No Surprises In Qorvo's (NASDAQ:QRVO) Q2 Sales Numbers But Stock Drops

Jabin Bastian /
2021/11/03 4:16 pm EDT
Add to Watchlist

Communications chips maker Qorvo (NASDAQ: QRVO) reported results in line with analyst expectations in Q2 FY2022 quarter, with revenue up 18.3% year on year to $1.25 billion. On the other hand, guidance for the next quarter missed analyst expectations with revenues guided to $1.1 billion, or 11.7% below analyst estimates. Qorvo made a GAAP profit of $319.1 million, improving on its profit of $136.9 million, in the same quarter last year.

Is now the time to buy Qorvo? Access our full analysis of the earnings results here, it's free.

Qorvo (QRVO) Q2 FY2022 Highlights:

  • Revenue: $1.25 billion vs analyst estimates of $1.25 billion (small beat)
  • EPS (non-GAAP): $3.42 vs analyst estimates of $3.25 (5.3% beat)
  • Revenue guidance for Q3 2022 is $1.1 billion at the midpoint, below analyst estimates of $1.25 billion
  • Free cash flow of $197.5 million, down 28.5% from previous quarter
  • Inventory Days Outstanding: 86, down from 92 previous quarter
  • Gross Margin (GAAP): 49.5%, up from 46.3% same quarter last year

Bob Bruggeworth, president and chief executive officer of Qorvo, said, “Qorvo delivered a strong September quarter and is executing well. We are sustaining investments in highly differentiated technologies and best-in-class products to extend our leadership and drive growth. After the quarter closed, Qorvo acquired United Silicon Carbide, an innovator in silicon carbide power devices and a pioneer in silicon carbide JFETs. The addition of United Silicon Carbide leverages Qorvo’s wide bandgap competencies and expands our power franchise.”

Formed by the merger of TriQuint and RF Micro Devices, Qorvo (NASDAQ: QRVO) is a designer and manufacturer of RF chips used in almost all smartphones globally, along with a variety of chips used in networking equipment and infrastructure.

Sales Growth

Qorvo's revenue growth over the last three years has been solid, averaging 14.8% annually. But as you can see below, last year has been stronger for the company, growing from quarterly revenue of $1.06 billion to $1.25 billion. Semiconductors are a cyclical industry and long-term investors should be prepared for periods of high growth, followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

Qorvo Total Revenue

This was an OK quarter for Qorvo with revenues growing 18.3%, ahead of analyst estimates by 0.34%. This marks 8 straight quarters of revenue growth, which means the current upcycle has had a good run, as a typical upcycle tends to be 8-10 quarters.

However, Qorvo believes the growth is set to continue, and is guiding for revenue to grow 14.3% next quarter, and Wall St analysts are estimating growth 7.57% over the next twelve months.

There are others doing even better than Qorvo. Founded by ex-Google engineers, a small company making software for banks has been growing revenue 90% year on year and is already up more than 400% since the IPO in December. You can find it on our platform for free.

Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) are an important metric for chipmakers, as it reflects the capital intensity of the business and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise the company may have to downsize production.

Qorvo Inventory Days Outstanding

This quarter, Qorvo’s inventory days came in at 86, 6 days below the five year average, showing no indication of an excessive inventory buildup at the moment.

Key Takeaways from Qorvo's Q2 Results

With a market capitalization of $19.1 billion, more than $1.15 billion in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.

A strong point from the quarter was Qorvo’s material improvement of its inventory levels. And we were also excited to see that earnings outperformed Wall St’s expectations. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations. Overall, the weak guidance for 4Q21 overshadowed reasonably solid 3Q21 results. The market was equally disappointed, with the company down 6.73% on the results and currently trading at $166.05 per share.

Should you invest in Qorvo right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

The author has no position in any of the stocks mentioned.