16 August 2021
Qorvo’s quarterly revenue grows as infrastructure recovers despite supply constraints
For fiscal first-quarter 2022 (ended 3 July 2021), Qorvo Inc of Greensboro, NC, USA (which provides core technologies and RF solutions for mobile, infrastructure and defense applications) has reported revenue of $1110.4m, up 3.5% on $1072.7m last quarter and up 41% on $787.5m a year ago (and over $30m above the midpoint of the $1065-1095m guidance).
Demand was broad-based and included recently released product categories such as 5G diversity receive modules, MEMS-based touch sensors and Wi-Fi 6E front-end modules (FEMs).
Infrastructure & Defense Products (IDP) revenue was $274m, down 14% on $319m a year ago (when there was especially strong infrastructure demand) but recovering slightly by 3.4% on $265m last quarter as Wi-Fi and programmable power management growth continued and infrastructure growth resumed.
Mobile Products revenue was $836m, up 3.5% on $808m last quarter and 79% on $468m a year ago due to growth in higher-content 5G smartphones.
In 5G handsets, customer demand for highly integrated modules is expanding, notes president & CEO Bob Bruggeworth. Highlights during the quarter included:
- launching a next-generation complete main-path solution, which includes low-band, mid-high-band and ultra-high-band modules, offering higher output power and enhanced MIMO support for upcoming 5G phones; and
- for the diversity path, sampling the firm’s first 5G DRX, a sub-6GHz ultra-high-band (UHB) placement (offering what is claimed to be best-in-class receive sensitivity).
“We’ve entered the diversity market,” notes Mobile Products Group president Eric Creviston. “A lot of the activity in next-generation 5G phones is around antenna management. So that part of our business, which has been strong for some time, continues to see a lot of design interest and customers asking us to even step up and take maybe a larger role in terms of determining the antenna control, the interfaces, the tuning and the antenna flexing and so forth in and out of the antenna,” he adds.
“These main-path and diversity-path solutions integrate filtering and amplifiers that were formally discrete, helping our customers to save board space, improve device performance and accelerate product development efforts,” says Bruggeworth.
Qorvo also announced interoperability of its family of ultra-wideband (UWB) products with Apple’s U1 chip and the recently introduced Nearby Interaction protocol. “With more in-house software capability from our recent 7Hugs acquisition [last November], we now offer a complete solution, and we’re working with customers on products combining our ultra-wideband hardware with our latest software release, shortening their time to market,” says Bruggeworth. “We see a growing set of applications for our ultra-wideband solutions and customer design activity is accelerating.”
In Wi-Fi for mobile handsets, Qorvo secured new reference design engagements with its Wi-Fi 6E chip-on-board front-end modules (which reduce insertion loss and enhance handset design flexibility – compared with system-in-a-package solutions – by enabling placement closer to the antenna).
Infrastructure & Defense Products
In infrastructure, Qorvo has increased shipments to major OEMs in support of 5G sub-6GHz massive MIMO (mMIMO) and macro deployments in the USA, Japan, Korea and Canada. The firm has also achieved initial design wins supporting mMIMO deployment in India, and secured BAW filter design wins with a major China-based OEM for 3.5GHz and 4.9GHz 5G small-cell applications. New product launches included gallium nitride (GaN) integrated power amplifier (PA) modules for mMIMO systems and a family of high-efficiency power amplifiers for 5G small cells serving densely populated areas.
In automotive, Qorvo achieved record revenue and shipped a broad range of solutions for leading automotive OEMs (driven primarily by the increased demand and expanding connectivity requirements for Wi-Fi, VDX, LTE and 5G), including MEMS-based touch sensor solutions enabling configurable smart interiors.
For the smart home, Qorvo has partnered with a leading supplier of home mesh networks to introduce the first Wi-Fi 6 router with integrated Bluetooth low energy (BLE), Thread and Zigbee multi-protocol operation, leveraging Qorvo’s ConcurrentConnect technology.
Qorvo also secured a bulk acoustic wave (BAW) filter design win with a leading supplier of high-end audio speakers to support pairing of Wi-Fi 6 and Bluetooth low energy. As a member of the Connectivity Standards Alliance and an early participant in the upcoming matter connectivity standard, Qorvo expects to benefit as multi-protocol, seamless interoperability drives IoT adoption and growth.
In power management, Qorvo released 40V motor control solution supporting the ongoing transition to higher-voltage battery power tools. “Demand for our motor control and power management products has been very strong, driving growth in applications from appliances and battery power tools to enterprise compute, laptops and gaming. We are seeing demand for brushless DC motors expand into lower-cost power tools and smaller appliances, given the advantages in efficiency, size and reliability,” notes Bruggeworth. “We are also leveraging the configurability of our power management solutions to address new applications in defense and other markets.”
On a non-GAAP basis, fiscal first-quarter 2022 gross margin was 52.5%, down slightly from 52.6% last quarter but up from 48.6% a year ago (and well exceeding the 50% guidance), due to a more favorable product mix and pricing, improved manufacturing yields, good utilization, and lower-than-expected inventory charges.
Operating expenses have risen from $178.7m a year ago and $207.5m last quarter to $215.6m (exceeding the expected $214m), driven by technology and product development expenses associated with key organic growth programs and recent acquisitions. However, as a proportion of revenue, OpEx has still been cut from 22.7% a year ago to 19.4%.
Operating income has risen further, from $203.7m a year ago and $357.2m last quarter to $367m (operating margin of 33.1% of revenue - the third consecutive quarter over 33%).
Likewise, net income has risen, from $175.1m ($1.50 per diluted share) a year ago and $315.4m ($2.74 per diluted share) last quarter to $322.6m ($2.83 per diluted share, $0.38 above the $2.45 guidance).
Cash flow from operations was $341.6m. Capital expenditure (CapEx) remained high, at $65.3m (consistent with the level of spending to support the firm’s outlook). Free cash flow was hence $276.3m.
During the quarter, Qorvo actually deployed $467m in cash. Specifically, Qorvo repurchased $300m of shares - the largest dollar amount since an accelerated share repurchase (ASR) program in the March 2016 quarter. Since its formation (from TriQuint and RF Micro Devices), Qorvo’s has now repurchased a total of $3.7bn of shares at an average price of about $71 each.
Also, in early May Qorvo completed the acquisition of NextInput Inc of Mountain View, CA, USA, a pioneer in force-sensing human-machine interface (HMI) solutions utilizing MEMS-based sensors.
Overall, cash and cash equivalents hence fell during fiscal Q2/2022 from $1398m to $1200m.
Chief financial officer Mark Murphy notes that, during the last 12 months, Qorvo generated $1.2bn of free cash, and deployed about 80% of that (of which three-quarters was on share repurchases). Over the last eight quarters, Qorvo has generated $2bn of free cash, and deployed $2.1bn in cash (60% on repurchases and 40% on acquisitions). Including the acquisition in May 2019 of power management IC designer Active-Semi International, over the last nine quarters Qorvo has deployed 50% of its cash ($1.2bn) on acquisitions, increasing its total addressable market (TAM) by $4bn (which is expected to grow to over $10bn over the next several years), even excluding markets for the new BAW-based Omnia point-of-care diagnostic test platform of Qorvo Biotechnologies LLC.
Debt remains unchanged at about $1.74bn. “Our leverage remains low. Our revolver is untapped, and we have no material near-term maturities,” says Murphy. “Fitch has initiated a credit rate out in Qorvo at BBB+. This, along with S&P’s upgrade of Qorvo to investment grade in April, highlights the quality of Qorvo’s business, the strength and durability of our cash flows and the financial discipline we’ve maintained,” he adds.
“End-market demand is robust, and our outlook is strong,” says Bruggeworth. “Qorvo is investing in new product areas and differentiated technologies to broaden our reach and extend our leadership in integrated RF modules and other products.”
For fiscal second-quarter 2022 (to end-September 2021), Qorvo expects revenue to grow to $1.235-1.265bn (up 13% sequentially and 18% year-on-year (or 27% after adjusting for last year's 14-week quarter). Mobile Products revenue should be $985m (up 18% sequentially and 31% year-on-year). IDP revenue is expected to decline slightly to $265m due to defense program timing and continued supply constraints.
Gross margin should be steady at 52-52.5%, up 55 basis points year-on-year, reflecting “ongoing portfolio management and sustained strong operating performance,” says Murphy. Due to added labor and other development expenses associated with recent acquisitions and key growth programs, OpEx is projected to rise further to $233m. Despite this, operating margin should remain over 33% for a fourth consecutive quarter. Diluted earnings per share is forecasted to surge to $3.24.
As Qorvo works to meet demand and support long-term supply agreements with multiple customers, CapEx should increase to about $75m (although this would still be only about 6% of revenue, compared with almost 20% in the past).
The outlook reflects “sustained and broad-based customer demand, driven by multi-year technology upgrade cycles,” says Murphy. “We are off to a strong start in fiscal 2022, and we are well positioned to continue delivering premium technology to an expanding set of customers in 5G, Wi-Fi, IoT, defense, power management and other growth markets,” he believes.
For fiscal third-quarter 2022 (to end-December 2021), revenue is expected to be “flattish” sequentially, with Mobile Products down slightly, counteracting IDP returning to sequential and year-on-year growth (albeit still less than $300m), due to the continued supply-constrained environment.
“We are bringing on internal capacity that really does start to help us as we go into the end of the calendar year,” notes IDP president James Klein. “And the same note on our supply constraints from outside; those start to get significantly better as we go into our fourth quarter, with some improvement in the December quarter as well. So, I think that really allows us to move back into starting to grow in Q3 and Q4 for IDP,” he adds.
For the fiscal fourth-quarter, Mobile Products will be down a bit seasonally, but IDP should continue to grow, surpassing $300m.
Gross margin is expected to level out at about 52% in fiscal second-half 2022, resulting in full-year gross margin a little above 52%. “We’ve stabilized around 52%, and the business is structurally better than it was,” says Murphy.
The expectation for full-year fiscal 2022 revenue growth has now increased from “about 15%” to “well north of 15%, but probably less than 20%,” says Murphy. “We also forecast another year of free cash flow growth while investing in capacity to support our outlook.”