Qorvo Earnings: Dismal Showing but the Bottom Appears To Be In; Retain $128 Fair Value Estimate

Qorvo QRVO reported fiscal fourth-quarter results and provided investors with a forecast for the June quarter that remained dismal in absolute terms because of well-known weakness among Android-based smartphone customers, but was modestly ahead of our prior expectations. We maintain our $128 fair value estimate for no-moat Qorvo but continue to view shares as undervalued.

Revenue in the March quarter was $632 million, down 15% sequentially and down 46% year over year, but above the midpoint of guidance of $600 million-$640 million. We’re encouraged by management’s commentary that the March quarter was the trough for Qorvo’s radio frequency, or RF, chip sales into Chinese-based Android smartphone makers, which we view as the biggest drag on Qorvo’s top line. GAAP gross margin was an abysmal 18%, versus 49% in the same quarter a year ago, due in part to a $71-million loss associated with prepaid chip wafers that Qorvo chose not to receive because its inventory levels are highly elevated. Adjusting for this and other items, adjusted gross margin came in at 41%, flattish sequentially but still down significantly versus 52% earned in the year-ago quarter, again highlighting the severity of the downturn in Android-based RF demand.

For the June quarter, Qorvo expects revenue of $620 million-$660 million, which, at the midpoint, would represent growth of 1% sequentially but still a 38% year-over-year decline. Yet Qorvo provided bullish hints for revenue growth for the rest of the year, anticipating 50% sequential growth in the September quarter (which would still represent a 17% year-over-year decline) and annual growth for all of fiscal 2024, which would be quite amazing given the slow start we expect to see in the first half of the year. We’re not surprised that Qorvo expects to see a cyclical recovery in RF demand, but we still view these comments with some skepticism, as macroeconomic conditions remain uncertain.