Qorvo (NASDAQ:QRVO) Posts Better-Than-Expected Sales In Q2, Next Quarter Growth Looks Optimistic
Communications chips maker Qorvo (NASDAQ: QRVO) reported results ahead of analysts' expectations in Q2 FY2024, with revenue down 4.71% year on year to $1.1 billion. The company also expects next quarter's revenue to be around $1 billion, in line with analysts' estimates. Turning to EPS, Qorvo made a non-GAAP profit of $2.39 per share, down from its profit of $2.66 per share in the same quarter last year.
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Qorvo (QRVO) Q2 FY2024 Highlights:
Revenue: $1.1 billion vs analyst estimates of $1 billion (10.1% beat)
EPS (non-GAAP): $2.39 vs analyst estimates of $1.77 (34.7% beat)
Revenue Guidance for Q3 2024 is $1 billion at the midpoint, above analyst estimates of $991.8 million
Free Cash Flow of $64.4 million, up from $5.4 million in the previous quarter
Inventory Days Outstanding: 125, down from 207 in the previous quarter
Gross Margin (GAAP): 44.4%, down from 46.5% in the same quarter last year
Bob Bruggeworth, president and chief executive officer of Qorvo, said, “Qorvo delivered significantly improved financial performance in the September quarter supported by content gains at our largest customer. Each of our operating segments is enjoying multiyear technology upgrade cycles that improve performance and enhance functionality, and Qorvo is critical to enabling these capabilities. The Qorvo team continues to operate very well to secure new customer designs and broaden our opportunities in growth markets.”
Formed by the merger of TriQuint and RF Micro Devices, Qorvo (NASDAQ: QRVO) is a designer and manufacturer of RF chips used in almost all smartphones globally, along with a variety of chips used in networking equipment and infrastructure.
Processors and Graphics Chips
The biggest demand drivers for processors (CPUs) and graphics chips at the moment are secular trends related to 5G and Internet of Things, autonomous driving, and high performance computing in the data center space, specifically around AI and machine learning. Like all semiconductor companies, digital chip makers exhibit a degree of cyclicality, driven by supply and demand imbalances and exposure to PC and Smartphone product cycles.
Sales Growth
Qorvo's revenue has been declining over the last three years, dropping by 0.28% on average per year. This quarter, its revenue declined from $1.16 billion in the same quarter last year to $1.1 billion. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).
Even though Qorvo surpassed analysts' revenue estimates, this was a slow quarter for the company as its revenue dropped 4.71% year on year. This could mean that the current downcycle is deepening.
Qorvo looks like it's on the cusp of a rebound, as it's guiding to 34.5% year-on-year revenue growth for the next quarter. Analysts seem to agree as consesus estimates call for 31.8% growth over the next 12 months.
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Product Demand & Outstanding Inventory
Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.
This quarter, Qorvo's DIO came in at 125, which is 13 days above its five-year average. These numbers suggest that despite the recent decrease, the company's inventory levels are higher than what we've seen in the past.
Key Takeaways from Qorvo's Q2 Results
Sporting a market capitalization of $8.56 billion, Qorvo is among smaller companies, but its more than $706.8 million in cash on hand and positive free cash flow over the last 12 months puts it in an attractive position to invest in growth.
We were impressed by Qorvo's strong improvement in inventory levels and Q3 revenue outlook that topped expectations. We were also excited its revenue and EPS outperformed Wall Street's estimates, driven by strong results in its high-performance analog and connectivity divisions. On the other hand, its operating margin fell and its gross margin decreased. Overall, we think this was still a strong quarter that should satisfy shareholders, especially when other semiconductor companies reported weak earnings. The stock is up 1.72% after reporting and currently trades at $89.5 per share.
So should you invest in Qorvo right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
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The author has no position in any of the stocks mentioned in this report.
