Qorvo Earnings: We’re Impressed With Likely Content Gains at Apple; Maintain $128 Fair Value

Qorvo QRVO reported fiscal first-quarter results which, while dismal, came in ahead of our expectations. More importantly, Qorvo provided investors with a rosy outlook, thanks to upcoming content gains in Apple’s next slate of iPhones. Management also affirmed it is on track to reach its fiscal 2024 targets, including annual growth despite the slow start to the year. We maintain our $128 fair value estimate for no-moat Qorvo and view the shares as slightly undervalued.

Revenue in the June quarter was $651 million, down 37% year over year, but up 3% sequentially and above the midpoint of guidance of $640 million. All three segments (advanced cellular, or ACG; connectivity and sensors, or CSG, and high-performance analog, or HPA) were all down close to 35% year over year, but the company saw strength in products sold to aerospace and defense customers. ACG revenue fell only 1% sequentially, as the Android smartphone market appears to have bottomed out and Qorvo is reducing its excess inventory within the Android supply chain. Non-GAAP gross margin was 43% in the quarter, which was up 160 basis points sequentially but still down versus 50% in the year-ago period, mostly due to lower sales levels and factory underutilization.

For the September quarter, Qorvo expects revenue of $1.00 billion at the midpoint, which would represent growth of 55% sequentially but still a 12% decline year over year. The sequential growth should mostly come from Qorvo’s content gains within Apple’s upcoming iPhone 15 series of devices, while the firm also foresees the Android market continuing to work down inventory. Non-GAAP gross margin is expected to be 45.5% at the midpoint with the favorable mix shift toward chips going to Apple.