Qorvo’s quarterly revenue rises 8% year-on-year to a record $884m

For its fiscal second-quarter 2019 (ended 29 September 2018), revenue was a record $884.4m ($29m above the midpoint of guidance), up 28% on $692.7m last quarter and 8% on $820.6m a year ago, extending a strong start to fiscal 2019 after supporting a series of large product ramps and seeing robust design activity in both the Mobile Products (MP) and Infrastructure & Defense Products (IDP) groups.

Qorvo had two 10%-or-more customers, one of which was a large China-based OEM.

Revenue for Mobile Products was $667m, up 5.9% on $630m a year ago and up 37% on $486m last quarter, reflecting strong seasonal ramps of flagship smartphone products (with about 30% of Mobile business going to China, not including Huawei). The firm increased its content on key customer programs, and helped to enable early 5G smartphone designs. During the quarter, Qorvo:

was selected by Samsung to supply 3.5GHz 5G front-end modules (FEMs) for a series of a 5G mobile handset demonstrations across multiple base bands;
sampled an industry-first dual-band 3.5GHz and 4.9GHz 5G FEM to a leading China-based smartphone maker; and
began shipping RF Fusion Phase 6 for Vivo’s newest flagship smartphone (the NEX). RF Fusion Phase 6 leverages Qorvo’s premium bulk acoustic wave (BAW) and surface acoustic wave (SAW) filter technologies to deliver complete main path coverage in two placements: a low-band module and a mid/high-band module.

Revenue for Infrastructure & Defense Products was $218m, up 5.3% on $207m last quarter and another quarter of double-digit year-on-year growth (up 14.7% from $218m). Demand was particularly strong in Infrastructure, led by strength in base stations across all OEMs (driven by strength in both 4G and 5G deployments) as well as strong demand for small-cell and massive MIMO products. This includes 27% year-on-year growth in gallium nitride (GaN)-based revenue (driven by broad market demand, including 5G infrastructure for the MIMO deployments). During the quarter, IDP:

began shipping a dual-band Wi-Fi iFEM powering Facebook’s family of portal video communication devices (its recently launched digital video assistant);
supplied a 5.9GHz FEM optimized for Qualcomm’s 9150 cellular vehicle-to-everything (C-V2X) chipset, supporting multiple automotive OEMs in worldwide field trials;
was selected by tier-one automotive supplier Continental to deliver multiple solutions enabling always-on automotive connectivity to cellular networks around the world;
secured design wins from a leader in wearable and location technology to supply 2.4GHz FEMs for multiple consumer wearable devices; and
was awarded a design win by CommScope to supply 28GHz high-power amplifiers for 32-element phased-array 5G deployments, targeting large venues with dense cellular traffic (such as concert halls, convention centers and sporting arenas).

“Defense is certainly still the strongest part of our GaN portfolio, but the base station is going to grow at a rapid pace and will outstrip the overall growth of GaN,” reckons IDP president James Klein.

Qorvo saw strong demand for its solid-state GaN Spatium high-power products for electronic warfare (EW) and communications applications. However, Defense revenue is a little bit off of the record seen in the second half of last year. “Defense and Wi-Fi have pulled back a bit, but in both the fundamentals are both very, very strong,” notes Klein. “The technologies we have are matched very well with where we see both of those marketplaces going.” In particular, the deployment of phased-array radars and higher frequencies of operation are increasing demand for RF solutions that leverage GaN, GaAs and other semiconductor processes.

“Our products and technologies make Qorvo uniquely positioned to partner with our customers to develop their most compelling products,” says president & CEO Bob Bruggeworth.

“The September quarter was a record revenue and earnings quarter,” notes chief financial officer Mark Murphy. “Our portfolio strategy and operational improvements are yielding stronger and more consistent results,” he adds.

On a non-GAAP basis, gross margin was 47.7%, up from 44% last quarter and 47.4% a year ago (and exceeding the 47.5% guidance).

Operating expenses have grown further, from $158.2m a year ago and $160.5m last quarter to $168.3m, related primarily to BAW and GaN capacity additions in the fabrication plant in Richardson, TX (although this was better than the expected $170m).

Net income was a record $224.9m ($1.75 per diluted share, above the expected $1.62), up from $124m ($0.96 per diluted share) last quarter and $198.4m ($1.52 per diluted share) a year ago.

Operating cash flow was $214.5m (almost tripling from $75.3m last quarter). Capital expenditure (CapEx) rose again, to $70.1m (from $43.6m). Free cash flow was hence $144.4m (more than quadrupling from $31.7m).

Qorvo repurchased $87m of stock (its third-highest quarter of repurchases, outside the firm’s accelerated share repurchase program, making about $187m in the last six months - higher than the free cash flow generated over that period). Cash and cash equivalents rose from $334m to $558m. During the quarter, Qorvo redeemed its remaining 6.75% notes (due 2023), and repurchased $436m of 7% notes (due 2025). The firm also issued $630m of 5.5% notes, maturing in 2026. “With these actions, we’ve lowered our interest costs and extended our average debt maturity to 2026,” says Murphy. “We are below our long-term leverage target and retain significant financial flexibility to grow the business and return capital to shareholders,” he adds.

“Qorvo’s record revenue and EPS in the September quarter reflect the progress we’re making on shaping the portfolio and improving operationally,” says Murphy. “Our outlook calls for a strong December quarter with higher volumes and ongoing cost control.”

For fiscal third-quarter 2019 (to end-December 2018), Qorvo expects revenue of $880-900m, with Mobile Products up slightly in support of seasonal phone ramps. “For China, we see a relatively healthy channel but, given the strength from China-based handset manufacturers year-to-date, we are taking a measured view on demand in the back half of the fiscal year,” notes Murphy. IDP should post another solid quarter, with strength in infrastructure offsetting near-term weakness in Wi-Fi.

Gross margin should rise to 50%. This is up 230 basis points from 47.7%, a little over half due to continued product and customer mix and the remainder due to net lower cost (i.e. factory productivity and lower inventory charges), partially offset by some price effects and SAW-related effects (the SAW under-utilization is actually down on a percent basis, but not on an absolute dollar basis). “Margin outlook remains positive as we transition the mix of our product portfolio, improve factory utilization and drive productivity,” says Murphy. “We expect gross margins in the back half of the fiscal year to average 50% or more.”

OpEx is forecasted to fall slightly to $165m in fiscal Q3. “We expect OpEx to trend down slightly through the back half of the year, with full-year OpEx ending at 20% of sales,” he adds.

Diluted earnings per share is expected to rise to $1.95 in fiscal Q3. “The earnings power of the business is increasing as we grow in the right areas and remain disciplined in capital and operating spend,” says Murphy.

Based on higher revenue, stronger margins and lower working capital, operating cash flow is expected to strengthen in fiscal second-half 2019.

CapEx should peak for the fiscal year in Q3 with BAW and GaN capacity investments in Richardson and the continued build-out of BAW capacity at the new fabrication plant in Farmers Branch, TX. Due principally to ongoing BAW and GaN capacity additions at the firm’s Texas fabs, CapEx is projected to end the year a little over $300m (just under 10% of sales, after falling sharply last year to 9%). “We thought it would continue to go down, but we brought some of this spend for Farmers Branch in, so we're just a little bit higher than we expected,” notes Murphy. “We expect CapEx as a percent of sales to resume a downward trend next year,” he adds.

“About 70% of our capacity in BAW is on 6-inch and 30% is on 8-inch, and we are undertaking - over the next year between wafer conversions and bringing Farmers Branch online - bringing on more 8-inch. So, this time next year, we will have actually the reverse of what we have now, roughly 30% 6-inch and 70% 8-inch,” says Murphy. “Based on our current plans - which also include not only that wafer conversion but also die shrink programs, yield improvements, cycle time etc - we believe we have the capacity to meet what we believe is our revenue outlook.”

Qorvo’s outlook remains essentially unchanged, with full-year revenue growth of about 10%, gross margin rising to 50% or more for the fiscal second half, and OpEx at about 20% of sales for the full fiscal year.

See related items:

Qorvo’s quarterly growth driven by mobile demand in China

Qorvo’s quarterly revenue up 3.5% year-on-year, as 26% growth in Infrastructure & Defense Products counteracts drop in Mobile Products

Qorvo’s quarterly Infrastructure & Defense Product revenue up 20% year-on-year

Qorvo revenue grows a more-than-expected 28% quarter-to-quarter

Tags: Qorvo

Visit: www.qorvo.com