Q3 2024 Earnings Summary
- Qorvo is the preferred strategic supplier for all Android customers, receiving top supplier awards from Honor, OPPO, Xiaomi, and Vivo. They secured significant content in the Samsung Galaxy S24, including ultra-wideband, and received initial purchase orders for their next-generation mid/high band products, positioning them well for growth as Android devices transition to 5G.
- Qorvo expects to grow with its largest customer in FY '25 and even more in FY '26, driven by multiyear engagements, technology investments, and product performance, without significant competitive threats in their sockets.
- Qorvo anticipates substantial year-over-year growth in its ACG segment, supported by improving smartphone demand in China, the flagship launch by its largest Android customer, and healthier channel inventories. Additionally, the HPA segment is expected to grow, with defense and aerospace now representing over half of the HPA top line, providing diversification and financial resiliency.
- Qorvo is experiencing challenges improving gross margins due to utilization issues, with underutilization and higher-cost inventories expected to persist until the second half of the calendar year 2024.
- Competitive pressures in the Android market are increasing, with competitors expanding capacity and targeting key markets, which may threaten Qorvo's market share and pricing power.
- Huawei's re-entry into the China smartphone market could reduce market share for Qorvo's existing Chinese customers, potentially impacting Qorvo's sales in the region since they have minimal revenue from Huawei.
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Content Growth & Competitor Impact
Q: How will you grow content with your largest customer amid competition?
A: Bob clarified that despite reports suggesting otherwise, Qualcomm did not win any sockets that Qorvo was engaged in at their largest customer. Qorvo expects to grow with this customer in FY '25 and even more in FY '26, based on multi-year engagements, technology investments, and product performance. -
Gross Margin Trajectory & Luxshare Impact
Q: What is the outlook for gross margins and the impact of the Luxshare deal?
A: Grant explained that underutilization charges were about half of what was previously reported, and they expect to work through higher-cost inventories over the balance of the year, clearing them in the second half. Beyond March, they maintain guidance of returning to 50%+ gross margin over time. The Luxshare deal will help reduce capital intensity and contribute to gross margin improvements in the medium to long term. -
CapEx and Cash Flow Outlook
Q: How are you thinking about CapEx and cash flow over the next 12–18 months?
A: Grant stated that CapEx as a percentage of the top line is expected to continue at 5% or less. The Luxshare partnership reduces capital intensity and helps with cost improvements. Cash flow is expected to improve as they monetize receivables and reduce inventory balances, with CapEx supporting top-line growth and capacity additions. -
Huawei's Impact on Android Market
Q: How does Huawei's re-entry affect your Android outlook?
A: Dave noted that Huawei's projected unit increase in CY '24 is 10–20 million units, which is not significant in a 1.2 billion unit smartphone market. Huawei's phones face performance challenges and are likely limited to China due to difficulties in getting carrier approval elsewhere. Qorvo sees growth opportunities with other China customers as the market converts to 5G. -
Competitive Position in Android Market
Q: How will you maintain leadership amid competition in Android?
A: Dave emphasized their strong, long-term relationships with Android customers, being the preferred strategic supplier, and receiving top supplier awards from Honor, OPPO, Xiaomi, and Vivo. Their leadership is based on technology, quality, and supply assurance, and they are confident in maintaining their share despite competitors. -
5G Unit Growth
Q: Where is 5G unit growth coming from this year?
A: Bob stated that 5G unit growth of over 10% this calendar year is primarily driven by the Android ecosystem, including all Android manufacturers, especially as non-Huawei Chinese OEMs are moving into 5G. -
Seasonality and Revenue Outlook
Q: What is the expected seasonality for the rest of the year?
A: Grant mentioned that while it's early to comment specifically, they expect to grow and improve gross margins year-on-year, with revenue seasonality more closely aligned to customer programs and ramp profiles, anticipating a similar quarterly profile in FY '25 as in '24. -
AI Adoption and RF Content
Q: How will AI in handsets impact your RF content?
A: Dave explained that AI could drive higher replacement rates as users seek new capabilities, leading to more data over networks, which requires better RF performance. Increased processing power in devices puts pressure on RF, and Qorvo can deliver improved RF solutions and power management to reduce current consumption and improve battery life. It's early, but they are optimistic about AI driving smartphone market growth. -
Anokiwave Acquisition
Q: Can you provide details on the Anokiwave acquisition?
A: Grant expressed excitement about acquiring Anokiwave, bringing experienced talent in RF silicon antenna and phased array systems to their defense and aerospace group. The technology complements Qorvo's existing beamforming capabilities. The deal is expected to close this quarter, adding revenue in the low single digits per quarter, slightly dilutive to EPS but accretive to gross margin, all factored into guidance. -
Outlook for CSG and HPA Businesses
Q: What is the long-term outlook for your CSG and HPA segments?
A: Grant stated there's no change to long-term growth metrics. About 2∕3 of revenue comes from ACG (smartphones), while HPA and CSG make up the other 1∕3. Over half of HPA is now defense and aerospace, with CSG over half in WiFi. They see room to grow in markets addressing opportunities of around $1 billion, supporting strong double-digit growth rates.