No Surprises In Qorvo's (NASDAQ:QRVO) Q3 Sales Numbers But Stock Drops

Kayode Omotosho /
2022/02/02 4:13 pm EST

Communications chips maker Qorvo (NASDAQ: QRVO) reported results in line with analyst expectations in Q3 FY2022 quarter, with revenue up 1.74% year on year to $1.11 billion. The company expects that next quarter's revenue would be around $1.15 billion, which is the midpoint of the guidance range. That was in roughly line with analyst expectations. Qorvo made a GAAP profit of $216.2 million, improving on its profit of $201 million, in the same quarter last year.

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Qorvo (QRVO) Q3 FY2022 Highlights:

  • Revenue: $1.11 billion vs analyst estimates of $1.1 billion (small beat)
  • EPS (non-GAAP): $2.98 vs analyst estimates of $2.76 (8.03% beat)
  • Revenue guidance for Q4 2022 is $1.15 billion at the midpoint, roughly in line with what analysts were expecting
  • Free cash flow of $66.5 million, down 66.3% from previous quarter
  • Inventory Days Outstanding: 114, up from 86 previous quarter
  • Gross Margin (GAAP): 49.2%, in line with same quarter last year

Bob Bruggeworth, president and chief executive officer of Qorvo, said, “Qorvo outperformed the midpoint of our guidance in the December quarter on revenue, gross margin and EPS. Sustained year-over-year revenue growth was supported by multiyear secular growth drivers in 5G, IoT connectivity, defense and power. Qorvo is operating well and expanding the markets we serve while investing to extend product and technology leadership across our portfolio.”

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.

The biggest demand drivers for processors (CPUs) and graphics chips at the moment are secular trends related to 5G and Internet of Things, autonomous driving, and high performance computing in the data center space, specifically around AI and machine learning. Like all semiconductor companies, digital chip makers exhibit a degree of cyclicality, driven by supply and demand imbalances and exposure to PC and Smartphone product cycles.

Sales Growth

Qorvo's revenue growth over the last three years has been moderate, averaging 15.1% annually. But as you can see below, last year has been stronger for the company, growing from quarterly revenue of $1.09 billion to $1.11 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

While Qorvo beat analysts' revenue estimates, this was a very slow quarter with just 1.74% revenue growth. This marks 9 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 even accelerate, and is guiding for revenue to grow 7.2% YoY next quarter, and Wall St analysts are estimating growth 9.95% over the next twelve months.

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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 114, 21 days above the five year average, suggesting that that inventory has grown to higher levels than what we used to see in the past.

Key Takeaways from Qorvo's Q3 Results

We were impressed by how strongly Qorvo outperformed analysts’ earnings expectations this quarter. That feature of these results really stood out as a positive. On the other hand, it was less good to see the inventory levels increase and the revenue growth was quite weak. Overall, this quarter's results could have been better. The company is down 5.05% on the results and currently trades at $136.5 per share.

Qorvo may have had a tough quarter, but does that actually create an opportunity to invest 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.

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