Qorvo, Inc. (QRVO, Financial), the merged entity of erstwhile RF Micro Devices and TriQuint Semiconductor, provides technologies and radio frequency solutions for mobile, infrastructure and aerospace and defense applications globally. The shares of Greensboro, NC-based radio frequency technology manufacturer have traded with marginal year-to-date gains of around 5% and underperformed peers like Skyworks Solutions (SKWS, Financial) by a huge margin as shown in the chart below:
I had covered Skyworks earlier this month and I’ll take a look at QRVO in this piece.
Looking back
All the year-ago references are with respect to combined figures of RF Micro Devices and TriQuint, so I will not be repeating the same for every reference made. The radio frequency technology manufacturer posted fourth quarter of fiscal 2015 results last week, and let’s run through the numbers.
Net revenues came in at $634 million, up 46% year over year, trumping Street’s expectation by $11.5 million. The robust top-line growth was primarily on the back of strong iPhone 6 sales leading to a robust 61% year-over-year growth in mobile products.
Gross and operating margin clocked 50.4% and 26.8%, respectively. On the back of strong top-line growth, earnings came in at $167.2 million or $1.11 per share, comfortably beating analysts’ expectations of $0.87 per share. Revenue, gross margin and EPS were all well ahead company’s guided range.
Three growth drivers
Apple’s (AAPL, Financial) iPhone6 has been a stellar success, leading to Apple posting its second-best quarter ever. The soaring success was despite the fact that there was no holiday season to drive the sales. The company sold over 61 million units, representing a 40% year-over-year growth. Moreover, only about 20% of users have upgraded to iPhone 6 or iPhone 6 plus, implying that the sales momentum isn’t going to fade out any time soon.
Qorvo has strong dollar content in Apple’s flagship devices and burgeoning sales would drive top and bottom line of the company going forward.
The demand for mobile data continues to explode globally. As of now, the majority of phones are 2G or 3G enabled. However, as the prices of 4G-enabled phones decline and the LTE deployment increases globally, there will be a massive transition from 2G and 3G phones to 4G phones, going forward. This will lead to an increase in RF content per device and drive revenue and earnings of Qorvo, going forward.
Mobile RF Total Addressable Market, or TAM, was around $7.5 billion in 2014. This is expected to grow at a CAGR of around 11% for next five years. When combined with ever-increasing band count, addressable content may increase from $10-$12 to $15-$17 in high-end smartphones. This is going to be a growth driver for Qorvo, going forward.
Qorvo launched a broad family of multimode PAs and duplexer modules covering major cellular bands for the small cell base station market and was selected as the primary supplier of 802.11ac 5 gigahertz PA for a next generation .11ac wave 2 chipset. In addition, the production of high-performance GPS LNA filter modules has started for a leading fitness wearable device manufacturer. Also, the company received production orders for its RF flex solution, supporting a next generation octa-core 4G chipset, with shipments commencing in the current quarter.
So, strong sales of iPhone 6 and iPhone 6 Plus, global expansion of LTE and pipeline of new products are three long-term growth drivers for the company, going forward.
Final words
Qorvo expects first quarter of fiscal 2016 revenues to be in the range of $660 million to $670 million and earnings in the range of $1 to $1.10 on about 154 million shares, implying 5% sequential revenue growth. These numbers are well above consensus estimates of $651.2M and $0.98, respectively.
The company has zero debt and a solid cash position. The stock is currently trading at a forward P/E of 12.14 and analysts expect growth at a CAGR of 17.35% for the next five years.
Hence, I would recommend this stock for long-term gains.
