Qorvo Investors Will Be Scrutinizing the iPhone Effect

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Apple (NASDAQ: AAPL) supplier Qorvo (NASDAQ: QRVO) has a lot to prove when it releases its second-quarter earnings after the market closes on Nov 1. Investors have given the chipmaker the benefit of the doubt so far this year, with the stock gaining roughly 40% so far in 2017 despite clear indications that its business is on the wane.

Apple reportedly supplies a third of Qorvo's revenue, so investors are possibly expecting Qorvo to report windfall gains after the launch of Apple's new iPhones. But that might not be the case, thanks to the intense competition for radio frequency chip spots in the latest-generation devices, and it won't be surprising if Qorvo's upcoming results and outlook fail to satisfy investors' expectations. Let's take a closer look.

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Qorvo probably won't win big from the new iPhones

Qorvo has consistently underperformed analysts' expectations this year, thanks to stiff competition from rivals such as Skyworks Solutions (NASDAQ: SWKS). An iFixit teardown of the Apple iPhone 8 indicates that Qorvo's content in the new iPhone has remained the same as last year. The company is reportedly supplying an envelope-tracking chip and a low-band-power amplifier module for the iPhone 8, identical to the parts it supplied for the iPhone 7.

By comparison, rival Skyworks seems to have landed at least four chip spots in the new device, up from three last year. Furthermore, Skyworks could gain more content in the iPhone 8 Plus, as the device is expected to carry a higher number of antenna switches.

Qorvo had given investors reason to be skeptical about iPhone content when it released its first-quarter results. The chipmaker said it expects $810 million in revenue at the midpoint of its guidance for the quarter, significantly lower than the $846 million analysts were originally expecting. By comparison, Qorvo had pulled in $865 million in sales in the second quarter last year.

And Apple is reportedly facing a few new-iPhone problems of its own. A recent survey from investment-banking firm Piper Jaffray indicates that the older iPhone 7 is drawing more interest than the new iPhone 8. Meanwhile, Apple has reportedly run into technical problems with components for the facial-authentication feature in the premium iPhone X


Will there be any positives?

Qorvo is trying to reduce its reliance on Apple, and the company's upcoming report should provide more clarity about the company's progress in this regard. For instance, the chipmaker counts its increasing clout at Chinese smartphone original equipment manufacturers (OEMs) as one of the key catalysts that could drive its long-term growth.

Qorvo management claimed on the previous earnings call to have landed several design wins in China, including one of the leading OEMs in the country reportedly selecting a broad range of products for a flagship device.

More importantly, Qorvo claims that it will soon start supplying more chips to Huawei after falling out of favor last year. This could be a big deal for the chipmaker, as Huawei is closing in on Apple and Samsung in smartphone sales.

In all, Qorvo currently gets around 30% of its mobile business out of China, excluding Huawei. That bodes well for the chipmaker, as the top 10 Chinese smartphone makers held 39% of the global smartphone market last year, higher than Apple's 14.4%.

Qorvo is also looking at emerging technology trends such as smart homes and the Internet of Things to secure long-term growth. The company has recently released products aimed at these two markets, and management should provide clarity about the progress it's made with them.

However, Qorvo might find it difficult to squeeze into this already crowded space. In addition, rival Skyworks' rising influence in the Chinese smartphone space and content gains at Apple might continue weighing on Qorvo's performance.

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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple and Skyworks Solutions. The Motley Fool has the following options: long January 2020 $150 calls on Apple, short January 2020 $155 calls on Apple, short November 2017 $95 calls on Skyworks Solutions, and short November 2017 $92 puts on Skyworks Solutions. The Motley Fool has a disclosure policy.