Qorvo Inc Q3 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Gary Mobley - Loop Capital - Analyst : Hi guys. Thanks for taking my question. I wanted to verify some of the numbers that you guys had in your prepared remarks. If I heard correctly, you will have in fiscal year '25 about $875 million of revenue from Android customers, and that might whittle down to something less than $500 million over the next 5 years. I presume the remainder will be primarily Samsung and maybe some high-end customers over in China? Am I running through all that math correctly?

Question: Gary Mobley - Loop Capital - Analyst : Got it. Okay. So Bob, I know you were clear on the assumption that HPA would grow double-digit percent in fiscal year '26. But I wanted to ask a question about the repeatability of the HPA strength that you just showed in the third quarter. If I'm not mistaken, there might have been maybe a Department of Defense contract, maybe something a little bit atypical in the quarter. Maybe, if you can just give us a sense of the details of that to the extent you can and the repeatability of it?

Question: Gary Mobley - Loop Capital - Analyst : Great, thank you guys.

Question: Harsh Kumar - Piper Sandler - Analyst : Yeah. Hey guys, congratulations on solidly beating the earnings estimate. I guess my first question, Bob, there was a lot in the common section, but if I heard it correctly, I think you're saying that you're expecting better than normal seasonality for your cellular business. And I'm assuming that's with your largest customer. Could you maybe talk about what that means? What we should be thinking and expecting? If you can just paint a picture for us, that would be helpful, then I do have a follow-up.

Question: Harsh Kumar - Piper Sandler - Analyst : Okay. That's fair. And then, Grant you talked about a lot of things on the gross margin side. If I had to say what would be the one or two biggest things that you think Bob or Grant, that are needle movers for the gross margin. You talked about high 40s and then ultimately even potentially hitting 50s. What would be two of the biggest things that will be happening to make the margin go up in your opinion?

Question: Harsh Kumar - Piper Sandler - Analyst : Thank you, sir.

Question: Thomas James O'Malley - Barclays Bank PLC - Analyst : Hey guys, thanks for taking my question. My first one was just in relation to March guidance. So you gave us $875 million for the year in Android, you could set that pretty easily. And then you talked about less than seasonal declines in your largest customer. So do you have a piece in proxy from where ACG is? The other two businesses, to kind of get to your guidance. You talked about mid-teens growth on the full year. Both of those look to be tracking a little bit ahead just given where guidance is. So is there any weakness that you would call out amongst those two businesses in many pockets, other than the silicon carbide stuff or -- just trying to square away the math here. If I said Apple down a little better than seasonal, and Android to your number, you're getting a little bit above guidance. Any help with March to start?

Question: Thomas James O'Malley - Barclays Bank PLC - Analyst : Got you. And then you gave a decent amount of color in the prepared remarks on June, you highlighted that, that's normally bottom seasonal for the largest customer. And then you talked about defense being down as well. Just given that you went out of your way to highlight that in the prepared remarks, could you give us any color from a total company perspective, what you're expecting there?

Question: Karl Ackerman - BNP Paribas Exane - Analyst : Yes. Thank you, gentlemen. Given your comments on the Android ecosystem. I was hoping you could address the outlook for RF content for the industry over the next couple of years if the baseband modem of your largest customer remains at your largest -- remains to your competitor. I REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 28, 2025 / 9:30PM, QRVO.OQ - Q3 2025 Qorvo Inc Earnings Call asked because some investors have been concerned that reuse could remain if the baseband share remains status quo. But I was hoping to get your clarification on that.

Question: Karl Ackerman - BNP Paribas Exane - Analyst : I'm referring to your -- within the iOS ecosystem, whether if there is a change or no change in the baseband modem, whether you think there's a growing risk of reuse or you do think there is innovation and continued content gains in that area of the market?

Question: Karl Ackerman - BNP Paribas Exane - Analyst : That is correct. That is correct. Yes. How do we think about the content opportunity for that? That is correct.

Question: Karl Ackerman - BNP Paribas Exane - Analyst : Got it very helpful.

Question: Vivek Arya - Bank of America Merrill Lynch - Analyst : Thanks for taking my question. I wanted to kind of come back to this long-term growth opportunity for your or mobile business. You mentioned that it could be flattish, I think, you said for fiscal '26 if I got it right, but then starts to regrow. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 28, 2025 / 9:30PM, QRVO.OQ - Q3 2025 Qorvo Inc Earnings Call And my question is what helps to regrow if it is flattish in a year, when you are gaining content right among some of the high-end SKUs? And when cellular units are expected to grow, then how does it start to regrow until, I don't know, 60 takes off? I guess my real question is how much are you baking in for the continued headwinds from all the China in-sourcing and Qualcomm competition? Is it possible ACG business sort of stays flattish for the next several years?

Question: Vivek Arya - Bank of America Merrill Lynch - Analyst : Okay. And then maybe a follow-up for Grant on gross margins and OpEx. I think you gave us the gross margin sense for the seasonal quarters. And any sense of how the gross margin progresses prior to that? And then I think OpEx, you mentioned $250 million. How does that kind of progress through the year?

Question: Vivek Arya - Bank of America Merrill Lynch - Analyst : Thank you.

Question: Toshiya Hari - Goldman Sachs Group Inc - Analyst : Hi. Thank you so much for taking the question. You guys talked quite a bit about some of the restructuring initiatives in motion today or things that you've executed on. You talked about head count reduction. Obviously, you sold your SIC business and the gas business shifting some production from North Carolina to Oregon. Looking ahead, I don't expect you to share anything that you haven't made public, but would you say you're kind of in the early innings of this journey and sort of rightsizing your company or optimizing your company or are you in the middle innings, late innings? Any commentary on how to think about restructuring over the medium term, that would be helpful.

Question: Toshiya Hari - Goldman Sachs Group Inc - Analyst : That's great. And then as a quick follow-up, just on customer concentration. With Apple, I guess, flat or growing nicely and your Android business coming down, revenue concentration is growing. All else equal, I think investors typically prefer a diverse revenue stream. I know you guys talked about HPA and CSG outgrowing ACG over the medium to long run. And so organically, that concentration should come down over time. But is there a willingness on your part to kind of lean in on M&A to accelerate that diversification process or not so much, you prefer to go at it organically?

Question: Toshiya Hari - Goldman Sachs Group Inc - Analyst : Thank you.

Question: Chris Caso - Wolfe Research - Analyst : Yes, thank you. Just a question with regard to some of your comments regarding your largest customer on short term and long term. And I know typically, there's not much you could say, but you did indicate that you expected your content to grow this year. But then you talked about a flat to modestly up increase. I guess I'd interpret that as probably a modest content increase this year. So if you could clarify that. And then longer term, you're going to need growth of that largest customer to grow the ACG business, given what you're doing in Android. Maybe if you could give us a sense of where the opportunity is for you? Is that just additional content that fits into your traditional strong areas? Or is that going after some market share from some others?

Question: Chris Caso - Wolfe Research - Analyst : Got it. It's helpful. I guess the other question was on the tax rate. And I think what you said is it the tax rate could go to an 18% to 19%. That's a pretty big jump. If you could clarify that. And if it could go that high, what are the dependencies and kind of what's the baseline expectation for the taxes in fiscal '26?

Question: Krish Sankar - TD Cowen - Analyst : I'm turning to a lot of the color you gave both Bob and Grant. I'm just curious when you look into the first half, your largest customers expecting to release a low-end smartphone and Samsung is expected to come out with the Galaxy S25. Kind of the how to think about your content opportunity in those? Is it increasing, decreasing, anything you can qualify it would be helpful. And then I had a follow-up.

Question: Krish Sankar - TD Cowen - Analyst : Got it. Very helpful. And then, Bob, just curious, I know you don't participate in the low end tier. But when you look at China smartphones, are your China OEM customers gravitating more towards the premium model now? And if so, how do you think about the opportunity in China with the premium tier Android?

Question: Christopher Rolland - Susquehanna Financial Group - Analyst : Hey guys, thanks for the question. The revenue at your largest customer flat to up, if I understand that correctly, that assumption would include opportunities in the PMIC or envelope tracker but does not include any integrated modules that sound like they have not been awarded yet? Is that how we should think about that?

Question: Christopher Rolland - Susquehanna Financial Group - Analyst : Understood. And in terms of capital, perhaps you can talk about your capital needs looking forward just given you're consolidating some of this footprint. And then in terms of uses of cash moving forward, what your priorities are overall?

Question: Christopher Rolland - Susquehanna Financial Group - Analyst : Thanks so much Grant.

Question: Ruben Roy - Stifel, Nicolaus & Compan - Analyst : Yeah, thank you. I guess this question is for Dave. You guys talked a lot about the D&A momentum here. I was wondering if you could maybe spend a few minutes on some of the other segments, industrial, enterprise, infrastructure. It's nice to hear the stabilization in areas like broadband. What's the visibility like that we've seen a lot and heard a lot of mixed data points for these end markets? I'm just wondering if you could talk about the design activity environment and your visibility. We appreciate the sort of longer-term guidance by segment, but I would love to hear a little more about visibility into, I guess, sustainability and how you're thinking about growth trajectories as you flow through fiscal '26 in those areas.

Question: Ruben Roy - Stifel, Nicolaus & Compan - Analyst : Thanks, Steve. If I could ask, hopefully, a quick follow-up for Grant. Just thinking through maybe a little bit longer-term investment into OpEx and you talked about repurposing some of the savings into some areas like you just talked about. But I'm wondering, as you think about sort of focusing on your large customer, in ACG, should we expect any meaningful change of mix in OpEx, ACG versus the other two segments? Or do you think it will be kind of steady state longer term?

Question: Ruben Roy - Stifel, Nicolaus & Compan - Analyst : Thank you.

Question: Edward Snyder - Charter Equity Research - Analyst : I just want to dig down a little bit more on the guidance for the fall of your largest customer and what your assumptions are there. If we assume units are flat, and the Pro, Pro max split is the same as it was last year. I just want to be clear that you're guiding for content gains. And if those content gains, how much does that include, let's say, leasing two different SKUs with two different modems because I know it seems based on your comments, Bob, that you're pretty confident your content is going to go up on an internally developed model just for the ETP mix alone. I just want to make sure those assumptions are correct to start off with.

Question: Edward Snyder - Charter Equity Research - Analyst : Okay. So the awards -- if everything else was held constant, you'll see a content increase is space on awards itself, right?

Question: Edward Snyder - Charter Equity Research - Analyst : Okay. Great. And then if I could, on the defense side of the business, it sounds like these are going very well, and it's been our kind of the -- probably the best business you've had consistently overall. Do you anticipate much change? I know you mentioned LEOs, and that's to defense too. But do you anticipate much change coming up from some of the spending that we're talking about for all the fallout from the European war they're talking about, but more importantly, to talk about a lot of the stuff, the drones. I'm not sure exactly how Qorvo plays into that in terms of the radar systems for, maybe you can provide a little bit of color just to get an idea because I know they're long-term plans, but I was just trying to get a feel for how that impacts you, or if it does?

Question: Edward Snyder - Charter Equity Research - Analyst : It's still a gain content right?

Question: Vijay Rakesh - Mizuho Securities USA - Analyst : Just on the China side, I mean, there's a move for the China handset OEMs to move to mid and low end because of the subsidies that the China government are giving. Once you exit the low-end Android, how much exposure would you have to the China market?

Question: Vijay Rakesh - Mizuho Securities USA - Analyst : Got it. And then as you move your mix more to just the top two customers, is that a risk view on -- mix more of Sandbox and you start to compete? I'm sure that your peers have kind of pretty similar strategy. Does that make that Sandbox fairly very competitive and constructive again?

Question: Vijay Rakesh - Mizuho Securities USA - Analyst : Got it. Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 28, 2025 / 9:30PM, QRVO.OQ - Q3 2025 Qorvo Inc Earnings Call