Surfing the wave of the iPhone 7 ramp, Qorvo’s Q2 fiscal 2017 revenue jumped 24 percent sequentially and 22 percent above Q2 of fiscal 2016 to $865 million. Revenue was above the company’s guidance range of $820 million to $850 million. However, poor yields on a low band power amplifier duplexer (PAD) for the iPhone 7 hurt margins: GAAP gross margin was 36.6 percent, down from 39.6 percent in Q1 and 40.2 percent in Q2 of fiscal 2016. A wafer-level packaging issue with a temperature compensated SAW filter was not identified until after module assembly, which required modules to be scrapped.
The mobile products segment contributed 82 percent of Qorvo’s quarterly revenue: $706 million, which was up 29 percent sequentially and 22 percent above the year-ago period. In addition to the iPhone 7, revenue from Huawei and other Chinese phone manufacturers aided segment growth. Huawei was the second of Qorvo’s 10 percent customers, i.e., customers contributing at least 10 percent of the quarter’s revenue.
The infrastructure and defense products (IDP) segment grew 4.4 percent sequentially and 18 percent year-over-year to $158 million. The unit introduced 49 new products during the quarter and saw growth in all major markets: wireless infrastructure, Wi-Fi, defense and IoT. During the quarter, the company saw a continued recovery in the base station market and characterized their outlook as “cautiously optimistic.” James Klein, president of the IDP business, said the unit is winning designs for GaN on SiC products in defense, wireless infrastructure and CATV.
Qorvo’s top customer generated 35 percent of the quarter’s revenue. Adding Huawei, the second 10 percent customer, the top two customers accounted for 46 percent of Q2 revenue.
For the current quarter (ending in December), Qorvo management expects revenue to be between $800 million and $840 million, down from Q2. CEO Bob Bruggeworth characterized the guidance as “conservative.” While Apple demand is expected to grow sequentially, the guidance assumes demand from Asian customers will be down — possibly as high inventory is reduced. IDP’s revenue will be flat to up slightly.
Earnings Call Highlights
During the earnings call, James Klein was asked the size of Qorvo’s GaN business. Here’s his response, which didn’t really answer the question:
Toshiya Hari, an analyst with Goldman Sachs, asked about Qorvo’s M&A strategy. Bob Bruggeworth responded, saying “getting far abreast of the RF field is currently not in our interest.” It’s an interesting strategy, with Broadcom and Skyworks taking the opposite tack. Listen to Bruggeworth’s full comment:
In June, Mark Murphy joined Qorvo to replace Steve Buhaly as CFO; Buhaly retired from the role. Murphy shared his first quarter’s impressions of Qorvo:
Qorvo’s share price closed at $56.74 before yesterday’s earnings release; it opened at $48.36 this morning, down almost 15 percent.