Qorvo (QRVO) Lowers Q3 Outlook, Mirrors Lumentum's Move

Qorvo, Inc. (NASDAQ:QRVO) recently provided an update on third-quarter fiscal 2019 outlook.

The company now anticipates third-quarter revenues for 2018 to be in the band of $800 million to $840 million (midpoint of $820 million), down from its prior range of $880-$900 million (mid-point of $890 million) citing reduced demand for flagship smartphones. It reflects a decline of 7.9% considering mid-point level.

The Zacks Consensus Estimate is pegged at $891.6 million.

Non-GAAP earnings per share have been forecast to be $1.70 per share, down from the previous guidance of $1.95 per share. The Zacks Consensus Estimate is pegged at $1.95 per share.

Non-GAAP gross margin is now anticipated be 49.5%, down from the previous prediction of 50% citing concerns pertaining to lower factory utilization.

Moreover, Qorvo anticipates revenues to be down by roughly 10% for the fourth-quarter of fiscal 2019, on a sequential basis. The corresponding Zacks Consensus Estimate is pegged at $790.8 million.

However, on a positive note, Qorvo lowered third-quarter fiscal 2019 non-GAAP operating expenses expectations by $4 million to $161 million, primarily backed by reduced incentive compensation and stringent cost methods.

The company also noted that it does not anticipate any major demand alterations from smartphone device makers based out of China. Further, the company continues to expect strong results from Infrastructure and Defense Products (IDP) segment in the third quarter.

Q2 at a Glance

Qorvo is benefiting from increased demand in the performance-tier for RF Fusion based solutions, antenna tuning, discrete components and BAW-based multiplexers. The company delivered stellar second-quarter results, wherein both the top and bottom lines outpaced the respective Zacks Consensus Estimate.

Qorvo delivered second-quarter fiscal 2019 non-GAAP earnings of $1.75 per share, surpassing the Zacks Consensus Estimate of $1.62 per share. The figure jumped 15.1% from the year-ago quarter.

Revenues on a non-GAAP basis increased 7.6% year over year to $884.4 million. The figure was above management’s guidance of $850-$860 million and the Zacks Consensus Estimate of $856 million. Robust mobile growth, improved progress in IDP and stringent cost control measures drove revenue growth.

Key Takeaway

Reportedly, in the recent past, Apple (NASDAQ:AAPL) selected Qorvo as the secondary supplier of low-band power amplifier/duplexer (PAD) filter for its iPhone XR over Broadcom (NASDAQ:AVGO) . However, the iPhone maker reportedly asked suppliers to ditch plans for additional production lines for the iPhone XR, citing lesser than expected demand for iPhone X handsets.

Notably, Lumentum Holdings (NASDAQ:LITE) , which supplies 3D chips used in FaceID architecture, recently lowered revenue guidance by 17.4% at mid-point levels from $405 million to $430 million to $335 million to $355 million, cautioning investors that one of its biggest clients had recently reduced the scope of its order.

In fact, IQE announced that on Nov 12, was informed by a chip making customer regarding reduced demand for 3D sensing laser diodes by “one of their largest customers.” Following this, the chip company significantly curtailed shipments for the ongoing quarter, which in turn led to revision in IQE’s outlook. Notably, IQE provides silicon-based wafers required in making 3D computing chips to Lumentum.

These trimming guidance trends hold a key in authenticating lesser-than-expected demand of latest iPhones. However, Apple is known to keep its suppliers on their toes wherein slight changes in demand of iPhone related devices create a stir among the company’s supplier base. To add on to the woes, Apple’s vertical integration policy is also a headwind to the suppliers.

Qorvo, Inc. Price and Consensus

Notably, Apple accounted for 36% of Qorvo’s total revenues in fiscal 2018.

To Conclude

Although, customer concentration due to significant exposure to Apple is a headwind, strength in Qorvo’s solutions in defense (advanced radars and other electronic warfare products) and connectivity (Wi-Fi and emerging IoT applications) bode well.

With a broad product portfolio, Qorvo is well poised to diversify end-markets beyond mobile devices to network infrastructure and aerospace/defense domains, as well.

Rapid adoption of GaN for high-power applications deserves a special mention. Further, accelerating timeline for 5G deployment bodes well for Qorvo. The company has participated in dozens of 5G field trials and demonstrations.

Qorvo carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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