12 May 2020
Qorvo quarterly revenue exceeds revised guidance, driven by 5G handsets and infrastructure, defense, Wi-Fi 6 and IoT
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 4.8% from $3.090bn for fiscal 2019 to $3.239bn for fiscal 2020 (ended 28 March).
Fiscal fourth quarter 2020 revenue was $787.8m, down 9.4% on $869.1m last quarter but up 15.7% on $680.9m a year ago. This was below the original guidance of $800-840m provided on 29 January. However, it is above the revised guidance of $770m provided on 3 March (after the COVID-19 coronavirus “impacted the smartphone supply chain and customer demand more than anticipated”), driven by broad-based demand in 5G handsets and infrastructure, defense, Wi-Fi 6 and Internet of Things (IoT).
In particular, by business segment, Mobile Product (MP) revenue was a stronger-than-expected $556m, down 16% on $662m last quarter but up 25.5% on $443m a year ago, as mobile and handset demand was greater and global supply chain disruptions less impactful than anticipated. “Shipments of our 5G solutions grew sequentially and 5G design activity continued to increase,” says president & CEO Robert Bruggeworth.
Infrastructure & Defense Products (IDP) revenue was $232m, down only slightly on $238m a year ago but up 12% from $207m last quarter due to growth in infrastructure and Wi-Fi.
“Qorvo delivered a strong quarter under challenging circumstances,” says Bruggeworth. “We are operating well, focused on keeping our employees, partners and communities healthy, while supporting customers and advancing technology. Our technologies and operations are more important than ever as we support global deployments in 5G handsets and infrastructure, defense, Wi-Fi 6 and IoT.”
Highlights of the quarter in Mobile Products are listed as:
- supporting Samsung’s Galaxy S20 platform with a broad set of high-performance and highly integrated 4G and 5G components (including mid-high-band and ultra-high-band 5G solutions);
- supplying a leading smartphone maker with the complete main path - including low-band (LB), mid-high-band (MHB) and ultra-high-band (UHB) integrated solutions - as well as the Wi-Fi front-end module (FEM), switches and tuners for their recently launched flagship 5G smartphone;
- expanding the firm’s position in UHB solutions at leading Android smartphone makers and across all 5G chipset solutions.
Highlights of the quarter in Infrastructure & Defense Products are listed as:
- enabling sub-6GHz 5G network deployments (for cellular infrastructure) by ramping shipments of GaN power amplifiers and small-signal components (with demand being driven by the ramp of massive MIMO antennas);
- accelerating Wi-Fi 6 shipments and securing cable amplifier design wins (in Qorvo’s connectivity and broadband businesses) to support increased data to the home (expanding the global customer base of Qorvo’s Wi-Fi 6 solutions, including its front-end modules and BAW filters);
- seeing growth in data centers, computing and gaming consoles with differentiated programmable power management ICs;
- sampling broadband 100W (27-31GHz) and 130W (32-38GHz) millimeter-wave power amplifiers, expanding Qorvo’s portfolio of GaN-based solid-state amplifiers for defense applications (including including SatCom, radar and electronic warfare).
On a non-GAAP basis, gross margin has risen further, from 48.2% a year ago and 49.3% last quarter to 49.6% (above the expected 48.5%), due to favorable product mix effects and better-than-expected manufacturing costs.
Operating expenses have risen further, from $160.8m a year ago and $175.6m last quarter to $181m, but this was partly due to recent acquisitions, and better than the projected $185m.
Net income was $185.3m ($1.57 per diluted share, above the $1.55 guidance and a record for a fiscal Q4), down from $220.8m ($1.86 per diluted share) last quarter but up from $150.9m ($1.22 per diluted share) a year ago.
Cash flow from operations was $214.3m. Capital expenditure (CapEx) was $35.1m (cut from $40.7m last quarter). Free cash flow was hence $179.2m (taking full-year free cash flow for fiscal 2020 to over $780m, or 24% of revenue).
“Qorvo’s revenue, gross margin, and cash flow performance demonstrate how well we are operating in a challenging environment,” says chief financial officer Mark Murphy.
During the quarter, Qorvo spent $125m in repurchasing stock. Overall, cash and cash equivalents fell from $1097.7m to $750m. This was largely because Qorvo completed two acquisitions: Custom MMIC and Decawave.
“Custom MMIC expands our leadership in GaAs and GaN RF products for defense and aerospace applications, while Decawave positions us as a leading provider of ultra-wide-band (UWB) system solutions for proximity awareness, secure payments and secure access in smartphones, automotive and IoT,” says Bruggeworth. “We’re pleased to add Qorvo scale to both of these well-established high-performing teams to build on their successes and accelerate their growth.”
Qorvo has an untapped revolving credit facility and no near-term maturities. The weighted average maturity of outstanding debt is June of 2027. “With this financial flexibility, we can focus on advancing technology, supporting customers and making prudent organic and inorganic investments that support long-term earnings and free cash flow growth,” says Murphy.
For fiscal first-quarter 2021 (to end-June), Qorvo expects revenue of $710-750m. “Our revenue range for the June quarter is wider than normal, reflecting more uncertainty in our markets and the broader economy due to the effects of COVID-19,” notes Murphy. Qorvo expects continued robust mobile 5G growth, though on lower base handset volumes and a return to year-on-year growth for IDP.
Mobile Products revenue should fall sequentially, due principally to COVID-19-related demand effects, albeit with parts of Asia partially offsetting weakness in the rest of the world. The firm’s current outlook sees smartphone unit shipments declining by more than 10% for the calendar year. “However, we still see 5G-enabled handset demand for calendar 2020, in line to slightly below what we guided in early March,” notes Murphy.
IDP revenue should grow again sequentially, returning to strong year-on-year growth due to 5G infrastructure customer demand and the ramp of Wi-Fi 6 (as investment in the latest wireless infrastructure to support connectivity is more important than ever) and sustained strength in defense.
Due in part to lower volumes, gross margin is expected to fall sequentially to 47.5%. “Our efforts to improve the portfolio, right-size our manufacturing footprint and drive productivity are yielding favorable results. As a result, we expect year-on-year gross margin expansion, despite a top-line adversely impacted by COVID-19 and trade effects,” says Murphy.
“We expect the ongoing effects of COVID-19 to weigh on our utilization. That, along with continued throughput improvements we’ve made in Richardson, Texas, afford us the flexibility to defer further investment in Farmers Branch [Qorvo’s new, idled fab in Texas] until additional capacity is needed,” he adds.
“We are continuously monitoring the demand and supply effects of COVID-19 and are sizing our inventories and cost structure accordingly. With uncertainty in the demand profile, we intend to maintain lean inventories, both in-house and in the channel,” Murphy continues.
Operating expenses should rise to $187m in fiscal Q1/2021 due to higher personnel costs, including incremental costs associated with the full-quarter effect of recently acquired businesses. Diluted earnings per share are expected to fall to $1.13.
“While our June quarter guidance reflects the ongoing demand and supply effects of COVID-19, we are encouraged by continued growth in 5G handsets and infrastructure, and we remain confident in the long-term growth drivers of our business,” says Murphy.
CapEx in the near term should remain consistent with spend over the last several quarters. In fiscal 2020, CapEx was $164m (just over 5% of revenue). “Our spend in fiscal 2021 will remain focused on BAW, GaN and other areas, which advance a differentiated position for Qorvo to best serve customer needs,” concludes Murphy.
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