Morningstar | Qorvo Slashes Near-Term Guidance Due to Apple Order Cuts; Maintain $90 FVE, Shares Undervalued
We will maintain our $90 fair value estimate for no-moat Qorvo as the company cut its fiscal third-quarter revenue forecast due to a decline in demand for the firm's radio frequency chips used in Apple's iPhones. The announcement comes just 13 days after the firm provided its initial guidance after its fiscal second-quarter report on Oct. 31, but it appears that Apple's order pipeline with Qorvo for iPhone-related components was cut both swiftly and rather deeply. The guidance cut is not particularly surprising (we note that Qorvo's stock was down only about 1% on the news), as another iPhone component supplier, Lumentum, drastically cut its revenue forecast on Nov. 12, only 10 days after providing its initial forecast, again citing a previously unexpected sharp drop in iPhone demand. In contrast, we believe that Qorvo's rival, Skyworks Solutions, already incorporated such iPhone guidance cuts into its December quarterly forecast provided on Nov. 8. Nonetheless, we believe the near-term guidance cut is a short-term issue that is providing long-term investors with an opportunity to own an RF leader that is well positioned to profit from rising 4G and 5G content per device. We view shares of Qorvo and Skyworks (which shares a similar story) as meaningfully undervalued.Qorvo slashed its revenue forecast for the December quarter from a range of $880 million-$900 million to a range of $800 million-$840 million. Adjusted gross margin is now expected to come in at 49.5% versus the firm's prior forecast of 50%. While near-term iPhone-related orders will be lower than previously expected, we don't believe there is a structural destruction in long-term iPhone demand that will make Qorvo's relationship with Apple less lucrative over time. Finally, we note that Qorvo reiterated its prior forecast for revenue coming from Chinese smartphones as well as sales within its Infrastructure and Defense chip business.
For further insight into the 5G RF landscape, please refer to our October 2018 special report, "Filtering the 5G Radio Frequency Landscape."
Qorvo is a holding company. Through its subsidiaries, the company designs, develops, manufactures and markets its products to U.S. and international original equipment manufacturers and original design manufacturers in two operating segments: Mobile Products, which is a supplier of cellular radio frequency (RF) and Wi-Fi solutions for mobile devices, including smartphones, wearables, laptops, tablets and cellular-based applications for the Internet of Things (IoT); and Infrastructure and Defense Products, which is a supplier of RF and system-on-a-chip solutions for cellular base stations and other wireless communications infrastructure, defense, smart home, automotive and other IoT applications.
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