News: Microelectronics
8 August 2023
Qorvo’s June-quarter revenue down less than expected, as Android consumer-related inventory consumption offset by growth in defense & aerospace and automotive
For its fiscal first-quarter 2024 (ended 1 July 2023), Qorvo Inc of Greensboro, NC, USA (which provides core technologies and RF solutions for mobile, infrastructure and defense applications) has reported revenue of $651.2m (down 37% on $1035.4m a year ago but up 2.9% on last quarter’s $632.7m).
This was well above the mid-point of the $620–660m guidance range, despite the macro-environment. Relative strength in areas like defense & aerospace and automotive was offset by inventory consumption across consumer markets and weak demand in 5G infrastructure. However, channel inventories of the firm’s components in the Android ecosystem was reduced by a further 20% (following greater than 20% reductions in the prior two quarters). “We have made significant progress clearing channel inventories,” notes president & CEO Bob Bruggeworth. “Qorvo continues to under-ship to end-market demand.”
By business segment, revenue (compared with last quarter) comprised:
- Advanced Cellular Group (ACG) $412m (down only slightly from $418m, despite fiscal Q1 being the lowest seasonal point for Qorvo’s largest customers);
- High-Performance Analog (HPA) $140m (up 5% on $133m);
- Connectivity & Sensors Group (CSG) $99m (up 21% on $82m).
On a non-GAAP basis, gross margin was 42.9% (down from 50% a year ago but up from 41.3% last quarter). This outperformed the expected 41.5% due to higher production levels and product mix, despite a headwind of about 800 basis points from under-utilization after factory production levels improved only modestly.
Operating expenses were $232.7m, up from $227.4m last quarter due to investments in multi-year customer programs, investments in core systems and other productivity initiatives, and the return of incentive compensation based on expectations for improved financial performance. However, OpEx was down slightly from $233.8m a year ago, and less than the expected $237m or so.
Operating income was $46.7m (operating margin of 7.2% of revenue), down from $284.4m a year ago but up from $33.8m last quarter.
By operating segment, operating margin was 11% for ACG, 17% for HPA and –20% for CSG (a notable sequential improvement). However, the Qorvo Biotechnologies business reduced CSG operating income by about $2m. “We are currently in the process of seeking strategic alternatives for this business,” notes senior VP & chief financial officer Grant Brown.
Net income was $33.6m ($0.34 per diluted share), down from $238.4m ($2.25 per diluted share) a year ago but up from $25.7m ($0.26 per diluted share) last quarter, and more than double the expected $0.15 per diluted share.
Operating cash flow was $44.9m, down from $65.4m last quarter. Capital expenditure on purchases of property and equipment has risen from $34.1m to $39.5m. Free cash flow was hence just $5.4m, down from $31.3m last quarter.
During the quarter, Qorvo repurchased $100m worth of its shares (at an average price of $96.81 each). The firm also completed the sale of its Farmers Branch campus. Overall, cash and equivalents hence fell from $809m to $744m. As of quarter-end, Qorvo had about $2bn of debt outstanding with no near-term maturities.
“Qorvo exceeded the mid-point of our June quarterly guidance for revenue, gross margin and EPS [provided on 3 May] while also continuing to reduce channel inventory,” notes Brown. “The team is executing very well, working closely with our suppliers and customers while navigating a challenging macroenvironment.”
Net inventory balance rose by $121m to $917m, driven by the seasonal ramp at Qorvo’s largest customer. “We are introducing new products and technologies to increase our content in customer designs and broaden our exposure in new and existing markets,” notes president & CEO Bob Bruggeworth.
During the quarter, design wins in HPA were diversified across customers and markets and included large defense programs extending multiple years.
In Connectivity and Sensors, design activity spanned a variety of applications including highly integrated IoT connectivity solutions, Wi-Fi 7 RF front ends and force-sensing touch sensors. “We have a broad range of growth drivers in CSG and we are pleased with our increasing design activity in new growth areas like sensors and ultra-wideband,” says Bruggeworth.
“Over time, we see HPA and CSG contributing increasingly to growth, diversification and margin expansion,” he adds.
In Advanced Cellular, design activity continued to be favorable across all leading smartphone OEMs. “We are growing our content and next-generation 5G smartphones at our largest customers and we are capturing new content in the Android ecosystem as 4G units transition to 5G and enter our SAM [serviceable available market,” says Bruggeworth. “In calendar 2023, approximately 45% of Android smartphones will be 5G and we expect Android 5G smartphone unit growth to post double-digit CAGR for several years,” he adds.
Strategic highlights during the quarter
- Connectivity & Sensors Group (CSG)
In automotive applications, Qorvo was selected by an automotive tier-one to supply ultra-wideband (UWB) connectivity for an upcoming EV launch by US-based maker. “We are pleased with this win and the growing content opportunity in automotive where the ultra-wideband content inside the car will typically include five to seven placements plus one placement in each key fob,” says Bruggeworth.
Qorvo also secured multiple touch sensor design wins (totaling multiple billions of dollars) enabling force-level detection in a range of smart interior applications including center console, door panel, steering wheel and display. In Automotive Connectivity, Qorvo was selected by a leading automotive antenna supplier to provide cellular V2X front-end modules (FEMs) and bulk acoustic wave (BAW) coexistence filters for use by a major European-based OEM.
Qorvo also expanded its automotive footprint with an automotive radar design win to supply a receive amplifier for a major US-based automotive OEM. The firm’s automotive opportunities include DC-to-DC converters, onboard chargers, smart interiors, RF front ends for 5G, Wi-Fi and V2X connectivity, radars and ultra-wideband secure car access for key fobs and inside cars.
In Wi-Fi, Qorvo secured several Wi-Fi 7 design wins with access point providers for its Wi-Fi 7 BAW filters enabling full coverage of 2.4GHz, 5GHz and 6GHz bands. The firm also began sampling tier-one customers for its next-generation Wi-Fi 7 FEMs which paired with multiple chipsets.
“In our Connectivity Systems business, we were among the first to achieve Matter 1.1 certification for our concurrent connect integrated solutions for gateways and devices,” says Bruggeworth. “This expands our market opportunity and support of top smart home ecosystem customers whose installed base exceeds $150m home networks,” he adds.
- High-Performance Analog (HPA)
In silicon carbide, Qorvo booked a multi-million dollar customer order for silicon carbide (SiC) power devices supporting artificial intelligence (AI) servers and other data-center applications. “The design-win funnel for Qorvo’s silicon carbide power devices is increasing and we continue to expand our supply base to support our customers,” says Bruggeworth. In addition to the previously announced supply agreement with SK Siltron, the firm also has agreements in place with Wolfspeed and Coherent.
For defense communications, Qorvo began sampling the industry’s first 2–18GHz integrated transmit & receive Tx/Rx front-end module, delivering 10W of transmit power. This highly integrated wideband solution integrates the power amplifier (PA), switch, low-noise amplifier (LNA) and limiter, and leverages Qorvo’s advanced packaging and process technologies to maximize power efficiency in a miniaturized footprint. “The form factor and functional density of our solution is especially critical given the trend in our defense & aerospace business of one-to-many,” says Bruggeworth. “In addition to manned aircraft, there will be many more drones. In addition to large keyhole satellites, there will be many more low Earth orbit (LEO) satellites. These future communication systems and system upgrades incorporate more electronics, requiring greater integration across higher volumes.”
“For broadband applications, we extended our leadership in DOCSIS 4.0 with customer sampling of our 1.8GHz hybrid power doubler,” says Bruggeworth. “This solution delivers more RF power with lower power consumption than competing solid-state solutions,” he claims.
In Cellular Infrastructure, Qorvo released a highly integrated 3.4–3.8GHz, 8W power amplifier module (PAM) that simplifies 5G massive MIMO system design. The firm also began sampling what is claimed to be the industry’s first C-band discrete BAW band-pass filter for 5G small-cell radios.
- Advanced Cellular Group (ACG)
With Android smartphone OEM customers, Qorvo began sampling its newest highly integrated power amplifier duplexer (PAD), which combines in a single-placement low-, mid- and high-(LMH) band main-path functionality that is currently offered in two placements. This new architecture reduces surface area by 40% to simplify design and decrease time-to-market for massive 5G phones, says the firm. This follows Qorvo’s announcement last quarter that it had begun sampling a mid/high-band PAD that combines the main-path and diversity receive content for the mid and high bands. Both placements leverage a broad range of Qorvo process technologies, including its newest BAW and SAW filters.
Qorvo also commenced customer sampling of its next-generation antenna tuners, providing smartphone OEMs with what is claimed to be best-in-class linearity, the industry’s smallest solution size, and compatibility with all major chipsets.
Outlook
Considering the current demand environment, further consumption of channel inventory and seasonal factors, for fiscal second-quarter 2024 (to end-September 2023) Qorvo expects revenue to grow sequentially by over 50%, to $1bn plus or minus $15m, driven primarily by content gains at the firm’s largest customer. Gross margin should rise to 45–46%.
Operating expenses are expected to increase to about $240m. “In addition to growth-oriented investments across our product and technology portfolios, we are also targeting enterprise-wide productivity initiatives. We’re simplifying and rationalizing processes and upgrading the core systems we use to run the business,” notes Brown. “We will present these productivity investments as non-GAAP other operating expenses. These multi-year efforts will support future growth and enhanced profitability as we upgrade, modernize and standardize around the latest tools and best practices.”
Diluted earnings per share are expected to rise to $1.75 in fiscal Q2/2024.
“We expect our inventory balance will decrease in the September quarter as we support a seasonal ramp [of new products] at our largest customer,” says Brown.
“In terms of channel inventory, the environment continues to improve. We anticipate channel inventories will continue to decline this quarter,” says Brown. “Later this calendar year, we expect Android channel inventories will normalize,” he adds. “Outside of the Android ecosystem, there are smaller pockets of channel inventory. They will take longer to digest.”
During fiscal second-half 2024 (to end-March 2023), Qorvo expects sequential declines in gross margin during Q3 and again in Q4, primarily related to utilization and mix. Operating expenses for Q3 and Q4 are expected to be $240–245m per quarter, with variability related to the timing of product development spend, investments in core systems and related productivity initiatives, incentive compensation based on expectations for improved financial performance, the timing of the Biotechnology business disposition as well as other items.
“We forecast fiscal 2024 revenue will be above fiscal 2023 and expect to benefit from strong dollar content growth at our largest customer,” says Brown. Gross margin is expected to be about 44% (down from fiscal 2023’s 46.3%).
“As we clear the channel inventory across Android and as utilization returns to a level in which we’re shipping to end-market demand, we should have a clear path back towards the 50% gross margins we’ve enjoyed in the past,” says Brown. Issues are two-fold, he adds. “There is the inventory we have on hand, which is already burdened with the cost of that under-utilization in the past. Then there is the forward-looking utilization within the current quarter as we meet future demand or build product for future demand. Both of those can weigh on the quarter and are in that 800 basis points. The under-utilization of the current period, if it’s extreme, can hit as period charges and we’ve experienced some of those as well. As we re-synchronize our factories to end-market demand, we should have a clear path back.”
Qorvo adds PA modules for 5G mMIMO wireless systems
Qorvo unveils smallest 2–18GHz 10W front-end module
Qorvo quarterly revenue down 45.7% year-on-year while channel inventory consumed
