Qorvo (NASDAQ:QRVO) Q3: Strong Sales, Stock Soars
Communications chips maker Qorvo (NASDAQ: QRVO) announced better-than-expected results in Q3 FY2024, with revenue up 44.5% year on year to $1.07 billion. Guidance for next quarter's revenue was also better than expected at $925 million at the midpoint, 1.2% above analysts' estimates. It made a non-GAAP profit of $2.10 per share, improving from its profit of $0.75 per share in the same quarter last year.
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Qorvo (QRVO) Q3 FY2024 Highlights:
Market Capitalization: $9.76 billion
Revenue: $1.07 billion vs analyst estimates of $1.00 billion (7.1% beat)
EPS (non-GAAP): $2.10 vs analyst estimates of $1.66 (26.7% beat)
Revenue Guidance for Q4 2024 is $925 million at the midpoint, above analyst estimates of $914.1 million
Free Cash Flow of $466.5 million, up from $64.4 million in the previous quarter
Inventory Days Outstanding: 96, down from 125 in the previous quarter
Gross Margin (GAAP): 36.1%, down from 36.5% in the same quarter last year
Bob Bruggeworth, president and chief executive officer of Qorvo, said, “Strong execution by the Qorvo team resulted in robust December quarterly financial performance. During the quarter we continued to bring channel inventories down, and Qorvo shipments are now more closely aligned to end market demand. We are seeing incremental improvement in end market demand in the Android ecosystem, and we expect to achieve year-over-year revenue growth in all of Qorvo’s operating segments in the March quarter.”
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 growth over the last three years has been unimpressive, averaging 1.3% annually. As you can see below, this was a weaker quarter for the company, with revenue growing from $743.3 million in the same quarter last year to $1.07 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).
Qorvo had a great quarter as its 44.5% year-on-year revenue growth exceeded analysts' estimates by 7.1%. Qorvo's growth inflected positively this quarter, suggesting a new upcycle as we come off the trough from the recent downturn.
Qorvo returned to positive revenue growth this quarter and its management team expects the trend to continue. The company is guiding to 46.2% year-on-year growth next quarter, and analysts seem to agree, forecasting 20.9% 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 96, which is 16 days below its five-year average. At the moment, these numbers show no indication of an excessive inventory buildup.
Key Takeaways from Qorvo's Q3 Results
We were impressed by Qorvo's strong improvement in inventory levels, and its revenue, EPS, and free cash flow topped Wall Street's estimates. These beats were driven by strong performance in its advanced cellular group segment ($846 million of revenue versus consensus estimates of $753 million). Looking ahead, next quarter's revenue and EPS guidance also beat expectations. Zooming out, we think this was a great quarter that should delight shareholders. The stock is up 6.3% after reporting and currently trades at $106 per share.
Qorvo may have had a good quarter, but does that mean you should invest 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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