10 May 2016

Qorvo reports better-than-expected quarterly results

For its fiscal fourth-quarter 2016 (to 2 April), Qorvo Inc of Greensboro, NC and Hillsboro, OR, USA (which provides core technologies and RF solutions for mobile, infrastructure and defense applications) has reported revenue of $607.1m, down 2% on $620.7m last quarter and 4% on $633.9m a year ago, but exceeding guidance of $600m (and much better than typical seasonality). This reflects increased demand for the firm's highly integrated solutions and a return to growth in the broad target markets for Infrastructure & Defense Products (IDP).

IDP revenue grew further to $142m, up 9% on $130m last quarter and 1.4% on $140m a year ago. "IDP has repositioned its diverse portfolio of businesses to accelerate growth and we've begun to see the benefit of that sharpened focus," notes president & CEO Bob Bruggeworth. In Wireless Infrastructure, revenue grew by over 25% sequentially, indicating a continued recovery to more historic levels in base-station business. "We enjoyed increasing demand for Qorvo's high-frequency and high-power solutions across both infrastructure deployments and advanced defense application," he adds.

Mobile Products' revenue fell further to $465m, down 5% on $489m last quarter (which had itself fallen 15% sequentially after a late reduction in demand from Qorvo's largest customer) and down 5.7% on $493m a year ago. However, Qorvo saw content gains in the Samsung Galaxy as well as smartphone program ramps.

"During the March quarter, Qorvo enjoyed strong customer demand for our highly integrated solutions, led by products incorporating our premium filters," notes Bruggeworth, citing the firms expanding family of tightly integrated compact RF Fusion solutions that "leverage our BAW [bulk acoustic wave] and temperature-compensated SAW [surface acoustic wave] filters, our low-loss, high-throw-count SOI [silicon-on-insulator] switches, and our high-performance, low-noise amplifiers [LNAs] to deliver performance that's unmatched by competitive solutions". Specifically, in the China market, the deployment of carrier aggregation and the migration to full-mode devices is increasing demand for the firm's RF Flex solutions, BAW-based quadplexers, and a broad variety of antenna control solutions. "We expect these highly integrated solutions will continue to drive our growth," says Bruggeworth. "Looking into calendar 2017, our customers in China are asking us to integrate our premium filters into RF Flex to reduce complexity and enhance smartphone performance as carrier aggregation proliferates and bands and modes are added," he adds. "This strongly favors our broad product portfolio and integration capabilities."  

During the quarter, Qorvo had three 10%-or-more customers: the largest (representing the collective demand from multiple subcontractors for this end customer) at about 33% of revenue (down from 37% a year ago), plus China-based telecoms equipment maker Huawei Technologies Co Ltd (a customer for both Mobile Products and Infrastructure & Defense Products), and now joined by South Korea's Samsung (after greater-than-expected growth).

On a non-GAAP basis, gross margin was 50%, down slightly on 50.4% a year ago but recovering from the dip to 47.9% last quarter after resolving a yield issue on a couple of components.  

Operating expenses were $142.9m, up from $139.8m last quarter but cut from $150.2m a year ago (and below the forecasted $150m), reflecting reduced variable compensation expense.

Net income has fallen from $167.2m ($1.11. per diluted share) a year ago and $148m ($1.03 per diluted share) last quarter to $142.6m ($1.04 per diluted share).

Cash flow from operations was $160.5m. Capital expenditure was $84.4m (above the forecasted $60-70m), primarily to address growth and demand for premium filters. Hence free cash flow was $76.1m. After announcing a $500m accelerated share repurchase (ASR) program on 17 February, during the quarter Qorvo repurchased about 10 million shares of common stock (although, since the purchase occurred about halfway through the quarter, the impact on the March-quarter share count was about 5 million shares). Overall, total cash and investments hence fell from over $1bn to $613m.

Strategic highlights of the quarter are listed as:

• delivering high-volume shipments of BAW-based multiplexers enabling carrier aggregation in 4G LTE devices in support of China-based performance-tier smartphone market;
• securing multiple design wins with a leading China-based smartphone maker, supporting an upcoming premium-tier marquee smartphone platform with high-band, mid-band and low-band RF Fusion, an envelope tracking (ET) power management integrated circuit (PMIC), multiple switches, and multiple antenna control solutions;
• expanding its product portfolio and achieving multiple design wins across antenna control solutions, aperture tuners, impedance tuners, low-noise amplifiers, and discrete switches;
• robust design-win activity in mobile Wi-Fi with RF Fusion integrated front-end modules (iFEMs) and multiple Wi-Fi design wins for automotive applications;
• securing a reference design on Quantenna's QSR10G Wi-Fi solution, which enables the industry's first 10G Wave 3 solution through a True 8x8 MIMO configuration for 5GHz networks with a 4x4 MIMO configuration for 2.4GHz networks; and
• expanding the firm's gallium nitride (GaN) product portfolio and capturing large international design wins for products in both defense and commercial (base-station) applications (a market that Qorvo expects will grow at about 25% year-over-year).

"Qorvo's strong financial performance affords us multiple opportunities to invest our cash," says chief financial officer Steve Buhaly:  

• Qorvo acquired GreenPeak Technologies of Utrecht, The Netherlands (a provider of ultra-low-power, short-range RF solutions) to expand into the rapidly growing Internet of Things market. "GreenPeak has an expanding business [with markets targeted to grow at about 60% between now and 2020] and customers all over the globe, a great number of who are already purchasing high-power solutions from Qorvo," says Bruggeworth. GreenPeak will become a part of IDP (as part of IDP's ongoing migration from a high single-digit growth rate to a mid-teens growth rate, comparable to the Mobile sector) and will be run by its founder & CEO Cees Links, a "recognized industry leader who was instrumental in the development and adoption of Wi-Fi technology", he adds. "We expect GreenPeak's ultra-low-power RF solutions and SOCs [systems-on-a-chip] for the connected home and Internet of Things to nicely complement IDP's industry-leading portfolio of high-power solutions."
• Qorvo began production of 6-inch temperature-compensated SAW filters in Florida and 6-inch SAW filters in Greensboro in order to support a marquee smartphone this calendar year. The firm is also in the final days of qualifying its 8-inch BAW process in Texas [Richardson]. "We are investing in our BAW capacity to support increasing customer forecasts. Our acquisition of a former Maxim plant just a few miles from our existing operation in Richardson will provide low-cost cleanroom capacity for the next leg of BAW growth," explains Buhaly. "Our BAW-based hexaplexer prototypes are demonstrating excellent performance, and we've begun to sample a highly integrated RF Fusion that incorporates our hexaplexers. We see strong growth and increasing customer pull for these types of solutions in the coming years," adds Bruggeworth. "We recently acquired cleanroom space near our Richardson [Texas] campus to support customer demand for BAW filters, whether they be in discrete implementations, quadplexers, pentaplexers, hexaplexers, diversity receive modules or other highly integrated RF solutions." The facility is already fully operational, and Qorvo aims to incrementally convert it to BAW in the second half of calendar 2017 to support customer programs. "As the industry's leading supplier of SAW, temp-comp SAW and BAW devices, we are adding capacity to keep pace with the increasing customer demand for our high-, mid- and low-band products. In fact, Qorvo will soon be in production with low-band PADs, mid-band PADs and high-band PADs [power amplifier duplexers] all in premium-tier marquee LTE smartphones," says Bruggeworth.
• Since the beginning of fiscal 2016, Qorvo has returned about $1.3bn to shareholders through share repurchases. Qorvo expects to repurchase an estimated 0.5 million shares in the June quarter to complete its accelerated share repurchase program. The ASR is part of Qorvo's $1bn share repurchase program approved in November 2015, of which about $250m remains authorized for future repurchases.

"We prioritize our uses of cash by investing in our business to drive growth, returning capital to shareholders through share repurchases, and exploring opportunities for M&A to supplement growth in IDP," notes Bruggeworth.

For fiscal first-quarter 2017 (to end-June 2016), Qorvo expects revenue (excluding GreenPeak) to grow 7% sequentially to $650m, with Mobile Products up significantly (outside of Qorvo's largest customer), driven primarily by continued content growth in China. Gross margin should be steady at 50%, despite variable compensation expense rising back to normal levels (driving OpEx back above $150m), aided by a higher mix of Mobile products seasonally in the June quarter. Diluted EPS is expected to rise to $1.05.

"I think we have, with that growth rate, a good opportunity to see fiscal year 2017 earnings per share getting pretty close to $5 per share," says Buhaly. Achieving the firm's long-term model of 55% gross margin will be aided by the migration of BAW filters from 6-inch to 8-inch wafers, and SAW and TC-SAW filters from 4-inch to 6-inch wafers (which each reduce cost per die by as much as a third). "We'll be consolidating our GaAs production into a single foundry over the next year and a half, and insourcing assembling & test for part of our Mobile business (the part that used to belong to TriQuint) - each of these have a significant impact," says Buhaly. "These will occur throughout the year, but the financial impact will be mostly in fiscal 2018," he adds. "We have a fair amount of fixed costs, and we will see scale benefits as we continue to grow to the market at what we expect will be a 10-15% rate."

See related items:

Qorvo to acquire ultra-low-power, short-range RF SoC firm GreenPeak

Qorvo's quarterly revenue falls 12% after demand pause from largest Mobile Products customer

Qorvo's quarterly revenue rises 5.2%, led by Mobile Products

Qorvo announces proposed $1bn senior notes offering

Qorvo's quarterly revenue grows 6% as mobile products growth outweighs 40% drop in wireless infrastructure

Qorvo's quarterly revenue up 46% year-on-year

Merger of RFMD and TriQuint as Qorvo now completed

Tags: Qorvo RFMD TriQuint

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