Qorvo (QRVO +13%) is experiencing a significant surge after Starboard Value revealed a 7.7% stake in the chipmaker. This news has propelled QRVO shares to their highest levels since a substantial sell-off in late October, which was triggered by disappointing Q3 (Dec) and FY25 (Mar) guidance.

The negative outlook was due to an unfavorable mix in its smartphone business and a shift among Android (GOOG, Financial) users towards entry-level devices, impacting mid-tier sales. QRVO is a key supplier of mobile components, with Apple (AAPL, Financial) as its largest customer, contributing nearly half of its FY24 revenue. The lack of frequent upgrades and a shift away from Pro models, where QRVO holds a strong position, has hurt quarterly performance. Consequently, the company implemented manufacturing and operating expense reductions last quarter due to the ongoing trend towards lower-tier models.

Today's news of Starboard's active stake serves as a strong endorsement of QRVO's solid position in the handset market and its potential to leverage this position for growth.

• Since the concerning outlook, QRVO has seen some positive developments. The company mentioned last month that it secured enough wins to boost its confidence in year-over-year content growth. QRVO also expects consumers to eventually shift back to premium handsets.
• QRVO's cost-cutting measures are progressing. Although gross margins are expected to dip slightly year-over-year in FY25, potential tailwinds are emerging for FY26. For example, QRVO recently completed the divestiture of its silicon carbide business, which will improve margins in FY26. Other cost-reduction efforts support QRVO's goal of achieving a 50% gross margin over time, a significant improvement from the 42.6% margins in Q2 (Sep).
• Starboard Value has a history of implementing significant changes to drive growth. While QRVO's goals are ambitious, the hedge fund may push to accelerate the company's plans, possibly exploring alternative ways to generate sales growth amid challenging economic conditions in the handset market.

Starboard Value's active stake in QRVO is promising, as the fund sees the company's undervalued stock as a worthwhile investment. Despite QRVO's share price nearing five-year lows before Starboard's involvement, there are short-term concerns that could maintain selling pressure. Notably, Apple faces challenges as growth in China stalls and its AI features struggle to gain consumer traction, potentially affecting upgrades and quarterly growth.