CRUS has been lingering around the 52-week low as the markets
soared to record highs week after week. The troubles with
the company are apparent: revenues have been down compared to year-ago
periods (although they seem to stabilize after several disastrous
quarters), net profit margins were in the low single digits as
profit plummeted. Are there still hopes in the company?
I gathered CRUS's financial data for the last few years and have
done some number crunching with the data. In the followings, I'll
present three scenarios: a rosy scenario, a bearish scenario and
a more realistic scenario. My conclusions from the analysis are that:
1) Cirrus's cost structure (R&D+SGA) is too high, which results in
thin net profit margins year after year.
2) to restore investors' confidence, the management team should
set the goal of bringing the net profit margin to the 10% mark by
keeping R&D budgets under control while raising the gross margin
to above 40%;
3) CRUS has a decent chance to make ~1.30 to 1.50 for the next fiscal
year and its stock price could be back to ~$30 by the end of '97
if the goal stated above is met.
Here are some of the historical financial data for CRUS that will
be used in my analysis (note: CRUS's fiscal '98 starts at March 97).
SqRvGr GrMg R&D SGA
95Q2 .09 .44 .18 .14
95Q3 .13 .41 .18 .14
95Q4 .20 .39 .18 .13
96Q1 .10 .41 .18 .13
96Q2 .06 .45 .17 .12
96Q3 -.07 .40 .20 .15
96Q4 -.21 .04 .30 .20
97Q1 -.08 .38 .28 .14
97Q2 .10 .38 .25 .13
97Q3 .07 .38 .24 .12
mean* .08 .40 .22 .13 (*excl. 96Q4)
SqRvGr: Quarterly sequential revenue growth rate.
GrMg: Gross margin.
R&D: R&D spending as % of revenue.
SGA: Selling, General and Administrative as % of revenue.
For comparison, many other companies in the semiconductor business
are running their companies at a much lower cost ratio. For example,
ADI consistently achieves a gross margin of ~50% while keeping both
R&D and SGA at roughly 15%. ATML is even better, with both R&D and
SGA close to 10%. S3, who competes directly with CRUS, was able to keep
R&D under 15% and GSA at 10%. The high expenses with which CRUS
runs their business really eat into the company's profit.
(continued on next post) |
