Xilinx (XLNX) has captured Wall Street's imagination over the past year or so thanks to its terrific rise in spite of the broader semiconductor industry weakness. The chipmaker has benefited from its strategy of going after fast-growing niches such as artificial intelligence chips used in data centers and fifth-generation wireless technology infrastructure.
Unsurprisingly, Xilinx shares continued their impressive run after it reported a blowout third quarter. However, the same cannot be said about Apple supplier Qorvo (QRVO 0.98%), whose stock price sank after its guidance for the fourth quarter of fiscal 2019 fell behind expectations. That's not surprising as Qorvo reportedly relies on Apple for just over a third of its revenue and Apple has seen iPhone weakness.
But a closer look at Qorvo's guidance and the outlook for the long run suggests that it won't be long before it gets back on track and starts delivering growth.
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A Xilinx-like catalyst
Xilinx is benefiting big time from early 5G wireless deployments in South Korea, China, and North Korea. Its communications revenue shot up 41% annually last quarter, outpacing the company's overall revenue growth of 34%. Qorvo's latest quarterly report indicates that it is enjoying a similar boost from 5G deployments.
In fact, the company's infrastructure and defense products (IDP) revenue grew in the double digits annually for the 11th straight quarter to a record $230 million in the third quarter. According to Qorvo CFO Mark Murphy, "strong growth in infrastructure as carriers pick up the pace of their 5G investments" was one of the key drivers behind the 14% year-over-year jump in this segment.
The chipmaker is looking at current-quarter earnings of $1.05 per share on revenue of $670 million. That's not bad considering that it generated $665 million in revenue in the prior-year period and earnings of $1.07 per share.
What's more, the 5G catalyst seems to be strong enough to help Qorvo mitigate the mobile weakness caused by Apple as the nearly flat top-line forecast for the current quarter suggests.
However, investors shouldn't forget that Qorvo still relies on its mobile segment for around 73% of revenue. In the most recent quarter, revenue from this segment was down 6% annually on account of weak sales of flagship smartphones, especially in China.
Check out the latest Qorvo earnings call transcript.
Is a mobile turnaround in the cards?
The fact that Qorvo's mobile revenue dropped in the mid-single digits is a testimony to the fact that it has a diversified client base that allowed it to weather the 15% drop in iPhone revenue that Apple saw in the quarter that ended in late December. However, Apple might continue weighing on Qorvo's performance in the near term.
As such, Qorvo's mobile business is expected to remain under pressure given its dependence on Apple. But 5G devices could revitalize the smartphone market, with Gartner predicting that sales of 5G smartphones will hit 65 million units in 2020, while a forecast by Strategy Analytics predicts 1.5 billion in annual shipments by 2025.
Networking giant Ericsson believes that at least eight 5G smartphone models could hit the market by mid-2019. So it won't be surprising to see Qorvo's mobile business turn around sooner rather than later thanks to an increase in demand for its 5G smartphone modules.
In all, 5G could fire up Qorvo's mobile and infrastructure businesses and pull it out of mediocrity, just like it did for Xilinx.
