It has been about a month since the last earnings report for Qorvo (QRVO - Free Report) . Shares have added about 3.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Qorvo due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Qorvo Surpasses Q3 Earnings & Revenues, View Weak
Qorvo delivered third-quarter fiscal 2019 non-GAAP earnings of $1.85 per share, surpassing the Zacks Consensus Estimate of $1.70 per share. The figure also jumped 9.5% from the year-ago quarter.
Revenues on a non-GAAP basis increased 1.5% year over year to $832.3 million. However, the figure was below management’s guidance of $880 million and $900 million. The Zacks Consensus Estimate is pegged at $821 million.
The results can be attributed to improved progress in IDP and stringent cost control measures. The company benefited from increased demand in the performance-tier for RF Fusion based solutions, antenna tuning, discrete components and BAW-based multiplexers.
Segment-wise, Mobile Products (“MP”) revenues were $602 million, down 6% year over year primarily owing to weakness in flagship smartphone product volumes and softness in China domestic market.
Infrastructure and Defense (“IDP”) revenues grew double digit year over year to $230 million, marking 11th consecutive quarter of growth. The year-over-year increase was primarily due to robust growth in company’s wireless connectivity, improvement in base station solutions and robust 5G infrastructure market demand.
Further, growth reflects strong demand for the company’s solutions in defense (advanced radars and other electronic warfare products) and connectivity (Wi-Fi and emerging IoT applications). Rapid adoption of GaN for high-power applications also drove defense top-line growth.
The company recently enhanced 5G infrastructure solutions portfolio with industry’s first 28 GHz Gallium Nitride (GaN) integrated front end modules (FEMs) — QPF4001.
The small-sized, highly integrated and efficient new FEMs support frequency bands ranging from 26GHz (gigahertz) to 30GHz. The FEMs can function on both pre-5G and 5G based base station architecture. Qorvo’s GaN technology has enabled it to support speed, latency, reliability and the emerging 5G infrastructure.
Further, Qorvo augmented shipments of 5G massive MIMO infrastructure solutions to various OEMs. The company’s expanding RF product portfolio pertaining to 5G and massive MIMO base stations bodes well in the long haul.
Notably, Qorvo was selected by MediaTek to support 5G reference design with UHB 3.5GHz FEMs, to offer early 5G device displays.
Qorvo’s latest innovative RF products supports Bluetooth and BLE, Wi-Fi, Zigbee, LTE and Cellular/NB-IoT which are not only compact in size but will also aid in extending the battery life of portable products.
The company’s cellular RF and WiFi solutions find significant adoption in a variety of mobile devices, including smartphones, notebook computers, wearables, tablets, and cellular-based applications.
Accelerating timeline for 5G deployment bodes well for Qorvo. The company has participated in dozens of 5G field trials and demonstrations. We believe an expanding portfolio enabling 5G deployment augurs well for the company.
Non-GAAP gross margin expanded 150 basis points (bps) from the year-ago quarter to 49.5%. This was primarily due to favorable product mix, increase in factory utilization and productivity.
Non-GAAP operating expenses as percentage of revenues expanded 30 bps on a year-over-year basis to 18.1%.
Non-GAAP operating margin expanded 130 bps from the year-ago quarter to 31.4%.
Balance Sheet & Cash Flow
As of Dec 29, 2018, cash and cash equivalents were $649.7 million compared with $557.9 million reported in the previous quarter. Long-term debt was $714.4 million as compared with $735.1 million at the end of the previous quarter.
Net cash provided by operating activities was $333 million up from $214.5 million in the previous quarter. Free cash flow during the reported quarter came in at $261 million.
During the quarter under review, the company repurchased shares worth $152 million under the share repurchase program.
For the fourth quarter of fiscal 2019, Qorvo expects revenues between $660 million and $680 million. Earnings are projected to be $1.05 per share at mid-point.
Further, Mobile Products revenues in the fourth quarter are expected to be down roughly 25% sequentially, primarily due seasonal declines.
Non-GAAP gross margin is anticipated to be roughly 47% due to favorable product mix.
Operating expenses are expected to increase in the fourth quarter to approximately $160 million.
How Have Estimates Been Moving Since Then?
Fresh estimates followed a downward path over the past two months.