Why Cirrus Logic Shares Up 13% All But Confirms iPhone 7 Without a Headphone Jack
With increasingly reliable sources reporting that Apple will ditch the headset jack in its upcoming new iPhone models, the company’s top supplier of audio chips all but confirmed the controversial change.
Cirrus Logic CEO Jason Rhode didn’t name Apple on a call with analysts on Wednesday night. But with the iPhone as the only major new phone launching in coming months—and Apple being Cirrus’s largest customer—analysts took his generic comments as a straight up discussion of Apple’s plans.
Before speaking to the analysts, Rhode reported that Cirrus’s sales of $259 million and profits of 44 cents per share in the just finished second quarter (the company’s fiscal first quarter) exceeded analysts’ expectations. The company’s forecast of sales in the next quarter of $380 million to $410 million smashed analyst expectations of just $322 million.
That sent shares of Cirrus Logic, which have already gained 41% so far this year, up another 11% in pre-market trading on Thursday.
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Why the big increase? It’s not because lots more phones will be sold, but because of a big change in the market for headphones, Rhode explained. “We’re not expecting, or at least we are not facing on any outlandish unit growth in the mobile market,” he told analysts. “We expect big new things from, in particular, headsets and amplifiers.”
Later on the call, Rhode was asked about his company’s business making chips for more expensive, noise-canceling headphones. But the Cirrus Logic (CRUS) CEO veered into the subject of headphones with non-traditional connections.
“We’ve already seen multiple Android handsets that are shipping that eliminated the headphone jack and either ship with or have as an accessory a USB headset or an adapter of some sort,” Rhode explained. “It’s pretty rare that there exists one-plus billion unit market out there that traditionally has zero silicon content and suddenly has a strong reason to have an interface device and some level of conversion circuitry and earphone drivers and microphone pickups and whatnot. So that’s a really remarkable opportunity and we’re very well situated to capitalize on that.”
Most of the listeners heard in Rhode’s comment of a “suddenly…strong reason” for headphones to need a new way to connect to phones an indication of Apple’s (AAPL) plans.
For more on the upcoming iPhone, watch:
The next iPhone, which outsiders have dubbed the iPhone 7, is rumored to look much like the current iPhone 6S model. However, Apple is removing the traditional headphone jack in an effort to make the upgraded device thinner and more water resistant, the Wall Street Journal reported last month.
The new iPhones could help Apple reignite sales growth after two quarters in a row of declining phone sales. Apple said this week that sales of the iPhone dropped 15% in the second quarter of this year.