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The Ties That Bind

Conventional wisdom dictates businesses should not put all their eggs in one basket, i.e., not depend too heavily on one customer or market. But what if that one basket were {complink 379|Apple Inc.}?

Fabless semiconductor maker {complink 1130|Cirrus Logic Inc.} may be facing such a dilemma. Cirrus derives almost 60 percent of its business from Apple and suffered a bit in its June quarter as Apple posted less-than-stellar results. But Cirrus expects its September quarter revenue to increase by at least 70 percent as it ramps up for Apple’s anticipated iPhone 5 release, also set for September.

Cirrus’s sales increased to $99 million for the quarter ended in June, up 7.3 percent on a year-over-year basis. Net income on a GAAP basis was $6.9 million, compared with $9.2 million in the year-ago quarter.

Given a spate of lackluster results across the chip market, Cirrus may be in an enviable position. “At a time when the rest of the industry will be grateful for single-digit growth in the third quarter, Cirrus’s projections are a gift horse that no company would look in the mouth,” writes EETimes’s Junko Yoshida.

But Apple is a tough taskmaster and expects a lot from its suppliers: Getting ready with a steep product ramp, without a hitch, for the single biggest customer is no easy task, Yoshida reports:

    Jason Rhode, Cirrus Logic's CEO, talked about the importance of getting the device ready far in advance, securing capacity with fab partners, working with a number of back-end assembly partners and readying a broad array of advance packaging. However, Cirrus is no stranger to such meticulous preparations, noted Rhode. “Cirrus has been a fabless company since 1984 before fabless was cool,” he added…

    Cirrus’s chips are also believed to be a shoo-in for Apple’s highly anticipated mini iPad, a smaller-screen media tablet. Apple is reportedly looking to add a 7-inch screen tablet to complement its existing 9.7-inch iPads.

With their product roadmaps so closely tied, would it make sense for Apple to simply acquire Cirrus? Vertical integration is making a comeback, several EBN bloggers report. (See: The Mini Supply Chain: Overlooked, yet Potent and Is Outsourcing Losing Its Appeal?) Cirrus is a fabless chip company, so Apple wouldn’t be buying factories. With 60 percent of its business already in Apple’s camp, as Yoshida so elegantly puts it: “Cirrus already walks like a captive and talks like a captive of Apple.” Apple certainly has the cash to buy a chip company: It has $117 billion in the bank.

However, some analysts are waiting for Apple to make a big buy: something like Twitter, RIM, or even Sprint. A mere chip company might not be ambitious enough. What do you think?

1 comment on “The Ties That Bind

  1. stochastic excursion
    August 3, 2012

    High-profile business relationships like the ones Apple has in place make plain the level of commitment and the level of return involved.  They remind me of celebrity couples.  The public eye affects how business is conducted and raises the stakes on commitments.

    Apple has signalled a willingness to throw in its lot with industry standards since it released an operating system that is a lot like Unix.  On the hardware side there hasn't been a move to an open architecture like the PC.  I think that would open up the market quite a bit and lessen the significance of any single supplier.

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