Apple stock tanks on bad news from audio chip supplier

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A company you’ve never heard of is being blamed for dragging Apple’s stock down to its lowest point since late 2011, $401.68. Cirrus Logic, which makes audio chips, reported revenues of $170 million for first quarter, missing analysts’ expectations by nearly $30 million. The reason Apple investors reacted the way they did is because Apple is believed to be Cirrus Logic’s biggest client: if its sales are down, it signals Apple’s mobile device sales could be down too.

According to Bloomberg:

Cirrus will record a net inventory reserve of $23.3 million for the fiscal fourth quarter, which ended in March, the Austin, Texas-based company said in a statement yesterday. Most of that — $20.7 million — is from a high-volume product from one customer, Cirrus said, without naming the client.

Bloomberg reports that the unnamed client is Apple, and that 90 percent of Cirrus Logic’s revenues come from selling audio chips that Apple puts inside of iPhones and iPads. If Cirrus Logic has huge amounts of unsold inventory, the thinking is that it’s because Apple had no need for them — that it possibly overestimated the number of iPhones and iPads it was able to sell during the first three months of 2013.

Even if that’s true, there’s more than one possible explanation for Cirrus Logic’s excess supply of chips. Apple could have switched providers of those chips, for instance. Apple CEO Tim Cook warned when similar negative supplier reports caused a massive freakout among investors a week before earnings last quarter: “I’d stress that even if a particular data point were factual, it would be impossible to interpret [the meaning] for our overall business. Yields can vary, supplier performance can vary … there’s an inordinately long list of things that would make any single data point not a great proxy for what’s going on.”

And here we are again, a week from Apple reporting its fiscal second quarter earnings, which will take place April 23. The signs that this isn’t going to be a blowout quarter are there: Apple had no major new product introductions between January and March, and it might also be drawing down production on some models of iPhones and iPads as it may be preparing for new devices this summer.

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