2023-11-29 18:47:04 ET
Qorvo, Inc. (QRVO)
UBS Global Technology Conference
November 29, 2023 02:55 PM EE
Company Participants
Frank Stewart - SVP and President of Advanced Cellular
Douglas DeLieto - Vice President, Investor Relations
Dave Fullwood - Senior Vice President, Sales & Marketing
Conference Call Participants
Tim Arcuri - UBS
Presentation
Tim Arcuri
I am Tim Arcuri. I'm a semicon analyst here at UBS. Very happy to have Qorvo next. And we have, Frank Stewart, who is the SVP and President of the ACS, the Advanced Cellular Group. And we have Dave Fullwood who is the SVP of Sales and Marketing, and, of course, we have Douglas DeLieto, who runs IR.
So, maybe we will just start. Frank, maybe you can just give a general overview of sort of some of the dynamics driving your business. You have done pretty well with a large customer this year. Maybe you can talk just some of the dynamics happening in Android. There is some improvement, but yet I think a lot of investors are questioning how sustainable that improvement can be. So, if you can talk through all that, that would be great.
Frank Stewart
Yes. Sure. To jump in, I would say, yes, we are excited looking into next year. It is nice to finally see some rays of optimism in the market. And I would say as we look into next year, we do expect, some modest growth in the handset space, which is a nice change from some of the pessimism we have gone through the last couple years, especially in 5G, which is a big driver for Qorvo. As far as positioning, Qorvo is very well-positioned at both Android and iOS.
On the on the Android side, we have been able to successfully and largely work through the channel inventory headwinds that we've had, and those are now turning into nice tailwinds for us. Because over the past year, while we have worked through channel inventories, we have actually grown our share in the Android space. And that's thanks to the products and technologies that we have leveraged. And we put that together with our customer relationships, which span multiple years of consistent engagement with these Android players.
So, we have talked about the products that we're developing that come out of that. So, we are excited about some of the most innovative and highly-integrated products that we have ever delivered that are -- we are going to be able to leverage that as part of our growth next year.
Question-and-Answer Session
Q - Tim Arcuri
And what do you think so, so obviously, you did -- your content this year with a major smartphone vendor was up nicely. Do you think that's a sustained trend? Or do you think there were some dynamics around the product launch that maybe helped you gain that share? I am just kind of wondering whether you think that share can be sustained.
Frank Stewart
Yes. Definitely. So just like all of our customers, we work for multiple years, usually three plus years, on the architectures and products that we bring forward for our customers, this one included. So, it is never a situation where it is something new or different or changed at the last. It is pretty well known. The areas where we have enjoyed some nice growth in content this year have been areas where Qorvo is strong. So, we have been able to leverage areas of strength. We have been able to leverage areas where we've got multiple generations of success.
So yes, I do feel good about our sustainability there. But I would also add that even in spite of our increase in content this year, I would say, and we've said publicly that we even after the get the gains this year, we are still underrepresented at that customer and we're excited about what we can do and how we can grow going forward.
Tim Arcuri
And so, you don't -- there's sort of some narrative that there was a -- because there wasn't a modem change that somehow caused more reuse of some older or it didn't cause as much change in the RF configuration. And so, there was -- there's some implication going around that well, maybe this was like a one-off, but it sounds like that's not your view at all.
Frank Stewart
That doesn't resonate for how we see the world. I would just say, that is a very performance-driven customer that is going to drive us and everyone in the value chain to deliver good-performing products year after year. And what we were able to do and what we were able to capture this year is the result of years of technology development and product development for them.
Tim Arcuri
If I look at your Android business, at least by our math, back in the peak of the last cycle just in China Android, you were doing $400 million to $500 million quarterback then. And now you're very low, probably less than a $100 million a quarter by our math. What's the right -- I mean, how much of that's inventory burned? So, like, what's the right normalized number? Do you think it's conceivable that we could get back to that number? I mean, it seems like that was a pretty heady period, but I'm just kind of wondering how much you think that your current revenues understated because of channel burn.
Frank Stewart
Yes, that's a good question. And we don't break it out as a specific number, but what I would say is that, we are comfortable that we've finally, largely got to through the channel inventory correction. And something that I did want to also highlight, as we work through the channel inventory correction throughout this year, we've actually grown our revenue on a sequential basis over multiple quarters in China. And we've actually gained share through that period as well, which positions us very well for next year. Because that share -- we've gained is technology, product, and relationships. And we feel confident that we're going to hold that position.
Tim Arcuri
And I think there was a question about this on the last earnings call, but I would be remiss if I didn't ask about Huawei and the risk that at least optically them gaining share would pose to the -- not just you, but everyone really. Do you see that as a risk? And I think some of your peers have bought the phone, and they've torn it down and they say, well, this is actually like 4-year to 5-year-old technology. So, the risk of share shifting is minimal. So, sort of how do you come out on all that?
Frank Stewart
Yes, that's a good question. I mean, it is correct to summarize that there are some significant performance challenges with that phone. We would agree with the summary that our peers have talked about there. But even past that, if you just look at the data, the most recent data that's publicly available and that most people use as data sources indicates that it's past the peak from everything we see, and what the data shows, it appears to be a normal phone launch. We've since seen that all of our customers, we've seen Xiaomi have a fantastic flagship phone launch. We've seen Vivo doing really well with the new smartphone. They brought out the data shows that Apple is doing well in China in the most recent weeks.
So, we think that's a past dynamic, Dave and I happened to -- we were in China last month, and we were able to meet directly with all of our customers. We were able to sit around the table with CTOs and CEOs. We were able to hold the different phones we talked about. We feel really good about our position there. And like I said, throughout this time, we've actually grown our revenue in China. We're going to do again that again this quarter, and we've gained share. So, I think that all speaks for itself.
Douglas DeLieto
Tim, I'd add two things. One, just I forgot to say that the, our statements today, like the safe harbor language that applies to our press releases also applies to today's presentation. Our revenue, I think on the call, I got lost that we were doing so well. Even as we were burning down the channel inventory growing, like December will be about 2x March. There's been good growth all year. We had some peers talking about like more near-term growth. We've been growing throughout the year. We feel good about that. And like, to your earlier question, a lot of investors ask what's normal. There is no normal to us. There's seasonality, but there's no normal like a two handle on China. Android is not inconceivable right at all.
Frank Stewart
Maybe one more data point. All of our customers that I talked about, the Xiaomis and the Oppos and the Apples of the world, they're all doing really well in other geographies as well. That same data source I talked about showed some nice strength in India as well, by the way.
Tim Arcuri
And so, when you guys, and I don't know, Frank or Dave, if you want to take this one, but when you win -- on the cellular side, when you win, I mean obviously at the large US customer, it's technology, technology, technology. That's it. Cost is not a big piece of it. But in Android, how much is cost a piece of it? Or is it always, or is it a technology discussion also in Android?
Frank Stewart
You want to take that one?
Dave Fullwood
Yeah. And so, performance and size are two critical parameters. The innovation never stops, right? And this is true, even our largest customer, there's many other things that matter in their decision-making quality supply, how well we support them year in and year out? And that's especially true I think in our Android customers. You can't just show up with a good part and a good price and expect to win a meaningful share, right? And so, we've been that trusted supplier for all of our customers for many, many years, right? Like Frank mentioned, we were just in China sitting across the table talking about roadmap three years out, right? And so, we've been doing that and providing that kind of support to our customers. So, that's meaningful and that's why we're the global strategic supplier to all of those customers.
And so, it doesn't always come down to just the performance. The performance always matters, but all these other things add up and matter as well in their decision-making. It's very hard to say in any one socket that we won for one individual reason. It's usually a culmination of all those things. That's true in our other markets as well. You take defense, for example. We've been a trusted supplier to the US government and the defense primes for years for technologies like Gallium Nitride and Gallium Arsenide, as well as foundry services. And more recently we're a trusted assembler with our advanced packaging technology, which is US based in our Texas location. So, that's a great opportunity for us there as well. And so, the same theme plays out really across all of our leading customers in and end markets.
Frank Stewart
Maybe a couple of additions to that real quick. Our Android suppliers care deeply about performance and quality, as Dave said. Just in the last few weeks, we've received two awards that we're pretty proud of. One is a quality award that we got from one of our China customers as their number one quality RF supplier. A second one, one of our China customers did a broad supply chain award ceremony. One RF supplier was selected as the Top Innovation Award winner, and that was Qorvo.
Tim Arcuri
Great. So, I don't know if you saw these news articles today, but there is some speculation that the top smartphone customer who has been pursuing their own modem is ending that pursuit. I can either confirm or deny that. But if in theory that, that was the case, does that at all change your outlook for being able to keep your content at that customer or not keep the content? And I guess, at a different way, are you agnostic to whether to the modem itself?
Frank Stewart
Yes. So, obviously, we can't comment on any rumors related to any of our customers, especially that one. To your question, on what we are doing in our developments, in our road maps with them for multiple years, I would say, yes, we are confident and excited in our opportunity and the dollar content available to us independent of how that ebbs and flows.
Tim Arcuri
I mean, even if you took MediaTek versus Qualcomm, you are pretty agnostic and you are attached to a MediaTek modem or a Qualcomm modem.
Frank Stewart
Yes. I mean, just in general, when we develop RF products, almost all the time, almost any time we develop a product for our customer base, we make sure, it is compatible with any and all chipset providers.
Tim Arcuri
Great. Can you talk about where we stand on millimeter wave? Sort of what's your outlook? And do you think that it ever really becomes broadly commercialized?
Frank Stewart
Yes. It is interesting. I would say maybe just from our exposure on the ACG side, so millimeter wave in phones. It is not relevant to our revenue base today. It is not an area where a differentiated RF is used today. So maybe just to clarify that, as far as an end market, millimeter wave is still in phones in use in a small percentage. I think the prevailing wisdom is that, it has maybe a niche place in some highly-concentrated population environments, like ball games and concerts per say. If it ever becomes broader and something that gets more substantial usage, and thus drives the need for a better RF solution, we have got great technologies that would be available.
Tim Arcuri
You’re not investing dollars per say in millimeter wave solutions. It is just that if it happens, sure, it is great for you. But yes, I would agree with that summary.
Dave Fullwood
And keep in mind, we have a lot of other product areas that we're investing in the technology, in defense and other areas, for example, it's just we are not applying that technology right now to smartphones.
Tim Arcuri
Got it. I guess, for CSG and HBA sorry, HPA, Dave, can you just talk about some of the things that are driving those businesses from a sales perspective? What are the key growth vectors upcoming in those businesses? And maybe based on what you see on the sales side, are these -- are you not to put you on the spot, but are you kind of more or less excited about the growth in those markets versus in ACS?
Dave Fullwood
Yes. And maybe I will start first with the growth targets for each of those segments. So, Frank's kind of mid to high single-digit growth, HPA double-digit growth, and CSG in the high double-digit growth. But I think the one thing that excites me is, all of our end markets, including the smartphones are enjoying, multiple growth drivers, including technology, as well as generational upgrade cycles. So, Frank talked a lot about the smartphone space and what's going on there in 4G to 5G, 5G advanced, et cetera.
But if you look at our other businesses, I talked a little bit about defense, but we've got increasing defense budgets there, increasing funding for onshoring, that benefits us because of the technologies I mentioned around GaN and GaAs and our advanced packaging. We've talked on our calls about this trend of one to many. So, if you think about one GEO satellite going to many LEO satellites, low earth orbit satellites, or you think about one plane going to many drones.
So, you have to really shrink all the electronics. And so that means more semiconductor content, more challenges for us to solve for our defense customers. And their next-generation platforms as a result of that are heavily focused on size, weight, and power. And so, there's lots of opportunities there, and they're moving towards disaggregated and highly networked architectures.
So that puts more pressure to have smaller sensors and more functionality that we can go target there. So, defense business has been a strong business for us over the last couple years for obvious reasons, but we continue to see a great outlook for that business. In infrastructure, it's been challenging for the near term for sure, with all the inventory correction that we're still working through, but there is an underlying upgrade cycle going there. If you look at the base station market, outside of China, there's still a lot of room to grow in terms of 4G to 5G transition, just like in the Android ecosystem for smartphones. And in broadband, we're the leading supplier there, and there is a transition going from DOCSIS 3.1 to 4.0.
So, we're getting a lot of orders coming in now as that transition's starting to occur. So, once we get through this macro environment and the inventories behind us, we still believe there's good growth drivers for those businesses. And then our power businesses, there's a massive trend towards electrification, critical need for improving efficiency across many of our end markets. So that's going to increase our content opportunity. Battery management systems are another area that we're investing in, and we see a ton of opportunities across a lot of our end markets there. And then, the SAM for our silicon carbide JFET Architecture is enormous. And so, we're quite small today. But we have the lowest RDS on in the industry.
That's a key performance parameter and with that, we're delivering improved performance and we're getting good traction in automotive, data center, energy storage, and other markets. CSG the biggest business we have right there is -- right now is the WiFi front end. And that's also undergoing a transition from WiFi 5 to 6 to 7. And so, as you move through that means more RF content, more challenging modulation schemes, MIMO. And so, there's nice content growth there for us, and WiFi, connected home matter is going to standardize the protocol interfaces in the home. We think that's going to accelerate the smart home adoption, and we've got a great solution there and a portfolio of products and system solutions for BLE thread, ZigBee, and Matter. So, we feel good about that.
And then ultra-wideband is a really exciting area for us. And it's been slow. The adoption's been much slower than we thought. It's kind of stayed in the very premium tier of the smartphone space so far. But more recently, we see automotive as the key driver there. So, we're -- all of our automotive customers now are starting to integrate ultra-wideband into the vehicle. And it's not just for secure access, it's for presence detection inside the car. It's for ranging and for radar. Lots of other applications. So, you could have multiple anchors of ultra-wideband inside the car. And if it's in the car, you're going to need it in your phone. So, we think that that's going to drive the adoption in the phone as the automobile starts to adopt more and more ultra-wideband. So, if you're really good about that.
Our MEMS-based sensors, we believe they're a disruptive alternative to touch user interface. And so, we see a lot of great opportunities there. Automotive smart interiors, we've talked a lot about on our earnings calls true wireless stereo headsets, smartphones, wearables, trackpads, and many other devices. So, we see that as a good long-term growth opportunity for us. And then in automotive, we've got a complete portfolio of RF connectivity devices from vehicle to everything 4G, 5G, and WiFi and I talked about the ultra-wideband.
So, a lot of good growth drivers. A lot of upgrades going on across all those markets. So, we feel good about the underlying growth potential in all those businesses. We just got to get through the macro environment, and we feel good about the fact that in wifi and smartphones, most of the inventory correction is now behind us. Still, some challenges to go in some of the other markets like infrastructure.
Tim Arcuri
So, just on that point, I mean, if you listen to some of the other peers in your HPA business, they still don't sound very good. So, would you agree that that probably out of all the segments, that probably takes the longest to recover?
Dave Fullwood
Yeah, definitely. And the biggest challenge for us there is probably in the infrastructure space that that one's going to take the longest to recover. I mean, our power business, some of that inventory correction is behind us. Some of it's still in front of us. If you think about appliances and power tools that those kinds of spaces, there's probably still some inventory out there to be worked through. But it's going to take longer. Certainly, smartphones move much faster. Wifi is more similar to smartphones than a lot of those other markets.
Frank Stewart
Put a finer point on it. our base station revenue lost four quarters, has been down more than 50% year over year. We've already absorbed those headwinds. So, we're just we waiting on the inventory consumption.
Tim Arcuri
Great. And I guess, can you kind of double-click on your opportunity in autos? I don't know.
Dave Fullwood
Yeah, no, automotive is a really exciting market for us. And we're pretty small today in automotive when you look across all of our businesses. But we have a lot of content opportunity there. So, if you start with power, we've got the silicon carbide JFET solutions think DC to DC converters onboard charging, or even the charging stations. The traction inverter is an opportunity for us longer term but we don't have a lot of a product focus for that today. Ultra-wideband is seeing broad adoption I talked about in the car, and that's a great opportunity for us. We talked in our latest earnings call about a win we have in Europe with a tier one. And that's lifetime value for just that one opportunity is over $250 million lifetime. But we expect that platform to move to other OEMs as well. So that'll grow from there. So that's a great opportunity for us.
I talked a little bit about automotive connectivity. We announced for our VX portfolio. We've got another marquee win, and another tier one in Germany, that'll be ramping this year. So that's an exciting growth opportunity for us. And then we've got many design winds with our forest sensing touch solutions in the automotive cabin where that's on the steering wheel or the dashboard or controls for the door. Especially in elect in EVs, everybody wants to do more futuristic interior in the car. And so, our force touch solutions really helps to enable that. So, like I said, the revenue's relatively small today, but the opportunity's pretty big. Takes a little bit longer because it is automotive, and we are excited about that opportunity.
Tim Arcuri
Frank, back to you. So, Dave, you mentioned the 4G to 5G transition, and there is still actually quite a bit of opportunity. I think in the investment community, we think, the conversion to 5G has already happened. But you still have quite a bit of opportunity out there, particularly in China, the 4G to 5G conversion. So, can you talk about that?
Frank Stewart
Yes, definitely. And to I would first say, even in the flagship space that is already 5G. The level of innovation has not slowed down. What our customers are asking us to do in the RF space in flagship and the new content we're bringing to the table is on the same rapid curve that we have been on for a number of years. So, we are super excited about the flagship space, and what we get to deliver there, and our opportunities, and what that growth means to us. Additionally, and maybe to your point, in the mid and entry tiers, we are going from a place where, especially in the Android space, less than half of the phones in Android are 5G today.
And going forward, we see that increasing double-digit volumes every year for the foreseeable future. And for Qorvo, that means going from 4G where we have very little content, to going to 5G where we have a significant content opportunity. And if I could, maybe a couple product examples of why we are so excited about this. I mentioned in the flagship space, we see the innovation engine continuing at the same to the pace that we have been at in past years.
Next year, we are going to bring out a mid-high band product. So, this is one of the major product categories for us in cellular where it is going to have the most content we have ever put in an MHP. So, a global mid-high band able to support every frequency band in the world, plus a secondary Rx pass, to a bunch of Rx content that's never been in an MHP before. So, it's going to have more BAW content than we've ever had in an MHP product.
So, we are really excited about that one. It is an example of what I am saying of in the flagship space, innovation is not slowing down. And then in the entry tier, a highlight for you on a product we are really excited about. We have taken the MHP that we do for the mid and entry tiers, and we have integrated all of the low-band content needed in a phone into that MHP, same footprint. It saves over 40% board space for our customers. And we think that product is going to help in this 4G to 5G transition that we are enjoying in that mid-entry space.
Tim Arcuri
And just on that point, how much, I think, we all worry about competition from China. And how much of a factor is that? I mean, for discrete solutions, I mean, not so much for integrated solutions. But how often do you see China being competitive for anything that you are trying to compete for?
Dave Fullwood
Yes. I would say, just in general, the competitive landscape, including any competition from local China-based suppliers has been pretty stable, not just over the last few years, I would say, over the last 15 years to 20 years. So, there is always competition in our space. We enjoy a position as the preferred strategic to RF supplier, all the customers we serve across are in the Android space, and especially when you think of Honor and Vivo and OPPO and Xiaomi and Samsung, the players we really know well. As we were mentioning, we were sitting next to CTOs to last month in China talking about road maps for CY '26. I mean, it is a pretty special seat at the table, we have to do that.
Douglas DeLieto
And just to add -- I'm sorry, just a data point to add on like appreciation for the migration to 5G within the Android ecosystem. It's still 42%, maybe of total Android units, 5G and it will be maybe 48%. So even next year, right, fewer than half, right? So, it's calendar '27, '28 before it's 75%, 80% of Android units, 5G. So, a lot of opportunities. So even next year, that's $50 million-ish new units entering our SAM and then a bigger number the next year entering our SAM.
Tim Arcuri
And is there some way to think just a totally rule of thumb way for each of those units that converts? What's the -- not that you win everything, but like what's the incremental content for you?
Douglas DeLieto
We tend to get 30%, 40%, like not 50%, but north of 30% share on average, on $10, $12, $14 of content.
Tim Arcuri
And that's the -- yes.
Douglas DeLieto
Yes, that's the Android opportunity. Yes. And we're not a major player in 4G. So, it's not like incremental.
Tim Arcuri
Yes. Right. [Indiscernible].
David Fullwood
And one other thing to keep in mind is our China customers, they all have global brands and global businesses, and they have aspirations to continue growing globally. So, they don't look at the supply base or they don't look at us as a supplier relative to whether we're different from a competitive landscape versus a local China player.
In fact, they count on us, right? We're their chosen global strategic supplier, right? So, you have to remember, they also have global businesses and they want to grow in Europe, they want to grow in Southeast Asia, and everywhere else as well.
Tim Arcuri
So maybe just maybe just -- [Technical Difficulty].
David Fullwood
Yes. So, I mean, GaN is a great technology. I mentioned the importance of that in our defense business. And so that's a critical technology going forward for us that's going to help us continue to grow that defense business. It's also important for our base station business. So, we talked in our few press releases and earnings calls recently about our GaN PAMS, which is a more highly integrated module for the base station market.
And so, we had some early design wins with our newest products there. And so, we used to be a major player in GaN for Huawei when it was discrete prior to the band, right? And so that business has gone away. And so now we have opportunity to start replacing that business with some of the more global players with our new PAMS. And it also plays out in some of our other markets across the infrastructure and other areas as well. So, it's a really important technology.
Frank Stewart
Right, like DOCSIS 4.0 -- that business.
Tim Arcuri
Maybe just to give you one last chance here, Doug. So, what's the single thing as you talk to investors? I mean, your stock trades at a very, very low multiple. So, what is the factor sitting here, you talk to investors all the time, what's the thing that you think people are really missing like what's the single biggest opportunity that when you talk to investors, people fully understand.
Douglas DeLieto
So, we've got great representation across all the OEMs and on smartphones, great representation in our other markets. We're bringing specialized technology that really does improve the end market, right, on efficiency and form factor and throughput, no matter what you're measuring, right? I don't think it's grasped the opportunity that is available to us given that skill set and the underlying market growth that we see in the markets we're targeting, right?
Again, like great content opportunity accounts that aren't growing and great opportunity in the accounts that where you are seeing great growth in the markets where you're seeing growth like Android versus other areas. And then outside of the investment businesses, just the opportunities we have and ultra-wideband and all the markets that are developing, like sensing like the silicon carbide automotive. We we're pretty much subscale in a lot of these businesses with great growth opportunity, but fundamentally smartphones being ex-growth. We concede right? It's been five, six years, we've been talking about that, but 5G units and Android, great opportunities.
Tim Arcuri
Well, again, thank you to all of you.
Douglas DeLieto
Thanks, Tim.
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Qorvo, Inc. (QRVO) Presents at UBS Global Technology Conference (Transcript)