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Morningstar | Qorvo Promotes 6th Generation WiFi at CES; Maintain $86 FVE as Shares Still Undervalued

At CES 2019, we met with Cees Links, Qorvo's general manager of its Wireless Connectivity Business unit and the founder of Green Peak Technology, which was acquired by Qorvo in April 2016. We think Qorvo's purchase of Green Peak was a good one as it positions Qorvo well to service customers across a wider variety of wireless signals, whether they be based on Bluetooth, WiFi, or cellular. Our conversation centered around the emerging 6th generation of WiFi, 802.11ax. In our view, the good news for Qorvo is that WiFi 6 will likely enable more and more wireless devices in the home, not only the network pods themselves, but the host of Internet of Things devices (smart speakers, smart appliances, etc.) that can connect to the network. All these products require increasingly complex connectivity solutions and, in our view, Qorvo is one of the few firms with the product breadth and expertise to support such a wide variety of customers.

We maintain our $86 fair value estimate for no-moat Qorvo and continue to view shares as materially undervalued. We like the firm's long-term prospects in 5G cellular in smartphones, wireless equipment, and in other opportunities as part of the company's infrastructure and defense products business that includes the Wireless Connectivity business unit. Near-term radio frequency chip demand should be weak in the next few months for Qorvo, due to relatively disappointing Apple iPhone unit sell through that will likely lead to an inventory correction for iPhone component suppliers in early 2019. Nonetheless, we believe the market is pricing Qorvo as if it will lose the majority of its revenue from Apple over time. We don't foresee this scenario playing out--we don't expect the demise of the iPhone any time soon (even with weakness in China) and think the company's design wins into the iPhone are secure over the next couple of years, if not longer. We don't foresee Qorvo having to take a massive price cut on future chip sales into Apple.

Green Peak's focus was on low-power wireless protocols, such as Zigbee (which is essentially low power WiFi), Bluetooth Low Energy (or Bluetooth Smart), and Narrow-Band Internet of Things wireless networks (a component of low-power, low-frequency 5G aimed at Internet of Things). We again think Qorvo's acquisition of Green Peak has allowed the firm to broaden its reach across a wider variety of wireless signals, whether they be based on Bluetooth, WiFi, or cellular.

Looking at WiFi 802.11ax, Qorvo believes the standard may reach penetration within 50% of WiFi devices in 2-3 years (which is a similar diffusion rate from 4th generation 802.11n to 5th generation 802.11ac). Links still foresees a place for WiFi as the primary wireless network domain in the home, as he noted that 70% of data in the world is handled via WiFi today, compared with 30% handled over cellular networks. WiFi 6 will likely be handled with a distributed network, where network pods are in every room in order to create both broader coverage within more corners of the home, as well as a fatter data pipe within each room as the pods can speak directly with connected devices, rather than penetrate through several walls in the home. The technology appears viable to us, not only as consumers demand fatter data pipes and as all technological signals continue to improve and expand, but also because of the rise of Internet of Things and the addition of more and more connected devices in the home.

Links also touted that WiFi 6 may ultimately create a path for WiGig technologies, aimed at multi-gigabit per second speeds over an unlicensed 60 GHz frequency band. Although more data can be carried over higher frequency bands such as 60 GHz, the primary challenge for these bands is their inability to penetrate through walls and other objects. A pod-based network may enable WiGig in the future as it may create extremely strong signals within a single room of the home.

For further insight into the 5G RF landscape, please refer to our October 2018 special report, "Filtering the 5G Radio Frequency Landscape."