Please ensure Javascript is enabled for purposes of website accessibility

Qorvo Investors Will Be Scrutinizing the iPhone Effect

By Harsh Chauhan - Oct 30, 2017 at 10:04PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Qorvo's pros and cons will be more clear after the latest earnings report.

Apple (AAPL 1.62%) supplier Qorvo (QRVO -1.96%) has a lot to prove when it releases its second-quarter earnings after the market closes on Nov 1. Investors have given the chipmaker the benefit of the doubt so far this year, with the stock gaining roughly 40% so far in 2017 despite clear indications that its business is on the wane.

Apple reportedly supplies a third of Qorvo's revenue, so investors are possibly expecting Qorvo to report windfall gains after the launch of Apple's new iPhones. But that might not be the case, thanks to the intense competition for radio frequency chip spots in the latest-generation devices, and it won't be surprising if Qorvo's upcoming results and outlook fail to satisfy investors' expectations. Let's take a closer look.

Qorvo logo

Image source: Qorvo. 

Qorvo probably won't win big from the new iPhones

Qorvo has consistently underperformed analysts' expectations this year, thanks to stiff competition from rivals such as Skyworks Solutions (SWKS -1.64%). An iFixit teardown of the Apple iPhone 8 indicates that Qorvo's content in the new iPhone has remained the same as last year. The company is reportedly supplying an envelope-tracking chip and a low-band-power amplifier module for the iPhone 8, identical to the parts it supplied for the iPhone 7.

By comparison, rival Skyworks seems to have landed at least four chip spots in the new device, up from three last year. Furthermore, Skyworks could gain more content in the iPhone 8 Plus, as the device is expected to carry a higher number of antenna switches.

Qorvo had given investors reason to be skeptical about iPhone content when it released its first-quarter results. The chipmaker said it expects $810 million in revenue at the midpoint of its guidance for the quarter, significantly lower than the $846 million analysts were originally expecting. By comparison, Qorvo had pulled in $865 million in sales in the second quarter last year.

And Apple is reportedly facing a few new-iPhone problems of its own. A recent survey from investment-banking firm Piper Jaffray indicates that the older iPhone 7 is drawing more interest than the new iPhone 8. Meanwhile, Apple has reportedly run into technical problems with components for the facial-authentication feature in the premium iPhone X

.

Will there be any positives?

Qorvo is trying to reduce its reliance on Apple, and the company's upcoming report should provide more clarity about the company's progress in this regard. For instance, the chipmaker counts its increasing clout at Chinese smartphone original equipment manufacturers (OEMs) as one of the key catalysts that could drive its long-term growth.

Qorvo management claimed on the previous earnings call to have landed several design wins in China, including one of the leading OEMs in the country reportedly selecting a broad range of products for a flagship device.

More importantly, Qorvo claims that it will soon start supplying more chips to Huawei after falling out of favor last year. This could be a big deal for the chipmaker, as Huawei is closing in on Apple and Samsung in smartphone sales.

In all, Qorvo currently gets around 30% of its mobile business out of China, excluding Huawei. That bodes well for the chipmaker, as the top 10 Chinese smartphone makers held 39% of the global smartphone market last year, higher than Apple's 14.4%.

Qorvo is also looking at emerging technology trends such as smart homes and the Internet of Things to secure long-term growth. The company has recently released products aimed at these two markets, and management should provide clarity about the progress it's made with them.

However, Qorvo might find it difficult to squeeze into this already crowded space. In addition, rival Skyworks' rising influence in the Chinese smartphone space and content gains at Apple might continue weighing on Qorvo's performance.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Qorvo, Inc. Stock Quote
Qorvo, Inc.
QRVO
$92.47 (-1.96%) $-1.85
Apple Inc. Stock Quote
Apple Inc.
AAPL
$138.93 (1.62%) $2.21
Skyworks Solutions, Inc. Stock Quote
Skyworks Solutions, Inc.
SWKS
$91.12 (-1.64%) $-1.52

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
316%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/04/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.