What happened
Shares of Qorvo (QRVO -0.88%) gained 91.4% in 2019, according to data from S&P Global Market Intelligence. The semiconductor stock tracked roughly in line with the broader market for much of the year and then saw dramatic gains following management's comments that the company was seeing strong demand for its radio-frequency (RF) chips for communicating with 5G networks.
Qorvo published results for the second quarter of its current fiscal year on Oct. 31, and it paired the release with guidance that came in well ahead of the market's expectations thanks to 5G momentum. The chip company said that it expected third-quarter revenue to be between $840 million and $860 million, while the average analyst estimate had targeted sales of $761 million for the period.
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So what
Qorvo stock's performance was hamstrung for much of the year by concerns about adverse impacts stemming from the U.S.-China trade war and the ban on doing business with Huawei. The company's third-quarter guidance indicated that these factors wouldn't stop the company from posting impressive growth and that demand was ramping up for its 5G-focused RF solutions.
Here's CEO Bob Bruggeworth in the second-quarter conference call discussing the company's product portfolio for next-generation network technologies:
Qorvo's broad portfolio of enabling technologies, coupled with a robust supply chain and solid product execution, is allowing us to solve our customers' most challenging problems across all tiers of their portfolio. To that end, we're enjoying significant traction with our four largest customers in China, designing our low, mid-high and ultrahigh band solutions into their upcoming 5G smartphones. Our wins are broad-based and our solutions are mated with all the major chipset providers, including SLSI, Qualcomm, MediaTek and HiSilicon. In mobile WiFi applications, we are ramping our recently launched WiFi 6 FEMs in support of multiple leading China-based smartphone OEMs.
Management said that the company also was seeing strong 5G momentum at Samsung. Qorvo stock enjoyed another positive catalyst in December, when news hit that the U.S. and China had reached an agreement that would prevent new tariffs on consumer electronics from going into effect and that the two countries would sign a "phase one" trade deal on Jan. 15.
Now what
Qorvo is guiding for gross margin of 48% and non-GAAP earnings per share of $1.67 in the third quarter, and the company recently secured board authorization for a new $1 billion share-repurchase program. With 5G just starting to heat up and signs that trade tensions between the U.S. and China could continue to deescalate, 2020 could be a big year for Qorvo.
Shares trade at roughly 20.5 times this year's expected earnings.
