Communications chips maker Qorvo (NASDAQ: QRVO) reported Q3 CY2024 results beating Wall Street’s revenue expectations, but sales fell 5.2% year on year to $1.05 billion. On the other hand, next quarter’s revenue guidance of $900 million was less impressive, coming in 14.6% below analysts’ estimates. Its non-GAAP profit of $1.88 per share was also 1.7% above analysts’ consensus estimates.

Is now the time to buy Qorvo? Find out by accessing our full research report, it’s free.

Bob Bruggeworth, president and chief executive officer of Qorvo, said, “In the September quarter, ACG successfully supported our largest customer’s seasonal smartphone ramp. In HPA, we expanded our D&A business while building a broad-based business in power management. In CSG, we maintained our leadership in Wi-Fi applications while investing to grow in diverse businesses including automotive solutions and SoCs for ultra-wideband and Matter. HPA and CSG are on pace to achieve mid-teen year-over-year growth in fiscal 2025.”

Company Overview

Formed by the merger of TriQuint and RF Micro Devices, Qorvo (NASDAQ: QRVO) is a designer and manufacturer of RF chips used in almost all smartphones globally, along with a variety of chips used in networking equipment and infrastructure.

Processors and Graphics Chips

The biggest demand drivers for processors (CPUs) and graphics chips at the moment are secular trends related to 5G and Internet of Things, autonomous driving, and high performance computing in the data center space, specifically around AI and machine learning. Like all semiconductor companies, digital chip makers exhibit a degree of cyclicality, driven by supply and demand imbalances and exposure to PC and Smartphone product cycles.

Sales Growth

A company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, Qorvo’s sales grew at a tepid 5% compounded annual growth rate over the last five years. This shows it failed to expand in any major way, a rough starting point for our analysis. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.

We at StockStory place the most emphasis on long-term growth, but within semiconductors, a half-decade historical view may miss new demand cycles or industry trends like AI. Qorvo’s history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 6.1% annually.

This quarter, Qorvo’s revenue fell 5.2% year on year to $1.05 billion but beat Wall Street’s estimates by 1.8%. Management is currently guiding for a 16.2% year-on-year decline next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 4% over the next 12 months. While this projection illustrates the market thinks its newer products and services will spur better performance, it is still below the sector average.

Here at StockStory, we certainly understand the potential of thematic investing. Diverse winners from Microsoft (MSFT) to Alphabet (GOOG), Coca-Cola (KO) to Monster Beverage (MNST) could all have been identified as promising growth stories with a megatrend driving the growth. So, in that spirit, we’ve identified a relatively under-the-radar profitable growth stock benefitting from the rise of AI, available to you FREE via this link.

Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business’ capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.

This quarter, Qorvo’s DIO came in at 60, which is 51 days below its five-year average. At the moment, these numbers show no indication of an excessive inventory buildup.

Key Takeaways from Qorvo’s Q3 Results

We were impressed by Qorvo’s strong improvement in inventory levels. We were also glad its revenue outperformed Wall Street’s estimates. On the other hand, both its revenue and EPS guidance for next quarter missed analysts’ expectations, and this is weighing on shares. The stock traded down 11.8% to $88.68 immediately after reporting.

Qorvo’s latest earnings report disappointed. One quarter doesn’t define a company’s quality, so let’s explore whether the stock is a buy at the current price. The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.