8 February 2021
Qorvo revenue grows a more-than-expected 11% in December quarter
For fiscal third-quarter 2021 (ended 2 January), Qorvo Inc of Greensboro, NC, USA (which provides core technologies and RF solutions for mobile, infrastructure and defense applications) has reported more-than-expected revenue of $1094.8bn (as much as $34.8m above the $1060m midpoint of guidance). This is up 11% on $1060.3m last quarter (after adjusting that for what was a 14-week quarter, since fiscal 2021 is a 53-week year) and up 26% on $869.1m a year ago.
The sequential growth was driven by Mobile Products revenue of $826m (75.4% of total revenue), up 9.5% on $754m (71.1% of total revenue) last quarter (due to seasonal demand effects plus the ramp of higher-content 5G smartphones) and up 24.8% on $662m a year ago.
Infrastructure & Defense Products (IDP) revenue was $269m (24.6% of total revenue), down 12% on $306m (28.9% of total revenue) last quarter but up 30% on $207m a year ago due to robust Wi-Fi demand and double-digit growth from defense, programmable power management and Internet of Things (IoT) markets.
Strategic highlights are listed as:
- expanding shipments of complete main-path solutions (low-band, mid/high- and ultra-high-band modules) across the leading 5G basebands and securing design wins to supply next-generation complete main-path solutions in support of upcoming Android 5G smartphone launches in 2021;
- commencing shipments of Qorvo’s first generation of mid/high-band dual-connectivity modules (DCMs) to the leading Android smartphone maker, leveraging Qorvo’s high-performance BAW filtering in the diversity path for receive and transmit;
- launching a next-generation BAW process, increasing bandwidth and reducing insertion loss in ultra-high-band and Wi-Fi 6E applications;
- beginning production shipments of Wi-Fi 6E solutions to top-tier Android OEMs, supporting increased capacity and lower latency in a range of smartphones and other mobile devices;
- increasing ultra-wideband (UWB) customer engagements in smartphones and a broadening range of consumer applications, including tracker tags, smart speakers, smart TVs and other smart home appliances.
Infrastructure & Defense Products
- in infrastructure, securing design wins with multiple base-station OEMs to support US 5G C-band deployments in the USA (for which the spectrum auctions are in the process and initial deployments are expected later this year) and receiving the Best Comprehensive Performance Award from China’s ZTE for supporting their initial rollout of 5G base stations in 2020;
- in defense business, achieving strong growth, driven by domestic airborne radar & communications applications and GaN products for international radar programs;
- in connectivity, commencing shipments of 5GHz Wi-Fi 6 BAW filters and sampling 6GHz Wi-Fi 6E front-end modules (FEMs) for routers and gateways, maximizing throughput and range for high-bandwidth applications such as video conferencing and online gaming (demand for Wi-Fi 6 solutions has been strong across MSOs and retail segments, and Qorvo is seeing continued strength as Wi-Fi 6 deployments are still in the early phases);
- in the connected car, being selected to supply 5G/LTE, C-V2X and Wi-Fi automotive-qualified products to multiple OEMs, including Audi, BMW and Volvo;
- in low-power wireless, being selected to supply the leading TV manufacturer with low-power multi-protocol SoC and custom software, enabling solar-charging remote controls.
The combination of strong end-market demand and ongoing efforts to improve the portfolio are driving productivity, and carefully managed inventories are yielding record results, says the firm.
On a non-GAAP basis, gross margin has risen further, from 49.3% a year ago and 51.7% last quarter to 54.4%, well above the 52.5% guidance due to better-than-expected volumes, pricing and mix as well as lower-than-expected manufacturing and inventory costs.
Although up on $175.6m a year ago, operating expenditure (OpEx) has been cut from last quarter’s $218.6m (20.7% of sales) to just $194.2m (17.7% of sales) – better than the expected $205m – due largely to timing on development programs.
Net income has risen from further, $220.8m ($1.86 per diluted share) a year ago and $282.3m ($2.43 per diluted share) last quarter to $356.7m ($3.08 per diluted share, well above the $2.65 guidance).
Qorvo hence exceeded its fiscal third-quarter guidance on revenue, gross margin and EPS.
Cash flow from operations was $403.7m (up from $281m last quarter). Capital expenditure (CapEx) was $36.1m (down from $43.6m). Free cash flow was hence $367.6m (margin of 33.6% of sales), up from $237.4m last quarter (22.4% margin).
During the quarter, Qorvo repurchased $160m of shares. The firm also retired its 2026 notes. It also called the remaining 2025 notes.
Cash and cash equivalents hence amounted to $1234m. The debt balance has now been reduced to $1.7bn. “Our leverage remains low, and our revolver is untapped,” notes chief financial officer Mark Murphy. The weighted average maturity of the firm’s debt is late 2029 and it has no material near-term maturities.
“With our financial flexibility, we can focus on developing technology, supporting customers and making prudent organic and inorganic investments that support long-term earnings and free cash flow growth,” says Murphy. “To that end, we continue to advance our BAW, SAW, GaN, GaAs, packaging and other core technologies and fund UWB, programmable power management, biotechnologies, MEMS and other promising areas,” he adds.
“Qorvo delivered an exceptional quarter, helping our customers keep the world connected through the deployment of 5G, the roll-out of Wi-Fi 6 and 6E, and emerging technologies like precision location ultra-wideband,” says president & CEO Bob Bruggeworth. “We are sustaining technology leadership in these markets and innovating in new ones including biotechnologies.” In January, Qorvo was selected by the US National Institutes of Health (NIH) for its Rapid Acceleration of Diagnostics initiative (RADx) for its program to add COVID-19 antigen testing capacity, utilizing Qorvo’s Omnia test platform (a complete test solution enabled by the firm’s high-frequency BAW filters that is currently pending Emergency Use Authorization from the US Food and Drug Administration).
“We expect robust end market demand to continue into the March quarter, driving strong year-over-year revenue growth and operating margin expansion,” says Murphy.
For fiscal fourth-quarter 2021 (to end-March), Qorvo expects revenue of $1.025-1.055bn (up about 32% year-on-year, from $787.8m a year ago). “Outlook reflects sustained broad customer demand stemming from multi-year technology upgrade cycles,” notes Murphy.
“In Mobile, demand for 5G is adding RF complexity and driving higher content,” he adds. “The breadth of our customer base and firm demand signals provide confidence and stability in our outlook.” Mobile revenue is expected to be about $770m, down sequentially (showing typical seasonality) but up more than 35% on $556m a year ago.
IDP revenue should be $270m, flat sequentially (as is expected seasonally) but sustaining strong double-digit year-on-year growth (from $232m a year ago), driven by Wi-Fi 6 demand and other markets, even as 5G infrastructure build-outs remain uneven.
Gross margin should be 50.5-51%, up more than 100 basis points year-on-year at the midpoint of guidance but down sequentially. “We’re trying to keep inventories low, so that will keep a check on absorption,” notes Murphy. “We’re ramping some lower-margin products, so currently we’re just still working down the cost curve on those. They’re important longer term. Some of those products are coming into the March quarter, and then that actually continues on into the June quarter. And there are some other mix dynamics as well, including some less defense in the March quarter.”
Operating expenses are projected to rise back up to levels previously guided of about $207m. Operating margin is expected to be over 30.5% for the third consecutive quarter. Diluted earnings per share should be $2.42.
Capital expenditure will increase as Qorvo works to meet near-term demand and support long-term supply agreements with multiple customers. However, CapEx should remain below $200m (less than 5% of sales) for fiscal 2021.
For the full fiscal year, Qorvo is on track to achieve record revenue for base-station business (up about 60% year-on-year), driven “mainly by strength in deployments in Asia and the adoption of massive MIMO antennas where GaN has been selected many, many times over LDMOS,” notes IDP Group president James Klein. “We’ve been able to support many of the major frequency bands that have been rolled out in China.”
Qorvo now projects full-year operating margin of 31.5% (exceeding the lower end of the margin model laid out previously), OpEx of about 20% of sales, diluted earnings per share of over $9.40 (up nearly 50% year-on-year), and free cash flow of about $1bn (up from the previous forecast of $900m).
“[Base-station] deployments will slow during the first half of the calendar year, and then we expect those to start to accelerate in the second half. Additionally, with the C-band auctions nearly complete in the US, we do expect deployments to start later in the year, and we do expect those to include both massive MIMO antennas and GaN power amplifiers,” says Klein. “And then, obviously, we’re in the early stages of 5G deployment, and we expect those deployments to continue both in China and around the world as we go through the next several years,” he adds.
“As 5G, Wi-Fi 6 and 6E, ultra-wideband and other connectivity protocols are rolled out globally, Qorvo is well-positioned to expand our technology reach,” concludes Bruggeworth.