For fiscal first-quarter 2019 (ended 30 June 2018), Qorvo Inc of Greensboro, NC, USA (which provides core technologies and RF solutions for mobile, infrastructure and defense applications) has reported revenue of $692.7m, up 4.1% on $665.4m last quarter and 8.3% on $639.9m a year ago, despite the US Department of Commerce’s temporary ban on China-based ZTE (which comprises about $10m of quarterly revenue). Growth was driven by broad-based strength across markets, customers and products.
“Our June quarter exceeded guidance [$645-665m], with strong Mobile growth in China, continued broad-based growth in IDP [Infrastructure and Defense Products], and excellent cost control across the company,” says chief financial officer Mark Murphy.
“The June quarter represented an excellent start to fiscal 2019 highlighted by strong smartphone unit volumes in China, design-win activity and operating discipline,” comments president & CEO Robert A. Bruggeworth.
Mobile Product (MP) revenue was $486m, up 7.5% on $452m last quarter and returning to year-on-year growth (up 7%), higher than expected across multiple customers and particularly strong in China. During the quarter, Qorvo expanded shipments of quadplexers, antenna control solutions and RF Fusion Phase 6 modules in support of leading China-based smartphone makers (posting record revenue for BAW-based quadplexers in China).
Infrastructure and Defense Products (IDP) revenue was $207m, down just 2.4% on the record $212m last quarter and up 13% on a year ago (the ninth consecutive quarter of double-digit year-on-year growth), driven by record revenue in wireless connectivity and growth in base-station solutions.
“IDP is reaping the rewards of portfolio management in diversified markets including the connected home, the connected car, Wi-Fi, base stations and defense,” says Bruggeworth. “These are expanding markets underpinned by positive secular trends like the deployment of LTE Advanced Pro and 5G, the proliferation of gallium nitride (GaN), and the Internet of Things (IoT),” he adds.
Revenue for IoT applications grew by more than 30% year-on-year. “In Wi-Fi, we are a leading supplier of front-end modules for tri-band distributed Wi-Fi systems,” says Bruggeworth. “In these systems, our bulk acoustic wave (BAW) filters maximize spectral efficiency and our power amplifiers (PAs) increase power-added efficiency.” As the IEEE governing body and the Wi-Fi Alliance work to extend spectrum for 802.11ax, Qorvo’s Wi-Fi portfolio is expanding to include solutions in the 5.9-7.1GHz range for products ramping in second-half 2019.
On a non-GAAP basis, gross margin was 44%, down from 48% last quarter and 47.3% a year ago.
Operating expenses were $160.5m, up from $155.6m last quarter but cut from $165.5m a year ago (and less than the expected $165m due primarily to the timing of program development expenses).
Net income was $124m ($0.96 per diluted share), down from $138.6m ($1.07 per diluted share) last quarter but up from $113.9m ($0.87 per diluted share) a year ago (and well above the $0.75 guidance).
Operating cash flow was $75.3m (down from $259m last quarter), reflecting inventory builds to support Mobile Product ramps. Capital expenditure (CapEx) was back up to $43.6m, related primarily to BAW and GaN capacity additions in the fabrication plant in Richardson, TX. Free cash flow was hence $31.7m.
However, during the quarter cash and cash equivalents fell from $926m to $334m due to the repurchase of the remaining $429m of Qorvo’s 2023 notes and from increased share repurchases (of $100m of stock).
Following quarter-end, Qorvo completed a partial tender for $300m of its 2025 notes and a $500m eight-year unsecured notes issue at a coupon of 5.5%. The firm has hence lowered its interest costs and extended its average debt maturity to 2026. “We remain well below our net leverage target and retain significant financial flexibility to grow the business and return capital to shareholders,” notes Murphy.
“The team did an outstanding job supporting large customer ramps, while securing new opportunities for growth,” says Bruggeworth.
During the quarter, Qorvo was selected by Qualcomm to supply a high-efficiency 5GHz front-end module for new 802.11ax carrier gateway designs. The firm also secured a design win for an ultra-high-band (UHB) front-end module for a Korea-based marquee smartphone launching this year, addressing 3.5GHz UHB requirements ahead of the coming 5G rollout. In addition, Qorvo sampled BAW-based diversity receive modules and antennaplexers to multiple smartphone makers to enable next-generation carrier aggregation and MIMO architectures.
Qorvo has expanded its 5G portfolio by adding several new products for massive MIMO and 5G macro base stations, with highly integrated modules now supporting the full spectrum of anticipated frequency bands for 5G architectures, up to 39GHz. “Given the superior performance characteristics of gallium nitride versus legacy silicon technologies, we see GaN proliferating in multiple markets, including base stations,” says Bruggeworth. Qorvo’s GaN solutions support massive MIMO deployments below 6GHz. In China, demand is increasing for the firm’s solutions for the 3.5GHz and 4.8GHz deployments anticipated in 2019. In millimeter wave, Qorvo’s 39GHz GaN front-end modules are powering the first commercially available millimeter-wave fixed-wireless access service (deployed recently in Boston, Los Angeles and Washington DC, plus additional cities to be added later this year).
In defense applications, Qorvo has expanded its GaN-based portfolio by launching two highly integrated X-band front-end modules (combining four parts into one) optimized for next-generation mission-critical active electronically scanned array (AESA) radar systems worldwide.
“Our fiscal year is off to a strong start, and we expect our portfolio focus and operational discipline to drive stronger earnings and cash flow,” says Murphy. “Qorvo’s September quarter and full-year outlook reflect continued growth and margin expansion, consistent with our previous guidance.”
For fiscal second-quarter 2019 (to end-September 2018), Qorvo expects growth in revenue to $850-860m, driven by new product ramps. IDP should grow, due in part to the US Department of Commerce lifting its ban on ZTE. For Mobile, Qorvo revenue should rise more than 30% sequentially due to seasonal ramps.
Gross margin should rise to 47.5%, reflecting expected progress on mix improvements and productivity gains partially offset by under-loaded SAW capacity. Operating expenses are forecasted to rise to $170m, driven mainly by increased design activity (although OpEx is expected to trend down in second-half 2018, totaling less than 20% of sales for the full year). Diluted earnings per share is expected to increase to $1.62.
CapEx should increase further, due mainly to BAW and GaN investments in Richardson, the expansion of BAW capacity in the Farmers Branch plant, and the purchase of a leased facility. CapEx for the rest of the year remains tied to design opportunities, tool conversions, new tool lead-times and other factors, which currently point to moderately higher CapEx for full-year fiscal 2018 driven primarily by acceleration of the build-out of Farmers Branch as Qorvo gains confidence in its BAW-based revenue outlook.
“We believe this increase is for the right reasons: value-creating investments supporting our high-growth and high-margin businesses where we hold differentiated positions,” says Murphy. Due to higher revenue, stronger margins and lower working capital, operating cash flow should strengthen in fiscal second-half 2018. “As a result, our free cash flow forecast for the year is now expected to be closer to $700m,” he adds.
Qorvo expects full-year revenue growth of about 10%, gross margin rising to 50% or more for the second half, and OpEx below 20% of sales.
“Qorvo’s positive long-term outlook reflects our enthusiasm for the team we’ve built, the markets we serve, and the underlying macro-trends of LTE-Advanced/Pro, 5G, IoT and GaN,” says Bruggeworth.
