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13 May 2019

Qorvo reports greater-then-expected quarterly revenue, driven by content gains

Qorvo Inc of Greensboro, NC, USA (which provides core technologies and RF solutions for mobile, infrastructure and defense applications) has reported full-year revenue growth of 4% from $2.974bn for fiscal 2018 to $3.090bn for fiscal 2019 (ended 30 March).

Fiscal fourth-quarter 2019 revenue was $680.9m, down 18.2% on $832.3m last quarter but up 2.5% on $664.4m a year ago (and above the $660-680m guidance range).

In particular, Mobile Product (MP) revenue was $443m, down 26% on $602m last quarter but only 2% on $452m a year ago. “We executed well on a challenging macro environment, capitalizing on added content and integration trends at multiple customers,” says president & CEO Bob Bruggeworth. “We did enjoy a significant content expansion with both Huawei [in China] and our largest Korean-based customer,” says Eric Creviston, corporate VP & president of the Mobile Products Group. “Qorvo’s gains are being driven by leadership across product categories, including bulk acoustic wave (BAW)-based solutions, envelope trackers and tuners,” states Bruggeworth. The firm achieved record revenue for its BAW-based band 1/3 quadplexers and secured the first design wins for its highly integrated BAW-based hexaplexers, enabling higher orders of carrier aggregation in next-generation 5G handsets.

Qorvo reached a milestone by supplying production volumes of its highly integrated BAW-based mid/high-band power amplifier duplexers (PADs) to the world’s top six smartphone OEMs, and it received its first orders for 5G variants (for production this calendar year). Qorvo also introduced the industry’s first stand-alone envelope tracking (ET) power management integrated circuit (PMIC) capable of modulating the power supply at 100MHz for 5G New Radio (NR) operation. “Our envelope trackers and antenna tuners are supporting some of the world’s most popular wearable devices, enhancing connectivity and increasing battery life for this rapidly growing category,” says Bruggeworth. Finally, Qorvo sampled BAW-based 5G antennaplexers, enabling the use of existing antenna architectures for future 5G devices.

Infrastructure & Defense Products (IDP) revenue grew further, up 12.3% on $212m a year ago and 3.5% on the record $230m last quarter to $238m (the 12th consecutive quarter and third year of double-digit year-on-year growth, and a record 35% of total revenue).

In defense applications, Qorvo secured a multi-year design win to supply gallium arsenide (GaAs) and gallium nitride (GaN) components to Lockheed Martin for a US Department of Defense ground-based radar program.

In connectivity, IDP won the entire RF front-end section for meshed WiFi access points by a leading manufacturer of WiFi home networking systems. “We won on the breadth of our technology portfolio and our ability to supply superior BAW filtering and WiFi front ends,” says Bruggeworth. In automotive, Qorvo expanded its support of 5G and cellular vehicle-to-everything for multiple automotive OEMs (with commercial rollout of front-end modules now expected to begin in late 2019).  

Infrastructure was especially strong, with shipments generally matching the ramp up of reported 5G base-station deployments. “We’ve almost doubled our business in three of the top four OEMs year-over-year this quarter,” says James Klein, corporate VP & president IDP. “We increased our support of 5G massive MIMO infrastructure deployments and secured new design wins across all anticipated sub-6GHz 5G frequency bands,” notes Bruggeworth.

“We’re able to leverage the breadth of our defense and base-station capabilities to address the demands of next-generation 5G networks, from 6GHz frequencies through millimeter wave,” he adds. “In millimetre-wave applications, our experience enabling phased-array radars with leading-edge compound semiconductor technologies is helping us to support the higher frequencies and beam-steering requirements of next-generation cellular base stations.”

On a non-GAAP basis, gross margin was 48.2%, down from 49.5% last quarter but up from 48% a year ago and above the expected 47%. This was due to lower costs related to inventory builds in support of the firm’s near-term outlook and improving manufacturing efficiency, despite the effects of lower utilization, including the impact of the phased closure of its surface acoustic wave (SAW) fab in Apopka, Florida, and idling its fab in Farmers Branch, Texas, involving period costs of $13m.

Operating expenses have risen, from $150.5m last quarter to $160.8m, due to higher personnel costs (including seasonal payroll effects).

Net income was $150.9m ($1.22 per diluted share, above the expected $1.05), down from $234.1m ($1.85 per diluted share) last quarter but up from $138.6m ($1.07 per diluted share) a year ago. For the full fiscal year, EPS grew by 12% to $5.76. “Despite a softer-than-expected second half, we delivered another year of double-digit earnings growth,” notes chief financial officer Mark Murphy.

Cash flow from operations was $187m and reflected inventory builds to support near-term customer demand. Capital expenditure (CapEx) was a year-low of $35.3m, and the lowest as a proportion of revenue for several years (making full-year CapEx $221m, or 7% of revenue). Free cash flow was hence $152m.

During the quarter Qorvo repurchased nearly $300m in stock (making a total of $638m for the full fiscal year, or 108% of free cash flow). During the quarter, Qorvo also repurchased $68m of its remaining 7% coupon 2025 notes and added $270m to its 2026 notes at a rate under 5.2%.

During the quarter, cash and cash equivalents overall hence fell from $926m to $711m.

“Qorvo delivered a solid March quarter with revenue and EPS above the midpoint of our guidance, driven by content gains, operational excellence and a broad market exposure to long-term growth trends, including 5G,” Bruggeworth summarizes.

“We ended our fiscal year 2019 strongly with March quarter revenue, gross margin and earnings per share well above our initial expectations,” notes Murphy.

“We are poised to benefit from multiple long-term growth trends, including 5G, IoT and the proliferation of GaN,” reckons Bruggeworth.

On 6 May, Qorvo completed the acquisition of Active-Semi International Inc of Dallas, TX, USA, a fabless supplier of power management integrated circuits (PMICs) and power application controllers (PACs). “We are eager to leverage our scale, sales channel and customer relationships to accelerate the adoption of their programmable power management solutions. We are also excited to bring their power management technologies to our existing customers, and extend our reach into new high-growth power management markets [worth $3bn],” he adds. “Our efficiency is a critical requirement, and power management solutions intersect multiple growth drivers for Qorvo, including 5G base stations, defense, automotive and IoT.”

“We forecast an even stronger start to fiscal year 2020,” says Murphy. For fiscal first-quarter 2020 (to end-June 2019), Qorvo expects revenue to grow to $780-800m. “We expect IDP to post another quarter of double-digit year-over-year organic growth and to be up sequentially with the addition of Active-Semi [albeit flattish organically],” says Murphy. “For Mobile, we are forecasting robust sequential and year-over-year growth, including year-over-year growth in the quarter at our three largest customers.”

Gross margin is expected to fall to 45-45.5% due to product mix and manufacturing costs. Operating expenses should rise to $173m due to higher personnel and development program costs as well as the addition of Active-Semi. “We expect OpEx to remain around these levels through the year,” says Murphy. Despite this, diluted earnings per share should rise to $1.30.

For full-year fiscal 2020, Qorvo forecast revenue growth of about 4%, including continued organic growth plus $50m from Active-Semi. Specifically, while Mobile is expected to stay roughly flat for the year, IDP should show double-digit growth. “We expect the Active-Semi programmable power management business will be accretive to gross margins and contribute a small amount to earnings in fiscal 2020,” says Murphy.

Base-station business will effectively double, driven largely by 5G deployments (mostly massive MIMO and including GaN-based devices), forecasts Klein. “We’ll also see our GaN revenue double as well as we go through the year, and we expect most of that is going to come from base station, although we’ve had some really key wins on the defense side as well,” he notes.

Higher quarterly gross margins through the balance of the year should amount to full-year gross margin of 48% (with the long-term target remaining 50%). CapEx should be less than $250m, weighted towards expanding and improving BAW, GaN and GaAs capabilities.

“For fiscal year 2020, we currently project growth in revenue, earnings and free cash flow. This outlook reflects the strength we are seeing in a number of our end markets and the health of our distribution channels,” concludes Murphy.

See related items:

Qorvo to acquire programmable analog/mixed-signal power IC firm Active-Semi

Qorvo’s 5G infrastructure revenue growth offsets weak mobile market in China

Qorvo reduces December-quarter revenue, gross margin and earnings guidance

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

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

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