Qorvo, Inc. (QRVO) Earnings Call Transcript & Summary

Welcome back to the day 2 of our Global TMT Conference. I'm Blayne Curtis. Happy to be starting the day off with Qorvo. From the company, we have the whole crew, Bob Bruggeworth, President and CEO; Mark Murphy, CFO; and Doug DeLieto, Head of IR. The format is a 30-minute fireside, but I'm going to pass it to Bob for some intro remarks, and we'll get into the Q&A. Bob, I'll hand it to you.

Thanks, Blayne. We appreciate the invite to this year's conference, and we look forward to joining you in person next year.

Definitely.

Before we begin, I'll remind the audience that our safe harbor language that accompanies our press releases also applies to today's presentation. I also want to thank everyone online for joining us today. As always, we appreciate your time and your interest. We will provide some brief remarks about our markets, starting with our cellular for smartphones, then we'll cover connectivity, infrastructure, defense, power and other areas we see driving our growth and representing a larger slice of Qorvo's revenue over time. In cellular RF for smartphones, Qorvo has driven innovation for decades, and we are a global leader in 5G. We project RF content growth across smartphone OEMs for multiple years. Qorvo is uniquely positioned to lead, given our market exposure, product and technology differentiation and our customer intimacy. While the majority of cellular RF content today is in smartphones, this is expanding to include massive machine-to-machine IoT applications as well as ultra-low latency applications, like automotive and AR and VR. Other connectivity solutions supplied across mobile and IDP, which are primarily wireless, include WiFi, Bluetooth, ZigBee, Thread and ultra-wideband, and uses for these technologies span industrial automation, enterprise, connected home, automotive and other high-growth IoT applications. Looking at infrastructure, mobile operators worldwide are early in 5G deployments, and Qorvo is a leading supplier, offering high-performance GaN PAs and a broad portfolio of small signal devices. In defense, Qorvo supplies advanced RF technologies to the primes and others. And semiconductor spend on high-power applications like communications and radar is increasing. Lastly, in power, Qorvo serves the need for more efficient power within the broader trends of electrification and renewable energy. As in other markets, Qorvo helps customers in power markets quickly develop world-class products with advanced technologies enabling smaller form factors and more efficient operations. On capital allocation, Qorvo has been balanced and disciplined. We have steadily added technology and market exposure building on Qorvo's existing capabilities. Over the last several years, we've expanded our power capabilities, build on our portfolio of advanced switches and sensors with MEMS bolted on to our defense franchise and invested in ultra-wideband. We're thrilled with these investments, and we expect them to contribute materially to Qorvo over time. In the near term, our outlook provided during the November call remains unchanged. We see supply and demand imbalances moderating through the March quarter. Over the longer term, an expanding set of OEMs are working with Qorvo today on our next-generation devices that we'll launch throughout the calendar '22. We are serving our customers where we are valued most, while our customers' challenges related to RF and power continue to get more difficult. We believe our technology, customer exposure and portfolio management position us to participate broadly and durably in 5G, connectivity, infrastructure, defense, power and other growth markets. And with that, I'll turn it back over to you, Blayne, for questions from you and from the audience. So thank you.

Thanks, Bob. Yes, maybe just digging in, you covered a lot in those remarks and maybe just starting on the mobile side. The question I get a lot from investors is you're kind of entering the middle innings of 5G. People just say, what kind of RF businesses grow? So any comments on what you think that TAM can grow? You mentioned broadening out IoT applications. I mean 5G has a lot of legs beyond handsets. But just from perspective for as longer-term investors as to what does a mobile RF business look like over the next 5 or 10 years?

Yes. Thanks, Blayne. And what I appreciate is the time horizon because we do believe we're in the very early innings of 5G. And as we start to see the second and third generation devices being rolled out in 5G, they continue to add more bands. We've -- also we've been talking about dual connect modules whereby we've got dual transmit, so that's adding content. The antenna area that we do a very good job of servicing our customers, we're seeing more antennaplexers, so again as that complexity goes up. And also, we continue to see the addition of more complex WiFi. We've talked a lot about WiFi 6, WiFi 6E. We've also started to expand in the WiFi 7. So we expect those trends to continue. So I think that in itself, that complexity, just like we marched through LTE, we had the same discussions, Blayne, probably 5 years ago. LTE is over and then there's LTE Advanced, LTE Pro, we see 5G doing the same. The other thing that we spent a lot of time on is improving the performance of filters. These customers have spent tremendous amounts of money to buy that very valuable spectrum. So what they're always trying to do is push better filter performance so that they can use more of that spectrum more efficiently, so we see that going on. The other thing I'd like to point out is an ultra-wideband. We already know that's in the iOS ecosystem. We expect that to now start to proliferate through the Android ecosystem. And just to share with you, our ultra-wideband is also now enabled in the Google Pixel 6 Pro, so we're already starting to see that. And we expect that to be a great opportunity for growth over the next few years. So we see that going. And also, we're starting to see our sensor fusion in the handsets. We're in a Xiaomi gaming phone. So you can see as we replace the buttons on phones and things like that. In fact, I met with one of the founders of Xiaomi, and he said to me that, that was one of his dreams to get rid of all the buttons on a phone. So hopefully, we'll be able to make his dream a reality. So I'll just offer those as some examples, Blayne.

Great. You mentioned some of the headwinds you're seeing subsiding in March. I mean if you look at the entirety of the year, it wasn't a bad year at all. You had actually quite strong growth, but it was very first half-weighted. So maybe just a little retrospective as to why did the year play out this way? And maybe as you think about seasonality, has it really turned this kind of Android, iOS heavy first half, second half?

I love how everybody wants to talk about seasonality. And if we really map out over the last 4 or 5 years, even our largest customer's seasonality shifted a little bit a year or 2 ago. The industries -- really, seasonality is based on new phones. To your point, we've had tremendous growth in 2020, tremendous growth in 2021. But yes, we have seen some supply constraints within our own supply as well as what our customers weren't able to get matched sets. I think what is interesting is the industry slowly adds back capacity, we do expect things to improve in 2022. The key is what are the marquee phones that are launching in the beginning of the year, how are they going to perform. And what we're excited about is how we're positioned with many of those customers that are launching phones in the beginning of 2022, Samsung being one of them.

Maybe just following on that. I think it just happened that you reported at the same time Qualcomm did, and they had a good report, and you lowered and people said, yes, that must be share loss sign. You don't need to comment exactly on Qualcomm's share versus yours. But just as a bigger picture here, just share component within RF. I think there's always a sphere that it moves around so much, you kind of -- you talk about -- my -- by math, you actually probably grew faster than everybody else, you might have gained a little share, but maybe just talk about the share component for you and whether that you see opportunities to gain your share because the fear right now is that you're losing share.

Yes. Yes. Thanks, Blayne. And I feel very confident that we are not losing share. Now first, going back to your point, Qualcomm does participate in areas of the RF market where quite honestly we're not even spending any R&D. One example will be millimeter wave. We're spending some money in R&D for millimeter wave. But that's not a big part of our portfolio today, where it's really primarily one customer that's doing that on one baseband. So they've done a good job there. They've also done a good job from their acquisition of TDK with DRx -- SAW-based DRx modules and discrete SAW filters. So a lot of where their growth is coming from, quite honestly, we're not participating. So second, yes, they're doing a good job of gaining some share at Samsung. But I also want to point out to you and the audience that as we move forward in the year, in the March quarter, in particular, you're going to start to see significant growth from us at Samsung. So we're both growing at Samsung. So I also want to point out back to Honor and you know what else transpired with -- what happened with the sanctions that went on Huawei. Honor picked up that portfolio, used a lot of discretes, that's going to be also a nice growth driver for us as we progress in '22, as they come to us much like we said that Huawei would, and buy our highly integrated modules to produce their 5G phones. So kind of in summary, we believe the growth is not coming at our expense. And quite honestly, we both can grow very nicely because our product portfolio really doesn't overlap significantly. I hope that's helpful.

It's very helpful. And maybe just following on, one of the byproducts that's come out of this pandemic, not just in RF across semis is the, one, companies are being -- becoming closer with their customers. You're seeing a lot of long-term agreements, both with your customers and your supply base, maybe you could just comment on that because that actually helps bolster that share argument as well?

Yes, thanks, Blayne. And we do have LTAs across both our customers, including Honor, who I just mentioned, and our suppliers. And we feel it's important to have these agreements with both suppliers and customers to reduce risk. We get asked all the time, "Well, can you talk about your LTAs and how specific they are and do they guarantee they're going to -- much like our industry, they're covered by NDAs?" So I can't go into any details. I know a lot of investors like those. But I think what's interesting is we've worked very hard to build a very balanced business across our mobile customers. And I think that's really important. And also, as you pointed out, having these -- because of the tightness, one of the good things is that we now have more constructive relationships with both customers and suppliers because we're tightly integrated. But I think the important thing is we've built a very balanced business as we go across our full customer base now. I really like how we've positioned the business to go forward.

You talked about launching a grant to your supply base. Can you just talk about supply in general? That's been a big problem for the semiconductor industry. You mentioned a kitting problem, which you're referencing lack of availability of SoCs or modems. Assuming -- I think supply is coming on, so that should help some of this leading edge. But where is it still tight for you across your entire supply base and kind of where you focus the most in terms of improving the tightness that you have?

Yes. Thanks, Blayne. Internally, I think we're in pretty good shape. We've had a little tightness just because of mix. But one of the things that's been our really biggest challenge is still silicon. We use a lot of silicon, whether it's in our tuners, in our WiFi modules, our RF highly integrated modules, what have you. And that still remains a challenge. But as I made in my opening comments, we do see capacity coming online. Our agreements are getting us more volume in the next year and the following year, et cetera. So that's still the one area. But what we still hear at least from our customers is still tightness in power management, tightness in WiFi, SoCs and some other components. So we're probably a little more concerned about our customers' ability to get -- also modems for, what we call, more of the mass tier 5G phones. A lot of the tightness in silicon went to the higher value phones, which you can't argue with was a good play. But we see that now in pretty good shape, and that's where we see the next wave of growth coming primarily in the Android ecosystem.

It's a great lead in, in terms of the next wave of growth and -- just in terms of the 5G cycle, maybe you end the year with a little tightness hurting that total number. I think you had said at one point 550 million and maybe it's a little bit lower, but it's pretty close to that. So where do you see the 5G market this year? And then more importantly, how do you see it progressing for next year and the year after?

Yes. Thanks, Blayne. And yes, this has been a challenging year for the volumes. And I think we agree with a lot of the numbers that have been published for this year in that low 300s. And you know adding significant growth again, pushing into the 500 million 5G units in 2022 and continue to grow from there, we've thrown out some numbers well over 700 million, so we continue that in March. I think what's interesting is the Android ecosystem is still very early in its adoption of 5G. The other thing is what I mentioned earlier is even the marquee phones adding the second and third generations are adding more dollar content. We've talked a lot about the $5 to $7 worth of content in 5G phones that are migrating from discrete to more integrated, we see that in the mass-tier phones. Two of the players that we see driving a lot of that is going to be Samsung and Honor. And the Honor brand, which we're positioned very good as we begin the ramp in 2022, so I'll...

I wanted to ask you about that addressable TAM because in the midrange and definitely the lower end may not have been a TAM for Qorvo or some of the other RF providers. But now that they're going more integrated architectures, does this actually open more of the TAM that you weren't addressing in 4G?

Absolutely. And again, I think it's because we're able to bring together, the BAW filter technology, our SAW filter technology, the work that we've done with our gallium arsenide, and really bringing all that integration together with the SOI and LNAs and things like that. That performance and being able to develop phones and the size that they need as they continue to add other functionality, we're starting to see more WiFi in those handsets. I talked about ultra-wideband, and you're continuing to see more and more features come into that mid-tier phone as well. So yes, we believe that is opening things up. And again, we were not in a lot of those phones at Samsung as well as Honor. So we see that as great opportunities for growth in 2022.