Investors surprisingly pressed the panic button after Qorvo (QRVO 1.36%) released its fiscal 2022 third-quarter results on Feb. 2, with share prices of the chipmaker falling 10% following the earnings release.
However, Qorvo's price drop is a great opportunity for savvy investors looking to buy a 5G stock. That's because the company's chips are used by leading 5G smartphone OEMs (original equipment manufacturers) such as Apple, Samsung, and major Chinese companies that are currently dominating this market.
More importantly, Qorvo's latest results and guidance indicate that the company is all set to step on the gas following a disappointing holiday quarter that hurt its sales on account of supply chain constraints. Let's take a closer look at Qorvo's results and see why buying this stock right now could turn out to be a smart move.
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Qorvo is set to switch into a higher gear
Qorvo reported fiscal third-quarter revenue of $1.11 billion, which was at the higher end of its guidance range of $1.09 billion to $1.12 billion and a small increase over the prior-year period's revenue of $1.09 billion. The company's adjusted earnings fell to $2.98 per share from $3.08 per share in the year-ago quarter. Wall Street was looking for $2.76 per share in adjusted earnings on revenue of $1.11 billion, which means that it handsomely crushed the bottom-line expectations.
Qorvo's better-than-expected performance wasn't surprising as the supply chain problems of its largest customer -- Apple -- eased last quarter. The tech giant reported record iPhone revenue in the first quarter of fiscal 2022 as demand remained robust. What's more, Apple expects supply chain improvements to ease further in the current quarter, which should bode well for Qorvo as it gets 30% of its revenue from the iPhone maker.
This explains why Qorvo's guidance for the fiscal fourth-quarter points toward a notable acceleration in growth. The company anticipates $1.15 billion in revenue this quarter along with adjusted earnings of $2.94 per share. For comparison, Qorvo had reported $2.74 per share in earnings on $1.08 billion in revenue in the prior-year period, indicating that the company is on track to grow at a faster pace in the current quarter.
Qorvo's Q4 guidance indicates that it is on track to finish the year with a 15% increase in revenue and a 25% jump in earnings per share. The good part is that Qorvo could sustain this impressive growth in the next fiscal year and beyond on the back of the growing adoption of 5G smartphones.
Better times ahead for Qorvo
The mobile business was Qorvo's biggest source of revenue last quarter, producing 76% of the top line and putting in a stronger-than-expected performance on account of higher volume shipments for flagship smartphones. This indicates that Apple ordered more chips from Qorvo last quarter, boosting the mobile business's revenue to $848 million from $826 million in the prior-year period.
Qorvo anticipates the mobile business to grow 5% year over year in the current quarter on the back of content gains, an improvement in the demand-supply situation, and the launch of new smartphones. The chipmaker pointed out in its latest earnings release that it is ramping up chip shipments to a Korean OEM to support the launch of both flagship and mass-market smartphones.
This is probably an indication toward Samsung, which is one of Qorvo's customers. Samsung is all set to release its next flagship smartphone lineup -- the Galaxy S22 -- and the South Korean giant is counting on the device to boost its smartphone market share in 2022. According to third-party reports, Samsung is reportedly targeting a 22% share of the global smartphone market this year, shipping 390 million units.
Sales of the Galaxy S22 lineup are expected to hit 33 million units this year, which would mark a substantial increase over the 20 million to 25 million units of the Galaxy S21 that Samsung reportedly shipped last year. It is also worth noting that Samsung controlled 20.1% of the global smartphone market last quarter as per IDC's estimates, shipping 272 million units.
So, Samsung could move the needle in a big way for Qorvo given the South Korean giant's aim to substantially boost its smartphone sales this year. Apple, on the other hand, is expected to ship 300 million iPhones this year, according to a third-party report. That would be a big bump from the 235.7 million units the company shipped in 2021, and it won't be surprising to see Apple hit that mark as it is reportedly looking to expand the iPhone lineup with the addition of a budget-friendly 5G iPhone SE.
Built for long-term growth
The 5G smartphone market is on track to record impressive growth once again in 2022. TrendForce estimates that 660 million 5G smartphones could be shipped in 2022, up from 500 million units last year. The good part is that 5G smartphone sales could continue growing at such an impressive pace over the long run as they are expected to account for only 47.5% of overall smartphone shipments in 2022.
Qorvo's relationship with the leading smartphone OEMs across the globe means that it is in a nice position to take advantage of the market's secular growth. This explains why analysts expect Qorvo's earnings to increase at an annual pace of 14.5% over the next five years, up significantly from the annual earnings growth rate of 6.3% it has clocked in the past five years.
With the stock trading at just 14.9 times trailing earnings and 11 times forward earnings -- a discount to the S&P 500's average earnings multiple of 26 -- now looks like a great time to buy Qorvo given its dirt-cheap valuation and bright prospects.
