Nordic Semiconductor

Earnings Release • Apr 24, 2017

Investor Presentation Q1 2017 April 24th 2017, Oslo, Norway

Today's presentation

CEO

Pål Elstad CFO

Thomas Embla Bonnerud Director of Strategy and IR

Business update Svenn-Tore Larsen, CEO

Financial summary - Q1 2017

Revenue	Revenue Bluetooth	. Revenue Proprietary	. Gross margin	. EBIT
MUSD 47.3	MUSD 24.3	MUSD 21.6	46.7%	MUSD
		$+18\%$ -10% +34% -21% +12% +11% -2.4pp +0.5pp nm y-o-y q-o-q y-o-y q-o-q y-o-y q-o-q y-o-y q-o-q y-o-y		$Q$ -0-0

Growing and diversified customer base

Continued strong growth in number of active customers*: 36% year-on-year

Continued diversification of Bluetooth revenue

*) Definition of "Active" Customer: An end customer which has purchased 10.000 units or more during prior six months (i.e., a customer actively selling product to end customers or preparing a high volume prototype)

New products powered by nRF52

Fibaro motion sensor	PURilume lamp	Abax fleet managment	Merge VR controller	Trasense watch
Smart Home	Smart Home	Industrial	Virtual Reality	Wearables
nRF52	nRF52	nRF52	nRF52	nRF52

Market leader in Bluetooth

Bluetooth low energy end-product certifications*

Strengthening our position since 2014

Bluetooth low energy end-product

Certifications 2014 - 2016*

End-product	End-product
certifications,	certifications,
Nordic Q1 17	Total Q117
95	223
$-11\%$	+28%
+58%	$-17\%$
$V$ -O-V	$V$ -O-V
$Q - O - O$	a-o-a

Financials Pål Elstad, CFO

Revenue by market

Consumer Electronics	Wearables	Building/Retail Healthcare		Others
MUSD 22.9	MUSD 84	MUSD 86	MUSD 22	MUSD 4 ()
	+14% -10% +15% -18% +75% +3% -16% -22% +48% y-o-y q-o-q y-o-y q-o-q y-o-y q-o-q y-o-y q-o-q y-o-y			- 16% $Q-O-Q$

Gross Margin

Ramp of new products impacts Gross Margin

• GM of 46.7% in Q1 2017 (49.1% in Q1 2016)
• Gross Margin in the lower end of our long term target

Gradual improvement of Gross Margin in 2017

• Yield issue with nRF52 solved, however depletion of nRF52 inventory manufactured in 2016 will impact gross margins also in 1H 2017.
• Increased customer diversification will further improve Gross Margin

Cash Operating Expenses*)

Operational leverage

• Cash operating expenses increased 14.1%, mainly on $\blacksquare$ short-range R&D and SG&A
• The increase is driven by headcount growth of 15.1% $\blacksquare$ from 477 in 01 2016 to 549 in 01 2017
• Compared to Q4 2016 cash OPEX increased 2.3%

Expensing R&D activities on Cellular IoT

Evaluating more capitalization of R&D, cellular IoT expenses as we move closer to commercialization

*) Operating expenses, excl. capitalized R&D, depreciation and amort. and option expenses $12$ ** )% of Normalized quarterly revenue over the LTM

Operating Profits (EBIT)

Q1 is a seasonally weak quarter

• Significant portion of revenue is in consumer $\blacksquare$
• Chinese new year $\blacksquare$

Cellular IoT investments impacts EBIT Margin

• Q1 EBIT margin of 0%. $\blacksquare$
• Adjusted for Cellular IoT investment, Q1 EBIT margin $\blacksquare$ is 9.3%, up 1.3pp vs. Q1 2016.

Positive cash flow

Q1 2017

* EBITDA Adjusted for Capitalized Development Costs

• Net cash inflow Q1 MUSD 6.7
• Mainly driven by decrease in accounts receivables and raw material inventory. NWC decreased by MUSD 11.7, or from 38.7% of LTM to 31.9%
• Strategy to keep tight cash management and to optimize cash generating ability
• To increase financial headroom to $\overline{\phantom{a}}$ accommodate growth, the company has entered into a EUR 10 million overdraft facility

Business outlook Thomas Embla Bonnerud, Director of Strategy and IR

Maintaining our guidance for H1 2017

Revenue	MUSD $1()() - 1() / 2$

We maintain our guidance on revenue for 1H 2017 to be in the range of MUSD 100 to 107.

: Bluetooth growth	$30 - 40\%$

We expect Bluetooth to be the growth driver for 2017. The 1H 2017 guidance range is based on 30% growth in Bluetooth revenue for the lower-end and 40% for the upper-end.

: Gross $\frac{1}{2}$ margins	$46 - 47\%$

We expect gross margins to be in the range of $46 - 47\%$ for 1H 2017, in line with the previous half year but below our target of 50%.

Market outlook for Bluetooth

30 to 45% CAGR

• Growth in existing verticals $\overline{\phantom{a}}$
• New verticals/applications $\blacksquare$
• Fast paced and innovative $\overline{\phantom{a}}$
• Emergence of non-consumer

Diversification in types of ICs

• High-end SoCs ×,
• Mainstream SoCs $\blacksquare$
• Baseline SoCs m.
• Network processors

Value play on integration and connectivity

Continued strong market pull for SoC integration and connectivity

Continued robust market average selling price (ASP) development

• Strong demand for higher level of integration across the categories
• Demand for higher value single chip SoC a,
• Volume diversification across customers

Very low level of commoditization

• Value play on integration and connectivity
• Value play on performance and power $\blacksquare$
• Value play of maturity, robustness and quality

Market traction with Bluetooth 5

Clear market leadership with our Bluetooth 5 solution for nRF52

• Software available now with support for the new features, not just the errata
• First software production release for nRF52832 mid 2017

Generating new and different opportunities for us

• New customers with new applications and use cases for Bluetooth
• Door opener into customers using competing solutions

Strong design win momentum with nRF52

Released Thread solution for nRF52840

Key short-range, low power wireless technologies for smart home

Strengthening our competitive position and increasing our addressable market

Bluetooth 5

Thread

ZigBee

• Native IPv6, proven mesh over 802.15.4 $\blacksquare$
• Significant backing from Google / Nest $\overline{\phantom{a}}$
• Ideal complement to Bluetooth $\overline{\phantom{a}}$

Passed a major milestone for cellular IoT

Working samples of fully-integrated chipset in our lab

• Significant de-risk of our cellular investment
• Steady progress on functional and performance testing
• On track for lead customer sampling in H2

Getting ready to start certification testing H₂ 2017

• Interoperability testing with infrastructure partners - base stations
• Certification testing with carrier partners networks

Steady progress

• Increasing growth rates $\blacksquare$
• +34% y-o-y growth in Bluetooth revenue, +18% y-o-y overall revenue

• Yield improvements reversing negative gross margin trend

• ٠ Bluetooth dominated backlog of MUSD 45.9 (+135% y-o-y)

• Continued positive contribution on gross margin from yield improvements
• Maintaining guidance for H1 2017 $\blacksquare$

Disclaimer

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This presentation includes and is based, inter alia, on forward-looking information and contains statements regarding the future in connection with The Company's growth initiatives, profit figures, outlook, strategies and objectives. All forward-looking information and statements in this presentation are based on current expectations, estimates and projections about global economic conditions, the economic conditions of the regions and industries that are major markets for The Company. These expectations, estimates and projections are generally identifiable by statements containing words such as "expects", "believes", "estimates" or similar expressions.

Important factors may lead to actual profits, results and developments deviating substantially from what has been expressed or implied in such statements. Although The Company believes that its expectations and the presentation are based upon reasonable assumptions, it can give no assurance that those expectations will be achieved or that the actual results will be as set out in the presentation.

The Company is making no representation or warranty, expressed or implied, as to the accuracy, reliability or completeness of the presentation, and neither The Company nor any of its directors, officers or employees will have any liability to you or any other persons resulting from your use.

This presentation was prepared for the interim results presentation for the first quarter, held on April 24, 2017. 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.

Investor Presentation Q1 2017 April 24th 2017, Oslo, Norway