Qorvo Earnings: Prospering From Content Gains at Apple and an Android Recovery

No-moat Qorvo QRVO reported fiscal second-quarter results ahead of our expectations while providing investors with solid guidance for the December quarter and beyond. We’re encouraged by management’s comments that it expects to recover toward its long-term adjusted gross margin target of 50%. We maintain our $128 fair value estimate and continue to view shares as undervalued.

Revenue in the September quarter was $1.10 billion, down 5% year over year but up 70% sequentially and above the midpoint of guidance of $1.00 billion. The upside was driven by some earlier-than-anticipated shipments into Apple, although Qorvo also benefitted from a recovery in radio frequency chip demand from Android-based smartphone makers, particularly in China. Revenue from Qorvo’s largest segment, advanced cellular more than doubled sequentially and rose 8% year over year to $850 million. High-performance analog and connectivity and sensors revenue were both down significantly year over year but also started to recover and rose 7% and 4% sequentially, respectively. Higher sales levels enabled the adjusted gross margin to expand 470 basis points sequentially to 47.6%.

In the December quarter, Qorvo expects revenue of $1.0 billion, which would be down 9% sequentially due to normal seasonal weakness, but up 35% year over year, thanks again to improving Android demand and content gains at Apple versus last year’s iPhones. Adjusted gross margin should tick down to 43.5%, however, as Qorvo absorbs factory underutilization charges. The firm hinted that it would achieve year-over-year revenue growth in fiscal 2024 (ending March 2024), which implies only a modest sequential decline in the March quarter due to seasonal weakness at Apple once the bulk of its iPhone production concludes. Adjusted gross margin should trough in the March quarter near 41% but should continue back toward 50% in the quarters ahead as the Android inventory correction ends up in the rear-view mirror.