Has Apple silenced Audience?

Audience has learned the danger of one major client generating a large percentage of its revenue.

By TheStreet Staff Sep 14, 2012 10:48AM

By Richard Saintvilus

The iPhone 5 is displayed during a media event on September 12, 2012. Copyright: BECK DIEFENBACH, Newscom, RTR

Apple (AAPL) has now officially launched its iPhone 5, so what usually follows is speculation about its famed "halo effect."

 

You know, the process by which other companies with close ties to Apple often get a lift in their stock prices from built-up anticipation for increased demand of their own products. I've often called it "achievement by proxy." Nevertheless, a win is a win.

 

These names typically include (among others) chip manufacturers Qualcomm (QCOM), ARM Holdings (ARMH) and Texas Instruments (TXN).

 

However, I'm beginning to suspect that one name that won't be celebrating this time around is Audience (ADNC), a company that specializes in voice and noise suppression technology and has long been a staple in previous iterations of the iPhone.

 

It seems the company has now been silenced.

 

The company decided to take a proactive approach and notified investors it had not been involved in the typical pre-launch discussions with Apple -- suggesting the possibility Apple would not extend their relationship. Although Apple has yet to confirm this, investors have decided not to wait around for verification and opted to "sell the rumor." Was it premature?

 

Last week, Audience stock traded as high as $18.90. As of Wednesday, the stock lost 64% of its value, closing at $6.75. It's hard to imagine a drop of this magnitude would be the result of just a rumor.

 

But this is the risk of going into business with Apple -- or, more appropriately, this is the danger of having one major client generating the lion's share of your press or revenue.

 

This raises many questions. Has Apple decided to go with another vendor? Should investors now turn their attention to that stock instead? Or has Apple decided the iPhone 5 is so supreme it does not need voice/noise suppression?

 

Or maybe Apple has decided to use the technology of an existing partner, such as Qualcomm, which is capable of doing the same thing except in a software format instead of hardware.

Regardless of the reason, this is certain to be a major blow to Audience. While the impact in terms of revenue may not be immediately felt, 2013 is assured to be a very challenging year. This is even though Audience still has major clients including Apple rivals Samsung and Google (GOOG).

 

However, I would think it will become somewhat difficult for Audience to convince new and existing customers of the importance of its product if Apple has indeed decided it no longer sees the value in it, particularly with Apple's Siri voice technology. One would think that noise suppression would be a critical need. Not anymore.

 

It will be interesting to see how Audience stock recovers after such a drastic drop. Making an investment case at this point requires a considerable number of assumptions, many of which must take into account the impact that losing Apple might have on earnings in the next several quarters.

 

That said, a drop of over 60% at this juncture is hard to overlook, and just might be an overreaction. Nonetheless, one can't assume the selling pressure is over just yet.

 

Audience shares would look more appealing after reaching a new 52-week low, which is currently at $5.80, and following a bounce off of that low of 10%. Until then, I would stay away from the stock and see what management is able to say and do to assure investors that it has things under control, with or without Apple.

 

 

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