Qorvo reported revenue and earnings above guidance for fiscal Q2 of 2018, reflecting volume from mobile phone ramps at Apple and Chinese manufacturers and strong demand from the defense, Wi-Fi and IoT markets.

Qorvo’s total revenue was $822 million, 28 percent growth above Q1, yet down 5 percent from the prior year’s quarter.

Qorvo revenue trend
Qorvo revenue trend

Gross margin was 47.4 percent (non-GAAP), an improvement quarter-to-quarter and year-to-year despite low fab utilization and a contamination issue in the Florida SAW fabrication facility caused by Hurricane Irma. GAAP gross margin was 39.1 percent. Qorvo’s gross margin target is 50 percent.

Non-GAAP operating income was 28.1 percent, compared to the target of 30 percent. Diluted earnings per share (EPS) was $1.52, $0.02 above the upper end of the company’s guidance.

For fiscal Q3, Qorvo expects revenue to be between $830 million and $850 million, with diluted EPS of $1.60 at the midpoint of the guidance. $840 million in revenue represents approximately 2 percent growth, both quarter-to-quarter and year-to-year.

Mobile Products

Q2 revenue from the Mobile Products (MP) business was $630 million, up 38 percent sequentially, yet down 11 percent from the prior year’s quarter.

Mobile Products revenue history.
Mobile Products revenue history.

The company attributed the year-to-year decline to reduced demand in China, despite wins in flagship phones from Huawei and Xiaomi.

According to Eric Creviston, MP president, much of the phone volume in China is “mid-tier,” where Qorvo has limited content because the phones don’t use carrier aggregation (CA). Creviston estimates only 15 percent of the phones in China have CA capability, although he projects that percentage will increase to 50 percent.

Infrastructure and Defense Products

Revenue in the Infrastructure and Defense Products (IDP) segment was a record $190 million, reflecting growth of 3.6 percent sequentially and 21 percent year-to-year.

IDP revenue history.
IDP revenue history.

IDP’s growth was driven by defense (radar and electronic warfare), Wi-Fi and IoT. Year-to-year, IoT product revenue grew 50 percent; GaN revenue doubled with the demand coming from defense, CATV and VSAT applications.

James Klein, IDP president, said he expects GaN revenue for base stations to become material “in the next year or so as our products in both macro and massive MIMO base stations, including early things for 5G, move into production ramp.”

Klein also noted strength from the NB-IoT deployment in China and small cell. “We’ve been cautious about small cell for many years. It looks like this, maybe, is the breakout year in the small cell activity.”

Staff Reductions

Mark Murphy, CFO, said the company took “targeted actions” during the quarter that reduced the number of employees by some 300 people. He said the actions “don’t interfere with our growth plans," stating, "We would view this as narrowing the focus on the most valuable opportunities we have.”