Cirrus Logic Outlk to Stable by S&P;Rtgs Afmd.

NEW YORK--(BUSINESS WIRE)--Aug. 7, 1998--Standard & Poor's today affirmed its single-'B' corporate credit and bank loan and triple-'C'-plus subordinated debt rating on Cirrus Logic Inc. The outlook has been revised to stable from developing.

The single-'B' corporate credit rating reflects Cirrus Logic's major reliance on the highly competitive personal computer market and substantial financial commitments. The revised outlook recognizes the company's progress in the last several quarters in reducing its reliance on the most stressed sub-markets of the personal computer industry, although these changes have coincided with increasingly stringent market conditions.

Fremont, Calif.-based Cirrus supplies graphics, audio, and disk drive control chips, largely for the personal computer industry. A stale PC chip product line and increasing industry pressures led to sharp revenue declines and material net losses in the fiscal years ending in March 1996 and 1997. The company has since refreshed its product offerings with new offerings for networking, professional audio and industrial sectors. However, these have yet to restore growth nor materially contribute to profits, as the company still derives 75% of its sales from the stressed PC and disk drive industries. Fiscal 1998 revenues totaled $954 million, with net earnings of $36 million, including a number of one-time items.

The company has terminated its most severely unprofitable product lines, and trimmed its manufacturing capacity commitments. Still, price pressures are severe while production capacity is likely to remain well in excess of needs for the intermediate term. Gross margins are in the low to mid 30% range, while R&D expense is expected to remain high as the company continues its product line renewal. Both factors are likely to constrain operating profitability improvements until volumes expand materially. The company expects a further revenue decline in the September quarter as older products continue to ebb, and could post modest net losses to breakeven earnings over the near term.

Debt and capitalized operating leases total about $400 million on June 30, 1998, while earnings before, interest, taxes, depreciation, and amortization (EBITDA) for the previous four quarters totaled $115 million. The company's share repurchase program is not expected to be an onerous call on cash flows, and liquidity should remain in the $350 million range, as near term working capital requirements are also likely to be modest.

OUTLOOK: STABLE

Cirrus has redirected its development efforts towards potentially more profitable areas while adjusting its cost structure. These actions are likely to reduce the risks of severe erosion that had previously been a ratings concern. However, the uncertain marketplace prospects of its new products, likely ongoing PC sector pressures, and the company's high committed capacity costs are all likely to limit near term upside potential. -- CreditWire

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