Qorvo (QRVO) Q3 Earnings & Revenues Beat Estimates, Rise Y/Y

Qorvo Inc. QRVO reported third-quarter fiscal 2020 non-GAAP earnings of $1.86 per share, which surpassed the Zacks Consensus Estimate by 11.4%. The figure improved 0.5% on a year-over-year basis.

Revenues on a non-GAAP basis increased 4.4% year over year to $869.1 million. Notably, the figure was higher than the guided range of $840 million to $860 million. Further, the top line outpaced the consensus mark by 2.1%.

The results can be attributed to improved progress in Infrastructure and Defense (IDP) sequentially and strong demand for Mobile Products (MP). The company benefited from increased demand in the performance tier for Radio Frequency (RF) Fusion based solutions and Bulk Acoustic Wave or BAW-based multiplexers.

Qorvo, Inc. Price, Consensus and EPS Surprise

Qorvo, Inc. Price, Consensus and EPS Surprise

Qorvo, Inc. price-consensus-eps-surprise-chart | Qorvo, Inc. Quote

Quarter Details

Segment-wise, MP revenues were $662 million. Segmental revenues were aided by robust demand from top customers.

During the third quarter, the company secured multiple design wins to supply low, mid-high and ultra-high band solutions for next-generation 5G smartphones. These are highly integrated and high performance 4G and 5G solutions, enabling customers to reduce product footprint and enhance system performance.

Additionally, Qorvo secured new 4G and 5G design wins and extended leadership in BAW-based multiplexers, including hexaplexers and recently launched micro BAW-based quadplexer.

Moreover, design wins for ultra-high band FEM were broad based across customers and made with multiple 5G cellular chipsets.

IDP revenues declined year over year to $207 million, primarily owing to impacts of export restrictions.

Strong demand for the company’s solutions in defense (advanced radars and other electronic warfare products) and connectivity (Wi-Fi and emerging IoT applications) and rapid adoption of gallium nitride or GaN for high-power applications were key catalysts.

Qorvo expanded GaN customer engagements with ramp up of high-power amplifiers at a third major OEM to support 5G massive Multiple Input Multiple Output or MIMO deployments in the third quarter. The company’s expanding RF product portfolio pertaining to 5G and massive MIMO base stations bodes well.

Notably, in the third quarter, the company completed the purchase of the remaining equity in Cavendish Kinetics, a RF Micro-Electro-Mechanical Systems (MEMS) company, further strengthening its technology portfolio for switches, tuners, and other products.

Additionally, the company commenced volume shipments of BAW filters to a top-tier infrastructure OEM supporting China Mobile’s 5G small-cell deployments.

Accelerating timeline for 5G deployment bodes well for Qorvo. It has participated in dozens of 5G field trials and demonstrations.

Moreover, Qorvo launched high power GaAs FEM addressing enhanced performance requirements of second-generation 5G millimeter wave base stations during the third quarter.

In the Connectivity business, the company secured new design wins and increased shipments of Wi-Fi 6 Front-End Modules (FEMs) across Customer Premises Equipment (CPE), retail and mobile, supported by new GaAs and BAW processors.

For the Connected Home, Qorvo initiated sampling of the industry’s first radio solution combining Zigbee, Thread and Bluetooth Low Energy SoC with a Wi-Fi 6 FEM to enable next-generation distributed Wi-Fi networks.

For the connected car, the company introduced a complete V2X front-end solution, featuring 5.9 gigahertz Wi-Fi coexistence BAW filters, which are gaining traction among automotive OEMs and Tier 1 suppliers.

Operational Details

Non-GAAP gross margin contracted 20 basis points (bps) from the year-ago quarter to 49.3%. This can be attributed to unfavorable product mix.

Non-GAAP operating expenses increased 16.7% year over year to $175.6 million.

Non-GAAP operating margin contacted 240 bps from the year-ago quarter to 29%.

Balance Sheet & Cash Flow

As of Dec 28, 2019, cash and cash equivalents were $1.09 billion compared with $586.8 million reported in the previous quarter. As of Dec 28, 2019 long-term debt was $1.57 billion, which soared 54.8% sequentially.

Net cash provided by operating activities was $300.8 million that increased from $173 million in the previous quarter. Free cash flow during the reported quarter came in at $260.1 million.

During the third quarter, the company repurchased shares worth $125 million under the share repurchase program.

Guidance

For fourth-quarter fiscal 2020, Qorvo anticipates revenues between $800 million and $840 million. Earnings are projected to be $1.55 per share at the mid-point.

The Zacks Consensus Estimate for revenues and earnings is pegged at $723.91 million and $1.14 per share, respectively.

Mobile Products sales in the fourth quarter are expected to decline sequentially. Nonetheless, IDP revenues are expected to increase year over year and sequentially, primarily owing to sustained strength in defense, the ramp up of Wi-Fi 6 and broader 5G infrastructure customer demand.

Non-GAAP gross margin is anticipated to be 48.5%.

Zacks Rank & Stocks to Consider

Qorvo currently carries a Zacks Rank #3 (Hold).

Microchip Technology Incorporated MCHP, Perion Network Ltd PERI and Splunk Inc. SPLK are some better-ranked stocks in the broader computer and technology sector. All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Microchip, Perion and Splunk are set to report quarterly results on Feb 4, 12 and 27, respectively.

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