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Qorvo (QRVO) is trading higher following its Q3 (Dec) earnings results/guidance last night. The company reported strong upside in Q3 with solid guidance for Q4 (Mar). In fact, Qorvo reported a massive EPS beat, its largest upside in the past four quarters. Revenue fell 14.7% yr/yr to $916.3 mln, but analysts were looking for an even larger drop.

• The stock action has been a roller coaster since the report hit the wires last night. It initially popped higher, then went negative during the call, then it climbed back into positive territory. Qorvo is making some big changes in its Android segment and we think investors needed some time to digest all the ramifications, including what we believe are Qorvo's first comments that quantify the Android impact.
• Qorvo supplies mobile components with Apple (AAPL) being its largest customer at 46% of FY24 sales. However, its Android segment is experiencing changes in the market. The opportunity in mass tier Android 5G has declined at a faster rate than anticipated. This is not new info as Qorvo said this on the Q2 call as well. In response, Qorvo has changed its Android build plans to reflect higher consumer demand for entry tier 5G devices.
• During DecQ, Qorvo implemented changes across the organization in terms of how it supports Android 5G. This included a reduction in force in ACG and other company functions. Qorvo also narrowed its focus to the premium and flagship tiers to increase profitability and reduce variability. Its 5G product development spend is now focused solely on premium and flagship tiers.
• While Qorvo continues to serve mass tier Android programs previously awarded, the company expects these lower margin programs to go end of life in FY26 and FY27. For FY25, total Android 5G revenue in ACG is expected to be approximately $875 mln. However, Qorvo expects Android 5G to decline gradually by $150-200 mln annually in FY26 and again in FY27. The majority of the decline will be China-based, with the balance being mid-tier at Samsung. Beginning in FY27, Qorvo expects ACG to return to a long-term revenue target of mid-single digit growth.
• There was generally mixed news for its other markets. Qorvo believes it's past the bottom in its infrastructure segment and is now seeing stabilization in its broadband and cellular base station businesses. December revenue increased significantly yr/yr in both markets. However, in automotive, revenue in DecQ declined sequentially as end market softness continues. On the positive side, automotive OEMs and Tier 1's continue to show strong interest in Qorvo's ultra-wideband products. In consumer markets, DecQ revs declined sequentially, reflecting market headwinds.

Last quarter it was a shock when we first heard about the Android changes. And this call we got the detailed financial impact of phasing out the lower tier Android business. It took a minute for investors to digest and understand the impact, which is pretty substantial. However, we think the stock settling in with a slight move higher is a good sign. While there is risk here for future guide downs as Qorvo makes this transition, investors can now quantify the Android impact and focus on the new Qorvo.