EUR 850.00 For Business Accounts Only

Morningstar | Little Surprise to Qorvo's Guidance Cut in Light of the Huawei Ban; Maintaining $86 FVE

We will maintain our $86 fair value estimate for no-moat Qorvo after the company cut its outlook for the June quarter and hinted at only flattish sequential sales in the seasonally strong September quarter. The cut comes on the heels of the U.S. effectively banning suppliers from selling to Huawei without a special license and a late May 20 report that the U.S. is granting a handful of temporary exemptions to suppliers. Qorvo has ceased shipments to Huawei, and its new guidance implies no sales to Huawei for the remainder of the June quarter or the September quarter, although such guidance could change rapidly given the fluidity of the situation.

We maintain our views, as published on May 20, that the U.S. is using the ban as short-term leverage in negotiations with China involving tariffs and other trade issues. For Qorvo specifically, we are not modeling any sort of doomsday scenario where the technology supply chains in the U.S. or China are crippled forever. We continue to model a scenario where U.S.-China trade tensions are resolved without a structural destruction in demand, so that Qorvo's sales into Huawei will bounce back at some point. In turn, Qorvo's shares appear undervalued, albeit with heightened risk and perhaps volatility due to the China negotiations.

Qorvo cut its revenue forecast by $50 million, to $730 million-$750 million from $780 million-$800 million. Huawei accounted for $469 million, or 15%, of Qorvo's revenue in fiscal 2019, so the cut appears reasonable in light of a month to a month and a half of lost sales to Huawei. Qorvo forecast September revenue to be flat sequentially, excluding all sales to Huawei. This forecast implies that revenue at all other customers will be largely flat year over year, a relatively encouraging sign in light of uncertain sales in the rest of China and elsewhere.