Qorvo: This Is a Strong Buy

Qorvo (QRVO) announced fourth quarter ended April 2, 2016 total non-GAAP revenue of $607.1 million, down 2 percent sequentially from $619.7 million in third quarter of 2016 and down 4 percent year-over-year from $633.9 million in fourth quarter of 2015. Going forward, the company has provided revenue guidance for June quarter of 2016 and expects quarterly revenue of about $650 million.

Qorvo declared fourth quarter of 2016 non-GAAP net income of $142.6 million or $1.04 per diluted share, down 4 percent sequentially from $148.0 million in third quarter of 2016 and down 15 percent year-over-year from $167.2 million or $1.11 per diluted share in fourth quarter of 2015.
Moving ahead, Qorvo projects June quarter of 2016 gross margin of nearly 50%.

The mobile RF solutions provider reported continued slight sequential and year-over-year decline in both its top and bottom lines primarily due to accelerated investments made for the overall company growth through strategic acquisitions and controlling non-core expenses while optimizing its daily operations.

Strong prospects

The accelerated transition and adoption of smartphones from legacy segment to entry/mid to performance and finally, to premium segment is increasingly driving significant RF content with time. Moreover, the shipment trend of smartphone units have also shifted from legacy to premium handsets with legacy 2G/3G handsets witnessing continued fall in year-over-year shipments and premium 4G smartphones registering significant year-over-year continued growth in shipments.

The notable RF TAM expansion is allowed by greater content per phone coupled with a mixed shift towards technologically-advanced handset SKUs. Though the year-over-year growth of smartphones have declined, the average RF content per smartphone has continued to rise. RF TAM is continuing to grow at a CAGR of 15% from 2014 till 2018.

The growing acceptance of higher-content and advanced smartphones is believed to drive significant long-term demand for RF operating bandwidth and thus, offering huge and lasting growth opportunity for the key telecommunications provider which would require sophisticated hardware to support the advanced telecommunication software running on it.

The global demand for mobile data is endless. However, there’s only limited frequency spectrum accessible to support this ever-expanding demand for data. There’s rising customer demand for lighter, thinner metal handsets that are well-equipped with antenna tuning, sophisticated switching and notably combined modules. Globally, there’s fast supply of highly-integrated fragmented, carrier-aggregation (CA) and carrier-specific CA systems requiring advanced switching, antenna routing and multiplexers. Since, sophisticated SKU maps seems inefficient and costlier to maintain therefore, greater RF integration allows lesser SKUs and grows OEM efficiency.

Investing smartly

Moving ahead, Qorvo is uniquely implementing a differentiated IDP strategy through partnering with top-tier services providers in transport, connectivity, wireless infrastructure and defense industry. It’s maintaining a technology leadership by providing BAW, GaAs and GaN services, penetrating newly expanding markets, improving the product development pace by continually manufacturing differentiated products while performing strategic acquisitions to enhance growth including the pending acquisition of GreenPeak Technologies, a leading short range RF communication technology and ultra-low power solutions provider. This planned acquisition would enable Qorvo to improve its products range being offered to the customers including, systems-on-a-chip (SoCs) and hugely integrated RF solutions for rapidly expanding Internet of Things (IoT) and the fully-connected home.

Qorvo recently declared its innovative ZigBee 3.0 software development kit (SDK) leveraged for Smart Home gateways incorporating the advanced GP712 radio communication controller chip developed by GreenPeak Technologies which is currently Qorvo’s Low Power Wireless business unit.

The advanced collaboration of Qorvo with other key telecommunication services provider along with its accelerated and planned investments in developing advanced software for successfully running telecommunication hardware is estimated to drive significant long-term company growth while delivering attractive shareholder returns.

Importantly, Qorvo recently declared to repurchase $500 million worth of its total common stock from BofA which is expected to get completed during the first quarter of fiscal year 2017 and is considered to be a part of the company’s earlier declared $1 billion of share repurchase program. Further, after successful execution, the ASR Qorvo would still have nearly $250 million of remaining share repurchase under the program.


Overall, the investors are advised to “Hold” their position in Qorvo, Inc. considering the company’s significant long-term growth prospects but currently weaker financial position with notable total debt of $988.13 million and smaller total cash position of $612.69 million, restricting the company to make future growth investments. The profit margin of -1.11% indicate no profit but loss. The PEG ratio of 0.85 signifies satisfactory company growth and comparable to the industry’s growth average of 0.86.
Published on May 31, 2016
By Subhen Mittra

Copyrighted 2016. Content published with author's permission.

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