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Qorvo (QRVO) Q2 Earnings & Revenues Beat Estimates, Down Y/Y

Zacks Equity Research

Qorvo Inc. QRVO reported second-quarter fiscal 2020 non-GAAP earnings of $1.52 per share, surpassing the Zacks Consensus Estimate of $1.30 per share. However, reported earnings decreased from $1.75 per share reported in the year-ago quarter.

Revenues on a non-GAAP basis declined 8.8% year over year to $806.7 million. However, the figure was higher than management’s guidance of $745 million and 765 million. Further, the top line outpaced the Zacks Consensus Estimate of $754 million.

The results can be attributed to improved progress in IDP and stringent cost control measures. The company benefited from increased demand in the performance-tier for RF Fusion based solutions, antenna tuning, discrete components and BAW-based multiplexers.

Notably, Huawei is one of the more prominent customers of Qorvo. During the reported quarter, sales to Huawei contributed 5% to total revenues.

Shares of Qorvo have returned 33.2% year to date, outperforming the industry’s rally of 32.6%.

Quarter Details

Segment-wise, Mobile Products (MP) revenues were $623 million. The segmental revenues were aided by robust demand from top customers.

Infrastructure and Defense (IDP) revenues were down year over year to $184 million, primarily owing to impacts of export restrictions.

However, robust growth in the company’s wireless connectivity, improvement in base station solutions, ramping up ofWi-Fi 6 and robust 5G infrastructure market demand acted as tailwinds.

Further, 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 GaN for high-power applications were also key catalysts.

In the quarter under review, Qorvo completed the acquisition of Cavendish Kinetics, with an aim to strengthen portfolio of programmable analog and mixed signal power offerings.

Qorvo was also selected by top four China-based smartphone OEMs to offer the latter with antenna tuning, high-band PAD and other integrated solutions for 5G smartphones.

Further, the company increased shipments of 5G massive MIMO infrastructure solutions to various OEMs. The company also secured new design wins across all 5.9GHz 5G frequency bands. The company’s expanding RF product portfolio pertaining to 5G and massive MIMO base stations bodes well in the days ahead.

Notably, Qorvo sampled BAW-based 5G antennaplexer solutions in a bid to aid customers in utilizing antenna architectures for 5G devices.

Accelerating timeline for 5G deployment bodes well for Qorvo. It has participated in dozens of 5G field trials and demonstrations. We believe an expanding portfolio enabling 5G deployment augurs well.

Operational Details

Non-GAAP gross margin contracted 120 bps from the year-ago quarter to 46.5%. This can be attributed to unfavorable product mix.

Non-GAAP operating expenses decreased around 1% year over year and came in at $166.7 million.

Non-GAAP operating margin contacted 380 bps from the year-ago quarter to 24.8%.

Balance Sheet & Cash Flow

As of Sep 28, 2019, cash and cash equivalents were $586.8 million compared with $629.6 million reported in the previous quarter. Long-term debt was $1.02 billion relatively flat quarter over quarter.

Net cash provided by operating activities was $173 million, down from $257 million in the previous quarter. Free cash flow during the reported quarter came in at $135 million.

During the quarter under review, the company repurchased shares worth $165 million under the share repurchase program. The company also announced the authorization of a new $1 billion under the share repurchase program.

Guidance

For third-quarter fiscal 2020, Qorvo anticipates revenues between $840 million and $860 million. Earnings are projected to be $1.67 per share at the mid-point. The Zacks Consensus Estimate for revenues and earnings are pegged at $766.2 million and $1.35 per share, respectively.

Further, Mobile Products revenues in the third quarter are expected to be up sequentially. IDP revenues are expected to increase year over year and sequentially, primarily owing to robust ramp of Wi-Fi 6 and higher 5G infrastructure customer demand.

Non-GAAP gross margin is anticipated to 48%.

Zacks Rank & Stocks to Consider

Qorvo carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are Vonage Holdings Corp. VG, Hewlett Packard Enterprise Company HPE and Taiwan Semiconductor Manufacturing Company Ltd. TSM. Each of the stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Vonage, Hewlett Packard Enterprise and Taiwan Semiconductor is currently pegged at 5%, 7.4% and 10.4%, respectively.

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