20 November 2020
Qorvo’s quarterly revenue grows a more-than-expected 34.6%
For fiscal second-quarter 2021 (ended 3 October 2020) – which is a 14-week quarter (since fiscal 2021 is a 53-week year) – Qorvo Inc of Greensboro, NC, USA (which provides core technologies and RF solutions for mobile, infrastructure and defense applications) has reported revenue of $1060.3m, up 34.6% on $787.5m last quarter and 31.4% on $806.7m a year ago (and above both the original guidance of $925-955m and the 8 September update to $1-1.03bn). “Following our updated guidance, customer demand continued to strengthen, and we were able to support some of that demand within the quarter,” says chief financial officer Mark Murphy.
“Strength was diversified across customers and supported by multi-year technology upgrade cycles, including 5G and Wi-Fi 6,” he adds. “Customers are requiring more and better RF in highly integrated form factors to enable their next-generation products.”
Mobile Products revenue up 61% sequentially
Mobile Products revenue was $754m (71.1% of total revenue), up 61% on $468m last quarter and up 21% on $623m a year ago (and above the expected $640m), driven by seasonal demand effects and the ramp of 5G smartphones. During the quarter, Qorvo increased volume shipments of bulk acoustic wave (BAW) filter-based antennaplexer solutions to multiple tier-one OEM smartphone makers. It also expanded shipments of integrated main-path solutions (including low-band, mid-/high- and ultra-high-band modules) across multiple tier-1 Android smartphone OEMs. Qorvo also saw broad-based content gains in Wi-Fi 6 in support of leading suppliers of smartphones, tablets, mesh networks, gateways, smart speakers and virtual reality (VR) headsets.
Infrastructure & Defense Products revenue up 66.3% year-on- year
Infrastructure & Defense Products (IDP) revenue was $306m (28.9% of total revenue), down 4.1% on the record $319m last quarter, as expected, but up 66.3% on $184m a year ago, in support of the ongoing build-out of 5G networks and the roll-out of WiFi 6. WiFi revenue was broad-based across products and customers.
In wireless infrastructure, Qorvo was awarded multiple design wins in support of 5G massive MIMO base-station deployments, expanding its customer base for GaN amplifiers. Within that, the firm commenced shipments of GaN amplifiers supporting massive MIMO C-band base-station deployments, first in the USA and then other regions globally. Qorvo also launched high-performance BAW filters for 5G small cells and repeaters to enable 5G band 41 and Wi-Fi coexistence.
In wireless connectivity, revenue more than doubled year-on-year. Customer demand for front-end modules and BAW filters was especially strong in support of CPE and retail applications. Shipments to the leading connected home platform provider included WiFi 6 FEMs, BAW filters and multi-protocol SoCs. Also, for next-generation WiFi gateway, Qorvo was awarded the entire RF band in support of the leading North American multiple system operator (MSO), including the 2.5GHz and 5GHz FEMs and a variety of filter products.
In defense & aerospace, Qorvo was the exclusive RF recipient of the multi-year US government State-of-the-Art Heterogeneous Integrated Packaging (SHIP) program.
In power management, strong growth was driven by the transition to solid-state storage in client devices such as laptops and enterprise computing and data centers. Demand has also been strong for motor control products as brushless motor technology, which continues to gain share in a broad range of consumer products. “Our Programmable Power Management business is performing very well across diverse markets as we help customers enhance product performance, reduce weight, improve reliability and bring products to market faster,” says president & CEO Bob Bruggeworth.
In automotive, Qorvo began sampling a second-generation automotive cellular V2X FEM that integrates the PA, LNA, switch and BAW coexistence filter to solve critical system-level challenges.
On a non-GAAP basis, gross margin has risen further, from 40.1% a year ago and 48.6% last quarter to 51.7% (above the forecasted 50%), due to better-than-expected mix and favorable manufacturing cost variances. “Our efforts to improve the portfolio, drive productivity and carefully manage inventories continue to yield favorable results,” says Murphy.
Operating expenses have grown further, from $166.7m a year ago and $178.7m last quarter to $219m, due to the additional week, incentive compensation and other labor costs.
Net income is up from $175.1m ($1.50 per diluted share) last quarter and $181.2m ($1.52 per diluted share) a year ago to $282m ($2.43 per diluted share, above both the original guidance of $1.90 and 8 September’s update to $2.14).
“Qorvo outperformed our updated guidance on revenue, gross margin and EPS,” notes Bruggeworth.
Cash flow from operations has grown from $173.4m a year ago and $214m last quarter to $281m. Capital expenditure (CapEx) was $43.6m. Free cash flow was hence $237.4m (up from $184m last quarter and $135.4m a year ago). During the quarter, Qorvo repurchased $105m of shares.
“We took steps to reduce our cost of debt and further improve our financial flexibility,” says Murphy. Qorvo renewed its unsecured credit facility at more favorable terms and extended it to 2025. It also increased its term loan to $200m and raised $700m through a new issue of unsecured notes maturing in 2031. After the quarter closed, these proceeds and cash on hand were used to pay down the firm’s notes maturing in 2026. The debt balance is now under $1.8bn. Cash is about $1.1bn. “Our leverage remains low,” says Murphy. The firm’s $300m unsecured revolving credit facility remains untapped. “The weighted average maturity of our debt is 2029, and we have no material near-term maturities,” he adds.
“With our 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.
Over the last 12 months, free cash flow margin reached a milestone of about 25% of revenue, generating $860m. Meanwhile, $700m has been deployed for acquisitions and $400m worth of stock has been repurchased, totalling $1.1bn. Over the last six quarters, Qorvo has generated $1.2bn in free cash flow, while buying $1bn worth of companies [comprising five acquisitions] and repurchasing $700m worth of stock. “Since inception, we’ve returned to shareholders 113% of our free cash flow, or $3.1bn at an average [stock] price of $63,” notes Murphy.
To support the ongoing development of its ultra-wideband (UWB) products (following the acquisition in February of Decawave Ltd of Dublin, Ireland) and accelerate their adoption across mobile, IoT and automotive ecosystems, in the September quarter Qorvo acquired Paris-based UWB software and system solution provider 7Hugs Labs S.A.S. “This acquisition enhances Qorvo’s software capabilities… 7Hugs brings a highly skilled team with vast experience in UWB applications and a portfolio of intellectual property,” says Murphy. “The combination of our hardware technology with their software expertise positions Qorvo to accelerate the development of broad ultra-wideband ecosystem expected to reach billions of devices in the coming years,” he adds. “We see a wide array of applications emerging with ultra-wideband technology and have significant customer engagement on the design of new products and solutions. We expect UWB to contribute meaningfully to Qorvo over time.”
Qorvo also signed a partnership agreement with design services company Sigma Connectivity to develop advanced UWB solutions and assist customers in the creation of applications. “We see adoption in smartphones as the catalyst for a broad ecosystem of connected devices. Similar to Bluetooth, smartphones will be the hub, connecting to multiple peripherals,” forecasts Murphy.
“We project robust end-market demand to continue into the December quarter,” says Murphy. For fiscal third-quarter 2021 (to end-December 2020), Qorvo expects revenue to be steady at $1060m plus or minus $15m. “Our December quarter revenue outlook reflects seasonal demand effects and demand for multi-year technology upgrade cycles,” he adds. “In Mobile, demand for 5G is adding RF complexity and driving higher content.” Mobile revenue is expected to grow to $790m. In accordance with Department of Commerce regulations, in mid-September Qorvo suspended shipments to Huawei. Although it has recently received a license to ship certain mobile products, the firm has assumed no sales to Huawei in the December quarter while it works with the customer to understand the impact of the license. IDP revenue is expected to fall to $270m, reflecting the timing of base-station deployments.
Gross margin should rise to 52.5% in the December quarter, reflecting volume growth and ongoing efforts to improve the quality and efficiency of the business. “Specifically, we’ve invested early and adequately in the technologies that markets need, focused our product portfolio on where we can best serve customers, gained productivity across our operations and reduced our capital intensity,” says Murphy.
Operating expenses are projected to fall to $205m as Qorvo returns to a normal fiscal quarter length and other personnel costs decrease. Diluted earnings per share is expected to rise to $2.65.
IDP revenue is forecasted to sustain strong double-digit year-on-year growth through the balance of the fiscal year, with infrastructure demand picking up in the March quarter. Continued strength in defense, WiFi and power management is expected due to durable underlying trends. “While considerable economic uncertainty remains with the ongoing effects of the pandemic, currently we expect end-market demand to support full fiscal year double-digit revenue growth [of 10-15%] for Qorvo,” says Murphy.
“Our work to keep our inventories and cost structure low will help us sustain over 50% gross margin through the balance of the fiscal year [despite an expected drop of 150 basis points from fiscal Q3 to Q4 due to seasonally lower volumes],” he believes. “We think we’re going to be able to sustain or expand gross margins as we go forward beyond fiscal 2021.”
“We still project capital expenditures to remain below $200m in fiscal 2021 and focus on areas that advance a differentiated position for Qorvo to best serve customer needs, such as BAW and GaN,” says Murphy. “Currently, we expect free cash flow to be about $900m [a record] this fiscal year.”
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