Qorvo (QRVO, Financial), a leading RF chip manufacturer, reported its fiscal Q2 earnings for the period ending September 28, 2024. The company achieved revenues of $1.05 billion, a 5.2% increase year-on-year and an 18% rise sequentially, surpassing market expectations of $1.03 billion. Adjusted earnings per share were $1.88, slightly beating the forecast of $1.85.
Despite this positive performance, Qorvo's guidance for the third fiscal quarter fell short of expectations due to changes in the global smartphone market. The company anticipates revenue between $875 million and $925 million, below analysts' predictions of $1.06 billion. Adjusted earnings per share are expected to range from $1.10 to $1.30, falling short of the expected $1.93.
Grant Brown, Qorvo's CFO, stated that for the fiscal year 2025, revenue and gross margins are projected to be slightly lower than those in 2024. While flagship and high-end smartphone markets are performing well, Qorvo faces challenges from an unfavorable product mix. The mid-range and entry-level Android 5G smartphone market has shifted towards entry-level models, a trend Qorvo believes will continue. In response, Qorvo is consolidating factories, cutting operational costs, and focusing on long-term profitable opportunities.
The disappointing third-quarter guidance led to a 27.31% drop in Qorvo's stock price. Other companies with significant smartphone market exposure, like Skyworks Solutions (SWKS) and Qualcomm (QCOM), also saw their shares decline by 8.21% and 4.76%, respectively.
Christopher Rolland, an analyst at Susquehanna, noted that Qorvo's revenue from Apple, which accounts for nearly half of its earnings, appears to be decreasing slightly due to the adverse product mix impact. Susquehanna has reduced its target price for Qorvo from $115 to $90, maintaining a "neutral" rating. Bank of America also lowered its target price from $115 to $80, reiterating an "underperform" rating, while Benchmark downgraded Qorvo from "buy" to "hold" following the earnings report.
Raymond James reduced its rating on Qorvo from "outperform" to "market perform," citing Apple's product mix as a factor negatively affecting Qorvo's earnings. Despite challenges in the smartphone sector, Qorvo's non-smartphone business segments, including automotive, defense and aerospace, as well as connectivity and sensors, continue to perform well.
