5 August 2015

Qorvo's quarterly revenue grows 6% as mobile products growth outweighs 40% drop in wireless infrastructure

For fiscal first-quarter 2016 (ended 27 June 2015), Qorvo Inc, a provider of core technologies and RF solutions for mobile, infrastructure and aerospace/defense applications, has reported revenue of $673.6m, up 6% on $633.9m last quarter and up 23% on $547.1m a year ago for the combined revenues for the June 2014 quarter 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).

There were two greater-than-10% customers (although the larger, at about 33% of revenue, represented the aggregated demand of multiple subcontractors for this end-customer). The second 10% customer was telecoms equipment maker Huawei Technologies Co Ltd of Shenzhen, China.

Growth was led by Mobile Products revenue of $551m, up 12% on last quarter and 35% on a year ago as Qorvo continues to capture a broad array of opportunities supported by long-term trends. In particular, global demand for broad-based data continues to proliferate while front-end complexity and the performance requirements for RF solutions continue to expand. Despite having seen a slowing among handset customers in China, the country still comprised Qorvo's largest customer by region. "Qorvo has secured excellent growth opportunities in China," notes president & CEO Bob Bruggeworth. For example, during the quarter, Qorvo began shipments of RF Flex integrated front-end transmit and power-amplifier modules to leading China-based smartphone makers.

The strength in Mobile Products was sufficient to offset a 13% drop in Infrastructure & Defense Products (IDP) revenue from $140m last quarter to $122m. This was driven wireless infrastructure – which had comprised about one-third of IDP revenue in the March quarter (i.e. about $45m) – falling sharply by 40% (to less than $25m), due primarily to a pause in LTE base-station deployments. Excluding wireless infrastructure, IDP revenue grew about 9% year-on-year, with sequential strength across all other markets.

Gallium nitride (GaN)-related revenue grew 30% year-on-year, led by strength in both CATV and defense & aerospace markets, where Qorvo claims to be the GaN market leader (having released over 100 GaN products during the past 18 months in both high-power and high-frequency applications, offering what it says is the industry's broadest portfolio of GaN capabilities with advanced low-cost packaging techniques). During the quarter, Qorvo sampled GaN custom macrocell power amplifiers to major base-station customers. "We continue to see GaN as a disruptive technology, displacing silicon LDMOS," says Bruggeworth.

On a non-GAAP basis, gross margin has risen from 44.8% a year ago (for RFMD and TriQuint combined) and the record 50.4% last quarter to 51.5%, reflecting favorable product mix and the realization of cost synergies.

The realization of synergies allowed Qorvo to grow investment in product and process development while making progress towards its operating expense model. Operating expenses grew from $150.2m last quarter to $158.7m. However, year-on-year, operating expenses grew at half the rate of revenue growth, as synergies realized in general & administrative (G&A) spending were balanced by investments in R&D rising by 19%.

Operating income has risen from $103.2m a year ago (for RFMD and TriQuint combined) and $169.6m (operating margin of 26.8%) last quarter to $187.8m (operating margin of 27.9% of sales, representing good progress towards the full-year goal of 30%). This dramatic improvement was led in particular by Mobile Products which, on a preliminary basis, surpassed its operating model of 30% operating margin. "That is all the more impressive when you consider our Mobile Products portfolio in June consisted entirely of legacy RFMD and TriQuint parts, and we've yet to in-source legacy TriQuint assembly, our largest cost synergy," notes Bruggeworth.

Net income was $168.5m ($1.09 per diluted share, at the high end of the $1-1.10 guidance), up from $167.2m ($1.11 per diluted share) last quarter.

Cash flow from operations was $141.4m (up on $138m last quarter). Capital expenditure was $89.4m, primarily to address continued growth in demand for premium filters. Free cash flow was hence $52m. Also during the quarter, Qorvo repurchased about 602,000 shares of its common stock at an average price of $83.10 per share (a total cost of $50m). Overall, total cash and investments rose from $544.6m to $558m.

For fiscal second-quarter 2016 (ending 3 October 2015), Qorvo expects revenue to rise by 4% sequentially to $690-710m, driven by growth in Mobile Products since IDP revenue will be flat as a result of wireless infrastructure falling further due to the soft LTE base-station market (although it is bottoming out, feels IDP Group president James Klein). Also, some customers in China have a few weeks of excess inventory to digest. Gross margin should fall back slightly to 50-51%. Diluted earnings per share (EPS) is expected to be $1.05-1.15.

"The wireless infrastructure market remains a great market where Qorvo can do extremely well," says Bruggeworth. "We are looking forward to the return of the wireless infrastructure market, and we're bringing out new GaN and SOI products to support this market and the continued global roll-out of 4G networks," he adds. In GaN, Qorvo is transitioning to 6-inch wafers in its Texas fab this year.

"We are designing and developing an increasing number of differentiated system-level RF solutions that integrate our legacy capabilities," says Bruggeworth. "These new Qorvo solutions, which include receive diversity modules, Wi-Fi integrated front-end modules, and silicon-on-insulator (SOI) infrastructure switches, are expected to contribute meaningfully to revenue next calendar year," he adds. Some early examples during the June quarter include the BAW-based high-band RF Fusion, which secured multiple design wins in flagship smartphones and with leading LTE reference designs, and the recently introduced BAW-based RF Fusion mobile Wi-Fi iFEM (integrated front-end module) for a flagship Android smartphone, which was announced last quarter and has now already received production orders. Qorvo has also received the first production orders for high-performance low-noise amplifiers (LNAs) from a leading smartphone maker.

"Add in the substantial synergies yet to come, and we feel confident we can hit our model while making substantial investments in the process technologies and great products that sustain and enhance our competitive advantage," says Bruggeworth. "We expect to finish the calendar year very strong, and we believe calendar 2016 will be an even stronger year."

See related items:

Qorvo's quarterly revenue up 46% year-on-year

Qorvo reports combined RFMD-TriQuint December-quarter revenue up 33% year-on-year to $742m

Merger of RFMD and TriQuint as Qorvo now completed

Tags: Qorvo RFMD TriQuint

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