Qorvo (NASDAQ: QRVO) beat muted analyst expectations when it reported first-quarter results in early August, but weak guidance failed to impress investors.
Shares of the radio-frequency (RF) chipmaker have soared over 30% so far this year, but a closer look at the company's latest performance indicates potential market share losses to rival Skyworks Solutions (NASDAQ: SWKS).
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The guidance raises a red flag
Qorvo forecasts a revenue range of $800 million-$820 million for the current quarter, which is well below the $846 million consensus estimate of analysts. This is not the first time that the company has set a lower guidance than analysts this year. Qorvo's guidance suggests that its revenue will shrink once again on a year-over-year basis after an 8% decline during the first quarter.
What's even more alarming is that Qorvo has issued a weak guidance despite forecasting a recovery in the Chinese smartphone industry, along with strong sales of newly launched smartphones during the second quarter. The company says that it will deliver strong growth sequentially, but weak year-over-year comparisons indicate that something is amiss, especially when competitor Skyworks management is singing a different tune.
Skyworks Solutions and Qorvo are direct competitors selling RF chips. But Skyworks' current-quarter guidance calls for year-over-year revenue growth of 17%, which should be a cause of concern for Qorvo investors.
Apple reportedly supplies around 40% of Skyworks' revenue, while Qorvo gets around a third of its top line from the iPhone maker and Qorvo believes that the next iPhone could give its business a substantial boost.
But the divergent guidance numbers of Skyworks and Qorvo indicate that the latter isn't totally confident about gaining business from Apple. If Qorvo was expecting a meaty spot in Apple's next iPhone, the company should have issued a strong outlook just like Skyworks did. But this hasn't been the case, which means that Qorvo could cede ground to Skyworks.
In fact, Qorvo management had confidently said earlier in the year that it forecast higher chip content at its top three customers (which would include Apple), but no such claims were made in the latest conference call. Instead, the company muted its tone this time, stating that it is confident of landing more content at "large customers."
Last year, the company reportedly lost almost all of its content in Qualcomm-powered iPhones, according to device teardowns. But at the same time, Skyworks' dollar content in the iPhone 7 had jumped an estimated 15% to 20%.
A silver lining
Qorvo's business had taken a hit earlier this year thanks to a slowdown in the Chinese smartphone market. But times have changed as the company now forecasts a modest recovery in the ongoing quarter. This should be good news for Qorvo investors as 30% of the company's mobile revenue comes from the Chinese market.
In fact, Qorvo claims to have landed a number of design wins in the Chinese smartphone space. Additionally, the company believes that it can make a comeback at Huawei by landing more content, where it was earlier losing ground to Skyworks. These new contracts could help Qorvo's results get back on track.
But investors should wait for the actual results to come in before getting excited, as Skyworks has deeply embedded its products at leading Chinese smartphone makers.
Qorvo's dependence on Apple for a big portion of its revenue could spell trouble if it loses content share to rivals, while failure to diversify into China in the wake of stiff competition presents another headwind. Investors should remain cautious.
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Harsh Chauhan has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple and Skyworks Solutions. The Motley Fool owns shares of Qualcomm and has the following options: short November 2017 $95 calls on Skyworks Solutions and short November 2017 $92 puts on Skyworks Solutions. The Motley Fool has a disclosure policy.
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