The Qorvo logo, representing the U.S.-based semiconductor company, pops up on both smartphone and computer screens as seen in images from Sopa Images and Lightrocket via Getty Images.
Company: Qorvo Inc (QRVO)
Business Details:
Qorvo Inc is recognized globally for its extensive range of semiconductor solutions. The company structures its operations into three key segments: High Performance Analog (HPA), Connectivity and Sensors Group (CSG), and Advanced Cellular Group (ACG). The HPA unit is renowned for supplying radio frequency (RF), analog mixed signals, and power management solutions. Meanwhile, the CSG focuses on providing various connectivity and sensor solutions, and the ACG offers cellular RF solutions tailored for smartphones, laptops, wearables, and other gadgets.
Currently, Qorvo’s market value is around $8.41 billion, with shares priced at approximately $88.94 each.
Qorvo’s shares have seen fluctuating performance over the past year.
Activist Investor: Starboard Value
Ownership Stake:
Starboard Value holds a 7.71% interest in Qorvo, with their average entry cost at $70.92 per share. Known for their strategic investment approaches, Starboard has a notable history of enhancing operational efficiency and boosting margins within companies. They’ve run activist campaigns with 13 semiconductor firms, yielding an impressive average return of 85.87%, significantly outpacing the Russell 2000’s 28.91% gain during the comparable periods.
Current Developments:
Qorvo operates globally as a semiconductor provider, primarily manufacturing RF chips for diverse uses, including mobile gadgets, aerospace, defense, and more. The company manages its operations through three main segments: High Performance Analog (HPA), Connectivity and Sensors Group (CSG), and Advanced Cellular Group (ACG). In 2024, Qorvo reported revenue of $3.77 billion, with roughly 75% attributed to ACG. While diversified, Qorvo’s revenue heavily depends on sales to mobile device giants, Apple and Samsung, contributing 46% and 12% of their total revenue, respectively, in FY24.
Having been born from a merger between RF Micro Devices (RFMD) and TriQuint Semiconductor (TQNT), Qorvo became a standalone entity in January 2015. Starboard’s engagement with Qorvo traces back to 2013, when they were involved with TriQuint, addressing the firm’s undervaluation and pushing forward value-enhancing proposals. No proxy fight occurred as Starboard backed TriQuint’s merger with RFMD, earning a hefty return of 113.15% against the Russell 2000’s 23.80% rise during their involvement.
The merger touted prospects of growth across mobile devices, network infrastructure, and aerospace and defense, hinging on synergy benefits, product range, and operational scale advantages. The market reacted positively with both TriQuint and RFMD shares skyrocketing about 200% leading up to their merger. However, a year post-merger, Qorvo stock took a hit, dropping by 27.7% and essentially staying flat, appreciating just 4.5% till Starboard disclosed its significant stake. This is stark when considering semiconductors enjoyed major industry tailwinds, exemplified by a 650% surge in the Philadelphia SE Semiconductor Index in the same timeline.
Starboard sees a straightforward route to unlocking Qorvo’s potential value: enhancing operational margins. Despite having a strong product lineup and competitive edge against peers like Broadcom and Skyworks Solutions, Qorvo’s margins lag behind. From a fiscal perspective, Qorvo reported a gross margin of 39.5% and an operating margin of 8.3%, while Skyworks reported 44.2% and 24.9%, respectively. The disparity continues with Qorvo’s higher SG&A spending (10.3% compared to Skyworks’ 6.6%) and R&D expenditure (18.1% versus Skyworks’ 12.7%). Furthermore, Qorvo incurs an extra $104 million, or 2.8% of revenue, in "other operating expenses," indicating a need for rigorous cost management.
Starboard’s track record with semiconductor companies underscores its prowess in unlocking value through board involvement to instill fiscal discipline and efficiency across SG&A and R&D expenditures, thus improving operating margins. They have successfully engaged with numerous semiconductor firms, seeing significant returns contrary to industry averages.
Given Starboard’s history, it’s anticipated they’ll aim for board representation at Qorvo. A settlement seems plausible due to several reasons: the undeniable success and rapport Starboard commands within the semiconductor sphere, the need for Qorvo to deliver shareholder value, and existing connections Starboard has with current Qorvo directors who were part of TriQuint. Plus, with some existing board members, like David H. Y. Ho, planning retirement, there’s an opportunity for fresh input to reevaluate leadership if needed.
Qorvo’s nomination window for directors opens on March 16, 2025, though it’s expected those discussions around board changes will conclude swiftly before that date.
Ken Squire, establishing 13D Monitor and managing the 13D Activist Fund, shines a light on shareholder activism and maintains a keen eye on Qorvo’s unfolding story.
