Communications chips maker Qorvo (NASDAQ: QRVO) reported Q1 CY2024 results exceeding Wall Street analysts' expectations, with revenue up 48.7% year on year to $941 million. On the other hand, next quarter's revenue guidance of $850 million was less impressive, coming in 8% below analysts' estimates. It made a non-GAAP profit of $1.39 per share, improving from its profit of $0.26 per share in the same quarter last year.

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Bob Bruggeworth, president and chief executive officer of Qorvo, said, “Qorvo delivered year-over-year revenue growth in the March quarter in each of our three operating segments. There are global macro trends supporting our markets that are increasing customer requirements for efficiency, latency, throughput, and other critical performance metrics where Qorvo delivers significant competitive advantage.

Formed by the merger of TriQuint and RF Micro Devices, Qorvo (NASDAQ: QRVO) is a designer and manufacturer of RF chips used in almost all smartphones globally, along with a variety of chips used in networking equipment and infrastructure.

Processors and Graphics Chips

The biggest demand drivers for processors (CPUs) and graphics chips at the moment are secular trends related to 5G and Internet of Things, autonomous driving, and high performance computing in the data center space, specifically around AI and machine learning. Like all semiconductor companies, digital chip makers exhibit a degree of cyclicality, driven by supply and demand imbalances and exposure to PC and Smartphone product cycles.

Sales Growth

Qorvo's revenue growth over the last three years has been unimpressive, averaging 2.3% annually. But as you can see below, this was a strong quarter for the company, with revenue growing from $632.7 million in the same quarter last year to $941 million. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

Qorvo had a great quarter as its 48.7% year-on-year revenue growth exceeded analysts' estimates by 1.6%. We believe the company is still in the early days of an upcycle, as this was just the second consecutive quarter of growth and a typical upcycle tends to last 8-10 quarters.

Qorvo's management team believes its revenue growth will continue, guiding to 30.5% year-on-year growth next quarter. Analysts expect the company to grow its revenue by 12.2% over the next 12 months.

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Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.

This quarter, Qorvo's DIO came in at 116, which is 4 days above its five-year average, suggesting that the company's inventory has grown to higher levels than we've seen in the past.

Key Takeaways from Qorvo's Q1 Results

We were impressed by Qorvo's strong gross margin improvement this quarter. We were also excited its EPS outperformed Wall Street's estimates. On the other hand, its revenue guidance for next quarter missed analysts' expectations and its inventory levels increased. Overall, this quarter's results were mixed. The market was likely expecting more, and the stock is down 10.6% after reporting, trading at $100.03 per share.

So should you invest in Qorvo right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.