Qorvo (QRVO, Financial) is in for a rough ride as it navigates a shifting smartphone market, resulting in a more than 27% plunge in its stock price. The company reported fiscal 2025 second-quarter revenues of $1.047 billion, surpassing expectations, but with a gross margin of just 42.6% and a loss of $0.18 per share on a GAAP basis. On a non-GAAP basis, Qorvo's gross margin fared better at 47.0%, with operating income reaching $212.2 million and diluted earnings per share hitting $1.88. However, the company is sounding alarms about a significant trend: the move from mid-tier to entry-level Android 5G devices is forcing Qorvo to lower its revenue and earnings outlook for the second half of the fiscal year. CFO Grant Brown noted a critical reduction in exposure to the China smartphone market, where revenues have dropped over 75% from their peak.
Analysts wasted no time reacting, with major investment firms revising their price targets and ratings downward. Susquehanna has slashed its target to $90, while BofA reduced theirs to $80, both citing concerns over Qorvo's dwindling content share in key devices from its largest customers, Apple and Samsung. The shift in product mix is alarming, particularly as Apple's non-Pro models continue to outpace expectations, raising red flags for Qorvo's prospects. Firms like Benchmark and Raymond James have followed suit, downgrading their ratings and highlighting the increasing risks tied to Qorvo's heavy dependence on mobile sales in a market where sustainable growth is becoming harder to find.
Despite these headwinds in the smartphone sector, there are still glimmers of hope in Qorvo's non-smartphone business, particularly in automotive and aerospace markets. Looking ahead, Qorvo expects quarterly revenue of around $900 million for the December 2024 quarter, with a non-GAAP gross margin projected at approximately 45%. As investors process this mixed news, the focus on diversification could provide a crucial lifeline amid the turbulence. However, the heavy reliance on smartphone sales raises serious questions about Qorvo's strategic future in an increasingly competitive environment. Investors would be wise to approach with caution as the company strives to realign its operations and confront these market challenges head-on.
