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Qorvo Plans Downsizing, Partners VTC to Expand in Defense

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Qorvo, Inc. (QRVO - Free Report) recently announced its intent to initiate a workforce downsizing with a view to improve its cost structure.

Triad Business Journal quoted Qorvo representative, Brent Dietz, who stated that the company’s Greensboro operations will be impacted by this decision. However, the extent of the impact has not yet been specified.

Additionally, Qorvo also mentioned that as a step toward expanding its presence in the defense market, the company has partnered with Veterans Trading Company (VTC), an end-to-end supply chain service provider that serves the government contract community.

Management expects this channel partnership to optimize efficiency of operations related to Qorvo’s government customers.

Notably, the almost concurrent announcements of downsizing and expanding via partnership reflect the company’s strategic initiatives toward improving overall growth. We believe these steps will definitely provide the company’s shares a considerable momentum in the near term.

Shares of Qorvo have gained 41% on a year-to-date basis, outperforming the industry’s rally of 38.3%.

Infrastructure and Defense - A Key Catalyst

Infrastructure and Defense (IDP) is a key catalyst for Qorvo. Segment revenues grew 22% year over year to $184 million in the last quarter, driven by improving demand from high-growth markets.

The company noted that customer demand for high-powered Bulk Acoustic Wave (BAW) for the 3.5 gigahertz band for 5G massive Multiple Input Multiple Output (MIMO) antennas remained strong in the reported quarter.

The defense business was strong in the quarter as reflected in the 25% surge in GaN and BAW revenues. Multiyear defense contracts supporting programs like F-15, 16 and F-35 also aided growth. Revenues from the largest defense customer more than doubled on a year-over-year basis.

In such a scenario, the partnership with VTC seems to be perfectly timed and is anticipated to boost revenue generation from the defense segment going ahead.

To Conclude

We believe that, Qorvo’s downsizing strategy after two years of declaring that its hiring expectations as part of a $25 million expansion in Greensboro were exceeded, is a prudent initiative that will boost shareholder value.

Moreover, the company is expected to benefit from modest improvements in China, with continued strength in IDP.

Zacks Rank and Stocks to Consider

Qorvo has a Zacks Rank #4 (Sell).

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

Stocks that can be considered in the broader technology space are Applied Materials, Inc. (AMAT - Free Report) , Micron Technology, Inc. (MU - Free Report) and Lam Research Corporation (LRCX - Free Report) , all sporting a Zacks Rank #1.

The long-term earnings growth rate for Applied Materials, Micron Technology and Lam Research is projected to be 17.1%, 10% and 17.2%, respectively.

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