Shares of Qorvo (QRVO 2.27%) have been hammered on the stock market over the past three months thanks to several factors ranging from weak quarterly guidance, Apple's (AAPL 0.52%) supply chain problems, and the broader sell-off that has greeted tech stocks this year.
The stock price of the chipmaker, which counts Apple as its largest customer, is down more than 27% since releasing its fiscal 2022 second-quarter results on Nov. 3, 2021. This sell-off was triggered by Qorvo's tepid Q3 revenue guidance, and the stock has failed to recover ground ever since. However, don't be surprised to see Qorvo stock spring back to life when it releases its fiscal 2022 third-quarter earnings report on Wednesday, Feb. 2.
Let's look at the reasons why Qorvo could spring a surprise and outpace the market's expectations.
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Qorvo could deliver stronger-than-expected results
According to Qorvo's guidance, the chipmaker's Q3 revenue should land between $1.09 billion and $1.12 billion, while non-GAAP earnings are expected at $2.75 per share. The company had earned $3.08 per share in adjusted earnings on $1.1 billion in revenue in the prior-year period, indicating that its earnings could drop significantly.
Analysts were originally expecting $1.25 billion in revenue from Qorvo, but supply chain constraints led to weaker-than-expected guidance. More specifically, Qorvo CFO Mark Murphy pointed out on the November 2021 earnings conference call that supply chain constraints were on track to hurt the company's top line by $150 million, of which $135 million would be attributable to its mobile business.
Such an outlook wasn't surprising as Apple, which produced 30% of Qorvo's revenue in fiscal 2021, had already warned that its sales during the December quarter would take a $6 billion hit due to supply chain disruptions. Apple reportedly slashed its iPhone production targets for the previous quarter by 10 million units as the company had to struggle with long waiting periods for components.
As Qorvo is supplying chips for Apple's latest iPhone 13 models, the chipmaker's tepid guidance came as no surprise. But the good part is that Apple reportedly overcame its supply chain problems last quarter and managed to manufacture more iPhones than Wall Street's expectations. JPMorgan analyst Samik Chatterjee pointed out at the end of December 2021 that delivery times of the iPhone 13 models were coming down.
Wells Fargo analyst Aaron Rakers recently raised his price target on Apple stock, citing improving supply chain conditions. Angelo Zino of CFRA Research believes that the tech giant's supply constraints are set to ease further in the first half of 2022. Not surprisingly, Apple posted terrific results last week for the first quarter of fiscal 2022 that easily outpaced expectations.
The tech giant's iPhone revenue increased 9% year over year to $71.6 billion, ahead of the Wall Street estimate of $67.4 billion. So it is likely that Apple placed more orders for Qorvo's chips last quarter as the former's results indicate. This could help Qorvo surpass its original guidance given the huge chunk of revenue it gets from the iPhone maker.
What's more, Qorvo's guidance for the current quarter could be a solid one thanks to the developments at its largest customer, as well as the trajectory of the overall smartphone market in 2022.
Solid guidance could be in the cards
Apple is expected to expand its iPhone portfolio with the addition of a budget-friendly 5G device to attract more users. The tech giant is reportedly going to launch a 5G-enabled iPhone SE in March or April as supply chain gossip indicates, while another third-party source indicates that the device could be made available for sale in late April or May.
JPMorgan analysts estimate that Apple could make 30 million units of the new iPhone SE in 2022, which means that Qorvo will have another device that could potentially use its chips. The investment bank estimates that Apple could attract around 1.4 billion users of low- to mid-range Android smartphones with such a device, as well as 300 million users that are currently using older iPhones.
So, Apple could end up being a solid catalyst for Qorvo this year. Throw in the fact that the mobile business accounts for 79% of Qorvo's total revenue and the company's chips are used by several OEMs (original equipment manufacturers) such as Honor, OPPO, Alphabet's Google, Samsung, Vivo, and Xiaomi, and the secular growth of the 5G smartphone market could be a big growth driver for the company this year.
That's because the overall smartphone market is expected to clock 3.8% growth in 2022 to 1.39 billion units, according to market research firm TrendForce. Shipments of 5G smartphones are expected to hit 660 million units -- accounting for 47.5% of the overall market -- as compared to 500 million units in 2021.
The potential increase in 5G smartphone shipments bodes well for Qorvo, as devices supporting the latest wireless standard carry more chip content than 4G devices. CEO Robert Bruggeworth explained this on the company's November 2021 earnings call: "In mobile products, the multiyear migration of 5G continues to drive RF content and integration trends. What began in top-tier flagship phones is now playing out in the mass market, where the RF content increase is greater on a percent basis than in flagship devices."
A great time to buy
In all, there are chances of a turnaround in Qorvo's fortunes following its upcoming quarterly report, which is why it may be a good idea to buy the stock now. Qorvo is trading at just 13.4 times trailing earnings and 10.3 times forward earnings. These multiples represent a significant discount to the S&P 500's earnings multiple of 27.
With growth opportunities in the smartphone space in general and the 5G smartphone market in particular, buying Qorvo right now seems like a no-brainer.
