Cirrus Logic Earnings Call: Record Profits, Rising Risks

Cirrus Logic ((CRUS)) has held its Q3 earnings call. Read on for the main highlights of the call.

Cirrus Logic Balances Record Results With Clear Near‑Term Headwinds

Cirrus Logic’s latest earnings call painted a picture of strong execution against a challenging backdrop. Management highlighted a clear beat on revenue, record earnings per share, robust cash generation, margin gains, and a fortress-like balance sheet. At the same time, they were candid about material risks: extreme customer concentration, soft general market demand, pricing pressure that weighed on year-over-year margins, and a sharp expected revenue drop next quarter. Overall, the tone was confident but cautiously realistic, suggesting a company executing well while navigating a transition in its product mix and end markets.

Revenue Beat Underscores Solid Top-Line Growth

Cirrus Logic reported third-quarter revenue of $580.6 million, coming in above the high end of guidance and rising 4% both sequentially and year over year. The upside was driven primarily by stronger-than-expected smartphone unit volumes and a favorable product mix. In a market where many semiconductor names are still dealing with uneven demand, Cirrus’ ability to modestly grow revenue while beating its own outlook stands out, even if the growth rate remains relatively measured.

Record EPS Highlights Strong Profitability

Profitability was a bright spot. Non-GAAP net income reached $156.7 million, translating into a record non-GAAP EPS of $2.97 for the quarter. Non-GAAP operating income of $175.1 million represented a healthy 30.2% operating margin. These figures signal that Cirrus is not just growing its top line but doing so with strong cost discipline and operating leverage, even as it continues to invest in new product areas.

Gross Margin Expands Sequentially on Operational Efficiencies

Non-GAAP gross profit came in at $308.2 million, with a non-GAAP gross margin of 53.1%. That margin improved by about 60 basis points sequentially, helped by reduced inventory reserves and better supply chain efficiencies. While year-over-year comparisons were pressured by pricing reductions, the sequential improvement suggests management is finding levers in operations and mix to preserve profitability in the face of industry-wide pricing normalization.

Cash Machine With a Debt-Free Balance Sheet

Cirrus Logic’s cash generation was notably strong, reinforcing the financial resilience behind its growth story. The company ended the quarter with $1.08 billion in cash and investments, up $185.9 million from the prior quarter, and reported $290.8 million in operating cash flow. That translated into a standout non-GAAP free cash flow margin of 49% for the quarter and 31% on a trailing 12-month basis. With no debt on the balance sheet, Cirrus is well-positioned to fund R&D, pursue strategic opportunities, and continue returning capital to shareholders.

Share Buybacks Signal Confidence in Valuation

Capital return remained an active part of the story. The company repurchased $70 million of its own shares during the quarter, buying back about 591,000 shares at an average price of $118.33. With $344.1 million still remaining under its current authorization, Cirrus has room to keep shrinking its share count. The buybacks underscore management’s confidence in the long-term outlook and suggest they view the stock as an attractive use of cash relative to other opportunities.

PC Segment Momentum Builds From a Small Base

One of the more strategic themes of the call was Cirrus’ progress in PCs. The company reported ramping first shipments of its latest-generation amplifier and codec into mainstream PC platforms ahead of customer launches. It also showcased multiple CES product introductions using Cirrus components, including a notable first design win with a new customer in the high-end PC segment. Looking ahead, management expects PC revenue in fiscal 2026 to roughly double from the low tens of millions anticipated in fiscal 2025, with a strong runway into fiscal 2027. While still a relatively small piece of the business, this segment is emerging as a key diversification and growth driver beyond smartphones.

AI PCs, Automotive Haptics, and Prosumer Audio Extend the Roadmap

Cirrus is leaning into new product categories that could become meaningful growth engines later in the decade. The company is sampling a voice-focused codec tailored for AI-enabled PCs, with a potential average selling price roughly double that of the prior generation and revenue visibility beginning in the 2027–2028 timeframe. In parallel, Cirrus is sampling a new prosumer audio product family and automotive haptic components, and continues to see strong engagement around next-generation camera controllers and advanced battery and power IP. These initiatives are still early, but they signal a deliberate strategy to diversify and move up the value chain in audio, sensing, and power.

Inventory Discipline Supports Margins and Working Capital

Inventory management improved markedly during the quarter. Inventory dropped to $189.5 million from $236.4 million in the prior period, bringing days of inventory down to roughly 63. This cleanup not only frees up working capital but also contributed to the sequential gross margin improvement. For investors, tighter inventory control is an important sign that the company is aligning production with demand amid shifting product cycles and end-of-life dynamics.

Customer Concentration Remains a Key Strategic Risk

Despite operational strength, concentration risk loomed large over the call. Cirrus disclosed that its largest customer accounted for approximately 94% of revenue in the quarter, underscoring a very high degree of dependency on one major smartphone OEM. While this relationship currently drives strong volumes and profitability, it also creates vulnerability to any change in that customer’s designs, sourcing choices, or unit demand. The company’s push into PCs, automotive, and other markets is partly aimed at mitigating this structural risk over time.

Q4 Outlook Calls for a Sharp Revenue Drop

Investors must also contend with a steep near-term slowdown. Management’s guidance for the fourth quarter calls for revenue in the $410 million to $470 million range, implying a roughly 24% sequential drop at the midpoint from the Q3 level of $580.6 million. This decline reflects typical seasonal normalization in the smartphone cycle and some uncertainty around near-term demand patterns. While not unexpected in a seasonal business, the magnitude of the decline stands in contrast to the record profitability just reported and highlights Cirrus’ exposure to the timing of large customer ramps.

General Market and Android Exposure Continue to Shrink

Outside its largest customer, Cirrus is seeing softness in general market sales. These revenues declined both sequentially and year over year, driven in part by a deliberate strategic pullback from Android-related business and the unwinding of demand as older product families reached end-of-life. While this reduces diversification in the short term, management is clearly prioritizing higher-value opportunities and newer platforms, even if it means accepting weaker general market trends for now.

Pricing Pressure Weighs on Year-Over-Year Margins

Year-over-year gross margin comparisons were dampened by pricing headwinds. Non-GAAP gross margin was down about 50 basis points versus the same period last year due to previously anticipated pricing reductions. Management expects pricing normalization to remain a factor and will need to counter it through ongoing cost reductions, design efficiencies, and a shift toward higher-value, higher-ASP products such as AI PC codecs and advanced audio solutions.

End-of-Life Products Create Temporary Revenue Headwinds

The company is also working through a long tail of legacy products, many built on older process nodes, that are reaching end-of-life. Customers had previously ordered ahead of these transitions, and are now unwinding those volumes, creating short-term revenue headwinds in some general market segments. While this is pressuring near-term sales, it should ultimately simplify the portfolio and allow Cirrus to focus on more modern, strategic platforms with better growth and margin potential.

Higher Operating Expenses Reflect Ongoing Investment

Non-GAAP operating expenses rose to $133 million, up $5.3 million sequentially and $3.8 million year over year, primarily due to higher employee-related costs. Management signaled that spending will remain elevated as the company continues to invest in R&D and new product development for PCs, AI, automotive, and advanced audio. For investors, this means near-term expense growth, but also reflects a conscious choice to fund the next wave of diversification and innovation beyond the current smartphone-heavy revenue base.

Guidance Signals Seasonal Reset but Stable Margin Framework

Looking ahead to the fourth quarter of fiscal 2026, Cirrus guided revenue to a range of $410 million to $470 million, with GAAP gross margin expected between 51% and 53%. Non-GAAP operating expenses are projected at $124 million to $130 million, and the company anticipates a full-year fiscal 2026 non-GAAP effective tax rate of 16% to 18%. Management limited their outlook to the upcoming quarter and emphasized that they see no material deviation from historical seasonal patterns. The guidance suggests a step down from Q3’s peak revenue and earnings, but within a framework of still-solid margins and disciplined cost control.

Cirrus Logic’s earnings call showcased a company delivering record profitability and impressive cash generation while candidly acknowledging the risks inherent in its concentrated customer base and shifting product portfolio. The near-term picture includes a meaningful seasonal revenue decline, ongoing pricing pressure, and weaker general market sales, but the long-term narrative is increasingly about diversification into PCs, AI-enabled devices, automotive haptics, and prosumer audio. For investors, the story now hinges on whether the company can successfully translate its strong financial foundation and robust R&D pipeline into a more balanced, sustainable growth profile over the next several years.