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

All right. Looks like we're at start time. So good morning, everyone. I'm Chris Caso, Raymond James semiconductor analyst. Thanks for attending First Day Raymond James Institutional Investor Conference this morning. Our first semiconductor presentation this morning will be Qorvo. From Qorvo is Bob Bruggeworth, CEO; and Doug DeLieto from Investor Relations. Welcome, gentlemen. Thanks for attending.

Well, thanks for joining us this morning, and it's an absolute delight to be in front of you. It's great to see people in person. And I really appreciate this opportunity. I do want to remind those that are in the room along with those that are listening that our safe harbor language that applies to all our press releases does apply to our comments this morning. We're wrapping up FY '22, and we're coming off a very strong year, and we're beginning to look at FY '23 and what I'm encouraged with is we've got a number of long-term growth drivers. I'll run through a few of those, if you don't mind. Clearly, 5G, WiFi 6, 6E along with WiFi 7 right around the corner. We've got our programmable power management business, followed on with that was our ultra wideband business, really like what's going on there and then our infrastructure, defense and power. So if I just step back and look at 5G, this year we're expecting somewhere between 700 million to 750 million 5G phones to be produced. You're coming up on about 50% of the smartphone market. So we've still got a long way to go there. The other thing is that whenever we bring out 5G phones, we're seeing an increase in content of about $5 to $7. So that's very nice for us as well. I know there's a lot of discussion about what's going on in China. What most people don't realize is 50% of the phones that are produced by our Chinese customers are actually export, and the majority of those are 4G. So as 5G rolls out around the world, that's more content for us. We also see an uplift in the next-generation 5G phones as well. So all good things going on there. So then when I step back and look at WiFi, we see that as a multiyear trend as well. As I said, we're really just going from WiFi 6 to 6E, and we've already begun sampling WiFi 7. Now the industry has had some silicon constraints, which actually has limited some of the growth in WiFi. We're coming off a strong year. We expect to be able to grow again, but that has been an industry constraint. One area of tremendous growth for us has been our programmable power management business, and that has been limited somewhat by the availability of silicon. But again, we see that continuing to grow. As people continue to use more brushless motors and also the SSDs, solid-state devices. So we see that going well. Now ultra-wideband, we talked in our last earnings call about that we're in the Pixel 6 Pro, and we're continuing to expand and offer to more handset customers along with automotive customers as well as IoT and other industries that consumer products go in. So huge growth opportunity there over the next few years, see really good work there. So then if I come down and look about the infrastructure markets, yes, the China infrastructure rollout was a lot less than most of us thought and was rolled out was actually lower frequencies, macro cells. And our technology is really in the sweet spot for the higher frequencies, they're using massive MIMO. We are now starting to see that roll out in the U.S., Canada, Korea, Europe, Japan, et cetera. So we think that business is going to continue to grow very nicely for us. We also think there could be some tenders this year in China, we'll see how it plays out. On defense, that is a great business, historically rose double digits year in and year out. They love our technologies there in both high-performance GaAs and GaN. We've got great long-term deals with those customers, and that's another solid business. The one we're most excited about now is with the addition of United Silicon Carbide being able to play in higher voltage power business with a fantastic technology that has one of the lowest RDS(on) and also the best efficiency. So very excited about our portfolio as we look forward and plan out our FY '23 and beyond. So thanks for giving me time for my commercial.

Absolutely. So maybe to start, and you mentioned avenues of growth for handset content and penetration of 5G. But I think one of the things that may be lost if you're not following the story is the content in the midrange of the lineup. Because now all of iPhones are 5G, I guess they will be in a week or 2, it will be 5G when the SE comes out. But not all of the mid-range phones are 5G. So maybe you could talk about that dynamic a bit.

Sure. And what's great is whenever you talk about 5G to us, the dollar content really isn't that significantly different between the marquee phones and the mid-tier phones. And it really -- Samsung take example, they're using the same architecture. So it's the same dollar content. Maybe one of the differences is the WiFi may not be as strong as what you'll see in the marquee phone. And then some of those phones, we have 2 actually WiFi placements for the PAs and the filters where in the mid-tier, you're only going to have one WiFi 6 opposed to 6E. But you're right, it's very chunky dollar content because they are producing a phone that has all the integrated components that use our filters. They also use our tuners, they use our PAs, our LNAs, all of that in one module and then the tuners are obviously separate on LNA antennas. And with all that complexity, they've got to put in more and better RF.

Right. And so from a unit perspective, I guess, we'd say we're about 50% through the penetration rate of 5G. What about from a content standpoint in terms of the number of dollars of content, I guess you would be less than 50% of that penetration because of the fact that the mid phones are going from very little to flagship type content numbers.

Yes. The dollar increase is significantly more in the mid-tier. You're correct. That's very -- and to your earlier point, it's the Android ecosystem that you have to grow, and we've built out our portfolio where we're very diversified across those customers. So it's going to be nice growth for us.

Right. Maybe take it a little back and just level set us as we enter 2022. You've -- typically March quarter is your seasonally slower quarter, but there are some other dynamics going on between what's happening in China and seasonality of your largest customers. So maybe you can take us through that a little bit.

Yes. I think back -- I think it might have been our November call, we said March was going to be strong. And obviously, when we reported the December quarter, we said, March is going to be strong. And what's driving that is share gains, the ramp of marquee phones and IDP returning to growth. So we've got a lot of good things going on there. Now clearly, Samsung has been a target that we've talked about it probably at this conference 1 year or 2 ago. that we mentioned that that's our big growth opportunity there, and that's what's starting to play out. You saw some of that in December. You're clearly seeing that in March as well. And that's not just in the marquee phones. It's also in the master phones, and it's not like we're done, there's new phones coming out that we're gaining share all the way through next year. So we've got great visibility there, and that's growing very nice.

And I have to ask because we will get some of the other questions. There's been noise about China phones being weak. There's been some people who have pulled the fire alarm about 4 times the last 4 quarters. It's been definitely incorrect. Is there any concern right now regarding what's happening in China?

I think what's encouraging in China is they have managed COVID well. It clearly has impacted the consumer. I was encouraged to hear they're at least targeting 5.5% GDP. We'll see if they able to hit that. But we're still very optimistic on China. I'll remind the group that the one place in China that we did not have good representation was Honor. We can talk through that, but that's a second half story as well. And once we get that, if you think about it, and I said the Android ecosystem, we'll be extremely well diversified across that, plus with our largest customer. And our largest customer has done well in China. A lot of people may not realize that.

Well, it would appear that Apple is probably taken some, I'd say, probably that shows that they've taken some of that share of Huawei...

Correct.

So as you look into the June quarter, given the fact that March is stronger than seasonal, does that suggest anything? Should we think of June differently because of the strength that you've seen in March?

Yes. Obviously, we'll guide June when we report March. But consistent with what we've been saying, November as well as, again, our last call, we've got a seasonally strong ramp now with share gains and marquee phones in production and high volumes, that's going to slow down. Everybody knows that. Then we layer on that, our growth in other parts of our business. And what we said is we will not be up in June. And that's consistent with what we said in the last earnings call. But again, we'll see.

Okay. Maybe we'll pick on to Samsung because Samsung has been a good story for you as they've started to add content in the mid-tier [ point ]. Maybe talk to us a little bit about what's going on Samsung, how they [Audio Gap]

Yes. At Samsung, as I mentioned earlier, we'll be well represented across their entire product lineup. But I think what's interesting is it's not just a low-band pad and mid-high-band pad or ultra high-band pad. It's also a lot of the antenna tuners, a lot of those, and again, that's why everybody -- who does teardowns never find our parts, which we're okay with that. We've invested a lot in the technologies and have a sweet spot, and it's a great franchise. The other area that we're picking up business there is also in our PMICs, our ATP mix, our APTs, things like that as well. So more than just that. And I also mentioned the WiFi PAs in the marquee phones, we've got a couple of those, plus a lot of our filters. So it's very diversified as well within the various product sets that we offer. And clearly, there would be a target for our ultra-wideband products as well. And in our sensor fusions, the MEMS-based sensors that we have. So we see years of opportunities there.

And one of your competitors, Broadcom, I guess, [ 1 quarter ] or 2 ago in their public comments, to back away from the Samsung business, Broadcom due to the high band RF for the Galaxy phone, which was obviously a content. Do you see Broadcom kind of pull back to the market as an opportunity for Qorvo as well?

Yes. It really has been. It's been interesting because also they backed away a little bit on the WiFi as well, and that's opportunities for our PAs because we work better with Qualcomm. I know that's maybe a surprise in WiFi. And that's why we're doing well there as well. So it's clearly been an opportunity for us. We're enjoying that. But again, it's more than just that socket for us. I think that's what's important.

Okay. You mentioned a moment ago Honor, which is a new brand in China. It's a bit of the reincarnation of Huawei, a bit different. Maybe talk about what's going on there and how it's been.

Yes. It's not necessarily a new brand. The Honor brand has been out there. That was just the [ mask here ] phones for Huawei, as you pointed out, it's basically the same management team. I mean I know their Chairman of the Board, extremely well. We talk often. So we've known them. They're using basically the same playbook that Huawei used. We were Huawei's #1 supplier. You may say, well, then why don't you have more share today? Well, there's a few factors that are driving that. One, more importantly, is we couldn't sell to Huawei. Huawei had to redesign all their phones because they couldn't use our highly integrated products to discretes. So the phones that they were designing and building didn't use integrated products. Second thing is, as most of you know, Huawei bought a lot of inventory. So they had a lot of inventory. And lastly, quite honestly, a lot of us didn't have capacity to support it. So as they work through their product portfolio now going from discrete to the highly integrated products, that's what we see as a great growth drivers and they're actually pulling from us our next-generation, highly integrated solutions to be in their phone. So like I said, I see that as a longer-term consistent grower. Again, it's not like our largest customer where it's one phone, they produce many different phones. So it will take time and layer in over time. So we're really excited about that, fantastic relationships with them. They value our technology.

You don't say a lot and can't say a lot about your largest customer. But you did make a comment that when we look at the teardowns of the phone, we often don't see Qorvo and that drives some confusion about where is your content and what's there. So what's the extent -- what you can say about that given all those limitations, the kind of make us feel better that yes, there actually is content in those phones, even though we're not seeing...

Well, we do report in our K every year that the large customer was over 30%. I think there got to be a little bit of an indication.

[indiscernible]

That's kind of how we feel. And there was an interesting article in the Wall Street Journal, I think it was Saturday that talked about the company. And so obviously, we can't talk about it. But what I think -- what is important is that we've demonstrated that where we focus, we can win there. There's opportunities as time goes on through the years that we believe we can continue to grow our business at our largest customer, okay? How's that?

I think that was very, very diplomatic. We should move to IDP a bit because it's a big part of the business. It's a growing part of the business.

Yes.

Maybe start with the 5G infrastructure part. And it's historically been an area of strength that's still ramping. We still don't have sub-6 5G here in the U.S., we're still waiting to get a real signal. But how is that picked as a growth driver as you look over the next year or so? Again, what's happened in China has been a little bit of a disappointment over the last 2 years or so. But do you start to get some of that going forward now that we start deploying in U.S.?

Yes. I think to give perspective to this, if you go back, Huawei was the #1 player. We took -- we've always had enjoyed small signal revenues from all the base station manufacturers. Huawei was the first one to jump on the gallium nitride for the massive MIMO deployments. And that's what really took off for our business and did well. Well then, as you know, we weren't allowed to sell to them. Well, the second player who took off with gallium nitride from massive MIMO was ZTE and that did really well. And then China, the next year decided not to really roll out much in massive MIMO, they pushed everything down in the lower 700 megahertz frequencies, things like that. So now what we're seeing is those are discrete gallium nitride PAs. We're doing what we call PAMS PA modules that are integrated modules, much like we do in handsets with the OEMs that produce outside of China. And so the Ericssons, the Nokias, the Samsungs, et cetera. And we're building out that portfolio. It's just as the world deploys more of the sub-6 gigahertz, there will be massive MIMO. They just won't be as large a rollout as what we saw in China, but it will be slow and steady. So we expect that business to continue to grow. And in fact, if I step back and say, if IDP grew double digits last year, as we close our fiscal year this March, I should say, grow double digits. It's just because of the infrastructure business and what happened in China. So we are starting to see the rollouts come, albeit slow in the C-band here and in Europe and other countries. So we're optimistic on it and kind of we're not playing in China per se.

Right. Because the compares were tough [indiscernible] last 2 years ago, now you're starting to see some growth now it gets [indiscernible] . So when you look at the ability, as you said before, some expressive confidence in the ability of IDP to continue to be a double-digit grower. What are the other elements that drives that growth?

Yes. Clearly, the infrastructure side is coming back. We expect that to continue to grow. Our defense business, we expect that to continue to grow. I mentioned WiFi. WiFi has been a great growth driver for us over the last few years, and we expect that to continue. But I think the one that's going to surprise most of you is actually our power business. We bought Active-Semi several years ago, the programmable power business, and that's really done extremely well. And unfortunately, as I mentioned earlier, it's been limited a little bit on the availability of silicon. And then we layer on top of that, the acquisition we just made with United Silicon Carbide, building that power franchise to diversify that business. And now that's obviously targeted for the automotive side, along with the infrastructure side and defense. So we're able to take that business and take it in a number of different directions. But I think people are underestimating the size of our power franchise and it really gets all our roots back to the work we did with our ETP mix years ago. So I think that's another great driver for us. And then last, I would say the automotive and the automotive market is up and down right now. And unfortunately, every time we're reading about supply chain, it's usually automotive that's been hit. But there still is a lot more cellular opportunities in the car, the infotainment side. I mentioned earlier our sensor business that's in the big brand names that you see out there, particularly the electric vehicles. The cockpits they're building there are just perfect for our sensors that we do in there, and you'll hear more about that. But it's coming off a low base. But we do expect to be able to build our automotive business nicely as well.

And what about United Silicon Carbide? Silicon carbide -- the carbide has been a bit of a buzzword now. And it seems like the key ingredient here is the silicon carbide wafers themselves, which are in very short supply. So maybe talk about that and what United Silicon Carbide means to you.

Yes, a couple of different dimensions. One is just to remind you, we were buying silicon carbide forever. It's a substrate that our gallium nitride goes on. So we know the players around the world, and there is more than just one. I know that may surprise you. But the other thing that's kind of interesting is with the technology that we acquired through purchasing United Silicon Carbide, the devices are about half the size because of the structure of the way they're built along with the silicon that goes with it. So we don't need as much silicon carbide as many other players, but we do have multiple sources to produce the raw wafer along with also grow the epi on top of that. So we've got a very robust supply chain. And we are expecting significant growth out of that business this year.

Okay. I'll remind everyone that even though this isn't a Zoom, you still actually can physically raise your hand if you want to ask a question, so do that. We have about 10 minutes left.

Although we can't see you with how bright this light is, we'll do our best.