News: Microelectronics
21 May 2024
Qorvo grows year-on-year after content gains with largest mobile customers and record defense revenue
Qorvo Inc of Greensboro, NC, USA (which provides core technologies and RF solutions for mobile, infrastructure and defense applications) has reported revenue for full-year fiscal 2024 (ended 30 March) of $3769.5m, up 5.6% on fiscal 2023’s $3569.4m, benefitting from significant content gains at its largest mobile customers, and record revenue from defense & aerospace (D&A) business. The two 10% customers were Apple (up further to 46%, from 37% in fiscal 2023 and 33% in fiscal 2022) and Samsung (consistent at 12%).
Fiscal fourth-quarter 2024 revenue was $941m, down 12.4% on $1073.9m last quarter but up 49% on $632.7m a year ago, and exceeding the $925m mid-point of guidance by $16m.
“Qorvo delivered year-over-year revenue growth in the March quarter in each of our three operating segments,” notes president & CEO Bob Bruggeworth. “There are global macro trends [including mobility, connectivity, electrification and datafication] supporting our markets that are increasing customer requirements for efficiency, latency, throughput and other critical performance metrics,” he adds.
By business segment, revenue comprised:
- Advanced Cellular Group (ACG) $653.6m, down 22.8% on $846.1m last quarter (due to the typical sequential decline associated with the Autumn ramp of Qorvo’s largest customer) but up 56.5% on $417.7m a year ago, supported by strong content on multiple, large customer platforms;
- Connectivity & Sensors Group (CSG) $122.8m, up 12.8% on $108.9m last quarter and 49.9% on $81.9m a year ago after a fourth consecutive quarter of sequential growth, due to strength in Wi-Fi, automotive and other areas, despite slower-than-expected ramps in IoT-related areas;
- High-Performance Analog (HPA) $164.6m, up 38.4% on $118.9m last quarter and 23.7% on $133.1m a year ago (returning to year-on-year growth across all the businesses except base-stations). This was driven by stronger-than-anticipated sequential growth in defense & aerospace business to record revenue (becoming the largest contributor to HPA) due to large defense programs and SATCOM growth, plus continued improvement in end-markets other than base-stations.
On a non-GAAP basis, gross margin was 42.5%, up on 41.3% a year ago and above the 42% guidance. However, this was down from 43.8% last quarter as a higher percentage of Android 5G mass-market product was manufactured internally during periods of lower factory utilization, leading to higher unit costs. Full-year gross margin has fallen further, from 46.3% in fiscal 2023 to 44.5% for fiscal 2024, although this exceeded the guidance of 44%.
During the quarter, Qorvo reduced its net inventory balance further, by $16m from $727m to $710.5m (down from $796.6m a year ago), reflecting the firm’s continued commitment to efficient inventory management. Shipments are now more closely aligned to end-market demand.
Operating expenses have grown further, from $227.4m a year ago and $234m last quarter to $253.2m, exceeding the forecasted $245m. This was driven mainly by R&D spending rising from $152.5m last quarter to $168.1m.
“We continue to invest in new product development to drive multi-year growth across our businesses,” says chief financial officer Grant Brown. “Alongside our growth-oriented investments, we’re investing to upgrade the core systems and processes we use to run our business. This multi-year initiative is intended to extend our competitive advantage and enable us to scale growth in diverse dynamic markets. Our goal is to increase operational efficiency, unlock internal data to leverage new software capabilities, including AI, and support our broad-based growth objectives. We expect this initiative will span approximately three years.”
Net income was $135.5m ($1.39 per diluted share, surpassing the targeted $1.20), up on $25.7m ($0.26 per diluted share) a year ago but down from $205.9m ($2.10 per diluted share) last quarter.
“Revenue, gross margin and diluted EPS all exceeded the midpoint of the guidance range,” notes Brown.
Operating cash flow was $202.3m. Capital expenditure rose from $26.4m last quarter to $32.7m (while remaining well under the targeted 5% of revenue for the full-year). Free cash flow was hence $169.6m.
During the quarter, Qorvo repurchased about $100m of stock (bringing the total for full-year fiscal 2024 to $400m).
Cash and cash equivalents fell during the quarter, from $1072m to $1029.3m. As of quarter-end, Qorvo had about $1.5bn of long-term debt outstanding.
Acquisitions & divestments
During the quarter, Qorvo completed the acquisition of Anokiwave Inc of Boston, MA, USA, a supplier of high-performance silicon integrated circuits for intelligent active array antennas, with design centers and sales offices in Boston and in San Diego, CA. Its silicon beam-forming ICs and IF-to-RF conversion solutions are said to be complementary to Qorvo’s transmit/receive RF front-ends for SATCOM, D&A, 5G and other beam-forming applications. The Anokiwave team has hence joined Qorvo’s HPA segment. “The D&A content opportunity for Qorvo is especially strong in phased array, where our solutions can enable transmit/receive elements. Phased array radars can contain hundreds, up to tens of thousands of transmit/receive elements per system, underscoring the multiplier effect for Qorvo,” says Bruggeworth. “Adding to this, we are developing more highly integrated placements that combine Anokiwave solutions with our existing RF and power management IC portfolios,” he adds.
In mid-December, Qorvo said that it was divesting its assembly & test facilities in Beijing and Dezhou, China, via a new multi-year partnership with Luxshare Precision Industry Co Ltd of Dongguan City, Guangdong (which is acquiring 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. “We made significant progress towards achieving operational readiness and completing other work required to close the transaction [expected this June quarter],” he adds.
“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,” says Brown. “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.
Strategic highlights during the quarter
- High-Performance Analog (HPA)
In defense & aerospace (D&A), design wins for the quarter spanned airborne and shipborne radars, SATCOM applications and solid-state power amplifier products. Qorvo secured its first design win for a BAW-based filter bank solution that enables new architectures for large defense customers. In low earth orbit (LEO) SATCOM applications, Qorvo is engaged to supply multiple products including LNAs, switches, mixers and BAW multiplexers to support ubiquitous, non-terrestrial connectivity.
“In power management, we are investing to expand its reach in markets where Qorvo enjoys long-standing customer relationships such as consumer, D&A and mobile, while also targeting more fragmented and more diverse industrial markets,” says Bruggeworth. Qorvo secured a motor control design win and a power tool platform with a leading manufacturer of residential and commercial lawn and garden products, as well as new PMIC design wins at new and existing solid-state drive customers.
For power management opportunities in mobile, there are increasing requirements for compute and processing power in the device that are creating new growth vectors for Qorvo PMICs. “The opportunity is significant in both volume and content, and we are able to leverage our exceptional customer and ecosystem relationships,” says Bruggeworth.
“Beyond RF power management, there are incremental power management opportunities in the phone where Qorvo is leveraging our expertise to reduce current consumption, improve battery life and better accommodate more data-intensive use cases,” says Bruggeworth. “We have very strong power management IP that can be extended across markets, making our PMIC portfolio an engine for diversification, growth and profitability,” he adds.
Qorvo is also extending its reach in broad markets by building out more ways to engage with existing and new customers, such as its recently launched QSPICE analog and mixed-signal circuit design and simulation tool. “QSPICE has gained quick traction with engineers by providing them measurable improvements in speed, functionality and reliability of circuit simulation,” says Bruggeworth. “Since its launch, QSPICE has surpassed 20,000 unique downloads.”
In power devices, customers continue to transition from silicon to silicon carbide, and design activity for Qorvo remained strong in its target markets. The firm continues to secure design wins for high-density server power supplies, and has added a second tier-1 North American server OEM.
“In infrastructure markets, Qorvo is leading the transition from DOCSIS 3.1 to DOCSIS 4.0 with a broad portfolio of products,” says Bruggeworth. “In our base-station business, customers continue to award Qorvo design wins, however, we expect the demand environment to remain weak. Longer-term, we are very pleased to have been selected by a European-based OEM to support their 6G development efforts.”
- Connectivity & Sensors Group (CSG)
Qorvo is supporting an increasing number of applications requiring the security and precision location awareness of its ultra-wideband solutions across mobile, consumer, automotive and other markets.
In mobile, ultra-wideband placements are among many Qorvo solutions supplied to Samsung in support of their Galaxy S24 flagship brand.
In consumer markets, recent wins include a robotic lawn mower that leverages Qorvo’s ultra-wideband to provide the precision location accuracy required to enable this application.
In automotive, customer engagements are expanding to enable a range of applications that leverage Qorvo’s ultra-wideband radar capabilities. Automotive applications for ultra-wideband technology include secure access and digital key, as well as kick sensors and the reliable detection of both intrusion and occupancy. During the quarter, customer activity included an ultra-wideband design win enabling secure access for an EV manufacturer in North America.
Qorvo was also selected to supply automotive Wi-Fi 6E solutions in support of a different North American EV OEM. It was also selected to supply its V2X solution for an automotive OEM in Europe on a platform ramping in calendar 2025. For an EV OEM in Asia, Qorvo was selected to enable their 5G network access device with six solutions, each of which contain Qorvo’s low-band, mid-high-band, ultra-high-band, diversity receive, average power tracker and high-performance BAW filtering. Production for this program begins this year. This 5G reference design will also be marketed to additional automotive OEMs and tier-1s.
For Wi-Fi markets, Qorvo is migrating its newest and most advanced BAW technology across its Wi-Fi portfolio. The firm launched 6GHz Wi-Fi 7 filters using its next-generation BAW and will soon launch Wi-Fi 7 iFEMs that combine its next-generation BAW with its PA, switch and LNA content in a single placement. Qorvo also ramped its newest Wi-Fi 7 long non-linear FEMs for a tier-1 network operator in the USA and sampled next-generation, high-efficiency Wi-Fi 7 FEMs aligning with a leading mobile Wi-Fi chipset.
In connected home applications, Qorvo began sampling its next-generation Matter SoC and secured a design win with a leading network operator in the USA to supply its BLE/Zigbee SoC to remote controls for home gateways.
In force sensing touch sensors, Qorvo expanded its engagements in trackpads and other consumer applications.
- Advanced Cellular Group (ACG)
“We are the primary RF supplier to the Android ecosystem and our strong roadmap and multi-year collaboration positions us to benefit as the Android ecosystem continues to transition to 5G,” says Bruggeworth. During the quarter, Qorvo supported the Galaxy S24 launch with its low-band, mid-high-band, ultra-high-band, secondary transmit and receive, tuning, Wi-Fi and ultra-wideband solutions. “This highlights the strength of our portfolio and the breadth of our opportunity at Samsung, and we are pleased to support them across their flagship and mass market 5G smartphones,” says Bruggeworth.
For mass-market Android 5G smartphones, Qorvo is seeing strong pull for its recently launched low-, mid-, high-band PAD (power amplifier duplexer). “Qorvo’s LMH solution reduces surface area by 40% by combining in one placement the low-, mid- and high-band main PAD content traditionally offered in two placements,” notes Bruggeworth. Qorvo has expanded customer engagements to include the top four China-based 5G Android OEMs, and volume shipments are set to commence this calendar year.
“To broadly support all customers with best-in-class portfolios, we continue to advance new technologies across our products,” says Bruggeworth. “We are proliferating our next-generation BAW technology across high-performance discrete and integrated solutions,” he adds. Qorvo also recently released a next-generation LRT SAW process to complement its advanced BAW and SAW processes in select bands. The first module combining its LRT SAW and BAW filters will support a flagship launch later this summer.
Outlook – gross margin to bottom out in June quarter as high-cost 5G Android inventory sells through
For fiscal first-quarter 2025 (to end-June 2024), Qorvo expects revenue to fall to $850m. This is dominated more than ever by Qorvo’s increasing exposure to the seasonal ramp patterns at its two largest customers, leading to a decline in ACG revenue in the high single digits. “We’re coming off a big flagship ramp at our second largest customer with tremendous content,” notes Bruggeworth. “We’re offsetting that with growth outside of them.” Similarly, while Qorvo expects D&A business to grow year-on-year in fiscal 2025, the seasonal timing of large defense programs (given its dominant size within HPA) – together with a slower rollout of DOCSIS 4.0 – should lead to a decline in HPA revenue in the low double digits. CSG revenue should be roughly flat.
Gross margin should dip to a low point of 40–41%. As well as the typical seasonal decline in Qorvo’s largest customer (comprising products that contain higher levels of external content) plus the seasonal decline in defense programs, this reflects a higher percentage of Android 5G mass-market product that was manufactured during periods of lower utilization. As these higher-cost inventories sell through [mostly by end-June], it paves the way for future gross margins that reflect increasing levels of utilization. Utilization across Qorvo’s US fabs has already risen from the 40%s in fiscal Q1 last year to the 60%s now. “We still have meaningful opportunity to improve and reach more optimal levels, in the 80%s or higher, across the board,” says Brown.
Operating expenses should be about $260m, with variability related to the timing of program development spend and other factors. This includes about $5m of other operating expense related to modernizing core systems and business processes. During fiscal 2025, Qorvo expects to record about $40m of expense related to this project, with quarterly variability related to the achievement of progress-based milestones.
Diluted earnings per share is expected to fall to $0.60–0.80 in fiscal Q1.
“Absent any macro-related disruptions, we do expect to grow both revenue and gross margin modestly in fiscal 2025 on a year-over-year full-fiscal-year basis,” says Brown. “Given the timing of the content gains at our largest customer and the success in the defense market, our revenue seasonality will be more closely aligned to those annual ramp profiles. That’s clear in our Q1 guidance, but will also be included in our full fiscal year,” he adds.
“For September, we expect gross margin to improve substantially as three headwinds reverse: the seasonal ramp will reflect more external content; defense revenue is expected to grow sequentially; and the under-utilization impact should fall to less than or around 100 basis points versus the 300 basis points that we experienced last quarter,” he adds.
Gross margins is expected to then be roughly flattish in the December quarter and then down slightly the following March quarter. “We continue to expect full-year [fiscal 2025] gross margin to improve modestly year-on-year [to the mid-40%s],” says Brown.
Qorvo believes that in can still return to 50%-plus gross margin over time. “Business mix will play a role,” says Bruggeworth. “From an overall manufacturing perspective, we expect to benefit from continued die size reductions, wafer size increases, and we can continue reducing our capital intensity. We’re continuously looking at factory footprints for opportunities to optimize and consolidate our operations, and you’ve already seen us take steps there such as divesting our Farmers Branch facilities as well as our Beijing and Dezhou facilities.”
Qorvo’s quarterly revenue up 44.5% year-on-year
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
