Qorvo Can’t Meet Minimum-Purchase Terms With Its Foundry: CFO
The COVID-19 lockdowns in China, plus the war in Ukraine, global supply chain disruptions and other factors “negatively impacted the global demand environment within a short period of time,” said Qorvo Interim Chief Financial Officer Grant Brown on an earnings call Wednesday for fiscal Q1 ended July 2.
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Qorvo’s customer demand, as a result of the sudden slowdown, “no longer supports” the company meeting its “minimum purchase” obligations under the “capacity reservation agreement” it signed a year ago with an unnamed foundry supplier at the peak of the semiconductor crunch, said Brown. “We believe this situation is not normal and does not accurately reflect the performance of our ongoing business,” he said. Qorvo will report the financial implications of the foundry-agreement shortfall in its upcoming 10-Q filing at the SEC, he said.
Customer inventories are higher than normal, “especially within the Android ecosystem,” said Brown. “Most of the companies that we’re selling to there were planning ordering and producing for much higher growth than the industry is currently experiencing,” he said. “It will take some time to bleed down that inventory,” which is why Qorvo is reducing factory utilization “to respond throughout our fiscal year,” he said.
Qorvo customers “are continuing to order from us, and we’re continuing to ship to them,” said CEO Bob Bruggeworth. Qorvo sees the Android ecosystem “bottoming” in December, before “coming back up in March,” though “not to the levels it had been,” he said.
“I think we all expected at the beginning of the calendar year that the China market itself for 5G would grow very nicely,” said the CEO. “Things kind of changed with all the lockdowns within China. They have trouble even making phones, let alone people going out and buying phones.” Qorvo’s fiscal Q1 sales to China-based customers were down more than 45% year over year, said CFO Brown.
Qorvo continues to see the global outlook for 5G handset units “dropping lower than we had thought before,” said Eric Creviston, head-connectivity and sensors. Previous forecasts had the industry shipping 650 million to 675 million 5G handsets in calendar 2022, he said. It’s now “looking closer” to 625 million, while others “are seeing maybe 600 million,” he said. “It's not a crystal ball, of course, but we continue to see a general softness there.”