Qorvo (QRVO -27%) is experiencing significant pressure following its Q2 earnings report and guidance. Despite a record of 20 consecutive double-digit EPS beats, Qorvo's streak ended with a modest beat. Revenue decreased by 5.2% year-over-year to $1.05 billion, aligning with expectations. The major surprise was the Q3 guidance, which fell short of analyst predictions.
- Qorvo's largest customer is Apple (AAPL, Financial), accounting for 46% of FY24 sales. The weakness appears more pronounced in the Android sector. Qorvo is a key supplier for flagship, premium, and mid-tier 5G smartphones within the Android ecosystem. While flagship and premium tiers remain stable, there is a shift towards entry-tier 5G, impacting the mid-tier.
- The shift in Android 5G from mid-tier to entry-tier is not expected to reverse. This trend is anticipated to affect Qorvo's revenue and margins in the second half of FY25 and into early FY26. Consequently, Qorvo is implementing significant measures, such as factory consolidation and reducing operating expenses.
- Qorvo plans to focus its product development primarily on 5G products for Apple and the flagship and premium tiers of its Android clients.
This quarter was unexpected for Qorvo. The company usually reports significant beats with conservative guidance, maintaining a reliable pattern. This unexpected shift has prompted Qorvo to make substantial structural changes, including a greater focus on Apple and high-tier Android products and factory consolidation.
Investors should exercise caution with Qorvo in the short term due to ongoing changes and potential future warnings. This is not merely a one-quarter demand issue; stability in results is necessary before considering investment.
