12 November 2021
Qorvo reports record quarterly revenue and EPS
For fiscal second-quarter 2022 (ended 2 October 2021), Qorvo Inc of Greensboro, NC, USA (which provides core technologies and RF solutions for mobile, infrastructure and defense applications) has reported record revenue of $1255.2m ($5m above the midpoint of the $1235-1265m guidance). This was up 11.5% on $1110.4m last quarter and up 18% on $1060.3m a year ago (which was a 14-week quarter, versus this fiscal year’s more typical 13-week quarter).
“Strength during the quarter was broad-based across customers, and supported by new product launches,” says president & CEO Bob Bruggeworth.
Mobile Products revenue was $996m, up 19.1% on $836m last quarter and up 32% on $754m a year ago (and well above the $985m guidance) due to continued growth of higher-content 5G smartphones. “In mobile products, the multi-year migration of 5G continues to drive RF content and integration trends,” says Bruggeworth. The RF content increase in mass-market phones is now greater on a percent basis than in flagship devices, he adds. “Qorvo enjoys broad exposure to mass-market designs at customers like Owner, OPPO, Pixel, Samsung, Vivo, and Xiaomi.”
Infrastructure & Defense Products (IDP) revenue was $260m, down 5.1% on $274m last quarter slightly below the expected $265m due to reduced supply from outsourced assembly & test (OSAT) operations in Malaysia and elsewhere. As expected, IDP was down 15% on $306m a year ago due primarily to last year’s strong infrastructure build-out and 14-week quarter.
Strategic highlights during September quarter
In Mobile, during the quarter Qorvo began shipping mid-high-band (MHB) and ultra-high-band (UHB) power amplifier duplexers (PADs), antenna tuners and multiple connectivity solutions to support the ramp of Google’s recently announced Pixel 6 smartphone.
Qorvo also received initial production orders for MHB and UHB PADs, Wi-Fi front-end modules (FEMs) and multiple high-performance discrete solutions enabling advanced functionality in an upcoming Korea-based 5G mass-market smartphone platform.
In mobile Wi-Fi, Qorvo secured Wi-Fi 6 FEM design wins with multiple top-tier smartphone OEMs, and began sampling Wi-Fi 7 FEMs, enabling higher data rates and improved performance.
In ultra-wide-band (UWB), Qorvo says that it is advancing technologies for a diverse ecosystem of proximity aware connected devices. The firm secured a UWB design win to enable real-time device tracking and other location-aware applications in home mesh networks. It was also selected to supply UWB solutions for enterprise access points. In addition, Qorvo has expanded its engagement with a leading provider of consumer Internet of Things (IoT) products spanning a broad range of connected home devices, and secured UWB design wins with multiple OEMs supporting enterprise access points and home mesh networks.
In automotive manufacturing, Qorvo was selected to supply UWB and Zigbee solutions with ConcurrentConnect technology to an automaker in Korea, streamlining automation in manufacturing.
In other connectivity markets, Qorvo began sampling 5.2GHz/5.6GHz Wi-Fi 6 iFEMs with an integrated bulk acoustic wave (BAW) filter, enabling higher capacity and improved efficiency in a reduced form factor.
In broadband, Qorvo began sampling a triple-output DOCSIS 3.1 amplifier module supporting network upgrades for major cable operators in the USA and in Europe.
In infrastructure, design-win activity was strong across OEMs, including small cells and base stations. Wins included all of the RF transmit- and receive-path content (including BAW filters) for 5G small cells at a major base-station OEM. “We see infrastructure markets picking up in 2022, with Qorvo’s SAM [serviceable addressable market] growing year-over-year,” says Bruggeworth. “The SAM for Qorvo outside of China will post significant growth next year and support a strong double-digit CAGR through 2025,” he adds.
In aerospace & defense, Qorvo expanded its defense product portfolio with what it claims is an industry-leading 125W S-band power amplifier module and a 1.8kW L-band radar pallet for commercial and defense radar applications.
Finally, in RF-based biotechnology testing, Qorvo received its first commercial orders and commenced shipments of its Omnia Antigen Test Platform (including cartridges). During the quarter, the US National Institutes of Health (NIH) RADx variant taskforce conducted an external study that demonstrated its performance in effectively detecting COVID variants, including the Delta variant. “Although this is a new market for us, we believe we bring a novel technology that offers unique and real value as the world moves to more testing protocols, including for flu AB, and other seasonal pathogens,” says Bruggeworth.
On a non-GAAP basis, gross margin was 52.4%, down slightly from 52.5% last quarter, but up on 51.7% a year ago and above the midpoint of the 52-52.5% guidance despite supply chain disruptions that worsened through the quarter.
Despite being less than expected, operating expenses were $222.1m (17.7% of sales), up from $215.6m last quarter and $218.6m a year ago, driven by technology and product development expenses associated with key growth programs and recent acquisitions.
Operating income has risen further, from $329.4m a year ago and $367m last quarter to $435.4m (34.7% of revenue - a fourth consecutive quarter of operating margin over 33%).
Likewise, net income has risen further, from $282.3m ($2.43 per diluted share) a year ago and $322.6m ($2.83 per diluted share) last quarter to $384.5m (a record $3.42 per diluted share, $0.18 above the $3.24 guidance).
Cash flow from operations was $244.8m. Capital expenditure (CapEx) was $47.3m (lower than the expected $75m, due to the timing of spending, and an earlier-than-expected reimbursement for a portion of government-funded work on advanced packaging). Free cash flow was hence $197.5m.
During the quarter, Qorvo repurchased $223m of shares (making $523m over the last two quarters, representing 110% of free cash flow). “We’ve continued to repurchase shares as our outlook is positive, our free cash flow and ability to sustain investment in technology and growth is strong, and our leverage remains low,” says Murphy.
Cash and debt hence remained largely unchanged from the prior quarter at $1.2bn and $1.7bn respectively.
“We are sustaining investments in highly differentiated technologies and best-in-class products to extend our leadership and drive growth,” says Bruggeworth.
After the quarter closed, Qorvo acquired silicon carbide (SiC) power device maker United Silicon Carbide of Princeton, NJ, USA (a pioneer in silicon carbide JFETs). “The combination will further differentiate Qorvo’s power portfolio, enabling more highly integrated power device solutions and expand our addressable market to include higher-voltage applications that demand maximum power efficiency, such as electric vehicles, charging stations, and renewable energy systems,” says Bruggeworth. “Our ability to deliver more power, more efficiently and using less current helped put us at the center of the digital transformation. We’re eager to expand these competencies as global markets move to electrification and renewable energy,” he adds.
“After achieving a record September quarter, we expect December quarter revenue to decrease sequentially amidst ongoing supply challenges and other factors impacting global smartphone demand,” says chief financial officer Mark Murphy. “Revenue outlook reflects broad-based challenges and supply, impacting Mobile and IDP, and near-term weakness in demand, principally in Asia,” he adds.
“Starting with supply, we have several areas of constraint. Our external supply chain is still recovering from disruptions in September, including shutdowns in Southeast Asia. Beyond that, select materials, products and production capacity remain tight,” notes Murphy. “These are industry-wide issues affecting all suppliers, and our customers are challenged in producing matched sets for products. For example, in smartphones, even where channel inventory for certain parts is healthy, customers lack silicon chips to produced phones. This in turn creates changes in demand that add to constraints on our own production as we work to adjust mix… In a normal environment, Qorvo can move swiftly to respond and capture demand. These supply-driven gaps are making recent demand softness in select areas, such as our Asia smartphone customers, harder to quantify.”
For fiscal third-quarter 2022 (to end-December 2021), Qorvo therefore expects revenue to fall a more-than-expected 12% sequentially to $1.09-1.12bn (albeit still up slightly year-on-year).
Specifically, Mobile Product revenue is forecasted to be about $830m (down 17% sequentially and flat year-on-year). Qorvo expects IDP to grow sequentially to $275m, returning to year-on-year growth.
Gross margin should be 52-52.5%. “Our December quarter gross margin guide of 52.25% at the midpoint, is up versus the view we provided last quarter, despite a more challenging supply/demand environment than expected,” says Murphy. “We see our technology and product mix and operating and capital efficiency yielding a gross margin above 52% for the fiscal year,” he adds.
Operating expenses should rise slightly to about $224m in the December quarter, reflecting higher investments in core technologies and expanding capabilities in new businesses, including the addition of the United SiC team. Diluted earnings per share are expected to fall to $2.75.
“Capital expenditures are projected to exceed $70m in the December quarter as we work to intersect demand and support long-term supply agreements with multiple customers,” says Murphy. “Currently, we are supply constrained and project to remain so through our fiscal year-end. We continue to expand BAW and GaAs capacity, as well as biosensor production capacity to support our growth projections for fiscal 2023,” he adds. “The current supply challenges and near-term demand weakness are acute, but more temporary than durable. We expect supply effects to moderate starting this quarter and improved supply demand alignment early next calendar year.”
“In the March quarter, we expect the challenges [for IDP] to moderate,” says Murphy. IDP’s growth is expected to accelerate in the March quarter, to over $300m. “We expect Mobile to be up slightly sequentially as a typical seasonal decline is offset by improved supply and demand.” Total revenue is still guided to be up year-on-year. Gross margin should be about 52%.
For fiscal full-year 2022, Qorvo expects revenue growth to over 15%, gross margin over 52%, and operating margin of about 33%. “We expect the business to strengthen through the second half of our fiscal year and contribute to a record full-year performance, including earnings growth over 20%,” says Murphy.
“Looking beyond this fiscal year, we expect double-digit growth to continue as Qorvo’s premium technology product portfolio and operating capability support 5G, Wi-Fi, IoT, defense, power, and other growth markets,” concludes Murphy. “Qorvo is exceptionally well positioned to deliver earnings and free cash flow growth, serving a large and growing need for more efficient power and greater connectivity.”