Qorvo (NASDAQ:QRVO) Exceeds Q2 Expectations But Quarterly Guidance Underwhelms

Petr Huřťák /
2022/11/02 4:06 pm EDT

Communications chips maker Qorvo (NASDAQ: QRVO) announced better-than-expected results in the Q2 FY2023 quarter, with revenue down 7.74% year on year to $1.15 billion. However, guidance for the next quarter was less impressive, coming in at $725 million at the midpoint, being 25.5% below analyst estimates. Qorvo made a GAAP profit of $188.6 million, down on its profit of $319.1 million, in the same quarter last year.

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Qorvo (QRVO) Q2 FY2023 Highlights:

  • Revenue: $1.15 billion vs analyst estimates of $1.13 billion (2.45% beat)
  • EPS (non-GAAP): $2.66 vs analyst estimates of $2.54 (4.84% beat)
  • Revenue guidance for Q3 2023 is $725 million at the midpoint, below analyst estimates of $974.2 million
  • Free cash flow of $220.4 million, roughly flat from previous quarter
  • Inventory Days Outstanding: 124, up from 117 previous quarter
  • Gross Margin (GAAP): 46.5%, down from 49.5% same quarter last year

Bob Bruggeworth, president and chief executive officer of Qorvo, said, “Qorvo delivered a solid September quarter, supported by a large customer launch and strength in defense and power. In the December quarter, Qorvo is continuing to adjust to weakening end-market demand while taking steps to significantly reduce inventory in the channel. Across our businesses, we remain encouraged by customer design win activity and content and integration trends. We are introducing new technologies and new products to drive growth and expand content in diverse markets, including defense, power, infrastructure, automotive, IoT connectivity and smartphones.”

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 mediocre, averaging 14.2% annually. Last year the quarterly revenue declined from $1.25 billion to $1.15 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

Despite Qorvo revenues beating analyst estimates, this was still a slow quarter with a 7.74% revenue decline.

Qorvo's looks headed into the trough of the semi cycle, as it is guiding to revenue declines of 34.9% YoY next quarter, and analysts are estimating 8.59% declines over the next twelve months.

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 124, 26 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 Q2 Results

With a market capitalization of $8.92 billion Qorvo is among smaller companies, but its more than $911.5 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

We liked to see that Qorvo beat analysts’ earnings expectations pretty strongly this quarter. And we were also excited to see that it outperformed analysts' revenue expectations. On the other hand, it was less good to see that the revenue guidance for the next quarter missed analysts' expectations. Overall, it seems to us that this was a complicated quarter for Qorvo. The company is up 1.01% on the results and currently trades at $85.7 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.