Qorvo, Inc. QRVO recently provided an update on first-quarter fiscal 2020 outlook.
On May 16, 2019, the Bureau of Industry and Security (BIS) added Huawei Technologies Co., Ltd. and 68 of its affiliates to the “Entity List” maintained by U.S. Department of Commerce.
This decision bars Qorvo from supplying products to Huawei and its affiliates, which compelled the company to trim revenue guidance.
Notably, Huawei is one of the more prominent customers of Qorvo. In fiscal 2019, the company notes that Huawei and its affiliates contributed $469 million, representing approximately 15% of total revenues.
This dependence on Huawei is anticipated to weigh on the company’s performance in the days ahead.
However, BIS recently announced a Temporary General License (TGL) to amend the regulations issued initially. The license is effective as on May 20, 2019 for 90 days. On the back of the temporary license relief, shares of Qorvo recovered the intraday decline, ultimately closing at $61.54, yesterday.
Notably, Qorvo stock has gained 1.3% on a year-to-date basis, underperforming industry’s rally of 2%.
Qorvo now anticipates first-quarter fiscal 2020 revenues to be in the band of $730 million to $750 million (mid-point of $740 million), down from its prior range of $780-$800 million (mid-point of $790 million). It suggests a decline of 6.3% considering the mid-point.
The Zacks Consensus Estimate is pegged at $790.1 million.
Non-GAAP earnings per share have been forecast to be $1.15 per share at the mid-point, down from the previous guidance of $1.30 per share. The Zacks Consensus Estimate is pegged at $1.31 per share.
However, non-GAAP gross margin is now anticipated be 45.5%, compared with the previous predicted range of 45-45.5%.
Moreover, Qorvo anticipates second-quarter fiscal 2020 revenues to be flat sequentially, considering no sales to Huawei. The corresponding Zacks Consensus Estimate is pegged at $832.3 million.
The uncertainty as to when the company will resume supply of its products to Huawei refrained it from issuing fiscal 2020 guidance.
Qorvo, Inc. Revenue (Quarterly)
Qorvo, Inc. revenue-quarterly | Qorvo, Inc. Quote
Bleak Broader Market Insights
Imposition of tariff owing to trade war between the United States and China has been taking a toll on chipmakers for a while now. Notably, China happens to be one of the biggest markets for semiconductors, while the United States is the biggest semiconductor manufacturing country.
In fact, per IDC, semiconductor revenue is anticipated to decline 7.2% to reach $440 billion in 2019 globally, from $474 billion reported in 2018, owing to tough trade relations and high inventory levels. The decline comes "after three years of consecutive growth." The recent blacklisting of Huawei is likely to aggravate the issue.
On May 20, 2019, Lumentum Holdings LITE, which supplies optical communications products to Huawei, lowered fourth-quarter fiscal 2019 revenue guidance by 7.8% at mid-point levels to $375-$390 million from previous range of $405-$425 million. Notably, the company generated 11% of total revenues in fiscal 2018, ended Jun 30, 2018, from Huawei.
Inphi Corporation IPHI earned 14% of total revenues in 2018 from Huawei. Furthermore, Skyworks SWKS is also anticipated to be affected by the ban. Although in fiscal 2018, Huawei’s contribution to revenues didn’t exceed 10%, it remains a noteworthy customer of Skyworks. Huawei accounted for 10% of Skyworks’ net revenues in fiscal 2017.
Moreover, Keysight has been recently downgraded by an analyst citing dependence on Huawei to impact the company’s performance.
Broadly, this move doesn’t seem to go down well for semiconductor players with exposure to Huawei. Intel, Micron, AMD and Qualcomm remain other U.S. semiconductor companies likely to be impacted by blacklisting of Huawei.
Although, customer concentration due to significant exposure to Apple and Huawei is a headwind, strength in Qorvo’s solutions in defense (advanced radars and other electronic warfare products) and connectivity (Wi-Fi and emerging IoT applications) hold promise in the longer haul.
Notably, in the last reported quarter, Qorvo reported mixed results, wherein earnings surpassed the Zacks Consensus Estimate, but revenues lagged the same.
Currently, Qorvo carries a Zacks Rank #2 (Buy). However, the rank might change given the latest development limiting the company’s growth prospects at least in the near term.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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