Qorvo (NASDAQ:QRVO) Beats Q3 Sales Targets But Quarterly Guidance Underwhelms

Radek Strnad /
2023/02/01 4:05 pm EST
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Communications chips maker Qorvo (NASDAQ: QRVO) reported Q3 FY2023 results topping analyst expectations, with revenue down 33.2% year on year to $743.2 million. However, guidance for the next quarter was less impressive, coming in at $620 million at the midpoint, being 14.5% below analyst estimates. Qorvo made a GAAP loss of $15.9 million, down on its profit of $216.2 million, in the same quarter last year.

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Qorvo (QRVO) Q3 FY2023 Highlights:

  • Revenue: $743.2 million vs analyst estimates of $726.3 million (2.33% beat)
  • EPS (non-GAAP): $0.75 vs analyst estimates of $0.63 (18.8% beat)
  • Revenue guidance for Q4 2023 is $620 million at the midpoint, below analyst estimates of $725.8 million
  • Free cash flow of $203 million, roughly flat from previous quarter
  • Inventory Days Outstanding: 164, up from 124 previous quarter
  • Gross Margin (GAAP): 36%, down from 49.2% same quarter last year

Bob Bruggeworth, president and chief executive officer of Qorvo, said, “The Qorvo team is operating well in navigating a challenging environment and taking actions to position the Company for growth and improved performance. We are introducing best-in-class products and technologies, and our customers are recognizing us with design wins, quality awards, and new and expanded programs. In the December quarter, channel inventories declined, and we expect them to continue to decline this quarter. In 2023 and beyond, the secular trends in our businesses remain strong.”

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 unremarkable, averaging 11% annually. Last year the quarterly revenue declined from $1.11 billion to $743.2 million. 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

Despite Qorvo revenues beating analyst estimates, this was still a slow quarter with a 33.2% revenue decline.

Qorvo's revenue growth has decelerated for the last three quarters and the company expects growth to turn negative next quarter guiding to a 46.8% year on year decline, while analysts are estimating a NTM revenue decline of 13.6%.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. 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 164, 62 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

With a market capitalization of $11 billion, more than $918.7 million 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.

We were impressed by how strongly Qorvo outperformed analysts’ earnings and revenue expectations this quarter. On the other hand, it was less good to see that in absolute numbers revenue declined and the guidance for the next quarter missed analysts' expectations. Overall, it seems to us that this was a complicated quarter for Qorvo. The company is down 3.27% on the results and currently trades at $109.87 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.