It wasn't very long ago that the chips were down for Qorvo (QRVO -3.51%). The smartphone slowdown and cutthroat competition among chipmakers had knocked the wind out of the company's bread-and-butter mobile business. Qorvo was desperately searching for alternative revenue sources, but it needed mobile to click once again.
The good news: Qorvo's mobile business has started showing signs of life.
Qorvo's mobile revenue jumped 7% annually to $486 million during the fiscal first quarter, boosting the company's total revenue by 14.4%, to $693 million. Pleasantly surprised investors bumped the stock up roughly 3% the next day. Qorvo's mobile business had been trending lower over the past few quarters, which is why analysts had been looking for just $656.5 million in total revenue.
Clearly, mobile is a big factor in Qorvo's overall top-line performance, so the year-over-year growth in this business was a welcome relief for investors. The chipmaker credits this turnaround to a ramp-up in Chinese smartphone production, and is confident of sustaining the momentum thanks to recent design wins.
In fact, Qorvo expects a 30% sequential jump in the mobile business this quarter as its customers start ramping up new device production. But what's even better is that the chipmaker expects mobile to chug along smoothly from now on thanks to the emergence of new technologies that will increase its addressable market.
Specifically, Qorvo has its sights set on the deployment of fifth-generation (5G) wireless technology. This telecom technology is going to enable much faster data transmission compared to 4G, but there's a drawback. 5G signals can't travel as far as 4G, so the network will have to be powered by several smaller antennas packed together more closely than earlier wireless technologies required.
This is going to expand demand for Qorvo's antenna management and tuning solutions, and this catalyst could arrive sooner rather than later. Verizon, for instance, is committed to launching its 5G services sometime later this year in at least three to five markets in the U.S. T-Mobile, meanwhile, has set a target of rolling out its own 5G network across 30 U.S. cities by the end of 2018. AT&T is also in the mix, with plans to deploy across 12 locations.
So it shouldn't be long before smartphone manufacturers start packing their devices with more antennas to support 5G networks. According to one estimate, 5G smartphone shipments could jump to 183 million units in 2022 and 1.5 billion units in 2025, up from just 2 million shipments estimated for 2019.
Growth beyond mobile
While it is good to see that Qorvo's biggest source of revenue is getting back on track, its infrastructure and defense products (IDP) business is growing at an even faster clip. The company's IDP revenue jumped 13% year over year last quarter to $207 million, and now accounts for 30% of the total business.
One of the biggest reasons the IDP business's revenue will keep getting better is because of the Internet of Things (IoT). According to Qorvo, IoT-related revenue within the IDP business jumped 30% annually during the latest quarter, driven by increasing demand for its solutions in connected homes and automotive.
D-Link and Sonos are already using Qorvo chips to power their connected speakers and smart routers. The company also says that it is currently engaged with "multiple OEMs and Tier-1 suppliers in joint development activities for next-generation automotive connectivity."
At the moment, both smart speakers and automotive connectivity are still in their early phases of growth. Smart speaker sales are increasing at an annual rate of nearly 48%, according to eMarketer, while another estimate believes that sales of connected car applications could triple in the next eight years. As these markets are growing at a faster pace than the semiconductor industry in general, they should help Qorvo sustain the impressive growth rate.
Broader Wall Street sentiment reflects this, as Qorvo's earnings are expected to grow at a compound annual growth rate of nearly 13% over the next five years. For comparison, the company's bottom line has remained stagnant over the past five years, so a rekindled smartphone market and the emerging IoT opportunity could take Qorvo to the next level.