Qorvo: a Strong Buy

Qorvo (QRVO) announced first quarter of fiscal year 2017 ended July 2, 2016 total non-GAAP revenue of $697.6 million, up 15 percent sequentially from $607.1 million in fourth quarter of fiscal year 2016 and an increase of 4 percent year-over-year from $672.7 million in first quarter of fiscal 2016. Going forward, the company estimates second quarter of fiscal 2017 total non-GAAP revenue to be in the range of $820 million to $850 million.

Qorvo declared first quarter of fiscal 2017 non-GAAP net income of $143.1 million or $1.08 per diluted share, slightly above$142.6 million or $1.04 per diluted share in fourth quarter of fiscal 2016 but, year-over-year decline of 15 percent compared to the net income of $168.5 million or $1.09 per diluted share in first quarter of fiscal 2016.
Moving ahead, the company forecasts second quarter of fiscal 2017 diluted earnings per share to be in the range of about $1.35 to $1.45.

The global radio frequency solutions provider reported continued sequential and year-over-year expansion in both its top and bottom lines primarily driven by significant customer traction for its advanced set of RF solutions for increasingly supporting the expanding use of mobile and handheld devices.

Focusing in the right areas  

The fiscal year 2016 operating model of Qorvo highlights industry-leading top line growth of the company with gross margin, operational expenditures and operating margin of 50%, 20% and 30% respectively that signifies Qorvo’s continued commitment to minimize both core and non-core expenditures while maximizing the margins. In addition, Qorvo has also defined its long-term operating structure with a targeted top line growth while exceeding the industry’s average.

Further, Qorvo’s key saving prospects extend much beyond synergies and the company targets on expanding its gross margin growth prospects by strategically investing in packaging and die shrink technologies, uniquely filling the fabs, optimizing the supply chain, improving the BAW filter size from 6” to 8”, expanding the SAW and TC-SAW filters size from 4” to 6” while increasing the GaN wafers size from 4” to 6”.

At present, RF is believed to be at the core of connectivity for all the devices and the human tendency for producing and consuming mobile data is infinite. On the contrary, the total available frequency spectrum for supporting this expanding demand is only finite and thus, requiring continued technological innovation in the sector to accommodate all the data requirements in the available limited frequency spectrum.

Qorvo’s solid and complete front-end RF solutions with robust key architectures and industry-leading widest RF portfolio is believed to successfully cater to the ever-expanding demand for advanced RF solutions amid constrained worldwide spectrum.

Tapping the end market  

The accelerated growth in global smartphone market is increasingly driving significant content growth per phone, mixed shift towards superior-end handset SKUs. Going forward, the RF TAM is projected to grow at a CAGR of 15% from 2014 till 2018 with continued year-over-year decline in the smartphone growth but, ongoing expansion in average RF content per smartphone.

In addition, Qorvo is adopting a differentiated IDP strategy for increasingly protecting and connecting more and more people as the data demand continues to expand with connected home expected to grow at a CAGR of 65% to over 3 billion units by 2020, wireless infrastructure is estimated to have 1000 times greater capacity, connected car expected to grow at a CAGR of 45% to about 69 million shipments, the stable defense market is expected to be over 1 billion SAM, the IoT market is estimated to grow at a CAGR of 45% during the period to over 25 billion connected devices and optical transport is projected to grow at a CAGR of 75% to over 4 million 100G ports by the fiscal year 2020.

The core market trends including, significant consumer demand for lighter, thinner and metal handsets is driving higher form factor with superior requirement of antenna tuning, advanced switching and notably integrated modules. Accelerated implementation of advanced carrier-aggregation ("CA") systems coupled with carrier-specific and fragmented CA solutions require superior multiplexers, advanced switching and antenna routing. Further, Qorvo is increasingly using LowDrift and NoDrift proprietary, superior-performance filter technologies to easily solve the industry’s expanding spectrum requirements.

The notable expansion of consumer demand for greater spectrum and fast RF solutions is expected to be increasingly fulfilled by Qorvo’s advanced set of RF solutions that are steadily evolving to the globally expanding data spectrum requirements.


Overall, the investors are advised to “Hold” their position in Qorvo, Inc. considering the company’s healthy longer-term growth prospects but, currently weaker financial position with significant total debt of $988.37 million against weaker total cash position of $446.91 million only, restricting the company to continue with its daily operations profitably. However, the profit margin of -1.39% is disappointing and PEG ratio of 0.81 signifies poor near-term company growth.
Published on Sep 16, 2016
By Vinay Singh

Copyrighted 2016. Content published with author's permission.

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