Qorvo’s quarterly revenue exceeds revised guidance, aided by select allowed product shipments to Huawei

For fiscal first-quarter 2020 (ended 29 June 2019), Qorvo Inc of Greensboro, NC, USA (which provides core technologies and RF solutions for mobile, infrastructure and defense applications) has reported revenue of $775.6m, up 13.9% on $680.9m last quarter and 12% on $692.7m a year ago. This is below the original guidance of $780-800m but above 21 May’s revised $730-750m guidance, driven by stronger-than-expected mobile demand. About half of the favorable revenue variance (i.e. about $18m) was from the shipment of select products to Huawei in June following an extensive legal review, after US Department of Commerce’s Bureau of Industry and Security (BIS) added Huawei to its ‘Entity List’ prohibiting the sale to Huawei of products covered by the Export Administration Regulations (EAR) without obtaining an appropriate export license. Sales to Huawei were $172m (22% of total revenue – mostly pre-ban), compared with 14% a year ago and 15% for full-year fiscal 2019. The rise – despite the Huawei ban – is attributed to a combination of Huawei gaining market share and Qorvo gaining market share at Huwaei.

“Qorvo delivered June quarter results above revised guidance on strong operating performance and increased overall mobile demand, including select product shipments to Huawei late in the quarter,” notes chief financial officer Mark Murphy.

Mobile Products (MP) revenue was $556m, up 25% on $443m last quarter and 14.4% on $486m a year ago, driven by double-digit year-on-year growth with several of Qorvo’s top customers.

During the quarter, Qorvo:

expanded its Wi-Fi 6 portfolio with high-frequency 5GHz BAW filters and secured a design win for a BAW-based iFEM (enabling industry-leading range, throughput and signal integrity);
secured design wins for coexistence BAW filters and LNAs in support of General Motors, Volkswagen and other automotive OEMs;
extended power management technologies into new verticals and delivered power management solutions supporting a range of applications (including Skil power tools);
selected by a leading Korea-based smartphone maker to supply antenna-tuning, high-band and ultra-high-band solutions for 5G marquee device ramping in 2019;
secured design win at a leading China-based OEM to supply a complete set of low-, high- and ultra-high-band solutions for an upcoming 5G smartphone;
supplied Samsung with an antenna-tuning, high-band PAD and Wi-Fi iFEM for the mass-market Galaxy A series (significantly expanding product and dollar content in the mid-tier);
began volume shipments of band 1/3/7 BAW-based hexaplexers (enabling higher orders of carrier aggregation for the export market) to multiple leading China-based smartphone OEMs; and
received orders for newly released BAW-based antennaplexers and gained the first design win for a programmable 5G antenna tuner capable of performing aperture and impedance tuning.

Despite falling 8% from $238m last quarter, Infrastructure & Defense Products (IDP) revenue of $219m is still up 5.8% on $207m a year ago (despite the issues with Huawei) due mainly to higher demand for infrastructure products (with double-digit growth year-on-year for base stations).

During the quarter, Qorvo:

expanded gallium nitride (GaN) shipments into S-band (2-4GHz) and C-band (4-8GHz) applications for defense radar programs (complementing its strong presence in high-frequency bands up through millimetre-wave frequencies);
was selected to supply wideband GaN amplifiers for low Earth orbit (LEO) satellites enabling OneWeb space-based Internet connectivity anywhere in the world.

“Qorvo delivered a strong June quarter, highlighting our technology portfolio and operational excellence,” says president & CEO Bob Bruggeworth. “We effectively managed our business and capitalized on underlying growth drivers in our markets despite global trade and economic headwinds.”

On a non-GAAP basis, gross margin was 46.2%, down from 48.2% last quarter but up from 44% a year ago, and above the 45-45.5% guidance due to favorable mix and manufacturing productivity gains.

Operating expenses (OpEx) have grown further, from $160.5m a year ago and $160.8m last quarter to $167.9m, but this is below the $173m guidance due to lower personnel costs and effective cost-control measures.

Net income has risen further, from $124m ($0.96 per diluted share) a year ago and $150.9m ($1.22 per diluted share) last quarter to $165.3m ($1.36 per diluted share, above both the $1.30 original guidance and 21 May’s $1.15 revised guidance).

Cash flow from operations was $257.1m (up on $187m last quarter). Capital expenditure (CapEx) was $50.3m (up from last quarter’s low of $35.3m). Reflecting the “strong operating income generation, working capital effects, and capex discipline”, free cash flow was hence a record $206.8m (up from $152m last quarter and just $31.7m a year ago).

“During the quarter, we completed the purchase of Active-Semi International, adding rapidly growing power management opportunities to our diversified IDP portfolio,” says Murphy. “Both the integration and business plans are on track.” Also during the quarter, Qorvo repurchased $100m of its stock. Cash and cash equivalents overall hence fell by $81m from $711m to $630m.

“The June quarter was challenging with the abrupt disruption of sales to an important customer and other evolving market conditions,” says Murphy. “But Qorvo responded well and delivered a strong quarter of double-digit year-over-year sales growth and record first-quarter earnings and free cash flow.”

“Our outlook for the September quarter considers seasonal ramps offset by the continued impact of US Department of Commerce trade restrictions,” says Murphy.

For the fiscal second-quarter 2020 (to end-September 2019), Qorvo expects revenue to fall to $745-765m (down by about $130m from the record $884.4m a year previously), despite typical seasonal ramps of flagship products at the firm’s largest customer driving Mobile Products revenue growth, which will be only slight due to being offset by significantly lower sales to Huawei and, to a lesser extent, China. For full-year fiscal 2020, Qorvo expects sales to Huawei will fall below 10% of total revenue, driving Mobile Products down 10% in the second half compared with the first half due to trade effects and seasonality. “Although we have filed for a license and are taking other proactive steps to address our ability to sell products to Huawei, the scope, duration and long-term financial impact of the restrictions remain unclear and difficult to predict,” notes Murphy. Due to these restrictions, IDP sales should fall again in the September quarter. However, they should rebound in the December quarter and recover through the year as the infrastructure market picks up with other customers and Wi-Fi and other markets strengthen, reckons Murphy.

Gross margin should be roughly flat in fiscal Q2/2020, at 46-46.5%, with productivity gains plus some positive mix effects being counteracted by (1) lower volumes (with IDP being down sequentially) enhancing weaker-than-previously forecasted utilization; and (2) the seasonal ramp in mobile being typically dilutive to gross margin. For full-year fiscal 2020, Qorvo originally (before the Huawei ban) expected gross margin of about 48%. “But there is a couple of hundred million dollars of revenue hit that we’ve taken versus our 7 May guidance [for full-year revenue growth of 4%] that has really reduced the utilization in the factory network,” says Murphy. So, Qorvo now expects 46-47% gross margin.

OpEx is projected to fall only slightly in fiscal Q2/2020 to $166m as cost-control benefits are offset by investments in growth programs and the full-quarter addition of the Active-Semi programmable power management business. OpEx is expected to remain below $170m per quarter for the rest of the fiscal year. Diluted earnings per share should be $1.30 for fiscal Q2.

CapEx is projected to be under $200m for full-year fiscal 2020 as Qorvo continues to be highly disciplined on adding capacity. Spending remains weighted towards improving bulk acoustic wave (BAW) filters and GaN capabilities. “We are exhibiting good cost control, good working capital management and good CapEx discipline and expect to see free cash flow growth [through a combination of sustaining decent income despite the sales drop relative to our previous view],” says Murphy.

“Looking forward, Qorvo’s products and technologies position us to lead as 5G ramps and IoT proliferates,” reckons Bruggeworth.

See related items:

Qorvo cuts June-quarter financial guidance due to US action against Huawei

Qorvo reports greater-then-expected quarterly revenue, driven by content gains

Qorvo to acquire programmable analog/mixed-signal power IC firm Active-Semi

Qorvo’s 5G infrastructure revenue growth offsets weak mobile market in China

Qorvo’s quarterly revenue rises 8% year-on-year to a record $884m

Qorvo’s quarterly growth driven by mobile demand in China

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