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

All right maybe. Hopefully, you guys can hear me. I'll just shout, if you can. Good morning, everybody. Welcome to the semiconductor room. I think we're locked in this room for the next like 12 hours. So I hope everybody is comfortable. My name is Matt Ramsay from the semis research team at TD Cowen. Welcome to day 2 of the conference. Hopefully, everybody had a productive time yesterday. It's our 51st Annual TMT Conference, the first with our -- with Cowen being a part of TD Bank, and it's an exciting time for lots that's going on. I think Brian's coming with a new...

[indiscernible]

All right. With -- the kids chair has gone.

Has gone.

The kitty chair is no longer with us. Thank you, my friend. I see. They take care of us in the semiconductor team at Cowen. You've got a chair or I'm used to being in at the kids table for Thanksgiving and such. But anyway, really, really pleased to welcome the team from Qorvo to speak with us today and have a conversation that might be a little bit different than some of the conversations that some of the investors focus on, on the company, Phil and Eric run businesses that are outside of the cell phone business. And diversification outside of wireless is a big topic for the company, applying many of the technologies that the company has developed over the years into new, less cyclical end markets with higher margins is, I think, a big focus for the firm. So maybe Eric, if you wanted to start and Phil, you can kind of jump in, but be really, I think, helpful given the recent resegmentation of revenue and the business for you guys to spend a little bit of time on what your new remit is in running into your divisions and sort of we can kick the conversation off from there.

Yes. It sounds good...

Eric -- I'm sorry, if I may, like because we don't have formal remarks. The safe harbor language that applies to our press releases will apply to today's conversation. We should have...

Thank you for that Doug, and for not making me read...

My job here is done, yes.

And for not making me read that paragraph.

Thank you, Doug. Yes. So I'll kick it off. I know some of you and some are -- I see some new faces as well. But I ran the mobile business for the company for the history of the company, up until we did the resegmentation. And along the way, both within mobile as well as our Infrastructure and Defense Products, we call it the other part of the business, we are very focused on building these core businesses, which I think have been pretty successful in the growth. But along the way, we had also picked up a lot of acquisitions for diversification. In Mobile, for example, we acquired Decawave, which is an ultra-wideband technology innovator, super interesting technology for mobile phones, but also applicable to pretty much every other industry in the world. Also, we had picked up NextInput in the Mobile group, which is a really highly differentiated ForceTouch sense functionality. That also has application in Mobile, but a lot of application in Mobile and many IoT systems as well. And so we got to the point between all of these acquisitions being sort of under the radar within the 2 big groups, where at least I really wanted to focus on what we could do with these things. And the Mobile group was really, really, really doing well. It's got a great future ahead of it, a very mature team there. So that's in great shape and continuing, of course. But with Connectivity and Sensors Group now, we're combining -- we're focused on IoT, obviously, automotive connectivity, the connected home, enterprise and industrial access, all these areas that are now being brought into focus by us where we can apply the connectivity systems capability we have now. So WiFi -- excuse me, Bluetooth, ZigBee, Thread now Matter, Matter over Thread as well as ultra-wideband, these are full system solutions, all the digital, analog, software, complete system solutions. So not just the components you're used to seeing from our company. And then adding to that, very high-performance WiFi components and now the touch sensor capability, we have completely new sort of technology recipes that we can bring to each of these markets, work with the leaders in those markets now to help really enable completely new businesses. And it's a lot of fun. Now we're still going to leverage the Mobile business, of course, because we have an application in that. Obviously, WiFi, touch sensors, UWB, that -- we'll sell that into Mobile, of course. But beyond that, we're going to really focus on building out auto and IoT and all those businesses there. We think we've got a very unique capability with our RF expertise and our super high-scale factories where we can make very highly complex RF modules and put all the pieces together. So that's the focus for CSG.

Similar to what Eric was talking about for HPA, which is High Performance Analog, what we saw was we had bought 2 acquisitions in the power management space. The first was Active-Semi. The second was United Silicon Carbide. And what we saw with those 2 technologies was there was really a pretty big opportunity for us, and I'll talk a little bit more about that. But not just in the power area. In the defense -- the Defense and Aerospace segment, we saw a really big opportunity in what's happening in that space. And so for -- when we looked at how we kind of resegmented the company, we said, look, given the SAM growth, I mean we're seeing a $5 billion SAM going to a $10 billion to $12 billion SAM in 3 years just in HPA. We needed to give that a little bit more focus. And I think that was the other rationale behind kind of resegmentation. Maybe starting a little bit on the Defense and Aerospace side. We obviously, we're a leader there today, but that market continues to change and grow. You're seeing really the needs for next-generation radar platforms are changing quicker than they have in the past. You have -- the architecture is going from maybe 1 plane to 20 drones and all of the kind of the advanced frequency hopping and things that are needed in that space are really driving an opportunity for us at Qorvo. In addition to that, we said, look, we have an opportunity -- one of the big challenges that the U.S. government has is how do you take all this advanced RF and radar capability? And how do you put it into a smaller space? And we've been partnered with the U.S. government for a long time, starting with our SHIP program. We had a big announcement with the U.S. government. We delivered our first prototypes there, but there's a lot of really exciting stuff that's happening in that segment that the HPA is focused on. On the power management side, we have opportunities both in the silicon carbide space, which I don't have to probably talk. Most of you probably follow companies that are there. We have some really interesting technology that doesn't get a lot of airtime. We have a technology there that provides the lowest RDS(on), which translates to faster battery charging, longer battery life, whether it's a car, whether it's in the infrastructure, data center space. So there's a really exciting opportunity for us there that we're working to capture. And then in the more kind of traditional power management space, we have a pretty broad IP portfolio. And my background, I joined Qorvo 1.5 years ago. My background was Intersil. It was Renesas. I come from the analog power mixed signal space. And it was exciting what I saw. And so we're really going to leverage that IP into a lot of our current markets, but some other markets as we diversify Qorvo. So that's really the mission of HPA.

No, thank you, guys. I think that's helpful context.

I might start off with -- to ask a few questions, Eric, about the business that you're running, and then we'll kind of gets to Doug in the end on the Mobile side, which is unavoidable, when we talk about [indiscernible] about. I think -- so it's interesting, we cover -- and they'll be presenting later today, like the guys of Silicon Labs and what they're doing in the connected home and IoT. We spend a lot of time thinking about what ST is doing, what SP is doing, companies that have not just connectivity assets and software assets to go into IoT applications, but also scaled microcontroller franchises. And so I'd be interested to hear about how you're competing with those companies. And do you intend to really push into MCUs? Is it an inhibitor of the business? Like what's the strategy that's different from what they're doing that has maybe the compute side and the connectivity side, where your expertise comes from the connectivity arena?

Yes, yes, great question. So for the most part, certainly today, we're focused completely on connectivity. No plans to move into the MCU. The industry is so nascent right now. There's still a lot of work to be done just fundamental architectures. But we see a lot of the scale in a lot of these businesses going to very, very thin connectivity slices with a little processing power. But sensing, certain things like presence in the room, for example, or other environmental sensing and so forth and then just using those to communicate back to a central hub, right? So around the hub -- around the home, for example, there'll be 10x more just kind of very thin sensors and communicating back than there will those more hubs, like access points and so forth. So for now, we still see a lot of opportunity in just focusing on the connectivity piece.

So I mean there's a lot of those folks that are trying to do single-chip solutions that integrate the connectivity in with the MCU. What kind of partnerships for MCU providers or compute providers do you guys have? Is it -- how do you go to market given sometimes connectivity is the crux of the conversation. Sometimes compute is. There's a little bit of AI getting sprinkled in. I got my AI referencing there. Don't worry.

You beat us to it.

Yes, exactly. Check the box there. I just wonder how the onboarding of customers and what's the conversation like? Do you meet with connectivity? Obviously, you would, but do your competitors lead with compute?

Yes. Yes. It's an excellent question. One of the advantages of entering this space as Qorvo is we've already got deep trusted relationships with all the major vertical suppliers, right, whether it's an Amazon or a Google or an Apple or a Samsung, Xiaomi, we're a long, deep, trusted supplier to these companies. And so they're laying out architecture for these systems, right? And we're working with them. A lot of times, they want to have a big piece of that compute for example, right? And so we're working with them at the highest level to architect the systems and really just provide that connectivity piece.

That makes sense. One area that gets a lot of conversation now is ultra wideband. And I know you guys are investing there. Do you -- is it primarily a phone opportunity that then you can leverage that R&D and technology into adjacent markets? And I guess, maybe you could talk about UWB to start with. And then I guess the bigger part of the question is, when you think about your business, are you sort of limited to just things that are relevant in the phone space, and you can leverage that R&D? Or do you have funding, R&D efforts, et cetera, to go into new technologies that might not be mobile device relevant?

Yes, absolutely. Great question. So yes, for those of you that may not be aware, we acquired Decawave, which was the fundamental IP owner of the modern version of ultra-wideband. There was an older ultra-wideband that was certainly totally different, which shouldn't develop. But -- so this is a radio technology that's very high frequencies, at 9 gigahertz. It's a very short pulse, very broadband energy that gets sent out throughout the room. And with that, with other correlated ultra-wideband radio, you can figure out precisely how far apart from each of them they are. That was the original idea. So precision, location, distance, or if you've got multiple antennas, you can then do 3D, so you've got complete proximity awareness. So you know, our phones know exactly where they are in relation to each other in 3D space. Our phones can talk to other UWB-enabled devices and know that. So for one thing, you can do these magical properties. Apple's had ultra wideband for some time in their phones, and they use it for things like passing music from your phone to your speaker by just swiping over it. Those sort of proximity where, where your devices are aware of where they are in relation to each other brings a complete new element to everything that we'll interface within our daily life. So that was sort of the genesis of it, but it actually goes well beyond that. Because with that precision, location, and proximity awareness, it comes with inherent security. So for example, key fobs to get in cars. Today's key fobs can be sniffed and recreated somewhere else to open or operate a car. In the future, you'll have to be precisely where you are to have that because that persistent location gives you enhanced security. And so it took off in mobile phones, right, for sure, to enable a lot of use cases. Now though, we're really seeing automotive go. So next-generation key fobs, and already a day, Philip, in fact, has ultra-wideband in his car and...

I love it.

And he lost his key fob weeks ago. He doesn't even need it. So with your mobile phone, you walk up to the car and unlocks. It starts for you and so forth. So that will be another major use case that will be around the corner. And once you have ultra-wideband now in all the phones and all the automobiles, obviously, home access will be the next step. So just like you're used to walking up to your car, with your phone, it opens for you, your home, will do the same thing. And then use cases around the home will proliferate from there, right? So I'll admit, it hasn't come as quickly as we thought when we acquired the company, but it is definitely coming. And so you're working with each of those verticals, as I mentioned before, we're working on those use cases that will really, to make it a must-have technology everywhere. It's not by any means located in just the mobile phone. It will be in all devices.

Just really quickly before we transition the conversation a little bit. Just as you think about the next 3 to 5 years in your business, any just broad strokes, growth targets or things like that, that you might want to talk about? Just how are you guys thinking about this from a growth in TAM, growth in revenue perspective?

Yes. We think it will be the highest-growing segment. We've called it strong double-digit growth. This year, we're obviously suffering from the market. A lot of our actual core revenue today is coming from WiFi front-end. So that's tied to all the consumer electronics, phones and others that are slower than everyone had anticipated. So we got a lot of underutilization or gas fab tied to it. So key milestone is to get profitable, obviously, right? We got to get the scale to get profitable beyond that grow faster than the other segments, strong double digit and have accretive profitability in the 3- to 5-year time frame.

Makes sense. And by the way, this should be interactive. If anybody has questions, just wave the yellow hand. I'm going to -- now please.

Yes. So do you guys also see a good amount of promise here in the quantum space? Like I know the special kind of amplify? For example, which do you guys are 1 of the leaders in. And so do you see that as an opportunity?

In which space, sir?

In the quantum space.