Cirrus Logic's profit in line

May 2, 2001: 5:09 p.m. ET

Specialty chipmaker meets the Street, shifts its focus to spur growth

NEW YORK (CNNfn) - Chipmaker Cirrus Logic on Wednesday reported a fiscal fourth-quarter operating profit that was in line with the Street's expectations and lowered its financial targets for the current quarter.

The company also said it is moving away from its less profitable business lines in favor of those it has identified as providing greater growth opportunities.

Including a $17.4 million inventory charge, the Austin, Tex.-based company said it earned 6 cents per share during the quarter ended March 31. Excluding the inventory charge, which it took primarily to reserve inventory exceeds its current short-term forecast, the company reported earnings per share of 24 cents per share.

The company's latest quarterly profit matched the expectations of analysts polled by earnings tracker First Call, and compares with a profit of 28 cents per share during the same quarter a year earlier.

At $199.7 million, Cirrus Logic's fiscal fourth-quarter revenue fell 4 percent from the $208 million it reported during the same quarter a year earlier.

Cirrus Logic makes custom, system-level chips based on analog and digital technologies.

During the fiscal fourth quarter, Cirrus Logic said strong sales in its magnetic-storage division were offset by lower-than-expected revenue in analog and Internet solutions, primarily due to inventory corrections in the PC marketplace.

As a result of the shift in product mix to the less profitable magnetic-storage chips, the company said its gross margin, the percentage of sales remaining after subtracting product costs, fell to 37 percent, excluding the inventory charge, from 40 percent in the prior quarter.

Cirrus Logic executives said they would sharpen their focus on the more profitable areas of their business moving ahead, but promised not to abandon their customers in the less profitable ones.

"As we evaluate the current economic environment, the [factory] over-capacity situation, the growth of the consumer and electronics markets, and our best prospects for profitable growth, we believe it is in the best interest of all our shareholders to move toward the higher growth and higher margin entertainment electronics business," David D. French, Cirrus Logic's president and chief executive, said in a statement.

In the current quarter, French said revenue from magnetic storage products likely will decline 20 percent from the fiscal fourth quarter's level.

"This transition away from magnetic storage will allow us to work toward a new business model, which includes improving our profitability rates over the next two years," French said. "Assuming a recovery in the semiconductor industry by early next year, we believe we can achieve our new business model targets by the end of next fiscal year."

Moving into fiscal 2002, which ends next March, Cirrus Logic said it will make some near-term adjustments to bring its expenses in line with lowered revenue expectations, which it lowered slightly.

In the fiscal first quarter the company said it expects its revenue to be between 10 percent and 15 percent below the $199.7 million it just reported for the fourth quarter. The company said it expects first-quarter earnings per share to be in a range between 10 cents and 15 cents.

Analysts recently had expected the company to report first-quarter sales of roughly $180 million, suggesting a 10 percent decline, and a profit of 11 cents per share.

For all of fiscal 2002, the company said it expects its analog and Internet solutions revenue to return to 40-percent annual revenue-growth rates during the September quarter, and also expects its gross margin to be in a range between 44 percent and 46 percent by the fourth quarter.

Shares of Cirrus Logic (CRUS: Research, Estimates) rose 7 cents to $16.70 on Nasdaq ahead of the earnings news, which was released after the closing bell. They slipped 5 cents to $16.65 in extended-hours trade.