For its fiscal second-quarter 2016 (ended 3 October 2015), Qorvo Inc, which provides core technologies and RF solutions for mobile, infrastructure and aerospace/defense applications, has reported revenue of $708.3m, up 5.2% on $673.6m last quarter and up 12% on $634.8m a year ago for the combined September 2014 quarter revenues of RF Micro Devices Inc of Greensboro, NC and TriQuint Semiconductor Inc of Hillsboro, OR, USA (following the merger of the two firms on 1 January).
The top three customers comprised about 60% of revenue, including two 10%-or-more customers. The largest, at 41%, represents the aggregate of multiple subcontractors for this end customer. The second is China-based telecoms equipment maker Huawei Technologies Co Ltd (a customer for both Mobile Products and Infrastructure & Defense Products).
Both the Mobile Products and Infrastructure & Defense Products (IDP) businesses did better than expected.
Despite rising 6% from $122m last quarter, Infrastructure & Defense Products revenue of $129m was down 13% year-on-year, due to wireless infrastructure falling about $24m on a year ago. However, outside of wireless infrastructure, IDP revenue grew about 6% year-on-year.
Growth was led by Mobile Products, for which revenue grew 19% year-on-year and 5% sequentially (from $551m last quarter) to $578m, driven by large customer product ramps. However, following strong growth in China in the first two quarters of calendar 2015 (including a $100m rise in the June quarter), despite continued strength from Qorvo's largest customer in the country, other Chinese customers have since slowed (not achieving their goals set at the beginning of the year), according to Mobile Products president Eric Creviston.
On a non-GAAP basis, gross margin was 49.7%, up from 47.4% a year ago but down from 51.5% last quarter (and slightly below the guidance of 50-51%) due to product mix.
Operating expenses (OpEx) were cut by nearly $2m from $158.7m last quarter to $156.8m, reflecting synergies that have been realized. Year-on-year, operating expenses grew at half the rate of revenue growth. In particular, R&D expenses rose 14% sequentially as Qorvo pursued major growth opportunities, while sales & marketing and general administrative expenses rose 14% year-on-year. "The realization of synergies is allowing Qorvo to appropriately invest in product and process development, while driving towards our operating expense model," says Creviston.
Operating income was $194.8m (an operating margin of 27.5% of revenue), up on $187.8m last quarter and up 28% on a year ago. This was led by the Mobile Products business unit, which achieved operating income of about 30% on its 19% revenue growth. "In the nine months since Qorvo's formation, revenue has grown 25% from the same period in the prior year while non-GAAP operating income has nearly doubled," notes chief financial officer Steve Buhaly.
Net income rose from $168.5m ($1.09 per diluted share) last quarter to $183.3m ($1.22 per diluted share, exceeding the original guidance of $1.10).
Cash flow from operations was $168.8m (up from $141.4m last quarter). Capital expenditure (CapEx) was $80.3m, primarily to address growth and demand for premium filters. During the quarter, Qorvo repurchased about 9.1 million shares of its common stock at a total cost of $500m. Overall, cash and investments have fallen hence from $558m to $195.6m. Since the end of the quarter, Qorvo's board of directors has just authorized a new one-year $1bn share repurchase program (expiring on 4 November 2016).
"Design activity during the quarter was particularly robust, as we secured multiple opportunities to expand content in the marquee smartphones launching in calendar 2016 and 2017 and positioned IDP to accelerate growth across its target markets," notes president & CEO Bob Bruggeworth.
In mobile, Qorvo entered the BAW-based multiplexer market with a family of quadplexers for smartphones supporting carrier aggregation in China and Europe. Those parts are sampling at leading customers, with volume production expected in the spring.
Collaborating with leading channel partners in China, Qorvo also captured multiple next-generation LTE reference design wins for multimode power amplifiers (PAs), multimode transmit modules, switches, duplexers and multiplexers. "Qorvo has excellent long-term opportunities in China as smartphones continue to proliferate, as customers in China increase the number of phones they export, and as the RF content in China-based smartphones continues to expand," says Bruggeworth.
In IDP, Qorvo enjoyed strong design-win activity and signed multiple long-term supply agreements in defense & aerospace. In connectivity, the firm secured multiple high-value 5GHz PA and BAW filter slots in high-performance Wi-Fi enterprise applications and expanded mobile Wi-Fi content with a leading LTE reference design provider. In transport, Qorvo captured an increasing percentage of DOCSIS 3.1 sockets with highly differentiated hybrid GaAs and GaN products delivering what is claimed to be best-in-class efficiency, bandwidth and power.
"In cable TV, Qorvo was especially strong with hybrid GaAs and GaN power doublers, saving operators 15-20W," says Bruggeworth. "These solutions mix and match our legacy technologies and capability, and they are especially strong in power efficiency and needed in applications where power consumption is everything," he adds. In wireless infrastructure, Qorvo was an active participant in pre-5G and 5G demos at major base-station OEMs, and it sampled GaN-based macro-cell high-power amplifier (HPAs) to the five leading base-station OEMs.
"We are introducing an expanded set of new products combining switches and filters and leveraging our broad set of competencies, including BAW filter and GaN process technologies, and all of this is creating exciting new growth opportunities for Qorvo," says chief financial officer Steven J. Buhaly.
"Our IDP organization has essentially repositioned itself to accelerate growth above what our legacy IDP businesses had achieved historically," notes Bruggeworth. "IDP is structured around a diverse portfolio of businesses, all leveraging Qorvo's shared core competencies and focused on winning with premium products using highly differentiated internally developed technologies. We're increasing our focus on automotive, Internet of Things, data centers and Wi-Fi, and we're increasing our resources in those value streams. We're also targeting segments that don't appear to enjoy the same dynamic growth but have large niches that can be exploited with differentiated products based on Qorvo's technology," he adds. Examples include Qorvo's GaN-based products in the base-station market, and in the traveling-wave tube (TWT) replacement to defense and commercial markets using the firm's patent-protected Spatium solid-state products. "We're continuing to penetrate the defense market with our expanding family of GaN-based products and we're increasing our leading market share, as measured by Strategy Analytics," Bruggeworth says.
"IDP is targeting the highest-growth segments within their diversified businesses with compelling premium solutions using highly differentiated internally developed technologies," continues Bruggeworth. "They're moving the organization forward from pre-merger levels, where both companies saw low growth trajectories [of 5-7 percentage points], to today where we see IDP on a path to grow their business two times to three times those legacy growth rates," he adds. "You'll start to see our growth rates pick up as we go into next year and certainly as we move into 2017 and 2018," adds IDP president James L Klein.
"In China, we saw industry fundamentals begin to improve and believe base-station customer activity bottomed in the September quarter," says Bruggeworth. "We remain cautious and believe we've embedded conservative expectations in our forward guidance related to China-based handset demand."
For its fiscal third-quarter 2016 (ending 2 January 2016), Qorvo expects revenue of $720-730m. Gross margin should return to about 50%, aided by benefits from the consolidation of assembly & test in China accruing in the second half of calendar 2015. OpEx should again be in the mid-$150m. Diluted EPS should be $1.25-1.30.
"Synergy achievement is on track [expected to beat the $75m annual target for both year one and year two post-merger], led by the consolidation of test & assembly into our China operations," notes Buhaly. "We're also uniquely positioned to reduce cost and enhance our operating model," reckons Bruggeworth. "Our two largest synergy opportunities remains the in-sourcing of packaging, assembly & test, and the in-sourcing of SAW filters. We estimate these represent greater than $60m in annualized savings," he adds. "They're progressing on schedule and the benefit is expected to favorably impact results beginning early next year."
"We think calendar 2016 will be a strong year for Qorvo and believe we will fully achieve our target operating model of 30% operating margin over the full year," concludes Buhaly.
