Qorvo (NASDAQ:QRVO) Reports Q1 In Line With Expectations, Stock Soars

Radek Strnad /
2022/08/03 4:06 pm EDT
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Communications chips maker Qorvo (NASDAQ: QRVO) reported results in line with analyst expectations in Q1 FY2023 quarter, with revenue down 6.75% year on year to $1.03 billion. The company expects that next quarter's revenue would be around $1.13 billion, which is the midpoint of the guidance range. That was in roughly line with analyst expectations. Qorvo made a GAAP profit of $68.8 million, down on its profit of $285.6 million, in the same quarter last year.

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Qorvo (QRVO) Q1 FY2023 Highlights:

  • Revenue: $1.03 billion vs analyst estimates of $1.02 billion (small beat)
  • EPS (non-GAAP): $2.25 vs analyst estimates of $2.12 (6.33% beat)
  • Revenue guidance for Q2 2023 is $1.13 billion at the midpoint, roughly in line with what analysts were expecting
  • Free cash flow of $229.5 million, down 22.3% from previous quarter
  • Inventory Days Outstanding: 117, up from 115 previous quarter
  • Gross Margin (GAAP): 36.2%, down from 49.1% same quarter last year

Bob Bruggeworth, president and chief executive officer of Qorvo, said, “Qorvo is executing well and delivering solid results despite macroeconomic headwinds. We are investing in product and technology leadership across our businesses and expanding our reach in higher growth end markets, such as IoT connectivity, power management, power conversion and defense. The global macrotrends supporting our markets, including connectivity, digitization and electrification, increasingly rely on Qorvo’s technologies to address critical efficiency, throughput and form factor requirements.”

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 14.1% annually. Last year the quarterly revenue declined from $1.11 billion to $1.03 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 6.76% revenue decline year on year.

Revenue growth went from positive to negative this quarter, and Qorvo expects it to stay negative next quarter with an estimated decline of 9.58% YoY.

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 117, 22 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 Q1 Results

With a market capitalization of $10.6 billion, more than $858.7 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 expectations this quarter. That feature of these results really stood out as a positive. On the other hand, it was less good to see that the revenue growth was quite weak and gross margin deteriorated. Overall, it seems to us that this was a complicated quarter for Qorvo. The company is up 5.78% on the results and currently trades at $113.02 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.