Share prices of Qorvo (QRVO -1.09%) have gained 20% since the beginning of July thanks to a rally in semiconductor stocks. But the company's fiscal 2023 first-quarter results (for the three months ended July 2, 2022), which were released on Aug. 3, suggest that its rally could soon fizzle out.

That's because Qorvo's top and bottom lines shrunk last quarter thanks to the weakness in the smartphone market. The company's outlook was another red flag as it indicates that the bad times are here to stay.

What's surprising is that Qorvo, which counts Apple (AAPL 0.02%) as its largest customer, is struggling, unlike other component suppliers such as Skyworks Solutions (SWKS -0.50%) and Cirrus Logic. Both Skyworks and Cirrus recently released solid results even though smartphone shipments were down last quarter, driven by a mix of content gains in premium smartphones and their relationship with Apple.

Let's see what went wrong for Qorvo last quarter.

Qorvo gets hit by weak smartphone demand

Qorvo's quarterly revenue was $1.04 billion, down nearly 7% over the prior-year period. The chipmaker's non-GAAP (adjusted) earnings fell to $2.25 per share from $2.83 per share in the year-ago quarter. Wall Street, however, was expecting worse. Analysts would have settled for $2.11 per share in earnings on $1.02 billion in revenue.

While Qorvo turned in better-than-expected results, the guidance was a mixed bag. The company has guided for $1.13 billion in revenue this quarter at the midpoint of its range, which is in line with consensus estimates. It expects adjusted earnings of $2.55 per share, lower than Wall Street's expectation of $2.62 per share.

Management pointed out that its mobile segment was down year over year and sequentially as lower volume shipments by major Android original equipment manufacturers (OEMs) weighed on sales. The mobile segment produced nearly 71% of Qorvo's revenue last quarter. With global smartphone shipments declining 7.3% year over year in the second quarter of 2022, it isn't surprising to see why the company struggled.

It is worth noting that Apple, which produced a third of Qorvo's revenue in fiscal 2022, managed to increase its shipments over the prior-year period. Shipments of iPhones reportedly increased 3.3% year over year, according to Strategy Analytics. Similarly, Samsung's shipments were up 9.5% year over year, and the South Korean company had produced 11% of Qorvo's revenue last fiscal year. But it looks like Qorvo's dependence on Chinese smartphone OEMs such as Xiaomi, Vivo, and Oppo, which saw a big drop in shipments last quarter, turned out to be its Achilles' heel.

On the other hand, Qorvo's competitor Skyworks pointed out on its latest earnings conference call that it has been gaining content in premium smartphones. This allowed Skyworks to increase its quarterly revenue by 10% over the prior-year period, while adjusted earnings also increased to $2.44 per share from $2.15 per share in the year-ago quarter.

Skyworks is a key Apple supplier as it got 59% of its revenue from the iPhone maker last fiscal year. Additionally, the chipmaker has been gaining share in Samsung's smartphones. The South Korean smartphone giant was a 10%-plus customer for Skyworks last quarter.

So, Skyworks' close ties with Apple and Samsung helped it overcome soft demand from Chinese smartphone manufacturers. But as Qorvo's exposure to Chinese OEMs is around mid-30% of its top line, it took a bigger hit.

The bad times are here to stay

Qorvo's guidance for the current quarter points toward a drop in revenue and earnings. More specifically, the company's top line would drop 9% from the prior-year period, while earnings per share would contract 25%. With global smartphone shipments expected to drop 7.1% in 2022, as per Gartner, on account of inflation, the war in Ukraine, and COVID-19-related shutdowns in China, a turnaround for Qorvo looks unlikely.

Analysts expect its revenue to drop 10% in fiscal 2023. The company, however, could get a shot in the arm as Apple prepares to launch its next generation of iPhones. That's because Apple could produce between 90 million and 100 million units of its upcoming iPhone models this year, according to analyst Ming-Chi Kuo of TF International Securities. For comparison, Apple reportedly produced 80 million iPhone 13 units last year.

But Qorvo's exposure to Chinese manufacturers could continue to be a headwind and blunt any potential gains from its relationship with Apple. Therefore, it would be a good idea for investors to stay away from Qorvo until and unless the smartphone market starts looking up again. Instead, semiconductor stocks such as Skyworks or Cirrus Logic look like better bets given their resilient performances last quarter.