Nordic Semiconductor

Quarterly Report • Jul 11, 2019

Quarterly Presentation Q2 2019

July 11, 2019 (Oslo, Norway)

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This presentation was prepared for the interim results presentation for the second quarter, held on July 11, 2019. Information contained herein will not be updated. The following slides should also be read and considered in connection with the information given orally during the presentation.

Today's presentation

Business update Financials Business outlook

Svenn-Tore Larsen

CEO

Pål Elstad CFO

Svenn-Tore Larsen

CEO

Business update Svenn-Tore Larsen, CEO

Q2 Highlights

• Increased Tier 1 contribution in revenue and backlog
• Nordic Bluetooth design certifications grew by 21% from 125 in Q2 2018 to 151 in Q2 2019, with Nordic market share of 43%
• Major design wins reported during the quarter
• Record high backlog driven by new design wins with Tier 1 customers globally
• Strong gross margin as a result of investments in supply chain
• June production release of cellular IoT products and software
• Managed channel inventory to adapt to market uncertainty

Quarter in line with guidance

Total revenue of MUSD

70.5

Y-o-Y decrease of 0.9%

• Bluetooth: 7.1% y-o-y increase
  • 50.1% q-o-q increase
  • Revenue impacted by continued market uncertainty
  • Maintaining market share
• Proprietary: -25.6% y-o-y decline due to inventory adjustments and weaker non-pc market
• Cellular IoT samples revenue of KUSD 200
• Solid backlog of MUSD 112.0, +39.8% y-o-y

Gross Margin

51.2%

Gross margin expansion +2.2 p.p y-o-y

• Represents a 4 year high
• Higher value nRF52 Series devices continues to be the main revenue driver
• EBITDA* at MUSD 9.8 (MUSD 10.0 in Q2 2018)
  • Adjusted short-range EBITDA of MUSD 15.3, which is a record high margin of 21.8%

Financials Pål Elstad, CFO

Operating model performance Q2 2019

		Q2 2019*	Q2 2018
	Revenue change y-o-y	-0.9% (MUSD 70.5)	+21.3% (MUSD 71.2)	Revenue within guidance in challenging market
	Gross margin	51.2%	49.0%	(+2.2pp) Continued positive contribution from cost improvements and favorable customer and product mix
	R&D short-range	15.9% (MUSD 11.2)	15.3% (MUSD 10.9)	(+0.6pp) Continued investments to capture growth opportunities
	R&D cellular IoT	7.9% (MUSD 5.6)	4.8% (MUSD 3.4)	(+3.1pp) Increased spending during commercialization stage
	SG&A	13.5% (MUSD 9.5)	14.9% (MUSD 10.6)	(-1.4pp) Maintaining cost focus
	EBITDA margin	13.9%	14.0%	(-0.1pp) EBITDA margin stable

Revenue by market*

Consumer Electronics	Wearables	Building /Retail	Healthcare	Others
MUSD MUSD 27.3 12.7		MUSD 12.9	MUSD 5.4	MUSD 10.3
-3.4% +29.2% y-o-y q-o-q	+7.3% +66.7% y-o-y q-o-q	-6.0% +60.7% y-o-y q-o-q	+1.5% +27.3% y-o-y q-o-q	+2.3% +17.6% y-o-y q-o-q

*Excluding ASIC's, consulting and other revenue

Fourth consecutive quarter above target

Gross margin 51.2% +2.2pp y-o-y

• Continued positive contribution from cost improvements and stable yield on nRF52 Series
• Increased revenue on high end products
• Quarter to quarter fluctuations to be anticipated due to change in product and customer mix

Cash operating expenses*)

Cash Opex MUSD

• Continued cost discipline during the quarter
• Q2 cash operating expenses increased 0.2% compared to last quarter
• Compared to last year, cash operating expenses increased 4.9%
• The increase is driven by new product releases and headcount growth of 14.0% from 629 in Q2 2018 to 717 in Q2 2019
• Continued investments to capture future growth

Maintaining cash

Cash flow Q2 2019 Seasonal Cash outflow during the quarter

• MUSD 10 in cash outflow during Q2 2019
• Driven by increase accounts receivables
• NWC/LTM at 25.6% (21.9% in Q1 2019), down 1.1 p.p. y-o-y
• Capex of MUSD 4.1 test equipment for production releases on high-end nRF52 and nRF91 Series.

Continued disciplined cash strategy

Tight cash management and optimized cash generating ability

Business outlook Svenn-Tore Larsen, CEO

New Nordic powered products

Close to 40k kits shipped in H1 2019

Yet another record half year + 33% y-o-y for H1 2019 Significant contribution from nRF52840 kits nRF91 Kits at 2 700 during 1H

Leading indicator of market growth

Continued strong diversification

Leading indicator of our position

Attractive and competitive solutions

Record quarter for Nordic Certifications

Bluetooth Low Energy end-product certifications*

*Source: DNB Markets

Commercial Asset Tracking Applications

Tags:

• Smarter assets
• Sensor monitoring (temperature, light, moisture)
• Safety, inventory, and security

Tracking Gateways:

• Indoor location tracking
• May support mesh protocols (Bluetooth, Zigbee, Thread)
• Triangulation technologies
• Potential backbone to Cloud using nRF9160

Stand Alone Asset Tracking Applications

nRF52xxx BLE Tracker:

• Long battery life
• Crowd / Community network
• Last known location reporting

nRF9160 Cellular GPS Tracker:

• Containers, Pets, Livestock etc.
• Direct cellular connection with 2-way communication
• GPS location

Asset Tracking Press Releases

Tile Platform Win with SDK support

H&D Wireless nRF52840 + nRF9160

Quuppa Design Partnership

Qualified Amazon FreeRTOS for nRF52840 available now

• The nRF52840 SoC and the nRF52840 development kit are now qualified platforms for working with Amazon FreeRTOS using Bluetooth Low Energy.
• Connectivity is based on Nordic Semiconductor's S140 SoftDevice, a high-performance protocol stack offering up to 20 simultaneous connections and full Bluetooth 5 support.
  • The S140 is RTOS agnostic and easily integrates with Amazon FreeRTOS.
• The Amazon FreeRTOS SDK integrates software from the Nordic nRF5 SDK for specific device drivers and feature support for peripherals and management of memory.

https://aws.amazon.com/freertos/ https://docs.aws.amazon.com/freertos/latest/userguide/getting\_started\_nordic.html

nRF9160 Production Status

Hardware	Supported features	Dec 12th, 2018	May	June
nRF9160- SICA	LTE-M/NB IoT/GPS	Public Sampling of HW and LTE M SW	Production of HW. Public sampling of GPS and NB-IoT SW	LTE-M, NB IoT, GPS SW production
nRF9160- SIBA	LTE-M		Production of HW
nRF9160- SIAA	NB-IoT		Public sampling of NB-IoT SW	Production

Certifications in place for both LTE-M and NB-IOT

Supported LTE Bands:

• LTE-M: 1,2,3,4,5,8,12,13,14,17,18,19,20,25,26,28,66
• NB-IOT: 1,2,3,4,5,8,12,13,17,19,20,25,26,28,66

nRF9160 design-in with Telespor

Radiobjella – product for livestock monitoring

• Reports GPS position at predefined intervals
• Tagging individual animals
• Two-way to configure device remotely or set alarms no movement etc.
• Helps farmers fulfill legal requirement for livestock monitoring and wellbeing

Guidance Q3 2019

	MUSD
Revenue	78-83

Continued market uncertainty resulted in low growth rates in Q2 2019, although we achieved a 7.1% growth in Bluetooth. Uncertainty in the market is expected to continue in Q3 2019. Based on the current backlog, guidance for Q3 2019 revenue is MUSD 78-83

Gross margin ~50%

Continued strong gross margin

Other Capex MUSD 4-5

Increased capex related to investments in lab equipment to secure future growth in cellular IoT and Tier 1 customers' requirements transferred partly from Q2

Capital Markets Day

• Nordic Semiconductor will host a capital markets day following the Q3 2019 quarterly presentation on October 22, 2019
• The event will include presentations by top management focusing on:
  • Deep dive into sales model and go to market strategy for both short-range and long-range
  • Detailed update on progress with long-range business (e.g. certifications, services, etc.)
  • Technology / R&D roadmap
• Further details will be provided during September