Qorvo reported fiscal fourth quarter and full fiscal year 2018 revenue last week. The results and outlook were applauded by the market, as reflected in Qorvo’s stock price, which is up some 8 percent following the earnings release.

Qorvo’s Q4 GAAP revenue was $665 million, which declined 21 percent from the seasonally strong December quarter and grew 3.5 percent compared to last years’s Q4.

The company generated $259 million in cash from operations and invested $32 million in capital equipment. At the end of the quarter, Qorvo held $926 million in cash and $983 million in long-term debt.

Segment Results

Although the mobile products segment did better than expected because of improving demand from China’s phone makers, Qorvo’s year-over-year growth was delivered by the infrastructure and defense products (IDP) segment, which grew 26 percent year-over-year and 5 percent sequentially. IDP’s growth came primarily from three markets: Wi-Fi, low power wireless — which achieved record revenue — and defense, including radar, EW and communications.

For the full fiscal year, Qorvo’s revenue was $2.97 billion, down 2 percent from the $3.03 billion achieved last year. Mobile products delivered $2.18 billion, dropping 8.5 percent from the prior year, while IDP grew 22 percent to $788 million. Given the growth in RF content in mobile phones, the mobile segment lost share.

Highlights

The earnings call provided more insight into the factors influencing Qorvo’s business:

Mobile revenue from China grew sequentially in Q4, and the strength of demand is continuing. The mobile products segment won an advanced “Phase 6” integrated front-end module, with additional antenna tuning and envelope tracking components, from a “China-based smartphone manufacturer.”

The mobile group received production orders from a "Korea-based smartphone manufacturer" for high band, BAW-based front-end modules.

Qorvo expects half of the mobile products segment revenue to come from BAW-based products by fiscal year 2021. As the mobile products mix shifts to higher performance BAW filters, Qorvo’s SAW capacity is increasingly underutilized. In Q4, the company took a $39 million charge to write down some of the assets supporting SAW filters.

IDP revealed a couple of interesting new products: a GaN front-end module for 28 GHz, a companion to the 39 GHz module introduced last year — both developed for 5G arrays — and a BAW filter that has 4x higher power handling than Qorvo's baseline process, targeting massive MIMO front-ends. This capability will enable BAW to compete with incumbent ceramic and metal cavity filters in massive MIMO and small cell systems.

Qorvo will lose approximately $40 million in annual revenue from ZTE, due to the export ban imposed by the U.S. government. Most of ZTE’s revenue is in IDP.

Asked about Huawei, should the export ban or U.S.-China trade tensions extend beyond ZTE, IDP’s president James Klein acknowledged that Huawei is one of the segment’s top five customers.

Outlook

Qorvo forecasts Q1 FY19 revenue to be between $645 million and $665 million, approximately ± 2 percent quarter-to-quarter and year-over-year at the midpoint. The guidance reflects losing approximately $10 million in revenue from ZTE and the mobile products segment returning to year-over-year growth.

Non-GAAP gross margin will decline from 48 percent in Q4 to 44 percent, reflecting a lower margin mix of products and underutilization of the internal SAW filter capacity. Qorvo’s gross margin target is 50 percent.

For the new fiscal year (2019), Qorvo expects to achieve revenue growth of 9 percent to 10 percent, riding the tide of BAW-based mobile front-ends, IoT, defense and GaN.