Smartphone chipmaker Qorvo (NASDAQ: QRVO) crashed 25.5% through 10:55 a.m. ET Wednesday despite beating consensus projections for sales and earnings last night.
Heading into its fiscal Q2 2025 earnings report, analysts forecast Qorvo would earn $1.85 per share (pro forma) on $1.03 billion in sales. Qorvo instead reported $1.88 per share in profit and sales of $1.05 billion — beating on both top and bottom lines.
But here’s the thing: Despite “beating estimates,” Qorvo’s Q2 numbers were objectively terrible.
Q2 sales declined 5% year over year at the semiconductor stock, and the gross profit margin Qorvo earned on those sales fell to 42.6%. At the same time, operating costs surged 29%.
Result: While Qorvo reported $1.88 in adjusted profit, its net income for the quarter was a loss of $0.18 per share — versus a $0.99-per-share profit one year ago.
And now the really bad news: Things are getting worse. According to CFO Grant Brown, Qorvo “exceeded the midpoint of guidance in revenue, gross margin and EPS” in Q2. But looking ahead to Q3, although sales of chips for “flagship and premium” smartphones “are holding up well,” the company sees an “unfavorable mix … toward entry-tier” phones ahead.
Although Qorvo is cutting costs and consolidating production ahead of time, investors can expect a sales miss in Q3 ($900 million versus Wall Street’s forecast for more than $1 billion) and an earnings miss as well — about $1.20 per share in adjusted earnings, versus the Street’s $1.92-per-share forecast.
With Qorvo giving its forecast only in non-GAAP numbers, it’s hard to say how bad this will really be. Wall Street is bracing for a $0.50-per-share net loss for the full fiscal year, though. On the plus side, free cash flow remains positive. On the minus side, Qorvo’s price-to-free-cash-flow ratio of 25 still doesn’t look attractive.
While today’s sell-off may seem a good buying opportunity, I suspect there’s still more downside risk in Qorvo stock.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Qorvo. The Motley Fool has a disclosure policy.
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