News: Microelectronics
9 February 2024
Qorvo’s quarterly revenue up 44.5% year-on-year
For its fiscal third-quarter 2024 (to 30 December 2023), Qorvo Inc of Greensboro, NC, USA (which provides core technologies and RF solutions for mobile, infrastructure and defense applications) has reported revenue of $1073.9m, down 2.7% on $1103.5m last quarter but up 44.5% on $743.3m a year ago. This exceeds the high point of the guidance range (of $1bn, plus or minus $25m) by $49m. “Revenue continues to benefit from significant content gains at our largest customer,” says chief financial officer Grant Brown.
By business segment, revenue comprised:
- Advanced Cellular Group (ACG) $846.1m (down just 0.5% on $846.1m last quarter but up 72.1% on $491.5m a year ago), primarily for smartphones and other cellular devices including tablets and wearables;
- Connectivity & Sensors Group (CSG) $108.9m (up 5.1% on $103.6m last quarter and 12.5% on $96.8m a year ago), over half of which is currently WiFi;
- High-Performance Analog (HPA) $118.9m (down 20.6% on $149.8m last quarter and 23.3% on $155m a year ago), since base-station business — which typically has better-than-corporate gross margin — is currently much less than before.
On a non-GAAP basis, gross margin was 43.8%, up on 40.9% a year ago (and towards the top end of the 43-44% guidance range). However, this is down from 47.6% last quarter, as a larger portion of revenue was manufactured internally during the period of lower utilization, leading to higher unit costs.
During the quarter, Qorvo reduced its net inventory balance by $113m from $840m (138 days) to $727m (118 days), reflecting the firm’s commitment to efficient inventory management. “We continued to bring channel inventories down, and Qorvo shipments are now more closely aligned to end-market demand,” notes president & CEO Bob Bruggeworth. “The demand environment in the December quarter improved versus our November outlook, and this is reflected in our strong performance.”
Operating expenses were $234m, up on $205.7m a year ago but cut from $245.8m last quarter, due largely to R&D spending falling from $163.4m to $152.5m.
Operating income was $236.5m (operating margin of 22% of revenue), down from $279.4m last quarter but up on $98.6m a year ago.
By operating segment (compared with last quarter), operating margin was just 1.3% for HPA (down from 17%), 31.2% for ACG (down slightly from 33.5%), and –23.5% for CSG (a slight improvement from –26.7%).
Net income was $205.9m ($2.10 per diluted share), down from $235.5m ($2.39 per diluted share) last quarter but up on just $76.5m ($0.75 per diluted share) a year ago, and well above the guidance of $1.65 per diluted share.
“Qorvo exceeded the mid-point of December quarterly guidance for revenue, gross margin and EPS, reflecting strong content on customer programs and improving channel inventories,” says Brown.
Qorvo generated record cash flow from operations of $492.9m. Capital expenditure was $26.4m. Free cash flow was hence a record $466.5m (up more than seven-fold from $64.4m last quarter). Qorvo also repurchased about $100m of stock. Cash and cash equivalents therefore rose during the quarter from $706.8m to $1072m. Long-term debt outstanding has been cut from $2048.6m to about $1550m.
In mid-December, Qorvo said that it was divesting its Beijing and Dezhou assembly & test facilities via a new multi-year partnership with Luxshare Precision Industry Co Ltd of Dongguan City, Guangdong, China (which, during first-half 2024, will acquire their operations and assets, including the property, plant and equipment, as well as the existing workforce to enable continuity of operations). Qorvo will continue to maintain its sales, product and test engineering, and customer support staff in China “Adding Luxshare as a strategic partner will strengthen our position to serve our customers globally,” reckons Brown.
“As it relates to our manufacturing strategy, this is a further step in our ongoing efforts to reduce capital intensity,” notes Brown. “This move aligns with previous actions, including the closure of our Florida manufacturing operations and the recent sale of our Farmers Branch facility in Texas. We are efficiently managing a complex supply chain, including our internal factories, which support all three operating segments and will remain an ongoing focus. We will leverage internal manufacturing where it uniquely differentiates our products and outsource production where we maintain a strong network of foundry and OSAT partners,” he adds.
During the quarter, Qorvo also signed a definitive agreement to acquire Boston-based Anokiwave Inc (a supplier of high-performance silicon integrated circuits for intelligent active array antennas), expanding Qorvo’s offerings for defense & aerospace, SATCOM and 5G applications. Based in Boston, MA, and with design centers and sales offices in Boston and in San Diego, CA, the Anokiwave team will join Qorvo’s HPA segment. The transaction is expected to close during the March quarter.
“Our investments in our technology portfolio, product development, and advanced manufacturing will broaden our addressable market, diversify revenue, expand margin, and accelerate growth,” reckons Brown.
Strategic highlights during the quarter
- High-Performance Analog (HPA)
In defense & aerospace (D&A), Qorvo won an expanded radar design with a major DoD contractor and received new standard product orders in support of several large domestic and international ground-based radar systems. It also saw increasing demand for solid-state power amplifier (PA) products and for its switch filter bank products across multiple customers and programs. “There are multi-year secular trends driving our D&A business, including the trend of one-to-many, and the transition of mechanical systems to active electronics scanning systems, both of which increased requirements for more advanced systems-level RF solutions,” says Bruggeworth.
“In power management, we are extending our reach in markets where Qorvo enjoys a strong presence, such as wearables and other consumer products,” he adds. The most recent award is a PMIC chipset with multiple placements for wearables and a charger at a leading Android OEM. Complementing this, the firm began to see a rebound in solid-state drives (SSDs) for PC and enterprise markets. “We are continuing to expand upon our strong position, with an additional power management win in support of a leading manufacturer of laptops.”
In power devices, Qorvo is shipping into power supplies for blockchain applications, and design activity in data center continues to be strong. “We are also seeing increased activity in circuit protection, where our JFET technology brings unique advantages,” says Bruggeworth.
In automotive, design activity remains strong, not only for on-board chargers but also for other emerging applications and electric vehicles.
“In infrastructure, Qorvo is leading the DOCSIS 4.0 upgrade cycle. We commence volume shipments of our newest DOCSIS 4.0 hybrid power doubler in support of multiple cable OEMs,” says Bruggeworth. In the cellular base-station market, inventories continue to be consumed and Qorvo expects demand conditions to remain soft through calendar-year 2024.
- Connectivity & Sensors Group (CSG)
CSG customer activity for ultra-wideband is increasing in secure access automotive applications, notes Qorvo. It is also seeing new applications for ultra-wideband in automotive, including presence detection and other radar-based sensors. This momentum builds upon recent wins in ultra-wideband, including an in-vehicle car access platform and a flagship Android smartphone launch.
“As we demonstrated at CES, we are actively involved in a wide array of enterprise and connected home solutions, leveraging radar and ultra-wideband for applications such as door locks, smart lighting and indoor navigation,” says Bruggeworth.
In force-sensing touch sensors, Qorvo received the first production orders for an automotive supplier in support of a leading Korea-based automotive OEM. “We are seeing increasing traction across a growing set of customers and markets, including automotive, laptop trackpads, wearables, and smart home,” notes Bruggeworth.
In WiFi, design activity and collaboration remain strong across reference designs, customers and operators. Within the Android ecosystem, the demand environment for mobile WiFi is improving with the normalization of Android channel inventories. In access points, WiFi 6 volumes continue to grow with certain provider rollouts in India. In WiFi 7, Qorvo secured design wins across operator, retail, enterprise and mobile segments.
- Advanced Cellular Group (ACG)
In ACG, Qorvo commenced shipments in support of the spring 2024 flagship smartphone launch by the leading Android smartphone OEM. “On our last earnings call, we highlighted our content gains in the flagship tier,” says Bruggeworth. “In addition to the ultra-wideband, Qorvo content this year includes, the low band, mid-high band, ultra-high band, secondary transmit & receive, tuning, and WiFi. We are ramping up now and building upon our momentum with a broad set of design wins in this customer’s high-volume mass-market portfolio.”
Android mass-market smartphones are set to transition to 5G through the decade. “Our collaboration with Android customers on their long-term product roadmaps positions Qorvo to be a primary beneficiary,” Bruggeworth believes. Qorvo was correspondingly recognized by the top four China-based Android 5G OEMs [Honor, OPPO, Xiaomi, and Vivo] with 2023 awards for innovation, quality, supply, technology and strategic partnership. “To simplify 5G adoption and sustain our position as the leading global strategic supplier to Android OEMs, we continue to launch new architectures and new products that enhance performance and reduce form factors,” he adds. During the quarter, Qorvo expanded customer sampling of its newly launched main-path LMH power amplifier duplexer (PAD). Optimized for mass-market smartphones, this highly integrated solution combines, in a single placement, the low-, mid- and high-band main-path content traditionally offered in two placements, reducing surface area by 40%, simplifying design, and accelerating time to market.
“In addition to developing highly integrated solutions with increasing levels of functional density, we’re also advancing technology in our high-performance discrete portfolio, including our BAW [bulk acoustic wave] filters,” says Bruggeworth. During the quarter, Qorvo received purchase orders for discrete BAW filters using its recently released next-generation BAW technology.
For calendar 2024, Qorvo expects total smartphone units to grow in the low single digits, with 5G units growing by over 10%. “To compete and win, we collaborate with customers on their three-year product roadmaps and we supply them industry-leading solutions,” says Bruggeworth. “We enjoy our position as the preferred strategic RF supplier for all the customers we serve in the Android space, and we are very well positioned to benefit as their portfolios continue to transition to 5G,” he reckons.
“Demand for Qorvo’s products has improved, primarily due to our proactive efforts to align channel inventories with end-market demand and content gains on key customer programs,” says Bruggeworth. “We are delivering customers industry-leading products and technologies, and design activity remains robust.”
Outlook - year-on-year revenue growth in all operating segments in March quarter, with incremental growth in Android ecosystem
For its fiscal fourth-quarter 2024 (to end-March), Qorvo expects revenue of $925m, plus or minus $25m. “We are seeing incremental improvement in end-market demand in the Android ecosystem, and we expect to achieve year-over-year revenue growth in all of Qorvo’s operating segments in the March quarter,” says Bruggeworth.
“In ACG, we expect substantial year-on-year growth despite the typical sequential decline associated with our largest customer’s fall ramp. Partially offsetting that seasonal decline is healthier channel inventories and improving smartphone unit demand in China, as well as the flagship launch by our largest Android customer,” says Brown.
“In HPA, we expect year-over-year growth across all the businesses except base station, supporting our view for a return to year-over-year growth in HPA in the March quarter [following ACG and CSG achieving year-on-year growth in the September quarter]. From a mixed perspective, the more capital-intensive end-markets we serve - such as base station and some others including infrastructure — face headwinds due to the interest rate sensitivity of those customers and some of those larger build-outs. Consequently, defense & aerospace now represents over half of the HPA top line, making that segment a bit more sensitive to the timing of some of those defense programs quarter-to-quarter,” Brown adds.
“In CSG, we also expect year-over-year growth in the March quarter, supported by our WiFi revenue. It’ll be up meaningfully from Q4 last fiscal year,” says Brown. “Slower-than-expected ramps in IoT-related areas are expected in March, probably persisting through the first half of 2024,” he adds. “Although the auto market appears to be weakening, in general, our secular opportunities there lie in the automotive connectivity areas which are supported by the growing adoption of 5G, WiFi and ultra-wideband. We’ve already announced some significant design wins there in CSG for automotive and smart phone. And we’re targeting additional areas including industrial enterprise and smart home.”
Gross margin is expected to fall further to about 42% in fiscal Q4, but Skyworks expects continued improvement to days of inventory.
Operating expenses should rise to about $245m, with variability related to labor-related expenses and the timing of program development spend. Diluted earnings per share should be about $1.20 at the midpoint of revenue. CapEx is expected to rise in the March quarter (but remain well under 5% of revenue for the full-year).
“Relative to December, we expect March revenue to reflect a larger percentage of higher-cost inventories previously manufactured internally during periods of lower utilization. As these higher-cost previously manufactured inventories sell through, it paves the way for future gross margins that reflect increasing levels of utilization,” says Brown. “We currently expect to have sold through most of these higher-cost inventories and associated costs by the second half of this calendar year… Beyond March, there is no change to our guidance of returning to 50%-plus gross margin over time,” he adds.
“We continue to invest in new product development as it is a critical catalyst for driving multi-year growth across all three business segments,” says Brown. “Alongside these growth-oriented investments, we continue to launch productivity initiatives across the enterprise. These initiatives also span multiple years, are designed to support future growth, augment productivity, and enhance profitability.”
“Looking forward, we are capitalizing on global macro trends and multi-year technology upgrade cycles, and we expect this to support durable long-term growth,” concludes Brown.
Qorvo sells Beijing and Dezhou assembly & test facilities to contract manufacturer Luxshare
Qorvo quarterly revenue down 45.7% year-on-year while channel inventory consumed
