Starboard takes a stake in Qorvo. How the activist may help improve margins

Business: Qorvo is a global supplier of semiconductor solutions. The company operates through three segments: High Performance Analog (HPA), Connectivity and Sensors Group (CSG) and Advanced Cellular Group (ACG). The HPA segment is a global supplier of radio frequency (RF), analog mixed signal and power management solutions. The CSG segment is a global supplier of connectivity and sensor solutions. The ACG segment is a global supplier of cellular RF solutions for smartphones, wearables, laptops, tablets and other devices.

Stock Market Value: ~$8.41B ($88.94 per share)

Qorvo was formed as a result of a merger of equals in an all-stock transaction between RF Micro Devices (RFMD) and TriQuint Semiconductor (TQNT) that was announced in February 2014 and completed in January 2015. Starboard is quite familiar with Qorvo considering that the firm was a 13D filer on TriQuint in 2013.  On Oct. 29, 2013, Starboard sent a letter to TriQuint outlining the company’s undervaluation, underperformance, and put forward value-enhancing proposals. On Dec. 2, 2013, Starboard nominated a majority slate of six director candidates to the board for the 2014 annual meeting. However, the engagement never went to a proxy fight, as Starboard issued a letter supporting TriQuint’s proposed merger with RFMD in March 2014 and exited its 13D. In under a year of engagement, Starboard made a 113.15% return on their investment versus 23.80% for the Russell 2000.

The merger was pitched to shareholders as an opportunity to create new growth opportunities in mobile devices, network infrastructure, and aerospace and defense, bolstered by the new company’s scale advantages, product portfolio, improved operating model and $150 million in cost synergies. The announcement was met with tremendous excitement, as shares of TriQuint and RFMD rocketed approximately 200% from the day prior to the announcement up to their combination.  However, one-year post-transaction the newly-formed Qorvo was down 27.7%. For functionally a decade, from merger completion to the day prior to Starboard Value disclosing its 7.71% stake, the stock traded flat, up just a mere 4.5%. This is quite staggering underperformance when semiconductors have been the beneficiaries of tremendous secular tailwinds in recent years. Over the same time period, the Philadelphia SE Semiconductor Index is up over 650%.

The opportunity to improve value at Qorvo is simple, operationally focused and something Starboard has done many times at many semiconductor companies: margin improvement. Despite Qorvo’s excellent product portfolio and competitiveness with peers Broadcom and Skyworks Solutions, the company’s gross and operating margins have been inferior. Last fiscal year, Qorvo had a gross margin of 39.5% and an operating margin of 8.3%, whereas its peer Skyworks boasted margins of 44.2% and 24.9% respectively. Despite having roughly similar levels of revenue ($4.7 billion for Skyworks and $3.8 billion for Qorvo), Qorvo spends 10.3% of revenue on selling, general and administrative expenses versus 6.6% for Skyworks and 18.1% of revenue in R&D versus 12.7% for Skyworks. Moreover, Qorvo spends an additional $104 million (2.8% of revenue) on “other operating expenses.” This is a blaring signal of a board and management team that need discipline and one of the main reasons Qorvo received such a high vulnerability rating in 13D Monitor’s Company Vulnerability Ratings database.

Every activist has a different style with varying levels of success across industries and strategies, but it is hard to find a more successful combination than Starboard at a semiconductor company with margin improvement opportunities. Starboard has previously commenced activist campaigns at the following 13 semiconductor companies: Actel, Microtune, Zoran, DSP Group, MIPS Technologies, Integrated Device Technology, Tessera, TriQuint Semiconductor, Micrel, Integrated Silicon Solution, Marvell, Mellanox Technologies and On Semiconductor. In all of these campaigns, Starboard has had a positive return on its investment and its average return on the 13 is 85.87% versus an average of 28.91% for the Russell 2000 during the same time periods. Starboard’s modus operandi in these situations has been take board seats if necessary, institute a philosophy of discipline that leads to more efficient SG&A and targeted R&D and helps improve operating margins. Additionally, at companies like On Semiconductor that were operating at low utilization levels, Starboard helped size capacity for more realistic manufacturing levels by consolidating fabs and using outside foundries for flexibility. The same opportunity exists here, which could lead to additional margin improvement.

We have no doubt that Starboard will want board seats, and we believe this should be a quick settlement for several reasons. First, Starboard’s experience and track record with semiconductor companies described above is unimpeachable. Second, it is indefensible to be a semiconductor company in 2025 that has deprived its shareholders of any real return over the past ten years. Third, Starboard already has relationships with three of Qorvo’s eight directors including its chairman, all of whom were directors of TriQuint when Starboard engaged there: Walden C. Rhines (chairman), David H. Y. Ho and Roderick D. Nelson. Fourth, of the company’s eight directors, five have sat on the board for the 10 years since the TriQuint /RFMD merger, and one (David H. Y. Ho) has informed the company of his intention to retire and not stand for reelection at the company’s next annual meeting. Once on the board, Starboard’s representatives and the remainder of the board will have the opportunity to evaluate whether this is the right management team to turnaround Qorvo’s recent performance. If they decide that new management is needed, it is important to note that there has been a tremendous amount of consolidation in the semiconductor industry in recent years, which has resulted in many senior and talented operators on the sidelines.

Qorvo’s director nomination window does not open until March 16, 2025, and we would be very surprised if a settlement is not reached before then.

Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.