9 February 2022
Qorvo’s December quarter exceeds the mid-point of guidance for revenue, gross margin and EPS
For fiscal third-quarter 2022 (ended 1 January), Qorvo Inc of Greensboro, NC, USA (which provides core technologies and RF solutions for mobile, infrastructure and defense applications) has reported revenue of $1114m, down 11.2% on last quarter’s record of $1255.2m but up 1.7% on $1094.8m a year ago, and $9m above the midpoint of $1090-1120m guidance.
“We are in the midst of the most disruptive supply chain effects in the past two years,” says chief financial officer Mark Murphy, although “supply chain effects did moderate in the quarter,” he adds.
“Sustained year-over-year revenue growth was supported by multi-year secular growth drivers in 5G, IoT connectivity, defense and power,” notes president & CEO Bob Bruggeworth. “Demand was broad-based across markets, and included multiple new product categories, including 5G transmit diversity, ultra-wideband Wi-Fi 6E and 7 and power management and other power solutions.”
Mobile Products revenue was $848m, down from $996m last quarter but up from $826m a year ago, and above the expected $830m, due to the continued growth of inherently higher-content 5G smartphones, plus gaining content in both flagship and mass-market 5G devices. “The multi-year migration of 5G continues to drive RF content and integration trends,” said Bruggeworth last quarter. “The RF content increase in mass-market phones is now greater on a percent basis than in flagship devices.”
Infrastructure & Defense Products (IDP) revenue was $266m, down on $269m a year ago (and below the expected $275m) but up from $260m last quarter. Sequential growth is broad-based across markets, with the exception being Wi-Fi (which was still being impacted by the ongoing shortages of chipsets). Infrastructure and programmable power management grew not only sequentially but also year-on-year. “In the defense supply chain, there is still some COVID-related disruption,” notes Murphy, “but it did improve, as we expected.”
On a non-GAAP basis, gross margin was 52.6%, down on 54.4% a year ago. However, despite the more challenging supply/demand environment than expected, this was still the fifth consecutive quarter above 52%, up from 52.4% last quarter and above the midpoint of the 52-52.5% guidance range, due to a better-than-expected product mix and yields.
Operating expenses were $214.2m (19.2% of revenue), down from $222.1m last quarter (and below the expected $224m) due to lower incentive compensation and the timing of development programs. However, this is up on $194.2m a year ago, due to new product and technology investments (higher investments in core technologies and expanding capabilities in new businesses). This includes OpEx from power device maker United Silicon Carbide (United SiC) of Princeton, NJ, USA (acquired in early November), partially offset by lower incentive compensation.
Operating income was $372m (33.4% of revenue, a fifth consecutive quarter of operating margin over 33%), down on $435.4m (34.7% margin) last quarter and $401.4m (36.7% margin) a year ago.
Net income was $330.4m ($2.98 per diluted share), down from the record $384.5m ($3.42 per diluted share) last quarter and $356.7m ($3.08 per diluted share) a year ago, but exceeding the $2.75 earnings per share guidance.
“Qorvo outperformed the midpoint of our guidance in the December quarter on revenue, gross margin and EPS,” notes Bruggeworth.
Cash flow from operations was $117m. This was less than half of last quarter’s $244.8m. However, this reflects a considerable payment associated with a long-term supply agreement. “We believe supply agreements allow us to advance our differentiated technology position and simplify our long-term planning,” says Murphy. “Qorvo is building longer-term and more collaborative partnerships to provide our customers supply assurance and to address their product and technology needs.”
Also, Qorvo’s inventory increased to over $700m (about 115 days of inventory), in line with the forecast, due to needing to support expected growth (i.e. content gains in both flagship and mass-tier smartphones, as well as increases in IDP), as well as a realignment of demand among OEMs in China. “Given our focus on cash flow and capital returns and risk management, it’s certainly higher than we want it to be and higher than it’s run over the past 1.5 years or so,” says Murphy. “But we’re working through those. We have a plan that rolls off over the next few quarters, and we expect more normal turns as we move through the year.”
Capital expenditure (CapEx) was $50.5m (below the projected $70m). “It remains concentrated in core areas such as BAW [bulk acoustic wave] and gallium arsenide (GaAs), where we enjoyed a differentiated position and see continued growth,” notes Murphy.
Free cash flow was hence $66.5m, down from $197.5m last quarter.
During the quarter, Qorvo repurchased $302m of shares. “We continue to repurchase shares based on our long-term outlook, low leverage, and other factors,” says Murphy.
In December, Qorvo issued its first investment grade note. The proceeds from this $500m three-year note were used in part to retire the firm’s $195m term loan.
As of the end-December, Qorvo had $2047m of debt and $988.5m of cash and cash equivalents. Net debt to EBITDA rose to more than 0.5 turns.
“Qorvo is operating well and expanding the markets we serve while investing to extend product and technology leadership across our portfolio,” says Bruggeworth.
Strategic highlights in December quarter
In Mobile, Qorvo ramped shipments during the quarter to a Korea-based smartphone OEM in support of flagship and mass-market smartphone launches. It also expanded customer sampling of highly integrated main path and secondary transmit solutions for Android 5G smartphones (increasing content as these architectures are adopted more broadly).
In ultra-wideband, Qorvo achieved what it describes as an important strategic milestone, supplying its first complete ultra-wideband solution for an Android smartphone (including a UWB transceiver and a software stack compatible with other Android devices). “This speaks to the strength of our core technology and highlights the opportunity across the Android ecosystem,” says Bruggeworth. For industrial and enterprise applications, Qorvo introduced a fully integrated module combining its ultra-wideband chipset with Nordic’s Bluetooth Low Energy solution to address a wide range of applications.
In Wi-Fi, design activity continues to be robust. Qorvo secured new Wi-Fi 7 chip-on-board reference design engagements for mobile applications and began customer sampling of Wi-Fi 7 front-end modules (FEMs). For home and enterprise applications, the firm ramped Wi-Fi 6E FEMs for mesh networks and released 5GHz iFEMs with BAW filtering for tri-band Wi-Fi mesh networks.
In cellular infrastructure, Qorvo was selected by a base-station OEM to supply 3.4-3.8GHz 8W GaN power amplifier modules for massive MIMO 5G deployments in Europe. “We see infrastructure market strengthening in 2022 worldwide, with significant growth in the rest of the world, excluding China,” notes Bruggeworth.
In automotive, Qorvo was selected to provide a cellular FEM for V2X connectivity for a leading Europe-based automotive OEM.
In power, Qorvo secured design wins to supply silicon carbide for on-board chargers (OBCs) and DC-to-DC converters in support of leading automotive OEMs in Europe and in Asia. Also, sales of power management integrated circuits (PMICs) for video processors and solid-state drives were strong, as were sales of motor control solutions for battery-powered tools.
“To expand our power franchise, we are combining our power management and silicon carbide technologies to deliver superior levels of power efficiency and high-power applications,” notes Bruggeworth. “Our first products are for the defense industry, and we are broadening the portfolio to serve additional markets, including infrastructure and automotive,” he adds. “The integration of United Silicon Carbide is proceeding well and enhancing our opportunities in higher-voltage applications that demand maximum power efficiency. These include electric vehicles (EVs), charging stations and renewable energy systems.”
Finally, in bio applications, Qorvo was awarded a $4.1m follow-on contract with the US National Institutes for Health (NIH) Rapid Acceleration of Diagnostics (RADx) initiative supporting a COVID/flu combo assay and a COVID antigen pooling application. The firm also signed a channel partnership agreement for distribution of its Omnia diagnostic test platform in the USA and submitted a CLIA (Clinical Laboratory Improvement Amendments) waiver application to the United States Food and Drug Administration (FDA) to expand deployment in point-of-care settings.
“In both mobile and IDP, Qorvo is capturing diverse opportunities supported by multi-year secular growth drivers in 5G, IoT connectivity, defense and power,” summarizes Bruggeworth.
Reflecting reduced disruption in the supply chain, the timing of high-volume smartphone launches, content gains and stronger IDP volumes, for fiscal fourth-quarter 2022 (to end-March) Qorvo expects revenue to grow more strongly than usual to $1.135-1.165bn, up 3% sequentially and 7% year-on-year. Mobile Products should be flat sequentially but up about 5% year-on-year due to flagship and mass-tier phone launches and content gains and a more stable supply-demand situation. IDP should return to year-on-year growth, with broad-based demand supporting revenues over $300m. “In our IDP business, some of the silicon supply in our connectivity business there, along with some of our power management systems business, we still see tightness,” notes Bruggeworth. “We do expect things to improve through the quarter and throughout the year.”
Gross margin should be about 52%. Operating expenses are expected to rise to about $232m due to increased investment in core technologies and new capabilities as well as early-calendar-year payroll effects. Diluted earnings per share should fall slightly to $2.94.
For full-year fiscal 2022, year-on-year revenue growth should exceed 15%. Gross margin is expected to about 30 basis points higher than fiscal 2021 (which had exceeded 52%). With OpEx cut from nearly 20% of revenue to just over 19%, operating margin is expected to rise to over 33% and earnings per share should grow by 25% to $12.18. Murphy expects full-year free cash flow to still end up near $900m (and to grow next year).
“We expect the supply environment to continue to improve through this quarter and the calendar year,” says Murphy.
CapEx is projected to be about $55m in the March quarter, “as we manage spend to intersect demand and support long-term supply agreements with multiple customers,” says Murphy. “We are still supply constrained in some areas and forecast to remain so beyond our fiscal year-end. We continue to expand BAW and GaAs capacity along with some assembly and test to support growth.”
“Looking beyond this fiscal year, Qorvo is well-positioned to serve secular growth trends in connectivity and power and to deliver growth in earnings and free cash flow,” reckons Murphy. “We expect solid growth in our advanced cellular products for smartphones as 5G mix grows, RF complexity increases and content expands. In broader connectivity solutions, we expect strong double-digit growth as connected devices increase and use-cases proliferate [while WiFi business should pick up in fiscal 2023]. Finally, we expect infrastructure, defense and power markets to support double-digit growth as 5G build-outs pick up outside of China, defense spend mixes to higher-performance electronics, and requirements increase for power semis to support electrification trends,” he concludes.