Qorvo, Inc. Q1 FY2025 earnings call

• Thanked attendees of Investor Day and mentioned investor slides/replay are on IR website. - Highlighted end markets (automotive, consumer, etc.) underpinned by global megatrends. - Discussed product launches across markets: automotive V2X FEMs, consumer switch mode DC-to-DC charger, defense new RF modules for radars. - Completed migration to 8-inch BAW wafers. - R&D investments focused on core strengths in different operating segments, e.g., ACG focused on largest customer, HPA on defense/aerospace and power management, CSG on automotive connectivity, etc.

Qorvo's six primary end markets are automotive, consumer, defense and aerospace, industrial and enterprise, infrastructure, and mobile. These are supported by global megatrends like electrification, connectivity, etc. Each market has multiyear upgrade cycles and technology/experience upgrades. Financial details in absolute terms and revenue contribution aren't explicitly stated, but the focus is on the end markets and their underpinnings by megatrends.

• Current quarter (September quarter) revenue expected ~$1.025 billion ±$25 million. - Non-GAAP gross margin预计46%-47%, non-GAAP diluted EPS预计$1.75-$1.95. - Fiscal Q1预计为fiscal '25 gross margin的低点. - September quarter non-GAAP operating expenses ~$275 million, including ~$10 million for digital transformation. - If 2024 notes retired in mid-December, non-operating expense expected to increase in March quarter by $3M-$4M.

• Forward-looking statements involve risk factors that could cause actual results to differ from expectations. - Impact of non-cash items on financial results may obscure trends. - Market fluctuations can affect revenue and margins.

Q: Hey, guys. Congratulations on the nice results and outlook. I just wanted to start with kind of a big picture question. Your largest customer, I think, got the market pretty excited about the possibility of AI smartphones. I'm just wondering if you've started to see any impact, any increase in demand driven by the AI smartphone trend, whether it's your largest customer or within the Android channel? And then I've got a follow-up for Grant.

A: Hey, Quinn. Thanks again for your comments. And as far as AI goes, I think, we're taking more of a conservative approach. I mean, clearly, we saw that in what Samsung released in the S24. And just to remind the group, we've got excellent dollar content in that and they had a pretty nice ramp. It wasn't tremendous above what expectations were, but they did a good job this year with the S24. Whether it was due to AI or not clearly sure. And as far as our largest customer goes, since they haven't released their next-generation phones, we're not going to comment. But I think as an industry, it would be wonderful if that AI came out, it was very useful for users and reduce the replacement cycle time so that we would see an uplift. That would be fantastic. But that's not what we're modeling at this time.

Q: Got it. Thank you. And then for Grant, just wondering if you could give us an update on your thoughts sort of as you move into the back half of the calendar year, thoughts on utilization rates? And any update on the flush of the high-cost Android inventory? Is that now mostly out of the model as we move into the September quarter. Thank you.

A: Thanks, Quinn. In the September guide, we expect a substantial sequential increase in gross margin and that's primarily related to mix the September quarter and to a lesser degree, December quarter will benefit from higher mix of customized solutions for flagship tier phones. That product mix generally includes a higher amount of externally sourced silicon and SOI content. It's not impacted by internal utilization levels. So that's one dynamic that's occurring. And that compares to our prior two quarters where revenue was comprised of a larger mix of high-cost standard products that were burdened by prior periods of underutilization. In the quarter just concluded, we saw approximately 200 basis points of headwind associated with underutilization. And in the quarter, the September quarter, we should see it falling to around or slightly less than 100 basis points and then negligible for the back half of the year.

Q: Hi, guys. This is Aman on for Tim. I just wanted to get some feel for your China mobile market. Sell-through data has been getting a little bit better recently. But trying to get a sense for what you might be seeing there and how that might be progressing as we move forward throughout the calendar year?

A: Hi, Aman. This is Dave. Yes, I think, it's -- we're seeing the same data you're seeing, it's a little bit better year-over-year. I mean, right now, based on the numbers we're tracking, we expect it to be up low single-digit percent kind of similar to the overall smartphone market and how we're calling that. So the 6/18 holiday was a little better year-over-year. But overall if you look at the cumulative smartphone sales to date, it's pretty flat to up slightly from what we see.

Q: Hey, guys. Thanks for the question. I guess, maybe getting back to the September quarter. Just a question I keep getting asked from investors is around revenue still being down year-over-year. And I think the assumption is you have content growth at your largest customer. So and perhaps we have an AI refresh cycle. I know你're conservative there. I appreciate that conservatism. But still why not growth or at least flat year-over-year particularly in mobile? Thank you.

A: Thanks for the question, Chris. At least in terms of the September guide year-over-year, the slight decline is principally related to smartphone revenues. We've talked in the past about significant gains at our largest customers and maybe Dave can follow up for me and comment there. But those assumptions in the guide contemplate total smartphone market. SKUs, unit volumes, timing, mix and all of that may prove conservative or vice versa, but we'll have to see how things play out. But overall we feel very, very, very comfortable with our assumptions. Dave, I don't know if you want to add on that concept.

A: Sure. And you guys know we've talked about some of these more key models that ramped in the first half and our content there. So the S24, we had over $5 a content, and we're on the other side of that ramp now. The pixel we had about $15 a content. So we're also on the other side of that ramp as well. So we had some strong ramps in the first half that we're now on the other side of. And then Bob mentioned our low, mid-high and some design wins we have there. We actually have purchase orders on the books now and that will just start to ramp at the very end of this quarter. So that will ramp up as we go through the balance of this year and into next year. So we're -- it's kind of a timing situation happening there in the Android ecosystem. And so that's probably a little bit of a pocket there that you're seeing in September.

Q: Yes, thank you. You spoke about the transition to 8-inch BAW wafers for internal manufacturing, which is great. But you've also discussed today and in the past that you have worked with third-party foundries for external silicon. I guess how do you think about the optimal trade-off between internal production versus using external foundries over time that might help support margin expansion. Thanks.

A: Sure. So thanks for the question, Karl. Generally, it's technology dependent. So things like silicon or SOI we have not done in-house and wouldn't consider doing in-house more efficiently than our partners can. Other areas where we can differentiate ourselves especially like BAW where there's not a foundry network available. We'll continue to produce those products that contain that internally as it differentiates us. And then from an OSAT perspective, in terms of assembly and test and other services, we can go out to a large partner network and benefit from their scale and their continued R&D investments.

A: Yeah, maybe one caveat to that Grant is like in the defense market, we see that assembly capability has something that differentiates us. So that's something that we do internally.

Q: Got it. Maybe one more, if I may. Just how to think about content growth, just more broadly I guess you spoke about at your Analyst Day how 5G enhanced will create more placements for antenna tuning and perhaps another placement for Ultra-Highband pad. Could you talk I suppose, generally, in terms of how to think about the adoption for 5G and premium to your handsets over the next year or two? Thank you.

A: Sure. Yes, and I think for those of you that were at the Investor Day, I think, Frank did a good job of laying out all the opportunities that we see coming in 5G Advanced and unlicensed spectrum, in foldable phones and different form factors that are driving lots of challenges for our customers. And so that's all coming. I mean, those trends, those discussions are ongoing with all of our customers in terms of the new products that we're developing and how they plan to integrate those into their phones. And then you've got trends like AI, right? That's going to drive higher data rates, lower latency. And that's all going to hopefully accelerate those trends that we talked about for 5G Advanced and some of those other features and increased power levels. And so as Bob mentioned earlier, it's still in very early innings for AI. But as that accelerates, it should drive the RF content faster and it will just accelerate the adoption of 5G Advanced.

Q: Thanks for taking the question. This is Jack Egan on for Ed Snyder. So you've mentioned your content should grow pretty strongly in the second half of this calendar year. And I know you haven't guided to it, but I was hoping you could just give us kind of a general ballpark idea of your expected content growth or at least how it compares to prior years? And then I just had a quick follow-up.

A: Sorry, Jack, when you said content, I don't know what market you're talking about, customers, which one of our business units, I need a little more color to help answer your question.

Q: Sure. Sorry about that. I was talking about mobile content at your large customer.

A: Okay. What I can say is what I've said probably the last couple of quarters is I'm confident in our ability to grow at our largest customer, gain share this year as well as I think we're in a great position to be able to gain share again next year at our largest customer.

Q: Got it. Okay. And then so I guess on the non-mobile side, we've seen quite a few reports in the analog space so far, call out some particular strengths in China in the second quarter. And of course, it's a very不同的 market from cellular, but so far that demand has -- it seems pretty broad-based and strength. And so have you seen the same rebound in China maybe in the HPA or CSG or in the cellular business as well? And were there any areas of specific strength to call out?

A: Yes. I wouldn't necessarily maybe focus on China specifically. I mean when we look at the markets that we serve, it's pretty broad-based across HPA and CSG. I mean if you look in China for automotive, for example, I mean, definitely, the Ultra-Wideband adoption that we have been seeing is starting to pick up there and accelerate for things like presence detection and kick sensors and other advanced radar features. On the power side, certainly, when it comes to AI and data center, we're seeing increasing requirements for improved efficiency in the power supply. So that's driving the adoption of silicon carbide. So that's been a great trend for us. Another new area of growth for us, both inside the car and outside the car, as Bob mentioned, is circuit protection. And so that's a really interesting opportunity for us because circuit protection today is pretty much exclusively done with electromechanical solutions. And so that's all new SAM entering into our markets that will be a solid-state and silicon carbide is the leading technology for that, especially the silicon carbide that we have to offer that. So there's a lot of there's great new growth trends. And those things have just accelerated really since we talked about on our Investor Day.

A: The thing I'd like to add to that, Dave, is the V2X that I talked about in my prepared remarks, in China is actually China's leading all the regions as far as adopting V2X. And that's pretty exciting for us. Again, that's going to be ramping next calendar year. But it's good to see that there and then we'll expect it obviously to flow into Europe and then obviously into US.