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Qorvo Rides the 5G Wave to Smash Analyst Estimates

By Anders Bylund - Jan 31, 2020 at 9:27AM

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The maker of networking semiconductors relied on strong 5G networking orders to deliver solid results in a reporting period when Wall Street expected falling financial trends.

Qorvo (QRVO 3.04%) reported third-quarter results after the closing bell on Wednesday. The company, which designs and manufactures semiconductors for wireless and broadband networking systems, exceeded Wall Street's estimates by a wide margin. Share prices barely moved on the news, which implies that the report was strong enough to support Qorvo's sky-high valuation.

Qorvo's fourth-quarter results by the numbers

Metric

Q3 2020

Q3 2019

Change

Analyst Consensus

Revenue

$869 million

$832 million

4.5%

$852 million

GAAP net income

$161 million

$70 million

130%

N/A

Adjusted earnings per share (diluted)

$1.86

$1.85

0.5%

$1.68

Data source: Qorvo. GAAP = generally accepted accounting principles.

Qorvo's GAAP profits differ significantly from its adjusted figures, mostly due to the amortization of intangible assets. The year-ago period saw a $132 million non-cash charge for this line item under Qorvo's GAAP results, compared to $63 million in this report. This is Qorvo reducing its tax burden by claiming amortization of intellectual property gained in recent acquisitions such as last spring's $308 million buyout of analog chip designer Active-Semi, which added $158 million of intangible assets to Qorvo's balance sheet.

Adjusted for these non-cash effects and other items not seen as central to Qorvo's operating results, adjusted earnings held steady year over year. Free cash flows also stayed in place at approximately $260 million.

A young Asian woman sits on a green hill, overlooking a rocky intracoastal pond, while using a smartphone.

Qorvo's 5G chips are popular in smartphone designs across Asia right now. Image source: Getty Images.

Behind the numbers

As it turns out, pretty much all of the factors that were supposed to drive Qorvo's sales and earnings lower in the third quarter were less burdensome than expected. The company posted solid sales into the 5G wireless, Wi-Fi 6, and defense communications markets. 5G smartphones featuring Qorvo chips are all the rage right now in China, South Korea, and Japan. Customer demand for Wi-Fi 6 started to pick up on a global level in the third quarter. The company's gallium nitride power amplifiers are running through the long development cycles in aerospace and defense applications, generating stable revenue streams.

Qorvo's solid results amplify the market readings from fellow radio frequency chipmakers Skyworks Solutions (SWKS 3.99%) and MACOM Technology Solutions (MTSI 8.31%), both of whom crushed analyst expectations in earnings reports posted this week. The three companies share a deep interest in 5G technologies and all of them pointed to that megatrend as a serious driver of their revenue and earnings surprises.

A fourth radio-chip musketeer will follow next week when Inphi (IPHI) publishes its fourth-quarter earnings report. Let's just say that many investors are ready for another muscular report from Inphi -- all four of these tickers have gained at least 63% over the last six months, led by a sector-leading 110% surge for Inphi.

Chips that power 5G connections in recent and upcoming smartphones are red hot right now. This trend should be followed by an even larger surge of 5G chip orders, destined for installation in Internet of Things devices. 2019 may have been rough, but Qorvo and friends are looking like promising growth investments right now.

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Stocks Mentioned

Qorvo, Inc. Stock Quote
Qorvo, Inc.
QRVO
$97.87 (3.04%) $2.89
Skyworks Solutions, Inc. Stock Quote
Skyworks Solutions, Inc.
SWKS
$98.03 (3.99%) $3.76
MACOM Technology Solutions Holdings, Inc. Stock Quote
MACOM Technology Solutions Holdings, Inc.
MTSI
$49.68 (8.31%) $3.81
Inphi Corporation Stock Quote
Inphi Corporation
IPHI

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

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