News: Microelectronics
13 February 2025
Qorvo’s quarterly revenue hit by mass-tier Android 5G demand falling faster than expected
For its fiscal third-quarter 2025 (ended 28 December 2024), Qorvo Inc of Greensboro, NC, USA (which provides core technologies and RF solutions for mobile, infrastructure and defense applications) has reported revenue of $916.3m, down 12.4% on $1046.5m last quarter and 14.7% on $1073.9m a year ago, albeit slightly above the midpoint of the $900m±$25m guidance.
Of Qorvo’s six primary end markets: automotive, consumer, defense & aerospace, industrial & enterprise, infrastructure, and mobile, the firm saw sequential strength in defense & aerospace, industrial & enterprise, and infrastructure.
By business segment, revenue comprised:
- Advanced Cellular Group (ACG) $635.1m, down 15.5% on $751.4m last quarter and 24.9% on $846.1m a year ago. “We are focused primarily on delivering 5G advanced products [e.g. discrete placements such as tuners as well as integrated placements like ultra-high-band PADs] for (1) our largest customer [Apple, which comprised just over half of Qorvo’s total revenue, supporting their flagship launch] and for (2) the flagship and premium tiers of Android,” notes president & CEO Bob Bruggeworth. “Within our Android 5G product portfolio, we are narrowing our focus to the higher-value flagship and premium tiers, where customers value Qorvo’s differentiated products.”
- Connectivity & Sensors Group (CSG) $109.5m, down 25.4% on $146.8m last quarter – matching the seasonality of the last three years because of the profile of the largest customer – but up 0.6% on $108.9m a year ago. In infrastructure, revenue rose significantly year-on-year in both broadband and cellular base-station markets, which are now past the bottom and seeing stabilization. Qorvo increased shipments of high-frequency BAW (bulk acoustic wave) filters in support of enterprise WiFi deployments across geographies and expanded power management engagements with new and existing customers and enterprise SSDs (solid-state drives). In automotive, revenue declined sequentially as end-market softness continues. In consumer markets, revenue declined sequentially, reflecting market headwinds. “We are building upon our strong position in RF solutions across markets while investing in diverse growth businesses, including an expanding portfolio of automotive solutions and SOCs for ultra-wideband, BLE, Thread, and Matter,” says Bruggeworth.
- High-Performance Analog (HPA) $171.7m, up 15.8% on $148.3m last quarter and 44.4% on $118.9m a year ago, including record Defense & Aerospace (D&A) revenue (driven by multi-year tailwinds including upgrades to non-terrestrial networks and the transition from mechanical radar systems to active electronic scanning radar systems). “We continue to grow our Defense & Aerospace business while expanding our business in power management,” says Bruggeworth.
On a non-GAAP basis, gross margin was 46.5%, down from 47% last quarter but this was due mainly to (1) a headwind of about 300 basis points from the silicon carbide business (which was subsequently divested, in January) plus (2) the mass-tier Android 5G revenue (which Qorvo is now exiting). “While we continue to serve mass-tier programs previously awarded, we expect these lower-margin programs to go end-of-line in fiscal 2026 and into fiscal 2027,” says Bruggeworth. Despite revenue falling year-on-year, gross margin was up on 43.8% a year ago, and above the expected 45%.
“The opportunity in mass-tier Android 5G declined at a faster rate than anticipated during our Investor Day,” notes Bruggeworth. “Android build plans changed to reflect higher consumer demand for entry-tier 5G devices. In response, during the December quarter we implemented changes across the organization in how we support Android 5G… We narrowed our focus to the premium and flagship tiers to increase profitability and reduce variability,” he adds.
“On operating expenses, we implemented a significant workforce reduction, primarily targeting our mass-market Android business as well as supporting areas to enhance our cost structure,” says chief financial officer Grant Brown.
Also, to align its scope with the anticipated economic benefits, Qorvo has cancelled elements of its digital transformation project (a three-year initiative to modernize its core systems and business processes, to increase operational efficiency, unlock internal data to leverage new software capabilities including AI, and support broad-based growth objectives in diverse dynamic markets). Spending on this had been scheduled to double to about $15m in the December quarter – with the total for full-year fiscal 2025 amounting to about $40m – but this has been reduced.
Operating expenses are still up on $234m a year ago, but have hence been cut from $279.8m last quarter to $248.4m (much better than the expected $265m), with selling, general & administrative expenses reduced from $85.3m to $78.8m and R&D spending cut from $187.6m to $165.5m. “Our 5G product development spend is now focused solely on premium and flagship tiers,” notes Bruggeworth.
By operating segment (compared with last quarter), operating margin was 19% for HPA (up from 8.8% last quarter and just 1.3% a year ago), 25.4% for ACG (down from 28.6% last quarter and 31.2% a year ago), and –10.7% for CSG (worsening from –6.1% last quarter but better than –23.5% a year ago).
Net income has fallen further, from $205.9m ($2.10 per diluted share) a year ago and $179.8m ($1.88 per diluted share) last quarter to $152.8m ($1.61 per diluted share, above the expected $1.10–1.30).
“Qorvo exceeded the midpoint of our December quarter non-GAAP guidance in revenue, gross margin, and EPS,” notes Brown.
Operating cash flow was $214.1m (up from $127.8m last quarter, but less than half the $492.9m a year ago). Capital expenditure was $37.8m. Free cash flow was hence $176.3m (up from $94.8m last quarter, but down on $466.5m a year ago).
“Qorvo is executing on a broad set of strategic initiatives to expand margin, generate strong free cash flow, and increase shareholder value,” says Bruggeworth.
During the quarter, Qorvo repurchased about $100m of stock (at an average price of $73 per share). The firm also spent $412m to retire its remaining 2024 notes.
Cash and cash equivalents hence fell from $1096.5m to $769.4m. Long-term debt remains about $1549m.
Qorvo ended the quarter with a net inventory balance of $656.2m (the lowest in over three years, reflecting ongoing inventory reduction efforts), down by $38m sequentially and by more than $70m year-on-year.
Outlook
For fiscal fourth-quarter 2025 (to end-March), Qorvo expects revenue to fall by 5–10% to $850m±$25m, driven by being the lowest seasonal quarter for Qorvo’s largest customer (although the sequential drop will be less than the seasonal drop in the last couple of years). Android-related revenue will be up sequentially, given the flagship platform launches.
In HPA, Qorvo expects even better strength in the March quarter, driven again by D&A business. This is primarily due to the timing of US Department of Defense contracts, but Qorvo nevertheless expects that, for full-year fiscal 2025, D&A revenue will grow faster than that for the rest of HPA, becoming a $400m annual business.
Silicon carbide revenue will be negligible in the March quarter (versus $9m in the December quarter and about $30m for full-year fiscal 2025) following January’s sale of the business, which is accretive to both gross and operating margins.
Gross margin should fall seasonally in the March quarter, to 43–44%. Including $1–2m from the remaining portion of the digital transformation project, operating expenses are expected to be about $250m (and to average about $250m per quarter in fiscal 2026). Diluted earnings per share should be $0.90–1.10.
For fiscal first-quarter 2026 (to end-June), revenue is expected to fall by 10-15% sequentially, due to the Android ramp at a large customer for their flagship smartphone model ramping down at the same time that Qorvo’s largest customer also ramps down. Also: “Like prior years, our D&A business will be down meaningfully in June on a sequential basis [by as much as $75m] due to program timing, while expected to grow double-digits for the full year,” says Brown.
Cost savings to drive margin growth despite flat revenue in fiscal 2026
“During the [December] quarter, we took proactive steps to change how we support our Android business. These actions will reduce operating expense and are expected to benefit gross margin in our fiscal 2026,” says Brown. “Subsequent to the quarter, we divested our silicon carbide business. These actions, in aggregate, are expected to support a high-40%’s gross margin in seasonally strong quarters of fiscal 2026 and additional gross margin improvement in fiscal 2027,” he adds.
“These actions are reflected in our Q4 guidance and will extend into fiscal 2026. Overall, we anticipate achieving over $100m in gross annualized savings across COGS and OpEx,” says Brown. “A portion of these savings will be reinvested in the key growth areas such as D&A, power management, ultra-wideband and programs for our largest customer, as well as to offset inflationary pressures,” he adds.
“As we continue to execute on our growth and diversification strategy, we expect HPA and CSG to deliver double-digit growth in fiscal 2025 and next fiscal year.”
In full-year fiscal 2026, Qorvo expects gross margin to expand by about 150 basis points on roughly flat revenue. This reflects growth of 10–12% in CSG and HPA (excluding silicon carbide) but a single-digit drop in ACG revenue, as Android 5G declines gradually from about $875m in fiscal 2025 by $150–200m annually in fiscal 2026 and again in fiscal 2027, mostly due to China, with the balance being mid-tier at Qorvo’s second-largest customer Samsung. “Beginning in fiscal 2027, we expect ACG to return to growth, where our updated long-term revenue target is for mid-single-digit growth,” says Bruggeworth. “Our largest growth opportunity in ACG is with our largest customer, and we are investing today to continue increasing our share with them in subsequent programs over multiple years,” he adds.
“With ACG, we expect to enhance margins and reduce [seasonal] variability as our portfolio management efforts and pricing strategies reduce our exposure to legacy mass-tier Android 5G,” says Brown.
“In HPA, the divestiture of our silicon carbide business is margin accretive. In addition, our strategic investments supporting continued growth in D&A will also be accretive.”
“In CSG, gross margin will increase with the relocation of gallium arsenide [GaAs] production from our underutilized North Carolina facility to our high-volume Oregon site. We continuously evaluate further opportunities to reduce our capital intensity and product costs, including process technology advancements and die-size reductions. The complexity of our solutions, coupled with the global RF compliance requirements faced by our customers, results in multi-year design cycles. We’re working closely with our customers as we align our factory footprint to address only the most differentiated elements of our products and increasingly leverage the scale, capabilities and cost-effectiveness of our outsourced partners,” Brown adds.
“All of these factors in aggregate are expected to support high 40% gross margin in seasonally strong quarters during fiscal 2026 and up to 50% gross margin in a seasonally strong quarter during fiscal 2027,” concludes Brown.
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