Morningstar | QRVO Updated Forecasts and Estimates from 06 Aug 2018
Qorvo reported strong fiscal first-quarter earnings that exceeded our internal estimates and management's guidance, while the firm's second-quarter guidance was relatively in line with our expectations. Qorvo once again touted its expectations for rising content in Apple's next iPhone generation, while the firm appears to be in a decent early position in supporting 5G wireless infrastructure. We will raise our fair value estimate for no-moat Qorvo to $87 from $83. Shares strike us as slightly undervalued, but we would still seek a wider margin of safety before investing.Revenue in the June quarter was $693 million, up 4% sequentially, up 8% year over year and well above the firm's previous guidance of $645 million-$665 million as discussed in early May. Qorvo benefited from higher mobile chip demand in China, as well as healthy infrastructure and defense, or IDP, revenue growth. Adjusted gross margin of 44.0% was in line with management's guidance, as higher sales levels were offset by a less favorable product mix in IDP, in mobile products sold into Chinese smartphones, and factory underutilization on SAW filters.
For the September quarter, Qorvo expects revenue in the range of $850 million-$860 million which, at the midpoint, would represent 4% growth year over year and 23% sequential growth, consistent with normal seasonality, as Qorvo sells into Apple ahead of its autumn iPhone launch. Adjusted gross margins are expected to rise to 47.5%, as the headwinds from the June quarter subside. The firm also raised its capital expenditure forecast, so that fiscal 2019 free cash flow will trend toward the lower end of the firm's previously forecast range of $700 million-$800 million, but we're not concerned as the new capital expenditure will support new product ramps. Finally, we're pleased that Qorvo hinted, based on current visibility, revenue should rise sequentially in December while typical seasonal weakness in the March 2019 quarter might be muted.
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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