For fiscal first-quarter 2017 (to 2 July 2016), Qorvo Inc of Greensboro, NC and Hillsboro, OR, USA (which provides core technologies and RF solutions for mobile, infrastructure and defense applications) has reported revenue of $697.6m, up 15% on $607.1m last quarter and up 4% on $672.7m a year ago. This is well above the $650m guidance, reflecting strength in the firm's Mobile Product segment in China, a large customer smartphone ramp, and growth in broad markets in the Infrastructure & Defense Products (IDP) segment.
Qorvo had three 10% customers: the largest (representing the collective demand from multiple subcontractors for this end customer) at about 29% of revenue (down from 33% last quarter), plus China-based telecoms equipment maker Huawei Technologies Co Ltd (a customer for both Mobile Products and Infrastructure & Defense Products) and South Korea's Samsung.
Mobile Products revenue was $547m, down slightly on $551m a year ago but up 18% on $465m last quarter. Mobile Products supported multiple performance-tier and premium-tier smartphones with a product portfolio including highly integrated high-, mid-, and low-band solutions, envelope tracking (ET) power management integrated circuits (PMICs), filters, switches, low-noise amplifiers (LNAs), and antenna control solutions. Also, Qorvo benefited in China from a strong market and the migration from three-mode to full-mode smartphones for domestic and export markets.
Qorvo production-released its next-generation bulk acoustic wave (BAW) filter process, and Mobile Products expanded customer engagements with its ultra-high-performance BAW-based quadplexers and hexaplexers. "We saw strong demand for our recently launched quadplexers, and for our second-generation RF Flex modules, which launched last year," notes president & CEO Robert A. Bruggeworth.
In Wi-Fi, for handsets, Qorvo saw 13% growth sequentially, as it ramped its highly integrated RF Fusion for mobile Wi-Fi. Outside of handsets, Mobile Products grew 30% on last quarter.
Infrastructure & Defense Products (IDP) revenue was $151m, up 6% on $142m last quarter and up 24% on $122m a year ago. Bruggeworth cites another strong quarter for design wins. In particular, IDP continued to support the roll-out of next-generation wireless infrastructure with key 5G and massive MIMO design wins. Qorvo also expanded its presence in the Internet of Things (IoT) market with the acquisition (announced in April) of low-power short-range RF device maker GreenPeak Technologies of Utrecht, The Netherlands (expected to be accretive by the end of 2016).
In transport, Qorvo began the production ramp of a quad linear 400G optical driver for a tier-1 telecom equipment provider. The firm also reached record revenue levels for its CATV hybrid products, driven by the industry leaders. Both support the build-out of infrastructure to keep pace with the ever increasing demand for data. Defense business is up 30% year-on-year, driven mostly by domestic active electronically scanned array (AESA) radar programs, and the proliferation of gallium nitride (GaN), especially for international markets.
"IDP continues to reposition its product portfolio to support high-growth markets, and today they are highly diversified business in a $3.8bn serviceable market," comments Bruggeworth. IDP forecasts that the markets it serves will rise at a compound annual growth rate (CAGR) of 17%, nearly doubling its market by 2020 to $7bn. "In our infrastructure unit, we continue to see a stabilization in the China base-station market and strong customer activity, especially in GaN," says Bruggeworth. "We enjoyed robust demand for our 3.5GHz GaN power amplifiers (PAs) during the quarter and we supplied duplexers, LNAs and PAs for small-cell solutions at multiple base-station OEM customers."
On a non-GAAP basis, gross margin was 48.2%, down from 50% last quarter (and 51.5% a year ago) and below the expected 50%. This was due mainly to a shift in product mix to lower-margin products, reflecting low-band PAD (power amplifier duplexers) business exceeding expectations with higher-than-expected costs since there is significant outsourced filter content. In addition, early yields on high-volume quadplexers for China were below plan.
Operating expenses were $168.6m, up from $142.9m last quarter due mainly to higher R&D expenses, increased variable compensation expense, and the addition of GreenPeak. The higher R&D expense reflects increased investment in high-performance filter designers, SAW and BAW process engineers, and associated material costs for prototypes.
Operating income was $167.6m (operating margin of 24% of sales), up from $160.6m last quarter. Net income rose slightly from $142.6m ($1.04 per diluted share) last quarter to $143.1m ($1.08 per diluted share, above the expected $1.05).
Cash flow from operations has fallen from $160.5m last quarter to $59m. Meanwhile, capital expenditure has risen from $84.4m last quarter to $130m, primarily to address growing demand for premium filters. Hence, during the quarter, cash and short-term investments fell from $613m to $447m.
During the June quarter, Qorvo completed its $500m accelerated share repurchase (ASR), retiring an additional 400,000 shares, with $250m remaining available under the firm's $1bn share repurchase program authorized last November. Qorvo has repurchased $1.3bn of shares in the last five quarters.
Across all of Mobile Products, customer order activity strengthened throughout the June quarter with many orders placed well within lead times. Through the month of July, order activity in Mobile remained very strong. "It's clear to us the demand for broadband data continues to increase, with the effect amplified for RF suppliers as content per device experience," says Bruggeworth.
"In the June quarter, Qorvo saw customer order activity accelerate as the quarter progressed," notes Bruggeworth. "In the September quarter, we continue to see strong demand in support of this year's most popular devices, and we are rapidly expanding our capabilities to develop new highly integrated solutions for large customer opportunities launching in 2017 and 2018."
For the September 2016 quarter (including about $6-7m from GreenPeak), Qorvo expects revenue to grow to $820-850m, reflecting strong broad-based demand (although most of the growth is coming from Mobile). Gross margin should fall to about 47% (and remain near the Q2 level through the rest of the year based on the low-band product mix and while the firm's fab conversions are underway). Diluted earnings per share (EPS) should be $1.35-1.45.
In the September quarter, Qorvo expects its OpEx to trend down through second-half 2016, reaching the goal of about 20% of sales and sustaining that performance through the December quarter as some spending falls off and productivity programs continue. Full-year fiscal 2017 CapEx should be about 15% of sales.
"Qorvo today is the number-one or number-two player in the majority of our growth markets, and we are investing to extend our leadership," says Bruggeworth. "We are building a technology moat to maintain leadership where we are number one, and where we are number two, we are investing to advance from a challenger to the leader," he adds.
Two major initiatives are underway: (1) leveraging BAW filter assets; and (2) establishing filter independence. "We expect these initiatives to support margin expansion early next year, as new customer programs ramp," says Bruggeworth.
"Our BAW products are closing in on state-of-the-art performance and we're on a measured pace to add capacity needed to meet expected customer demand for premium filters," says chief financial officer Mark J. Murphy. "A large number of productivity projects are underway including conversion to 8-inch BAW wafers in our Texas fab and 6-inch SAW on our Florida fab, conversion of our North Carolina fab to TC-SAW and SAW (starting with 6-inch wafers), consolidation of our GaAs capacity into Oregon, migration of GaN from North Carolina to Texas, and an additional Mobile Products assembling & test capacity in China," he adds. "We expect these new product capabilities, capacity additions, and productivity initiatives to help us sustain above-market growth and drive margin expansion."
CapEx should remain elevated as Qorvo aligns capacity additions with stronger customer demand for premium filters and integrated modules.
"Upon transition to more integrated modules with Qorvo-produced filters and completion of our fab conversions, we expect gross margin to expand," says Murphy.
On the design front, Qorvo's GaN PAs were selected by a major infrastructure provider for a massive MIMO active antenna system. Two global wireless infrastructure manufacturers selected the firm's 28GHz 5G base-station GaN PAs and a major infrastructure provider selected its 2.6GHz PA, LNA and switch for pre-5G MIMO deployment. In connectivity, Qorvo saw strong momentum in CPE Wi-Fi, particularly 5GHz.
"The expanding market requirements for carrier aggregation and 5G among others will favor our unique competitive strengths, and we expect this to support strong longer-term dynamics and improving visibility into our growth drivers," says Bruggeworth. "Only Qorvo delivers a comprehensive portfolio of filters, switches, amplifiers, PMICs, LNAs and tuners with the scale, integration capabilities and system-level expertise to supply an expanding variety of highly integrated solutions," he claims.
