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Why QRVO's Fall Is A Red Flag For SWKS

Summary

QRVO off 10% on August 3 due to lower-than-projected gross margins due to issues in filter production and bombing price to take the low-band LTE PAM from SWKS.

The mobile phone market has seen this before - in early 2000s when GaAs stocks began multi-year nose dive as RFMD, TQNT, ANAD and SWKS took sockets at any price.

SWKS, QRVO are at 50% GM today, but in mid-2000s floundered in the mid-to-low 30s with EV/Sales ratios in the 1-2 range due to price competition. Are we headed there?

"We believe their low frequency PAD is taking market share in China and is ramping faster than the company expected, but Qorvo is facing some yield issues and is in need of an outsourcing filter for this product. Results are largely in-line with our expectations, except for gross margin. We still like Qorvo as we believe the company is on track to take further market share. We continue to be negative on Skyworks as it faces increasing competition." Jun Zhung, Rosenblatt

"In our view, QRVO likely won the iP7 low-band PAD, driving top-line upside, but diluting margins. QRVO utilizes outsourced SAW filters on the product and is seeing increased component costs, impacting margins. Mgmt is looking to achieve "filter independence," which we see taking at least a couple of years. Mgmt was clear these issues are company-specific, not related to RF/analog ASP pressure. QRVO is also undergoing multiple manufacturing transitions impacting yields, which we believe will take 2-3 years to complete. TC-SAW/SAW filters and GaN wafers are transitioning from 4" to 6," BAW capacity is moving from 6" to 8" despite already low utilization, and assembly and test in China is being brought in-house." Rich Shafer, Oppenheimer

These two quotes ran in articles on Qorvo's (NASDAQ:QRVO) 10% dive on Aug 3 in response to the company's 1Q17 earnings call the previous evening. Two critical points are driving QRVO...


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