For fiscal first-quarter 2018 (ended 1 July 2017), Qorvo Inc of Greensboro, NC, USA (which provides core technologies and RF solutions for mobile, infrastructure and defense applications) has reported revenue of $639.9m, down slightly on $642m last quarter and down 8.3% on $697.6m a year ago, but exceeding the midpoint of the lowered $610-650m guidance by $9.9m.
Growth was driven by record revenue for Infrastructure & Defense Products (IDP) of $184m, up 9% sequentially and 22% year-on-year, due to stronger-than-expected demand for defense, Wi-Fi, and broader Internet of Things (IoT) products. “Since repositioning IDP to focus on secular high-growth markets, we’ve seen eight consecutive quarters of strength and the sales funnel continues to expand,” notes president & CEO Bob Bruggeworth. “Our IDP product portfolio is capturing diverse, high-growth opportunities with differentiated technologies, and this is driving record bookings.”
In Wi-Fi, IDP grew more than 50% year-on-year. During the quarter, IDP launched new BAW band-edge and coexistence Wi-Fi filters that enabled triple the range for smart home and enterprise applications, delivering robust coverage across the entire allocated spectrum and half the size of earlier-generation solutions. IDP also supported the transition to 802.11ax as customers implemented Qorvo’s recently released portfolio of BAW filters and 2.4GHz and 5GHz front-end modules (FEMs). The firm says that these newest Wi-Fi solutions provide the high throughput and extreme thermal efficiency that are critical to high-density 802 .11ax connectivity. “Our customers are quickly filling the Wi-Fi sales funnel and we continue to expect robust growth in fiscal 2018,” says Bruggeworth.
Defense & Aerospace revenue was also particularly strong, with gallium nitride (GaN) and bulk acoustic wave (BAW) both growing by more than 25% year-on-year. “We are experiencing significant growth with our ongoing multi-year defense contracts, supporting programs like F-15, F-16 and the F-35,” says Bruggeworth. In particular, revenue with Qorvo’s largest defense customer more than doubled year-on-year.
Mobile Products (MP) revenue was in line with expectations at $456m, reflecting growth at Samsung and a modest demand recovery in China. Excluding Huawei (about 10% of mobile revenue), about 30% of mobile revenue came from China (up from 24% last quarter).
“In Mobile Products, we’ve secured designs for a broad suite of new products, and we’re excited about ongoing development programs for marquee platforms,” says Bruggeworth. “We’re building our industry’s most highly integrated RF solutions, and we’re targeting the most complex and most profitable opportunities,” he adds.
Mobile Products also drove growth in IoT, supporting a range of applications including automotive, asset tracking, meter reading, agricultural, industrial, and even the large bicycle-sharing services in China (all with mobile M2M solutions).
In base stations, Qorvo launched what is claimed to be the first gallium nitride on silicon carbide (GaN-on-SiC) front-end module for the 39GHz frequency band in 5G infrastructure. “The module’s compact design integrates two powerful GaN MMICs and uniquely addresses the complex challenges faced by telecom equipment manufacturers designing next-generation millimeter-wave systems,” says Bruggeworth. “In addition, we helped advance the development of 5G with a newly launched portfolio of ultra-high-performance 28GHz solutions. These hybrid solutions draw upon Qorvo’s process expertise in both GaN-on-SiC and gallium arsenide to deliver leading-edge performance in miniaturized footprints,” he adds.
On a non-GAAP basis, gross margin was 47.3%, down from 48.2% a year ago but up from 46.2% last quarter and slightly above the 47% guidance.
Operating expenses were $165.5m, up from $163.1m last quarter but cut from $168.6m a year ago.
Although down on $143.1m ($1.08 per diluted share) a year ago, net income was $113.9m ($0.87 per diluted share, $0.07 over the midpoint of the $0.70-0.90 guidance), up from $111.7m ($0.85 per diluted share) last quarter.
“The Qorvo team delivered June quarter revenue and EPS at the high end of our guidance, with continued progress toward achieving our margin targets,” says Bruggeworth.
Cash flow from operations was $104m, down seasonally but up 75% on a year ago. Capital expenditure (CapEx) was down sequentially to $124m and will continue to decline as Qorvo wraps up recent expansions, tool conversions and other investments to support future growth.
Overall, during the quarter, cash and cash equivalents fell from $545.5m to $512.6m, as Qorvo repurchased $32m of stock (and intends to continue buying as part of an ongoing commitment to return capital to shareholders).
On the design front, Qorvo has been selected by the leading China-based smartphone OEM to support a marquee device ramping this fall with power amplifiers, premium filters, high-performance switches, and an envelope-tracking (ET) power management integrated circuit (PMIC). The firm has also secured design wins for a broad suite of BAW 5 products, including quadplexers for carrier aggregation (CA), Wi-Fi Sense integrated front-end modules (iFEMs) for Oppo, Xiaomi, LG, ZTE and Nokia, and a Wi-Fi coexistence filter for a marquee smartphone platform. In addition, Qorvo has helped to enable a new entrant in the Android ecosystem, winning more than $12 of RF content in a smartphone expected to ship soon.
For the open market, Qorvo has launched a broad family of premium BAW 5 filters and quadplexers that are critical for enabling the continued proliferation of carrier aggregation and high-performance Wi-Fi. It also began shipping its next-generation antenna tuners, which reduce the complex design challenges related to band proliferation, the deployment of carrier aggregation, the implementation of MIMO, and the popularity of new features like shrinking bezels and dual cameras (which require the already limited board space available for antennas).
For fiscal second-quarter 2018 (to end-September 2017), Qorvo expects revenue to grow 27% sequentially to $800-820m, reflecting seasonal phone launches at the firm’s largest customer, a modest China recovery, and continued strength in IDP. Gross margin should be about 47.8%, up 50 basis points. Diluted earnings per share should be $1.36-1.50. Operating expenses are forecast to remain flat sequentially as productivity improvement are offset partly by R&D related to custom product development for the firm’s largest customer.
“Looking to the September quarter and beyond, we’re confident in our content gains at large customers and we expect mobile revenue will track the ramp profiles of marquee devices,” says Bruggeworth.
For the full fiscal year 2018, Qorvo expects revenue to strengthen from the September quarter to the December quarter followed by a slightly less-than-normal seasonal decline in March. “We project double-digit year-over-year growth in the second half, with a stronger China market, gains on new mobile platforms, and continued above-market IDP growth,” says chief financial officer Mark Murphy. “In Mobile Products, we expect double-digit year-over-year growth in the second half of the fiscal year, reflecting our current view of timing of program ramps and China market dynamics,” adds Bruggeworth. “In IDP, we are projecting over 15% full-year growth on strength across multiple markets.” Overall, total full-year revenue is expected to grow by 4-5%.
“With our current top-line outlook and efforts to minimize inventories, utilization rates are lower than expected,” says Murphy. “We still see opportunities for gross margin expansion through improving mix, yield improvements and other productivity efforts, and lower than previously projected CapEx spend and depreciation,” he adds.
“Our highest-priority initiatives support our growth and margin targets, with an emphasis on BAW-based opportunities. We are converting to larger-diameter wafers and we are shrinking die sizes,” notes Bruggeworth. “It’s our intent to reduce BAW cost and increase asset throughput and BAW utilization as a primary driver of our gross margin performance. We’ve launched multiple BAW 5-based discrete and integrated solutions. And we expect the market will continue to require more BAW filters as consumers demand more mobile data and as carriers work to increase the capacity of their networks,” he adds.
“In Mobile Products, we continue to be pleased with our progress on a development program with our largest customer for a module that combines multiple high-order BAW multiplexers,” says Bruggeworth. “This is our single largest opportunity for driving growth and utilization.”
Full-year operating expenses are forecasted to be down from fiscal 2017, to 20-21% of sales) fiscal 2018. Qorvo has reduced its projection for CapEx for the year from about $400m to less than $300m (to under 10% of sales, an over 800 basis point drop year-on-year) to take into account improvements in fab yields, successful wafer size conversions, progress on die shrink programs, and a near-term focus on improving utilization. Combined with operating cash flow, Qorvo expects this to lead to a tripling in free cash flow in fiscal 2018.
