2 November 2017
Qorvo revenue grows a more-than-expected 28% quarter-to-quarter
For fiscal second-quarter 2018 (to end-September 2017), Qorvo Inc of Greensboro, NC, USA (which provides core technologies and RF solutions for mobile, infrastructure and defense applications) has reported revenue of $820.6m, down 5% on $863.7m a year ago but up 28.2% on $639.9m last quarter, and exceeding the expected 27% growth to $800-820m.
Revenue for Mobile Products (MP) was $630m, up 38% on $456m last quarter, driven by growth at Qorvo’s largest customer (which comprised 40% of revenue). Qorvo also supported the ramps of leading marquee smartphones and increased its dollar content on key customer programs. “We benefited from an improved demand environment in China with the launch of flagship devices at Huawei, Xiaomi, Oppo, Vivo and others,” says president & CEO Bob Bruggeworth. “At Huawei, we supported the Mate 10 with BAW [bulk acoustic wave] filters, antenna tuners, RF front-end modules and our envelope tracking [ET] power management solution. At Xiaomi, we shipped more than $9 of RF content, including our highly integrated RF Fusion products into their top-tier Mi Mix 2, and we were honored to receive their partnership award. We expect our design momentum at both accounts to continue in next-generation flagship models,” he adds.
Revenue for Infrastructure & Defense Products (IDP) was a record $190m, up 21% year-on-year, reflecting continued strength in defense (including advanced radars and other electronic warfare products) and in connectivity (including Wi-Fi and emerging Internet of Things applications). Specifically, IoT revenue grew by 50% year-on-year. In China, Qorvo saw strong demand supporting the deployment of 900MHz narrow-band IoT (NB-IoT) infrastructure with a broad product portfolio that optimizes performance and power consumption in high-volume low-power IoT applications. Meanwhile, gallium nitride (GaN) revenue doubled year-on-year.
On a non-GAAP basis, gross margin has grown further, from 42.8% a year ago and 47.3% last quarter to 47.4%, despite the negative impact of the after-effects of Hurricane Irma (which caused an isolated air contamination issue in the firm’s Florida fab). “The operations team in Florida did a remarkable job to quickly identify the root cause and bring the fab back up without any customer impact,” comments chief financial officer Mark Murphy. Excluding these costs, gross margin would have been above the 47.8% guidance. As expected, overall fab utilization weighed on margins, as well as an increase of low-band power amplifier duplexers (PAD) in the mix.
Operating expenses has been cut from $172.9m a year ago and $165.5m last quarter to $158.2m (19.3% of sales), due to ongoing productivity efforts and spend timing. During the quarter, Qorvo took certain actions to reduce costs and improve operating efficiencies, including a head-count reduction program (involving about 300 people).
Operating income was hence $230.5m (28.1% of sales), up from $137.4m last quarter and $196.8m a year ago. Net income was $198.4m ($1.52 per diluted share, above the expected $1.36-1.50), up from $113.9m ($0.87 per diluted share) last quarter and $170.4m ($1.29 per diluted share) a year ago.
Cash flow from operations more than doubled from $104m last quarter to $219.9m, while capital expenditure (CapEx) almost halved from $124m to $67.8m as Qorvo wrapped up recent expansions, tool conversions and other investments to support future growth. Free cash flow was hence $152.1m. During the quarter, cash and cash equivalents therefore rose from $512.6m to $574.9m, despite repurchasing $57m of stock.
“Our second quarter results exceeded expectations, driven by higher revenue and effective cost control,” says chief financial officer Mark Murphy.
In IDP, in the September quarter Qorvo secured record design wins. In IoT specifically, these include an RF front-end module design win supporting the Tile tracker family, and multiple design wins for automotive IoT applications, supporting top automakers with content per car up to $7.
In wireless infrastructure, Qorvo expanded its product portfolio to include a line of small-signal products that support the 600MHz band 71 (and secured design wins), making Qorvo the only supplier to address all 5G frequency bands from 600MHz through 39GHz.
Qorvo also secured multi-year design wins with a major defense contractor for high-power, high-efficiency GaAs components supporting several advanced radar applications.
“Qorvo’s technology portfolio and operating capabilities position us exceptionally well to address our customers’ LTE-Advanced and emerging 5G requirements as well as expanding IoT applications,” says Bruggeworth.
For fiscal third-quarter 2018 (to end-December 2017), Qorvo expects revenue to grow to $830-850m, reflecting near-term demand for customers’ flagship models and continued strength in IDP. However, due to the effects of product mix, gross margin should rise only slightly to 47.5%. Nevertheless, operating expenses should remain flat at about $158m. So, diluted EPS is expected to grow to $1.60.
“Our outlook also reflects a recent event at a supplier. In mid-October, one of our laminate suppliers had a fire and shut down production,” notes Murphy. “We quickly launched a recovery plan to minimize the impact of the event. Thanks to close and collaborative working relationships with customers and our other qualified suppliers and the exceptional efforts of our engineering, operations, quality and sales teams, we do not expect any major customer impacts,” he adds. Qorvo’s estimate of revenue and cost impacts of the event have been factored into the guidance.
For the remainder of fiscal 2018, Qorvo forecasts revenue to decline less than seasonally December to March (down only mid-single digits as a percentage). “In the second half, we expect a return to double-digit year-over-year growth, driven by the timing of flagship phone ramps and broad-based growth in IDP,” says Murphy. Specifically, IDP is targeting double-digit year-on-year revenue growth across a broad set of customers in defense, base-station, automotive, smart home IoT, Wi-Fi and optical who require differentiated products with higher levels of integration, higher power, lower noise figure, better linearity and greater efficiency.
OpEx is forecast to be down in dollars from fiscal 2017, as Qorvo continues to drive towards its operating model of 20% of sales or lower. Also, CapEx should trend lower through the rest of the fiscal year, ending the full year below $300m (less than 10% of sales). “Continued cost control and capital discipline will drive record second-half free cash flow,” Murphy believes.
“We expect gross margin expansion to resume in the March quarter and into next year, with improving mix, ongoing productivity efforts and increasing fab utilization,” concludes Murphy.