Business model of Cirrus Logic

Customer Segments

Cirrus Logic provides semiconductor components for use in mobile technologies, consumer electronics products and automotive entertainment systems. According to its 2016 annual report, the Company considers its end customer to be the entity specifying the use of its components in their design. Its customers therefore principally comprise electronics manufacturers, both domestic and international and including established brands and emerging operators.

The Company’s own information states that for the fiscal years 2016, 2015, and 2014 its ten largest end customers represented around 89%, 87%, and 88% of its total annual sales. Cirrus Logic’s largest single customers are Apple, which for the years 2016, 2015, and 2014 represented approximately 66%, 72% and 80% of the Company’s total sales, respectively, and Samsung Electronics, which represented approximately 15% of the Company’s total sales in 2016. In the past three years no other single customer has accounted for more than 10% of the Company’s annual net sales. Other customers include electronics manufacturers LG, Lenovo, Sony, Panasonic and Motorola.

Value Propositions

Cirrus Logic’s key value to customers is in the quality and reliability of its products. The high regard in which the Company’s products and services are held is apparent in the standing of its key customers, in particular high-profile company’s such as Apple and Samsung, which themselves command a reputation as providers of quality products.

Research and development is a key facet of Cirrus Logic’s operations, with the Company always seeking to develop new and innovative products for its customers. Cirrus Logic is assisted in this process through partnerships with a number of market leading partners within the audio industry.

Additionally, the Company provides value to its customers through the ongoing provision of technical support services.

Channels

Cirrus Logic operates mobile and desktop websites at www.cirrus.com, where customers can find information on the Company’s products and services. Purchases, however, cannot be made through online channels. Customers can purchase products from the Company directly by contacting one of its domestic or international sales offices across the US, Hong Kong, Japan, China, Singapore, South Korea, Taiwan and the UK.

Cirrus Logic supplements its own direct sales team with external sales representatives and authorised distributors.

The Company’s products can also be acquired through third-party manufacturers that have been contracted to produce designs that incorporate Cirrus Logic products.

Customer Relationships

Cirrus Logic aims to provide bespoke services to its customers, incorporating its own products into third party designs. As such, customers must collaborate with the Company throughout the production process.

Customers receive ongoing technical support from the Company both during and after this process in the form of online resources and direct assistance.

Cirrus Logic also maintains a limited social media presence, which appears to comprise only a Twitter account, through which it is able to interact with its customers.

Key Activities

Cirrus Logic is engaged in the supply of integrated circuits for audio and voice signal processing applications. The Company develops analog and mixed-signal circuits for a range of customers within the electronics sector, organised into Portable Audio, and Non-Portable Audio and Other product lines.

Cirrus Logic operates research and development, design, sales and marketing, and administration arms both within the US and across Asia, Europe and Australia, and sells its products through direct and indirect sales channels. Cirrus Logic does not own or operate its own semiconductor fabrication facility and does not have the resources to manufacture the majority of its products internally.

Instead, the Company utilises a network of third-party operators to manufacture, assemble, package and test a significant proportion of its products.

Key Partners

Cirrus Logic has a number of partners, primarily categorised as service partners, which help customers to build bespoke audio solutions, and software partners, which assist in the development and design of Cirrus Logic products.

Among the Company’s service and software partners are Audyssey, Harman, NXP Software, Sasken, Incube and Elliptic Labs. Cirrus Logic has also entered into joint development, product collaboration and technology licensing arrangements with some of its largest customers, notably Apple of which it is an audio partner.

It also has partnerships with threat detection platform ZoneFox, multimedia technology company Diamond Multimedia and with negotiations specialist The Negotiation Training Institute. The Company expects to enter further strategic arrangements in the near future.

Key Resources

Cirrus Logic’s key resources are its intellectual properties and technologies, its design and sales facilities, its supply and manufacturing partners, its strategic partnerships, and its personnel.

In its 2016 annual report the Company states that its continued success depends in large part on its continued ability to attract and retain highly-qualified technical, engineering and marketing personnel. Searches of records held by the US Patent and Trademark Office identified more than 100 patent applications filed in Cirrus Logic’s name. This includes applications entitled ‘Controller for adjusting a switching frequency in a boost converter’, ‘Systems and methods for protecting a speaker’ and ‘Robust adaptive noise canceling (ANC) in a personal audio device’.

Cost Structure

Cirrus Logic incurs costs in relation to its research and development activities, the operation of international design centres and sales offices, the employment of sub-contractors and third-party manufacturers, maintenance of supply chain and logistics streams, and retention of personnel.

The Company’s most significant costs relate to research and development, which in 2016 amounted $269.2 million, $71.3 million more than in 2015. Cirrus Logic employs more than 1,290 employees worldwide, representing costs in relation to salaries and benefits, and operates physical facilities across the US, Asia, Europe and Australia, which accrue costs in the form of rent and utilities.

Revenue Streams

Cirrus Logic derives revenue from domestic and international sales of its semiconductor products. International sales – including across Asia, Australia and Europe – account for the majority of the Company’s total sales revenue, representing 93% of net sales in fiscal year 2016, 95% of net sales in fiscal year 2015, and 94% of net sales in fiscal year 2014. This trend is expected to continue.

Cirrus Logic operates and tracks its financial results in one reportable segment, but reports its annual revenue performance in two product lines: Portable Audio, and Non-Portable Audio and Other. The Company’s Portable audio product line generated $989.1 million in sales in fiscal year 2016, representing an increase of 34% on the $740.3 million in sales recorded the previous year. In its annual report the Company attributed this increase to an increase in the sales of smart codecs and boosted amplifiers. 2016 sales of Non-portable audio and other product line sales amounted to $180.2 million, an increase of a 2% increase from fiscal year 2015.