Qorvo (QRVO)

Communications chips maker Qorvo (NASDAQ: QRVO) announced better-than-expected revenue in Q1 CY2025, but sales fell by 7.6% year on year to $869.5 million. Guidance for next quarter’s revenue was optimistic at $775 million at the midpoint, 2.4% above analysts’ estimates. Its non-GAAP profit of $1.42 per share was 41.6% above analysts’ consensus estimates.

Company Overview

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.

Qorvo’s peers and competitors include Broadcom (NASDAQ:AVGO), Cirrus Logic (NASDAQ:CRUS), MACOM Technology (NASDAQ:MTSI), Qorvo (NASDAQ:QRVO), Qualcomm (NASDAQ:QCOM), Skyworks (NASDAQ:SWKS) and Texas Instruments (NASDAQ:TXN).

Chips need to keep getting smaller in order to advance on Moore’s law, and that is proving increasingly more complicated and expensive to achieve with time. That has caused most digital chip makers to become “fabless” designers, rather than manufacturers, instead relying on contracted foundries like TSMC to manufacture their designs. This has benefitted the digital chip makers’ free cash flow margins, as exiting the manufacturing business has removed large cash expenses from their business models. Read More. The semiconductor industry is broadly divided into analog and digital semiconductors. Digital chips are what most people think of as the brains of almost every electronic device. Their primary purpose is to either store (memory chips) or process (CPUs/GPUs) data. Digital chips derive their processing power from the number of transistors that can be packed on an individual chip. In chip design, nanometers or “nm” refers to the length of a transistor gate – the smaller the gate the more processing power that can be packed into a given space. In 1965, Intel’s founder Gordon Moore famously predicted a doubling of transistors on a chip every two years. The concept, known as Moore’s Law, was based on his belief that the technology used to create semiconductors would improve continuously, allowing chips to become ever smaller and ever more powerful.

Examining a company’s long-term performance can provide clues about its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Regrettably, Qorvo’s sales grew at a sluggish 2.8% compounded annual growth rate over the last five years. This was below our standards and is a rough starting point for our analysis. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.

We at StockStory place the most emphasis on long-term growth, but within semiconductors, a half-decade historical view may miss new demand cycles or industry trends like AI. Qorvo’s annualized revenue growth of 2.1% over the last two years aligns with its five-year trend, suggesting its demand was consistently weak.

This quarter, Qorvo’s revenue fell by 7.6% year on year to $869.5 million but beat Wall Street’s estimates by 2.2%. Despite the beat, the drop in sales could mean that the current downcycle is deepening. Company management is currently guiding for a 12.6% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to decline by 1.5% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and implies its products and services will see some demand headwinds.

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business’ capital intensity 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.

This quarter, Qorvo’s DIO came in at 116, which is one day above its five-year average. These numbers show that despite the recent increase, there’s no indication of an excessive inventory buildup.

Gross profit margin is a key metric to track because it shows how much money a semiconductor company gets to keep after paying for its raw materials, manufacturing, and other input costs.

Qorvo’s gross margin is well below other semiconductor companies, indicating a lack of pricing power and a competitive market. As you can see below, it averaged a 40.7% gross margin over the last two years. Said differently, Qorvo had to pay a chunky $59.28 to its suppliers for every $100 in revenue.

This quarter, Qorvo’s gross profit margin was 42.2%, up 1.3 percentage points year on year. Qorvo’s full-year margin has also been trending up over the past 12 months, increasing by 1.2 percentage points. If this move continues, it could suggest better unit economics due to some combination of stable to improving pricing power and input costs (such as raw materials).

Qorvo was profitable over the last two years but held back by its large cost base. Its average operating margin of 2.5% was among the worst in the semiconductor sector. This result isn’t too surprising given its low gross margin as a starting point.

Looking at the trend in its profitability, Qorvo’s operating margin decreased by 20 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Qorvo’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

This quarter, Qorvo generated an operating profit margin of 3.2%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sadly for Qorvo, its EPS declined by 1.8% annually over the last five years while its revenue grew by 2.8%. This tells us the company became less profitable on a per-share basis as it expanded due to non-fundamental factors such as interest expenses and taxes.

Diving into the nuances of Qorvo’s earnings can give us a better understanding of its performance. As we mentioned earlier, Qorvo’s operating margin was flat this quarter but declined by 20 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q1, Qorvo reported EPS at $1.42, up from $1.39 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Qorvo’s full-year EPS of $5.77 to shrink by 3.8%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Qorvo has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 15.9% over the last two years, slightly better than the broader semiconductor sector.

Taking a step back, we can see that Qorvo’s margin dropped by 14.7 percentage points over the last five years. Continued declines could signal it is in the middle of an investment cycle.

Qorvo’s free cash flow clocked in at $170.7 million in Q1, equivalent to a 19.6% margin. This result was good as its margin was 1.6 percentage points higher than in the same quarter last year, but we wouldn’t put too much weight on the short term because investment needs can be seasonal, causing temporary swings. Long-term trends trump fluctuations.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Qorvo historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 9.6%, somewhat low compared to the best semiconductor companies that consistently pump out 35%+.

Qorvo reported $1.02 billion of cash and $1.55 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $806.6 million of EBITDA over the last 12 months, we view Qorvo’s 0.7× net-debt-to-EBITDA ratio as safe. We also see its $40.43 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Qorvo blew past analysts’ revenue, EPS, and adjusted operating income expectations this quarter. We were also excited its full-year revenue guidance topped Wall Street’s estimates. On the other hand, its inventory levels increased. Still, we think this was a good quarter with some key areas of upside. The stock traded up 6.3% to $66.57 immediately after reporting.

Updated: July 8, 2025 at 10:21 PM EDT

Before deciding whether to buy Qorvo or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

Qorvo falls short of our quality standards. To kick things off, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. On top of that, Qorvo’s declining operating margin shows the business has become less efficient, and its cash profitability fell over the last five years.

Qorvo’s P/E ratio based on the next 12 months is 15.8x. At this valuation, there’s a lot of good news priced in - we think there are better opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $81.72 on the company (compared to the current share price of $88), implying they don’t see much short-term potential in Qorvo.