Cirrus Logic: Sound business plan
Positioning itself in the audio and storage markets, restructured chip company looks forward to growth.
By Caitlin Kelly -- Movers and Shakers, 6/15/2001
| AT A GLANCE | |
| Cirrus Logic |
With DVD players now the fastest-growing consumer-electronics product in history, people will begin to hunger for audio quality that matches the DVD’s improved visuals. The next step—a home-theater system—is one legions of consumers will soon be contemplating. “DVDs are the first compelling reason for people to spend money to update their old college stereo system,” says Stan Victor, a spokesman for Cirrus Logic. “In the future, with broadband home connectivity allowing movies on demand, and then home networking taking off, we’re just starting to see a buying surge in home-entertainment electronics that should span the next decade.”
Cirrus Logic is well positioned to capitalize on that spending spree, as well as on continued growth in the need for data storage. The 17-year-old company chalked up sales of $554 million in FY2000, but also recorded a loss from operations of $132.8 million and a net-income loss of $47 million. Shortly before press time, Cirrus announced that it expected to be back in the black for FY2001. The company said it expects to reach $775 to $780 million in revenue for FY2001, leading to pro forma diluted earnings of between 70 and 74 cents per share for the full fiscal year.
More than 45 percent of the company’s 1,129 workers are engaged in research and product development; Cirrus spent $111.8 million, $130.3 million, and $179.6 million in fiscal 2000, 1999, and 1998, respectively, on R&D, and $65.5 million in the first two quarters of 2001.
The company designs and manufactures circuits that use high-performance analog and digital signal processing (DSP) technologies. Divided into three major areas—analog products, Internet solutions, and magnetic storage—Cirrus sells more than 200 products to more than 1000 customers worldwide, including Apple, Creative Technologies, Dell, Fujitsu, Hewlett-Packard, IBM, SonicBlue, and Sony.
The company’s top magnetic-storage client is Fujitsu, which buys Cirrus Logic’s 3Ci disk-drive controller for its latest-generation drives; more than 20 million have been sold so far. On the audio side, Cirrus sells chips to nine of the 11 major Japanese consumer-audio companies, including household names like Panasonic, Pioneer, and Kenwood.
The audio business currently offers more than 75 products for the consumer and profes-sional/automotive markets, including analog-to-digital and digital-to-analog converters, codecs, and a family of DSP-based audio decoders that support the major audio standards, such as Dolby AC-3, AAC digital theater system, 5.1-channel MPEG audio decoding, THX, and others. Applications include MP3 players, CD players, DVD players, and video-CD players. Cirrus is the world’s largest supplier of audio devices for both the MP3 audio player market and the audio/video receiver markets.
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| “Our current challenge is to execute our plan. In two years, I believe managing growth will be one of our challenges.” |
“MP3.com and Napster showed that digital content distribution using the Internet is a powerful and compelling new market channel,” says CEO David French, who says he is not concerned by Napster’s demise and recent changes in how music is distributed over the Internet. “Our players will continue to benefit as more digital content becomes available over time.”
How essential this element will be to Cirrus is “a big question” Feldhan says. The players sold well last year, he says, citing 70 percent growth in the market. And he expects 25 percent growth this year. Yet many questions remain unanswered. “What is the distribution model?” Feldhan asks. “What content can I use?” Despite the furor over Napster, Feldhan believes there is room for Internet-supplied music in addition to continued consumption of CDs, citing the parallel consumer usage of videos and DVDs.
In fiscal 2000, the company also introduced its Maverick market specific processors (MSPs), which specifically target PDAs, portable digital-audio players, and Internet-access appliances such as electronic books and smartphones. In a year, Cirrus Logic shipped 1 million of the chips.
French, 44, is confident in Cirrus’ ongoing dominance in this marketplace. “We believe that our core businesses are well positioned in the rapidly growing Internet-entertainment electronics market,” he says. “Our current challenge is to execute our plan. In two years, I believe managing growth will be one of our challenges.”
He firmly believes in “unleashing great people with excellent innovation skills who can leverage our intellectual property and relationships with key customers worldwide.” To stay ahead, a CEO in his competitive industry must “know the company’s strengths and weaknesses, set aggressive business and strategic goals, measure how well you and your executive team are executing—then raise the bar.” French holds quarterly meetings with employees at all three major sites that last an average of two hours, with open Q and A.
He is only the second chief executive in the company’s history, moving into his position in February 1999.
“It’s an interesting company,” Feldhan adds. “They were the darlings of the graphics market, but they missed a design cycle and had to restructure. Now they’re focused on storage products. They’ve done a pretty good job of turning the company around.”
The storage market is a good one to target. “With all the PCs and servers and workstations attached to the Internet, there’s a huge growth in optical storage and adding additional capabilities on the Internet,” Feldhan says. “It’s easy to add storage to infrastructure, and the companies that are up and running do need to maintain an adequate storage capability. People are still using email. Every time you use email it’s got to be stored somewhere.”
French credits the firm’s success to “new products and financial strength. We have more than 1000 patents granted or pending, and our analog/mixed-signal integration skills are unmatched in the industry.”
In his spare time, (which he says carving out is “something you work at constantly”) French, a father of four, enjoys running, golf, and playing chess.
