Audience Stabilizes Position as Smartphone Demand Grows

According to a study published by Strategy Analytics, during the previous quarter, mobile sales as a whole reported growth of a mere 1% over the year. However, within mobile phones, smartphone shipments reported stellar 32% growth in the quarter. Growth was driven by sales of phones by Samsung and Apple. Smartphone shipments in the last quarter grew to 146.1 million units. The increased demand of smartphones is driving growth among other players that supply products for these phones.

Audience’s Financials
One such player is recently listed Audience (Nasdaq:ADNC). Mountain View, California–based Audience provides audio software and semiconductor systems for voice and telecommunication devices. Audience was founded in 2000 by Dr. Lloyd Watts. Dr. Watts has conducted research to understand the way people hear, process, and perceive sounds.  He used his research to design chips that help improve the hearing quality and ability of electronic devices.

Today, Audience is a global provider of advanced voice and audio processors for mobile products. Its proprietary earSmart intelligent voice processor enables delivery of improved and clearer voice quality. earSmart works similarly to the human ear and helps enhance voice quality and suppress noise. The first voice processor chip was launched for mobile phones in 2008. Since its launch, Audience has shipped more than 135 million processors to customers. Its tools are also used in speech recognition services and to deliver enhanced audio for multimedia recording and playback. Audience’s chips have been used in handsets developed by Samsung, LG, HTC, Sharp, and Pantech in markets across the globe.

Audience recently filed for an IPO on the Nasdaq. Prior to the IPO, it had received $15 million in venture funding from investors, including Vulcan Capital, New Enterprise Associates, Tallwood Venture Capital and VentureTech Alliance. It raised $89.6 million in its IPO, which sold 5.3 million shares at a list price of $17 each.

Audience has seen strong revenue growth over the past few years. Revenues grew from $2.5 million in 2008 to $5.7 million in 2009 to $47.9 million in 2010. For the nine-month period ending September 2011, it reported revenues of $79.7 million. It has also managed to turn profitable in this duration. After incurring a loss of $14.5 million in 2008 and widening losses to $16.8 million in 2009, it reported a profitable year in 2010 with $4.8 million. For the nine-month period ending September last year, it turned in profits of $13.9 million.

It recently reported on its firs public quarter. Revenues for the second quarter grew from $24.9 million a year ago to $33.4 million. Net income was $4.3 million of $0.17 per diluted share was significantly higher than the previous year’s $0.07 net income of per diluted share. For the current quarter, Audience expects revenues of $35-$38 million with EPS of $0.14-$0.18.

Apple and Audience

While Audience may be in a high-growth market, its biggest worry is its high dependence on Apple for revenues. Audience supplies processors to Apple through contracts with OEMs Foxconn and Protek. In 2010, the two contracts accounted for 82% of revenues, which declined to 79% for the nine-month period ending September 2011. Revenue share from Samsung has grown from 7% in 2010 to 17% in the nine months ended September. For the quarter ended March 2012, revenue share from Samsung grew to 36%, and that from Apple’s OEMs fell to 62%. However, the diversification of revenues may not be happening fast enough.

Recently, Audience suffered a severe blow when news circulated that it may not be on the supplier list for the newly released iPhone 5. Audience claims the decision will not significantly hurt them until 2013. It is also expanding its presence across other brands and hopes to recover soon. To capture the high-growth Chinese market, it recently earned a contract to deliver the earSmart platform on Xiaomi Mi2 Smartphones, which claims to be among the “hottest new smartphone” in China.

But the market isn’t convinced. The stock took a beating following the news about Apple. Audience’s stock is trading at $7.05, with a market capitalization of $143.37 million. It touched a high of $23.41 in June 2012. It is more than 58% less than the list price of $17.00.