The company was floundering until it decided to focus its energy on sound circuits for Apple devices. But CEO Jason Rhode knows he can’t put all his chips in one basket.
In June 2007, Jason Rhode, the newly minted CEO of Cirrus Logic (CRUS), met with his top advisers to decide “what we want to be when we grow up.” The microchip-design company, founded in 1984, had seen revenues tumble, and its shares were nearly delisted after a stock options backdating scandal. Rhode decided to concentrate on the company’s strength — audio chips — and jettison less profitable non-core operations such as a so-called system on a chip for digital media servers. The focus paid off as Apple (AAPL) bought its sound circuits first for the iPod, then for iPhones and iPads. Today 70% of Cirrus’ revenues come from Apple’s business, and its sales have doubled since 2007, with profits increasing sevenfold.
The next step: Re-diversifying
Cirrus’ reliance on Apple now makes it vulnerable. The iPhone maker could switch to another supplier or could see sales of its white-hot products taper off. The risk is “definitely out there,” says Capstone Investments analyst Jeff Schreiner. So Rhode is diversifying, targeting chips that provide dimming capability for LED light bulbs, a market estimated to be $11.5 billion in 2013. Cirrus expects to sell 5 million to 10 million chips this year. Still, lighting won’t “offset the Apple exposure at least for another two years,” says Needham & Co. analyst Vernon Essi. Till then, if Apple coughs, Cirrus will catch a cold.
This story is from the April 30, 2012 issue of Fortune.
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