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Rating Action:

Moody's affirms Qorvo's Ba1 corporate family rating; outlook stable

07 Apr 2020

New York, April 07, 2020 -- Moody's Investors Service, ("Moody's") affirmed Qorvo, Inc. ("Qorvo") Ba1 Corporate Family Rating ("CFR") and other ratings following a review of the company's credit profile considering Qorvo's large exposure to the smartphone end market, which Moody's expects will experience lower production levels in 2020 due to the coronavirus pandemic. The Speculative Grade Liquidity ("SGL") rating remains unchanged at SGL-2. The outlook is stable.

Ratings Affirmed:

..Issuer: Qorvo, Inc.

.... Corporate Family Rating, Ba1

.... Probability of Default Rating, Ba1-PD

. Senior Unsecured Notes Ba1 (LGD4)

Outlook Actions:

..Issuer: Qorvo, Inc.

.Outlook, remains stable

RATINGS RATIONALE

The ratings affirmation reflects Qorvo's resilient credit profile to the potentially material weakening in smartphone end market revenues in 2020. The credit profile benefits from Qorvo's excellent liquidity; conservative financial policy, with adjusted debt to EBITDA of 1.8x (year ended December 28, 2019); and only moderate capital intensity, with a large portion of discretionary capital expenditures that can be tempered during periods of lower demand, which supports free cash flow ("FCF") generation.

The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The semiconductor sector has been one of the sectors affected by the shock given its sensitivity to consumer and enterprise demand and sentiment. More specifically, the weaknesses in Qorvo's credit profile, including its exposure to a global supply chain, have left it vulnerable to shifts in market sentiment in these unprecedented operating conditions and Qorvo remains vulnerable to the outbreak continuing to spread. Moody's regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. Today's action reflects the impact on Qorvo of the breadth and severity of the shock.

Qorvo's ratings are supported by governance considerations, specifically Qorvo's conservative financial policy, with adjusted debt of 1.8x EBITDA (twelve months ended December 28, 2019). Given the company's good liquidity, including cash of $1.1 billion as of December 28, 2019 and strong free cash flow generation, should provide a reasonable degree of financial flexibility to fund share buybacks and tuck in acquisitions. Qorvo is a public company with a broad investor base and an independent board of directors.

The Ba1 CFR reflects Qorvo's modest leverage, which Moody's expects to remain at or below the low 2x adjusted debt to EBITDA level during 2020 and below 1.5x over time, its strong niche position in the smartphone radio frequency ("RF") filter market, and a portfolio of infrastructure and defense products, which tend to have longer product life cycles. RF filter providers are enjoying strong secular growth from both increased smartphone sales over the long term and rapidly increasing RF content per phone.

Still, the modest leverage and good liquidity are needed to balance the large revenue concentrations, as Qorvo's top two customers comprise over 40% of revenues, and the very short product life cycles characteristic of the smartphone industry.

The stable outlook reflects Moody's expectation that, following a near term decline in end market demand due to the impact of the coronavirus outbreak on the smartphone industry, revenues will resume growth over the next 12 to 18 months, with EBITDA margin (Moody's adjusted) gradually recovering. Moody's expects that the adjusted debt to EBITDA will increase during 2020 but will return to below 2x once the pandemic abates. Moody's also expects that Qorvo will refrain from shareholder friendly actions over the near term.

Qorvo's SGL-2 rating indicates good liquidity supported by cash, which Moody's expects to be maintained in excess of $500 million, and FCF, which Moody's projects to be over $450 million over the next year. These internal sources of liquidity are supplemented by an undrawn $300 million unsecured revolving credit facility maturing in December 2022.

The principal methodology used in these ratings was Semiconductor Industry published in July 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1130733. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Factors that would lead to an upgrade or downgrade of the ratings:

The ratings could be upgraded if Qorvo substantially reduces the revenue concentration with its top two customers. Moody's would expect that Qorvo would also be generating organic revenue growth in excess of the industry, and maintaining a conservative leverage profile, with debt to EBITDA (Moody's adjusted) maintained below 1.5x.

The ratings could be downgraded if Moody's expects a sustained slowdown in revenue growth or if the EBITDA margin falls below the low 20s percent level (Moody's adjusted) for an extended period of time. The rating could also be pressured if profitability pressure or a material increase in debt levels lead to debt to EBITDA (Moody's adjusted) sustained above 2.5x.

Qorvo, Inc. ("Qorvo"), based in Greensboro, North Carolina, produces radio frequency ("RF") filters and modules used in smartphones and other RF products for a variety of end markets including cellular telephony base stations, military and commercial radar, and WiFi networks.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating outcome announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Terrence Dennehy, CFA
VP-Sr Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Stephen Sohn
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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