's what we set out to do. A few years ago, we acquired a company called Lion Semiconductor, who had novel and a very high-performance power conversion technology. We've taken that, and that's formed the basis of our first laptop-focused power conversion chips. They were on the reference design that I referred to earlier. And they're in design with customers there.

Well, against our handy-dandy shock clock here in the back, I think we might have to cut things here, John, but I'll just say that it's a testament to you and your company that you guys have been able to make happy the most demanding customer in the industry for so long. And well done, thank you for the partnership and have a good day.

All right. Have a great conference. Thanks.