The 5G smartphone market is set to explode in 2021. Apple supplier Murata estimates that sales of 5G smartphones may exceed 500 million units in the new year compared to 300 million units in 2020. Market research firm Strategy Analytics has a more aggressive forecast – predicting a 150% jump in 5G smartphone sales this year from 2020 estimated shipments of 250 million units.
Qorvo (NASDAQ: QRVO) offers a way for investors to take advantage of this huge leap in sales of 5G smartphones. The chip maker supplies radio frequency chips to several smartphone OEMs (original equipment manufacturers). Not surprisingly, Qorvo’s earnings and earnings have accelerated very recently – a trend that is likely to continue when the chip maker releases its third quarter 2021 fiscal results on February 3. Here’s what to expect.
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Qorvo is about to deliver big gains once again
Analysts expect Qorvo to deliver non-GAAP earnings of $ 2.66 per share on revenue of $ 1.06 billion in the December quarter. These estimates are in line with management’s guidance and well ahead of the prior year’s period of $ 1.86 in earnings per share and $ 869 million in revenue.
But don’t be surprised to see the company exceed your own expectations. That’s because Apple, which reportedly accounts for a third of Qorvo’s sales, potentially scaled its iPhone production in the last quarter of 2020. Supply chain checks by Wedbush Securities analyst Daniel Ives suggest that Apple could have built about 90 million iPhones in the fourth quarter, from its original estimate of 65 million to 70 million units in September 2020.
Such an impressive jump in iPhone production during the quarter does not seem surprising, as demand for the iPhone 12 is very strong. After all, it didn’t take long for the device to become the best-selling 5G smartphone globally, so Apple alone could give Qorvo a good boost and help it beat Wall Street’s estimates when the company released its results this week.
The party is just beginning
Analysts believe Qorvo will be able to sustain its high growth rate with revenue growing 19% year-over-year in the fourth fiscal quarter, while earnings increase 27% to $ 2.00 a share.
However, there is a high possibility that Qorvo will exceed these estimates. Cowen analysts estimate that Apple may increase its iPhone in the March quarter to 55 million units, an increase of 49% year on year. Wedbush has an even more aggressive forecast, estimating that the iPhone will produce between 60 million and 70 million units in the current quarter. Furthermore, the momentum is expected to spread to the second quarter of the calendar year also with the expectation that Apple will produce at least 40 million iPhone units.
All of this bodes well for Qorvo, given its close relationship with the technology giant. However, the chip maker is sitting on additional growth drivers, such as Samsungrecently launched the flagship of the Galaxy S21. Qorvo has been a long-time supplier of RF chips to Samsung’s Galaxy smartphone line, including Galaxy S20 devices last year, and is likely to have maintained its place in the new launch.
That’s because Samsung’s Galaxy S21 Ultra comes equipped with WiFi 6E connectivity, and Qorvo indicated in its latest earnings call that it is “actively supporting major OEMs in the design of 6E platforms”. Counterpoint Research estimates that Galaxy S21 shipments may surpass Galaxy S20 shipments in the middle of this year. This would not be surprising, as Samsung has cut basic prices for Galaxy S21 models by $ 200 compared to the previous S20 line.
Qorvo can enjoy the success of its mobile customers and maintain its impressive growth rate. Most importantly, investors should not forget that the 5G smartphone market still has a lot of growth to offer, as shipments could reach 1.5 billion units by 2025. In this environment, Qorvo may remain one of the top 5G line-a long-term, and a strong showing in The next earnings report should give investors the right momentum to buy shares.