Qorvo Inc (QRVO) — Q2 2026 Earnings Call Transcript

Thanks very much. Hello, everyone, and welcome to Qorvo's Fiscal 2026 Second Quarter Earnings Call. This call will include forward-looking statements that involve risk factors that could cause our actual results to differ materially from management's current expectations. We encourage you to review the safe harbor statement contained in the earnings release published today as well as the risk factors associated with our business in our annual report on Form 10-K filed with the SEC because these risk factors may affect our operations and financial results. In today's release and on today's call, we provide both GAAP and non-GAAP financial results. We provide this supplemental information to enable investors to perform additional comparisons of operating results and to analyze financial performance without the impact of certain non-cash expenses or other items that may obscure trends in our underlying performance. During our call, our comments and comparisons to income statement items will be based primarily on non-GAAP results. For a complete reconciliation of GAAP to non-GAAP financial measures, please refer to our earnings release issued earlier today available on our Investor Relations website at ir.qorvo.com under Financial Releases. Lastly, for detailed information regarding the Skyworks and Qorvo combination announced on October 28, I encourage you to review the press release, investor presentation, and related materials available on our Investor Relations website at ir.qorvo.com under Events and Presentations. Today's call, however, will focus on our fiscal second quarter results as well as our outlook for the December quarter. Joining us today are Bob Bruggeworth, President and CEO; Grant Brown, CFO; Dave Fullwood, Senior Vice President of Sales and Marketing; and other members of Qorvo's management team. And with that, I'll turn the call over to Bob.

Thanks, Doug, and welcome, everyone, to our call. Qorvo delivered solid operating performance during our fiscal second quarter. I will cover the business strategy driving these results as well as restructuring actions we are taking to enhance profitability and quarterly strategic achievements. After that, Grant will discuss the financials. Qorvo is sharply focused on our highest-performing businesses and we regularly evaluate each of our investment areas. We have divested or exited businesses that do not meet our financial or strategic objectives, and we continue to do so. We are restructuring CSG to increase our focus on our top opportunities and improve profitability. We are narrowing our focus in ultra-wideband opportunities to automotive, industrial, and enterprise markets where customer pull for our technologies is increasing and we are reducing our spend related to mobile and consumer applications, which are more fragmented today. We have consolidated our CSG organizational structure to reflect this increased focus. These actions, coupled with associated cuts in corporate support functions, are expected to reduce operating expenses by approximately $70 million per year in fiscal 2027. In ACG, we're driving a richer mix toward premium and flagship smartphone tiers as we reduce exposure to lower-margin mass-tier Android. Our pricing and portfolio actions are ahead of expectations, and now we anticipate lower-margin Android revenue to decline by roughly $200 million this fiscal year and by more than $200 million next year. This disciplined approach is improving ACG's profitability as we concentrate on higher-value 5G RF content for premium and flagship smartphones that demand more advanced RF performance. Within our factory network, we are also executing on cost and productivity initiatives to reduce capital intensity and structurally enhance gross margin. Our manufacturing strategy is to internally produce the most differentiated elements of our products, geographically align production with customers and suppliers, and leverage the scale, capabilities, and cost-effectiveness of our outsourced partners. Over two-thirds of Qorvo's production costs are external. This includes procured raw materials, wafers purchased from external foundries, as well as packaging, assembly, and test operations. Prior actions to optimize our global operations include the sale of our factories in Beijing and Dezhou, China, and the transition of our GaAs wafer production from North Carolina to Oregon. We are on track to close our facility in Costa Rica and transition to external partners. We have begun the process of transferring SAW filter production to our Richardson, Texas, and we are on track to shut down the North Carolina facility once the transfer is complete. This positions our factory footprint strategically to manufacture GaAs, GaN, BAW, SAW, and advanced multi-chip modules, all onshore in the United States. This is critical to D&A customers and increasingly a strategic differentiator to customers in other markets. Turning to our quarterly highlights. In ACG, we supported a seasonal ramp during the quarter at our largest customer. We are benefiting from strong unit volumes across existing platforms and greater than 10% year-over-year content growth on the ramping platform. We grew across each of our four primary product categories we supply to our largest customer. They include antenna tuners, high-performance filters and switches, integrated modules, and envelope tracking power management. Within the Android ecosystem, revenue declined sequentially as expected. At our largest Android customer, we supported their second-half flagship launch with a broad set of solutions. In China, ACG sales to China-based Android OEMs were approximately $65 million versus just under $100 million in the prior quarter. In HPA, we supported a broad range of mission-critical D&A applications, including land, sea, air, and space radar systems, drones, electronic warfare, missile defense, and military and commercial satellite communications. Our leading-edge beamforming technology is helping to modernize defense platforms and satellite terminals, and we are leveraging our advanced capabilities and scale in filtering and RF power to counter evolving enemy jamming capabilities. We expect double-digit year-over-year growth in defense and aerospace markets driven by new platforms, upgrade cycles, RF content, and increases in U.S. and allied defense spending. Qorvo is a strategic supplier to the U.S. government and to U.S. primes, and we enjoy broad exposure to RF content growth opportunities and critical programs such as the proposed Golden Dome multilayer defense system. Outside the U.S., Qorvo is also a beneficiary of increased EU and allied defense spending. In power management, we supported the launch of a popular smartwatch that earned media coverage for its broad set of features, including superior fast-charging capabilities. We are also a market leader in PMICs for the solid-state drive market and see increasing tailwinds in the data center portion of our business. We are leveraging the performance advantages of our PMIC and motor control portfolio to expand content in AESA radars, drones, enterprise and AI data centers, smartphones, and wearables. In infrastructure markets, Qorvo is benefiting from the industry's transition to DOCSIS 4.0, where Qorvo is a leading supplier of broadband amplifiers. There also continues to be solid demand for our base station small signal devices. In CSG, we're collaborating with a large automotive Tier 1 to scale ultra-wideband use cases, and our lead program is on track to ramp early next year. We are also supplying ultra-wideband solutions to Tier 1 equipment manufacturers for WiFi 7 network access points; with ultra-wideband integrated into network access points, high-density venues can achieve ultra-precision location awareness. Locations include factories, warehouses, corporate campuses, hospitals, stadiums, and transportation centers. Key applications include indoor navigation, occupancy sensing, asset tracking, and touchless fare transactions. In addition to ultra-wideband, the content opportunity for Qorvo and these access points also includes WiFi front-end and filtering solutions. WiFi 7 is being adopted broadly given its performance advantages in throughput, latency, efficiency, and network capacity, and Qorvo is supporting broad adoption across routers, mesh networks, and client devices. We are also collaborating with market-leading chipset providers to support the development of WiFi 8 and delivered first samples in the September quarter. Looking across our operating segments. In ACG, we're investing to expand our content opportunity with our largest customer while continuing to serve Android's premium and flagship tiers. In HPA, we're investing to grow our satellite communications defense and aerospace and power management businesses and maintain leadership in infrastructure markets. In CSG, we are targeting growth in network access points and diversification in markets including automotive, enterprise, and industrial. And with that, I'll turn it over to Grant.

Thank you, Bob, and good afternoon, everyone. Qorvo's fiscal second quarter revenue of $1.059 billion, non-GAAP gross margin of 49.7%, and non-GAAP diluted earnings of $2.22 per share, all compared favorably to guidance. During the quarter, our largest customer represented approximately 55% of revenue. On the balance sheet, as of quarter end, we held approximately $1.1 billion in cash and equivalents. We currently have approximately $1.5 billion of long-term debt outstanding and no near-term maturities. We ended the quarter with a net inventory balance of $605 million. This represents a sequential reduction of $33 million and a decrease of $89 million on a year-over-year basis. During the quarter, we generated operating cash flow of approximately $84 million and incurred $42 million of capital expenditures, which resulted in free cash flow of $42 million. Regarding our outlook for fiscal Q3, our guidance reflects strong execution and demand across multiple end markets. We are seeing continued momentum in HPA, offset by our exit from lower-margin entry-tier Android and the normal seasonal decline at our largest customer heading into December. Our expectations for the December quarter are as follows: revenue of $985 million plus or minus $50 million, non-GAAP gross margin between 47% and 49%, and non-GAAP diluted EPS of $1.85, plus or minus $0.20. Gross margin continues to improve on a year-over-year basis. Q2 non-GAAP gross margin increased approximately 270 basis points versus last fiscal year, and Q3 non-GAAP gross margin is expected to increase 150 basis points versus last quarter at the midpoint. This improvement is a direct result of multiple initiatives. We've actively managed our product portfolio and pricing strategies to reduce exposure to mass-tier Android 5G. We have positioned the company to benefit from growth in D&A, which is margin accretive given the high mix, low-volume nature of the business. We have divested or exited margin-dilutive businesses. And we continue to manage factory costs aggressively while consolidating our manufacturing footprint. We project non-GAAP operating expenses in the December quarter to be between $255 million and $260 million. The sequential decrease in OpEx reflects lower incentive-based compensation, continued OpEx discipline, and our restructuring efforts within CSG and associated corporate support functions. These actions are included in our December quarter OpEx guidance. Below the operating income line, non-operating expense is expected to be approximately $10 million, reflecting interest paid on our fixed-rate debt, offset by interest income earned on our cash balances, FX gains or losses, along with other items. Our non-GAAP tax rate for fiscal '26 is expected to be approximately 15%. We continue to monitor the situation as a specific implementation of the new tax bill in the U.S., as well as changes to international tax policy may evolve over time. We are confident the steps we are taking today across our product portfolio, business segments, and manufacturing footprint positions the company to expand profitability. The benefits of these strategic initiatives will continue to become evident as we advance through fiscal '26 and into fiscal '27. Before we open the call for questions, I'd like to reiterate that the purpose of today's call is to discuss our quarterly results and outlook, and we appreciate you keeping your questions focused on these topics. At this time, please open the line for questions. Thank you.

It seems like you're now assuming a $200 million headwind from exiting the low end of the China Android market. I think that's a bit more than you previously envisioned of $150 million to $200 million. Could you address why that is the case for this year and next year? And if there's anything else that's happening with respect to the mid-tier market or if it's just something else?

Karl, this is Dave. I can answer that one. Yes. So the $200 million decline that Bob mentioned is going to be more weighted towards the back half of the year and even more so in March for a couple of reasons. So if you recall, last time, we said we gained content in our largest Android customer in their second half flagship. So we'll be on the other side of that when we get into March. And we also mentioned that we would have lower content this year on their first half flagship ramp next year. So those two are factors, but the bigger factor is really just the timing of those mass tier models that we continue to support as we made this pivot in our Android business. Those are now ramping down, and we're not obviously replacing them with new designs heading into next year. So that's probably the bigger impact that you're seeing is driving now.

Got it. for my follow-up, how would you rank order the December quarter outlook across HPA, CSG and ACG? I appreciate some of the initial commentary you gave with respect to the decline of Android and seasonal decline of Apple, but I guess as we look out into HPA from December quarter and into next year, just click on that and see if that, in fact, will be the best performing segment for December of next year.

Sure, Karl. Let me take a stab at it, and then Philip can jump in. Over the course of the year, we do expect our D&A business to continue to increase quarter-over-quarter just given the seasonal nature of customer order patterns there, and we're still expecting that to be the case. We had some very strong growth in that business. On a year-over-year basis, it was over 25%. HPA was up 25% on a year-over-year basis in the last quarter. And we feel very strongly that that's a very high-performing area from a growth perspective.

Yes. I would add. So outside of D&A, we're also seeing quite a bit of strength in our infrastructure business. In our broadband business, as we've talked about, DOCSIS 4.0 continues to roll out really, really strong ramp. We see continuing throughout this year and into next year as well. And then on our base station business, kind of our core base station business that goes into kind of the radio stuff, that's doing well. But we're really seeing a proliferation of those products into some new markets that we're excited about. The first is drones, both two-way and one-way drones are using both 4G and 5G products as one of their communication paths. So we're seeing strength this year, this quarter, next quarter, and into next year for that. And then also, if you think about it, as you look at these direct to cell satellites, really, they're base stations in the sky. And so we're seeing the same products that we use going here, terrestrial going up into space into these applications. So we expect that to continue, and that's why we're pretty optimistic about double-digit growth going into next year as well.

I guess the first question is in light of some of what you're saying about some of the Android decline weighted towards the March quarter. What should we think with regard to March quarter seasonality? What do you consider normal seasonality to be? And what are the factors that we should consider when comparing to normal seasonality this year?

Sure. Chris, this is Grant. Let me take that one. We're not guiding Q4 or the full year at this time. But we're encouraged by the strength that we saw in the first half, but we're mindful of the typical seasonality as you mentioned, in the back half where we see our largest customer ramping down typically in the March and June periods, and then as we pivot away from some of the lower-margin Android business, as Dave pointed out earlier, to be especially impactful in fiscal Q4. Now that said, we are executing on our strategy to focus on driving meaningful productivity improvements. And so from our standpoint, we're executing that strategy. We're focusing on a premium flagship tiers, and this is something you're starting to see in our gross margin profile. I mean, we committed to hitting high 40s, and we're doing just that, and we're getting very close to 50 points of gross margin in a seasonally strong quarter. So we are hard at work executing on profitability and executing to our strategy to pivot away from low-tier Android.

You mentioned gross margins, and that leads to my follow-up question. There are many variables to consider as we approach next year. You're making changes in the factories to improve efficiency, and I assume the product mix will improve as we move away from some of the lower-end Android products. How does this affect gross margins? What factors should we be aware of regarding gross margins for the upcoming year?

Sure. The business mix is one of them. It will be meaningfully helpful for us as we see HPA and defense and aerospace and other areas grow as a percentage of our total top line. That's very impactful. And then product mix within the segments, especially ACG, where we have already communicated our exit from the low-tier Android area. So the premium and flagship products there. In terms of that portfolio will be helping from a mix standpoint. And then the factory actions that we're executing on, bringing more volume to our other locations also helps significantly. We've talked through Costa Rica and the closure there is on track. Transfer of our SAW capacity from Greensboro to Texas is also on track, and we'd expect that to be beyond fiscal '27; and I think all the other cost reduction efforts that we're doing, the standard blocking and tackling, yield improvements, cost downs, and all the other things are more standard activity are all on target.

First of all, really good results. Maybe, Grant, one for you. In your guidance, I'm looking at your margins versus what you just delivered for the September quarter. And I would have thought that your margins wouldn't be down quite the way they're guiding to. So I guess I'm curious if it's just revenues that are driving this? Or is there other factors in play? Because you've got a lot of positives going on in the margin structure as well that fundamentally that you're driving to. So I just want to understand the factors driving the margin for the December quarter guidance.

Sure. As we are winding down and heading into the December quarter and then March, the utilization typically influences the revenue. We are experiencing some of that, which is not unusual. I should point out that margin performance has significantly improved compared to last year. Therefore, even with the revenue projections we have provided, you can see that impact. Overall, I believe there is strong improvement, and we expect this trend to continue as we progress through fiscal '26 and into '27. I wouldn't place too much importance on the small fluctuations from one quarter to the next, aside from the overall mix.

This is Philip. I would say channel inventory is healthy. We're not seeing any kind of unusual order patterns. I'd say it’s more that we're starting to receive requests for earlier deliveries.

Thank you for your patience. Regarding the question about HPA and channel inventory, we do not see any excess inventory in the channel. In fact, we are experiencing more requests for expedited orders than any pushouts or similar issues. Overall, the channel is in good shape. Additionally, we are observing strong bookings and a solid backlog in our power management business, particularly in the data center sector for solid state drives. We do not encounter any inventory issues there, but we are receiving expedite requests.

I have a couple of housekeeping questions. Were there any underutilization charges, particularly in Oregon, and what is your outlook on that? You could potentially see a seasonal downturn in the next few quarters due to the increased burden from your largest customers. Can you provide some insight on that?

Yes. Ed, this is Grant. So no period-related charges associated with underutilization. It's just the normal loadings are generating factory variances within the normal bands and that applies to product costing, but nothing from a period charge perspective that would create an abnormal utilization charge.

I’m trying to understand your capacity in both GaAs in Oregon and BAW in Texas. I know you haven't received any updates regarding your largest customer for next year. It seems your potential wins depend on market share, but I would like to gauge what kind of capital expenditures you might face, particularly for GaAs, since your recent product wins are not heavily focused on GaAs. You have a lot of tuners and less SOI. So, I'm looking to understand your current capacity in both GaAs and BAW.

Yes. Thanks for the question, Ed. I think first, I want to say the team has done a fantastic job in both GaAs, as well as in the filters, BAW filters, in particular, in shrinking sizes. So as we ramp new technologies typically, we're reducing the size, so we don't have to add a lot of capacity to meet the same demand. So the team's done a fantastic job there. And I think as we look at the outlook for next year, we do expect we'll spend money for expanding capacities and bringing in new technologies. But I think it's going to be less than what we spent this year. But again, I think people underestimate the tremendous work the team has done in reducing die sizes as we release new process technologies. So I think we're in good shape to support a lot of business.

Ed, I would like to expand on Bob's comments. To compete for business, it’s essential to have sufficient capacity established ahead of time. Therefore, we will not pursue business opportunities that we cannot support with our current capacity.

And then we also have the ramp-down of the Android business as well, which frees up capacity. So we're in a pretty good place.

Just on the content growth of about 10% plus for the last for the most recent generation, you mentioned that all of your four major products grew on a content-wise year-over-year. Maybe if you can just give us a sense of contribution from these product groups?

Peter, thanks for the question. We haven't actually commented, I mean each of the four different categories of revenue at our largest customer and which was contributing to the growth other than to say that we're seeing growth in all categories. Sure. So CSG, as we commented last quarter, had experienced a pushout of a large award in our ultra-wideband business, and that is still the case. There's no change there. In terms of growth, there would be some impact, but relatively marginal due to the restructuring activities. So you could see a roughly flat, perhaps year for CSG plus or minus.

I want to thank everyone for joining us tonight and hope everyone has a great evening. Thank you.