8 May 2018

Qorvo’s quarterly revenue up 3.5% year-on-year, as 26% growth in Infrastructure & Defense Products counteracts drop in Mobile Products

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For full-year fiscal 2018 (to 31 March), Qorvo Inc of Greensboro, NC, USA (which provides core technologies and RF solutions for mobile, infrastructure and defense applications) has reported revenue of $2973.5m, down 1.9% on fiscal 2017’s $3032.6m.

Fiscal fourth-quarter 2018 revenue was $664.4m, down 21.4% on $844.8m last quarter but up 3.5% on $642m a year ago and at the high end of the $645-665m guidance range.

Mobile Product (MP) revenue was $452m, down 29.6% on $642m last quarter and 4.6% on $474m a year ago but higher than expected due to improving handset demand in China.

“We are seeing increased demand in the performance tier for RF Flex- and RF Fusion-based solutions as well as for antenna tuning, discrete components and BAW-based multiplexers,” notes president & CEO Bob Bruggeworth. “Take for example our wins in Phase 6 architectures that include Qorvo’s SAW [surface acoustic wave] and BAW [bulk acoustic wave] technologies. Our Phase 6 RF Fusion solutions include both the mid/high-band and low-band modules, which provide complete front-end coverage in two placements. In many cases, we’re adding to our Phase 6 design wins with additional high-value content,” he adds. This includes expanding support of a leading China-based smartphone maker with Phase 6 RF Fusion, as well as antenna tuning and envelope tracking (ET) for a marquee smartphone. Qorvo also expanded shipments of BAW-based band 1/3 quadplexers and commenced production shipments of Phase 6 RF Fusion to leading performance-tier smartphone makers.

Infrastructure & Defense Products (IDP) revenue was another record of $212m, up 4.6% on $202.7m last quarter and 26% on $168m a year ago (the eighth consecutive quarter of double-digit year-on-year growth, contributing to full-year growth of over 20%). Growth was led by Internet of Things (IoT), defense and gallium nitride (GaN). “We successfully repositioned our product portfolio more than two years ago,” says Bruggeworth. “IDP competes in diversified growth markets. We partner with the best in the business and we win with differentiated products and technologies,” he adds.

“In defense, year-over-year growth was led by strength in ongoing production programs and the continued adoption of GaN for high-power applications,” continues Bruggeworth. “In IoT, we continue to advance our ‘Pod in Every Room’ vision [yielding record smart-home revenue] with multiple 2.4GHz, 5GHz and BAW filter design wins with leading meshed Wi-Fi home networking system providers. We also achieved record revenue in low-power wireless, led by our production ramp of our multi-protocol SoC [system-on-a-chip] for Samsung’s remote controls.”

On a non-GAAP basis, gross margin was 48%, level with last quarter and up from 46.2% a year ago but at the lower end of the 48-48.5% guidance range due to the effects of product mix within both business units.
Operating expenses were $155.6m, up from $150.8m last quarter (and above the targeted $153m) due to higher development program spending and seasonal payroll effects, but down from $163.1m a year ago due to ongoing productivity efforts (including September-quarter restructuring activities).

Operating income was $163.1m (operating margin of 24.5% of sales), down from $254.4m (30.1% margin) last quarter but up from $133.4m (20.8% margin) a year ago.

Likewise, net income was $138.6m ($1.07 per diluted share, above the expected $1.05), down from $220.2m ($1.69 per diluted share) last quarter but up from $111.7m ($0.85 per diluted share) a year ago.

Operating cash flow has fallen from $270.1m last quarter to $259m. Capital expenditure (CapEx) shrank again sequentially from $45.5m to $32.2m (compared with $165.8m a year ago, when Qorvo was adding filter manufacturing capacity – full-year CapEx was under 10% of sales for fiscal 2018 compared with nearly 20% a few years ago). Qorvo hence achieved its second consecutive quarter of record free cash flow, at $226.8m (above the forecasted $200m), boosting full-year free cash flow to $583m (in the last two quarters, individually, the firm has generated more free cash flow than it did in all of fiscal 2017).

During the quarter, Qorvo repurchased $51m of stock. Cash and cash equivalents overall rose from $841.3m to $926m.

“In fiscal 2018, IDP expanded margins and achieved outstanding revenue growth, up over 20%, while Mobile Products expanded margins and built a solid foundation for profitable growth,” says Bruggeworth. “I’m particularly pleased with our BAW-based design-win momentum across multiple products and customers, which we expect will lift factory utilization in the September quarter and beyond.”

During fiscal Q4/2018, Qorvo received production orders from a leading Korea-based smartphone maker for high-band BAW-based RF Fusion modules for 2018-model high-volume mass-tier smartphones. Qorvo also launched the industry’s first BAW filter to deliver a quadrupling in power handling capabilities for 5G massive-MIMO front-end modules. “In infrastructure, the timeline for 5G deployment has accelerated and Qorvo is in close collaboration with customers by participating in dozens of 5G field trials and demos,” says Bruggeworth. “We extended our 5G market leadership by adding the industry’s first 28GHz GaN-on-SiC front-end module for base stations. This follows on the footsteps of the industry’s first 39GHz front-end module which we released last year,” he adds. “5G is coming across networks and mobile devices and it is accelerating the requirements for gigabit LTE, which will serve as the backbone for 5G. Gigabit LTE requires best-in-class, highly integrated placements and Qorvo is targeting the most complex and most valuable solutions, especially those that require BAW-based content.”

In addition, Qorvo announced what is claimed to be the most powerful GaN-on-SiC transistor, boosting signal integrity and range with 1.8kW of output power at 65V.

“In both Mobile Products and IDP, Qorvo is addressing our customers’ most critical challenge as the complexity of their products continues to increase. This favors superior performance as a differentiator and increases the value of enabling technologies like BAW and GaN,” says Bruggeworth.

“We are forecasting significant growth in BAW-based products across customers, and our BAW factory utilization looks strong as we move into fiscal 2019,” he adds.

For fiscal first-quarter 2019 (to end-June 2018), Qorvo forecasts revenue of $645-665m. “We expect IDP to post another quarter of solid year-over-year growth, but to decline sequentially [following a very good fiscal Q4/2018] due partly to recent US Department of Commerce actions on [China-based] ZTE [which comprises about $10m of quarterly revenue, mostly in IDP],” says chief financial officer Mark Murphy. “For Mobile, we see sequential and year-over-year revenues up slightly and an improving demand environment in China.”

Gross margin should fall to about 44%, reflecting:

• Near-term impacts of a weaker overall product mix - about half of the sequential decline is due to an increase in legacy lower-tier and less profitable products in the mix (although this is expected to reverse through the year after new product launches and as the mix shifts to higher-margin products in both mobile and IDP); 
• Costs associated with low SAW fab capacity utilization. “While these costs weigh on margins through the year, with low seasonal revenues they are particularly impactful in the June quarter… We expect this impact to moderate through the year as revenues increase and our product mix shifts,” says Murphy. “We will continue to work to minimize the burden of our SAW under-utilization. Outside our SAW capacity, our utilization outlook is positive,” he adds.

“We view the June quarter as a transition period [from legacy, less advanced products and more SAW-related content to a portfolio that’s more BAW related and other advanced technologies as well as GaN] and forecast gross margins to return to more normal levels in the September quarter [47-48%],” says Murphy. Despite these near-term impacts, Qorvo expects gross margin of at least 50% in fiscal second-half 2019 and about 49% for the full year. “Margin outlook for the full year of fiscal 2019 remains positive as we optimize our product portfolio, grow our top line, improve factory utilization and drive additional operational improvements,” he adds.

Operating expenses should rise to $165m in fiscal Q1/2019 due to higher personnel costs (including increased design activity) then remain slightly elevated over fiscal first-half 2019 and trend down in the second half, totaling less than 20% of sales for the full year. “We expect to continue driving OpEx down as a percent of our revenue,” says Murphy.

Diluted earnings per share should fall further to $0.75 in fiscal Q1/2019.

“We are targeting our markets’ fastest-growing and most profitable opportunities and we're gaining design wins across our customer base,” says Bruggeworth. “We are poised to benefit from the strong secular trends in gigabit LTE, 5G, IoT and GaN,” he adds.

“For the full year of fiscal 2019, we currently expect our premium Mobile Products and continued strength in defense, IoT and GaN will generate revenue growth of 9-10%,” says Murphy. “With more profitable growth in mobile and robust growth in IDP, expanding operating margins and sustained low levels of CapEx, we expect to generate free cash flow of $700-800m in fiscal year 2019,” he adds.

“As we continue on our lean journey and become more efficient through operational excellence, we expect to grow the business with greater capital efficiency, by shrinking die sizes, expanding wafer diameters and leveraging our foundry relationships,” says Bruggeworth. “We will roll out die shrinks and wafer conversions to help manage the need for additional capital expenditures to meet increases in BAW demand,” he adds. BAW-based products are expected to rise from 22-23% of Mobile Products’ revenue in fiscal 2018 to about 30% in fiscal 2019 then about half by fiscal 2021.

“Qorvo is better positioned today to target and win our markets’ highest-growth and most complex opportunities, which will drive us toward our target operating model,” says Bruggeworth. “We remain on track to achieve the operating margin target we laid out at our Investor Day last May of 33% by fiscal year 2020,” adds Murphy.

See related items:

Qorvo’s quarterly Infrastructure & Defense Product revenue up 20% year-on-year

Qorvo revenue grows a more-than-expected 28% quarter-to-quarter

Qorvo’s quarterly revenue down 8.3% year-on-year, but exceeding lowered guidance by $10m

Qorvo’s quarterly revenue hit by delayed smartphone launches in China and Korea

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