Chipmaker Qorvo (QRVO 0.64%) has been hammered on the stock market. Shares of the semiconductor company have lost a third of their value so far this year. But its fiscal 2022 fourth-quarter results (released on May 4) indicate that now may be a good time to buy this beaten-down Nasdaq growth stock.
Qorvo's latest results for the three months ending on April 2, 2022, indicate that the company's growth could switch into a higher gear and maintain that long-term. Let's look at the reasons why Qorvo, which is well-known for supplying its chips for Apple's (AAPL 0.31%) iPhones, looks like a smart long-term bet right now.
Qorvo shows promising signs
Qorvo delivered fiscal Q4 revenue of $1.16 billion, an increase of 9% over the prior-year period, while adjusted earnings increased 14% year over year to $3.12 per share. Wall Street was looking for $2.94 per share in earnings on revenue of $1.15 billion from Qorvo, but the healthy demand for the company's chips in both the mobile and the infrastructure end markets helped it exceed expectations.
For instance, Qorvo's revenue from Samsung more than doubled year over year last quarter as the Korean giant used more of its chips across flagship and mass-market smartphones. Samsung used multiple chips from Qorvo covering various applications such as power management, Wi-Fi 6E front-end modules, antenna control solutions, and others.
Qorvo management pointed out that the company was previously "underrepresented" at Samsung, but it now seems to be in a stronger position to take advantage of the tech giant's smartphone sales. More specifically, Qorvo's mobile business generated $865 million in revenue last quarter, producing nearly three-fourths of its top line. It is worth noting that the company's mobile revenue increased 7% year over year from $808 million in the year-ago quarter, which is impressive considering that the overall smartphone market declined in the first quarter of the year.
According to market research firm Canalys, global smartphone shipments were down 11% in the first quarter of the year to 311.2 million. However, Qorvo's diversified customer base and content gains allowed it to increase shipment volumes of its chips, which rubbed off positively on the company's mobile business.
But then, the softness in the global smartphone market led Qorvo to issue cautious guidance. The Russian invasion of Ukraine, higher input costs, supply chain snarls, and inflationary pressures are some of the headwinds that are likely to weigh on smartphone sales this quarter. Not surprisingly, Qorvo expects its fiscal Q1 2023 revenue to land between $1 billion and $1.05 billion, with the non-GAAP gross margin expected at 50%. The company expects earnings of $2.00 to $2.25 per share this quarter.
For comparison, Qorvo delivered non-GAAP earnings of $2.83 per share on revenue of $1.11 billion in the prior-year period, while the gross margin was 52.5%. Qorvo management points out that the guidance reflects the challenges brought about by the factors mentioned above, as well as lockdowns in China to contain the spread of the novel coronavirus.
Qorvo estimates that the headwinds could affect 5G smartphone shipments to the tune of 50 million to 75 million units this year, reducing shipments of 5G devices to a range of 650 million units to 675 million units in 2022. The reduced shipments would affect Qorvo's top line by $250 million this year, with the effects to be seen in the fiscal first and second quarters.
However, the long-term picture for Qorvo appears to be bright, as the 5G smartphone market still has a lot of room for growth if we look past the near-term headwinds. More importantly, Qorvo is in a solid position to capitalize on the 5G market's growth given its diversified customer base and a spate of design wins.
The big picture appears bright
Annual shipments of 5G smartphones are expected to hit a billion units by 2025, according to third-party estimates. So, the slowdown in Qorvo's growth is going to be temporary. We have already seen how Qorvo has tightened its relationship with Samsung, and that should bode well for the company as the latter controls nearly a quarter of the global smartphone market.
Second-ranked Apple is another key catalyst for Qorvo. The iPhone maker produced 30% of Qorvo's revenue in fiscal 2021, and it continues to be a key customer. Now, Apple is the dominant force in the 5G smartphone market at present, controlling 31% of this space in 2021 according to Strategy Analytics. Apple was the only top smartphone OEM (original equipment manufacturer) to have increased its shipments in the first quarter of 2022 while the overall market was in bad shape.
Apple's iPhone shipments can be expected to head higher in the coming years as the 5G smartphone market grows, and the company expands its lineup with devices such as the budget-friendly iPhone SE to capture a bigger share of this market. Throw in the fact that Qorvo is gaining traction among Chinese smartphone OEMs as well, and it becomes easy to see why the chipmaker's growth could accelerate in the long run.
Qorvo management points out that the company has secured design wins at multiple Chinese smartphone manufacturers. In simpler words, Qorvo's chips have been chosen by Chinese OEMs to power their devices, and these design wins will translate into revenue once those devices go into production.
In all, it is easy to see that Qorvo is a play on the secular growth of the smartphone market, especially 5G devices. That's why investors looking to add a 5G stock to their portfolios may want to consider buying shares of Qorvo right away. It is trading at 11.3 times trailing earnings, which is a big discount to the Nasdaq-100's multiple of 26.