Nordic Semiconductor — Interim / Quarterly Report 2009

Feb 11, 2010

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Nordic Semiconductor 4th Quarter 2009

• Total Revenue of MNOK 113.3
• Operating Profit of MNOK 19.1 (17% EBIT margin)
• Order Inflow of MNOK 193
• Order Backlog of MNOK 190
• Cash Flow from Operations of MNOK 38.1

For further information, please contact:
Svenn-Tore Larsen, CEO, mobile +47 982 85 476
Robert Giori, CFO, mobile +47 934 09 188

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Q4 2009 Financial Summary

Amounts in NOK million (unaudited)	4th quarter		Growth
	2009	2008
Revenue	113,3	68,9	64 %
Order inflow	193,3	21,4	803 %
Gross Margin %	51 %	53 %
Operating Profit (EBIT)	19,1	-6,4	N/A
Operating Profit % (EBIT %)	17 %	-9 %
Financial items	0,0	23,6	N/A
Net income after tax	13,9	12,8	8 %
Cash flow from operations	38,1	23,7	61 %
Cash and cash equivalents	176,7	135,3	31 %

Nordic Semiconductor reported rapid growth during the fourth quarter 2009, with a record high level of order inflow. Total revenue in Q4 2009 was MNOK 113.3, representing a 64% growth rate from the prior year. In US dollars, revenue grew at a 96% rate from Q4 2008. Growth was driven by a large increase in sales to the PC Peripherals business segment.

Gross Margin was MNOK 57.9, or 51% of revenue. This compares with a gross margin of MNOK 36.3, or 53% of revenue during Q4 2008. The margin development was driven by a shift in Nordic's customer mix toward its largest customers. During the first half of the year, these customers had been drawing down existing inventories and hence represented a lower percentage of Nordic's revenues during that period. In addition to the customer mix, Nordic incurred higher initial COGS on sales of its newly released nRF24LE1 OTP and nRF24LU1+ OTP products during the quarter.

Total operating expenses were MNOK 38.8 in Q4 2009, compared with MNOK 42.7 in Q4 2008. R&D expenses in Q4 2009 were MNOK 12.4, compared with MNOK 12.2 in the prior year. Additional R&D costs of MNOK 2.6 were capitalized in accordance with IAS 38 criteria, compared with MNOK 2.3 in Q4 2008. Other operating expenses in Q4 2009 totaled MNOK 22.0, compared with MNOK 26.9 in Q4 2008, reflecting a strong focus on cost containment in the current economic environment. Depreciation expenses totaled MNOK 4.4 in Q4 2009, compared with MNOK 3.6 in the previous year.

Due to rapid growth in revenues and containment of operating expenses, Operating Profit (EBIT) in Q4 2009 was a strong MNOK 19.1, or 17% of revenue. This compares with an operating loss of MNOK -6.4 in Q4 2008.

Financial items were MNOK 0.0 in Q4 2009, compared with income of MNOK 23.6 in the prior year. This shift was caused by a revaluation of USD-based balance sheet items in NOK (primarily inventories and receivables), as a result of an appreciation in the value of the US Dollar during Q4 2008. During Q4 2009, the value of the USD remained relatively stable against the Norwegian krone.

Profit before tax in Q4 2009 was MNOK 19.1, compared with MNOK 17.2 in Q4 2008. Net income after tax was MNOK 13.9 or NOK 0.41 per share, compared with MNOK 12.8 or NOK 0.38 per share during Q4 2008.

Component orders received during the quarter were a record high MNOK 193.3, with a book-to-bill ratio of 1.71. The component order back log was MNOK 189.8 at the end of the fourth quarter.

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Market segments

Market segment	4th quarter				01.01-31.12
	2009		2008		2009		2008
Components
PC peripherals	67,7	59,7 %	24,7	35,8 %	248,8	61,4 %	120,3	37,7 %
Gaming controllers	0,5	0,4 %	5,7	8,3 %	4,9	1,2 %	33,2	10,4 %
Sports / Health monitors	6,6	5,8 %	4,2	6,1 %	32,1	7,9 %	23,5	7,4 %
Audio / Media devices	12,6	11,1 %	8,0	11,6 %	28,2	7,0 %	19,8	6,2 %
Other components	10,1	8,9 %	7,0	10,2 %	37,1	9,2 %	55,5	17,4 %
Standard components	97,5	86,0 %	49,6	72,0 %	351,1	86,6 %	252,3	79,0 %
Industrial applications	14,4	12,7 %	18,6	27,0 %	43,1	10,6 %	64,4	20,2 %
Consulting services	1,4	1,2 %	0,7	1,0 %	11,1	2,7 %	2,6	0,8 %
Total	113,3	100,0 %	68,9	100,0 %	405,3	100,0 %	319,3	100,0 %
Region	4th quarter				01.01-31.12
---	---	---	---	---	---	---	---	---
	2009		2008		2009		2008
Norway	3,0	2,6 %	5,6	8,1 %	8,0	2,0 %	17,8	5,6 %
Europe	10,8	9,5 %	13,1	19,0 %	47,1	11,6 %	48,4	15,2 %
USA/Canada	9,3	8,2 %	8,3	12,0 %	42,1	10,4 %	24,1	7,5 %
Apac	90,2	79,6 %	41,5	60,2 %	307,9	76,0 %	226,6	71,0 %
Other	0,0	0,0 %	0,4	0,6 %	0,2	0,0 %	2,4	0,8 %
Total	113,3	100,0 %	68,9	100,0 %	405,3	100,0 %	319,3	100,0 %

PC peripherals

PC peripheral sales in the fourth quarter were MNOK 67.7, compared with MNOK 24.7 in Q4 2008, an increase of 174%. Nordic Semiconductor is benefiting from widespread adoption of Nordic's 2.4 GHz RF solutions within the PC Peripherals segment due to their smaller size, performance advantages and lower energy requirements compared with competitive offerings.

Game controllers

The game controller segment had revenues of MNOK 0.5 in Q4 2009, compared with MNOK 5.7 in Q4 2008. Several new controller designs are currently in development for release in 2010.

Sports / Health monitors

Total revenue in Q4 2009 was MNOK 6.6, compared with MNOK 4.2 in Q4 2008. Growth in this segment has been driven by new designs from entry-level product manufacturers, in addition to Nordic's ongoing sales to major fitness-related brands.

Audio / Media devices

Sale of components to Audio / Media devices were MNOK 12.6, compared with MNOK 8.0 in Q4 2008. Audio streaming applications are presently driving growth in this segment.

Other components

Other component revenues (e.g., toys) totaled MNOK 10.1, compared with MNOK 7.0 last year. Nordic Semiconductor has recently released a reference design for remote-controlled toys, which is expected to stimulate development of new product designs in this segment.

Industrial applications / consulting

Revenue for customized components and consulting to the industrial segment was MNOK 15.8 in Q4 2009. Nordic Semiconductor has made a strategic decision not to invest further in new sales to this segment, and is currently fulfilling demand from existing customers only.

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Balance Sheet and Cash Flow

As of 31 December 2009, Nordic Semiconductor had total assets of MNOK 353.7, of which MNOK 307.7 were current assets. Total liabilities were MNOK 111.6. The company has no interest-bearing debt. Total Shareholders' equity was MNOK 242.1, which represents an equity ratio of 68%.

Cash flow from operations was MNOK 38.1 in Q4 2009, compared with cash flow of MNOK 23.7 in Q4 2008. Cash flow from operations benefited from a reduction in accounts receivable of MNOK 34.0, but was offset by large 2008 income tax payment of MNOK 17.2 during the quarter. Cash flow from investments was a net outflow of MNOK 2.8, compared with an outflow of MNOK 2.7 in Q4 2008. The company has managed with low capital expenditures throughout the year.

There was no cash flow from financing activities during Q4 2009. This compares with a net outflow from financing activities of MNOK 4.8 during Q4 2008 as the company acquired its own shares. The company's cash balance was MNOK 176.7 (50% of total assets) at the end of Q4 2009.

Market Outlook

Nordic Semiconductor has excellent sales momentum entering 2010, based on its industry-leading wireless solutions for short-range low power applications and on favorable market trends.

The company had a record high order inflow of MNOK 193.3 in the fourth quarter, and exits 2009 with a record high order backlog of MNOK 189.8. This volume of new orders is particularly notable, as the fourth quarter has historically been a seasonally weaker quarter for Nordic Semiconductor.

Key drivers of Nordic's sales momentum are as follows:

• Nordic's competitive advantage in low energy wireless applications: Nordic Semiconductor has established a position as the industry leader in the growing market for short-range low energy wireless solutions. Its ultra-low power 2.4 GHz wireless components feature high performance with the lowest power consumption in the industry and have become the preferred wireless solution for top global brands within its target markets.
• Successful launch of low cost system-on-chip solutions: During Q4 2009, Nordic launched a low cost variant of its integrated system-on-chip solutions. This has accelerated the adoption of Nordic's 2.4 GHz wireless technology by high-volume, mass-market device manufacturers within Nordic's target markets. Many of these manufacturers had previously been using technically inferior but lower cost solutions such as older 27 MHz technology.
• Rapid adoption of Nordic's solutions within the PC Peripherals segment: In particular, PC peripherals manufacturers have rapidly converted from older 27 MHz technology to Nordic's 2.4 GHz solutions during the past year. This business segment has been the primary driver of Nordic's revenue growth in 2009, with segment revenues more than double that of 2008. While manufacturers of PC Peripherals have historically sold these devices through retail channels separately from PC's, they are now starting to manufacture 2.4 GHz wireless mice / keyboards labeled and for resale through major PC brands.

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• New product designs with Nordic components in other segments: In addition to the PC Peripherals segment, new product designs across several other segments are contributing to record high order inflow. In particular, Nordic has had solid revenue growth within the Sports / Health monitor and Audio / Media device business segments during Q4 2009.
• Improved market environment with longer order cycles: As the global economy improves, demand in the semiconductor market has started to recover from a severe downturn. According to estimates from World Semiconductor Trade Statistics, the global semiconductor market is projected by grow by an estimated 12% in 2010, after declining by approximately 9% during 2009. This increase in demand is driving a lengthening of order cycles across the industry, which in turn stimulates growth in order inflow and backlog.

Based on Nordic's sales momentum entering 2010, the company projects strong revenue growth during the year. The primary driver of growth will remain the PC Peripherals segment, as manufacturers phase out older wireless products and replace them with new devices based on Nordic's 2.4 GHz technology. In addition, new product launches in other business segments are expected to increasingly contribute to revenue growth during 2010. In order to maintain Nordic's technology leadership in short-range low energy wireless and to support customers during a period of rapid growth, the company aims to increase its staff during 2010 by approximately 20% across the R&D, sales and supply chain teams.

By the end of 2010, the company projects that 2.4 GHz wireless solutions will be the dominant technology in the PC Peripherals aftermarket, and the conversion from older 27 MHz solutions will have a diminishing impact on revenue growth. During 2011 – 2012, the company believes that revenue growth will be driven by new opportunities to integrate wireless technology into wired devices, and by the release of new applications featuring ultra-low power wireless technology.

Several of these growth opportunities include:

• PC Peripherals: Replace wired keyboard / mouse in PC shipments
• Sports / Health monitors: New health devices and remote patient monitoring
• Audio / Media devices: Media center remote controls, audio streaming devices
• Game controllers: Controllers for new interactive games / game consoles
• Other components: RFID, remote-control toys, proximity sensors, watch applications

Finally, the Bluetooth Low Energy standard is expected to create new opportunities for product innovation and volume growth over the longer term. Bluetooth Low Energy is the first open standard for low-energy, short-range radio connectivity between devices. Due to the expected integration of a Bluetooth Low Energy mode within the Bluetooth radio chip included in most mobile handsets, the Bluetooth Low Energy standard is expected to open mobile handsets and other Bluetooth devices for connectivity with low-energy sensors and monitors.

Nordic Semiconductor has taken an active role in developing the Bluetooth Low Energy standard within the Bluetooth SIG, and expects to be first-to-market with single-mode Bluetooth Low Energy chipsets based on Nordic's existing 2.4 GHz platform.

In total, Nordic Semiconductor enters 2010 with excellent sales momentum, and is well positioned for longer-term market opportunities based on its industry leading proprietary technology, highly competent R&D and sales team, and extensive experience in ultralow power wireless solutions.

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Condensed financial information for the twelve months ended 31 December 2009

Consolidated Income Statement

Amounts in NOK million (unaudited)	4th quarter		01.01-31.12
	2009	2008	2009	2008
Revenue	113,3	68,9	405,3	319,3
Cost of materials	-54,4	-33,0	-179,9	-151,2
Direct project costs	-1,0	0,4	-5,6	-0,3
Gross margin	57,9	36,3	219,8	167,8
Other operating expenses	-22,0	-26,9	-87,4	-89,2
Research and development	-12,4	-12,2	-43,8	-43,4
EBITDA	23,5	-2,8	88,6	35,2
Depreciation	-4,4	-3,6	-16,3	-14,1
Operating Profit (EBIT)	19,1	-6,4	72,3	21,1
Net financial items	0,0	23,6	-13,4	35,0
Profit before tax	19,1	17,2	58,9	56,1
Taxes	-5,2	-4,4	-16,3	-15,3
Net income	13,9	12,8	42,6	40,8
Earnings. pr share	0,41	0,38	1,26	1,18
Diluted earnings. pr share	0,41	0,38	1,26	1,18

Consolidated statement of comprehensive income

Amounts in NOK million (unaudited)	4th quarter		01.01-31.12
	2009	2008	2009	2008
Net income	13,9	12,8	42,6	40,8
Translation differences	0,1	-0,1	0,3	-0,1
Comprehensive income for the period	14,0	12,7	42,9	40,7

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Consolidated statement of financial position

Amounts in NOK million (unaudited)	31.12.2009	30.09.2009	31.12.2008
Intangible assets	34,1	34,3	28,7
Property, plant and equipment	11,9	13,3	16,3
Non-current assets	46,0	47,6	45,0
Inventories	51,9	35,9	58,0
Accounts receivables	69,5	103,5	59,2
Other short term receivables	9,6	10,1	18,1
Cash and cash equivalents	176,7	141,3	135,3
Current assets	307,7	290,8	270,6
TOTAL ASSETS	353,7	338,4	315,6
Shareholders' equity	242,1	228,1	237,3
Long-term liabilities	13,4	18,6	16,9
Tax payable	22,1	28,3	17,2
Other current liabilities	76,1	63,4	44,2
TOTAL EQUITY AND LIABILITIES	353,7	338,4	315,6

Consolidated statement of changes in equity

Amounts in NOK million (unaudited)	Share capital	Premium reserve	Translation reserve	Retained earnings	Total equity
Equity as of 31.12.2007	1,8	83,7	0,0	128,7	214,2
Comprehensive income for the period			-0,1	40,8	40,7
Translation differences				-17,6	-17,6
Equity as of 31.12.2008	1,8	83,7	-0,1	151,9	237,3
Dividends paid to shareholders				-33,7	-33,7
Comprehensive income for the period			0,3	42,6	42,9
Changes, Treasury stock				-2,9	-2,9
Amortisation of own shares	-0,1				-0,1
Corrected employee share options exercised		-1,4			-1,4
Equity as of 31.12.2009	1,7	82,3	0,2	157,9	242,1

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Consolidated cash flow statement

	4th quarter		01.01-31.12
Amounts in NOK million (unaudited)	2009	2008	2009	2008
Net income (loss) before tax	19,1	17,2	58,9	56,1
Taxes paid for the period	-17,2	0,0	-17,2	0,0
Depreciations	4,4	3,6	16,3	14,1
Change in inventories, trade receivables/payables and other working capital	31,2	0,4	24,2	-4,9
Other operational related adjustments	0,6	2,5	1,0	5,3
Net cash provided by (used in) operating activities	38,1	23,7	83,2	70,6
Capital expenditures	-0,2	-0,4	-2,2	-3,7
Proceeds from sales of property, plant and equipment	0,0	0,0	12,0	0,0
Capitalized intangible assets	-2,6	-2,3	-15,1	-22,3
Net cash provided by (used in) investing activities	-2,8	-2,7	-5,3	-26,0
Dividends paid to shareholders	0,0	0,0	-33,7	0,0
Changes, Treasury stock	0,0	-4,8	-2,9	-17,6
Net cash provided by (used in) financing activities	0,0	-4,8	-36,6	-17,6
Effect of changes in currency exchange rates	0,1	0,0	0,1	-0,1
Net change in cash and cash equivalents	35,4	16,2	41,4	26,9
Cash and cash equivalents at beginning of period	141,3	119,1	135,3	108,4
Cash and cash equivalents at end of period	176,7	135,3	176,7	135,3

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Notes to the consolidated interim financial statements

Note 1: General

The condensed fourth quarter interim financial statements for the twelve months ended 31 December 2009 were approved for publication by the Board of Directors on February 10, 2010. The Group presents its financial statements in NOK in its interim report. This is also the functional currency of the Parent Company.

The Group is listed on the Oslo Stock Exchange and is a joint stock company registered in Norway. The Company's head office is located at Otto Nielsens vei 12, 7052 Trondheim, Norway.

Nordic Semiconductor ASA develops and sells integrated circuits and related solutions for short-range wireless communication. The company specializes in ultra-low power (ULP) components, based on its proprietary 2.4 GHz RF technology.

Note 2: Confirmation of the financial framework

The Group accounts for Nordic Semiconductor ASA and its wholly-owned subsidiary, together called "the Group" have been prepared in accordance with IAS 34 Interim Financial Statements. The interim financial statements for 2009 do not include all the information required for the full year financial statements and shall be read in conjunction with the Group annual accounts for 2008.

Note 3: Important accounting principles

The accounting principles for 2008 are described in the Group annual accounts for 2008. The group accounts for 2008 were prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, relevant interpretations of this, additional Norwegian disclosure requirements described in the Norwegian GAAP and the Norwegian Securities Trading Act that were used in the preparation of the annual accounts as of December 31, 2008.

Note 4: Use of estimates

In the interim financial statements for 2009, judgements, estimates and assumptions have been applied that may affect the use of accounting principles, book values of assets and liabilities, revenues and expenses. Actual values may differ from these estimates. The major assumptions applied in the interim financial statements for 2009 and the major sources of uncertainty in the statements are similar to those found in the annual accounts for 2008.

Note 5: Seasonality of operations

Nordic Semiconductor's revenues are affected by the seasonality of consumer demand for electronics products which integrate Nordic components. This factor has historically driven higher shipments to distribution during Q3 in advance of the winter holiday season.

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Note 6: Segment information

Detailed segment reporting is included on page 3 of this document.

Segments are reported in accordance with IFRS 8. The classification by segments has not changed as a result of the transition from IAS 14 to IFRS 8, as this classification is consistent with reporting to management. The Group has only one business, which is wireless components. The Company divides its revenues into categories based on the final products for the Group's customers: PC peripherals, Gaming controllers, Sports / Health monitors, Audio / Media devices, Industrial applications and Other components as well as Consulting services.

Note 7: Consolidated net financial items

Consolidated net financial items consist of interest earned on cash holdings and net foreign exchange gains / losses on balances held in foreign currencies (primarily USD).

Amounts in NOK million (unaudited)	4th quarter		01.01-31.12
	2009	2008	2009	2008
Net interest	0,5	2,3	3,7	6,8
Net foreign exchange gains (losses)	-0,5	21,3	-17,1	28,2
Net other financial income (loss)	0,0	0,0	0,0	0,0
Net financial items	0,0	23,6	-13,4	35,0

Note 8: Related party transactions

Board member Anne-Cecilie Fagerlie is General Manager for Avanade Norden. Avanade was chosen by Nordic Semiconductor as a supplier of the Company's ERP and CRM data system. Anne-Cecilie Fagerlie has not participated in the preparatory casework, discussions or decisions that Nordic Semiconductor's Board of Directors and management have had in this area.

Note 9: Risk management

A description of risk factors can be found in Note 22 of Nordic Semiconductor's 2008 annual report. The company does not anticipate material changes to its risk profile during the remainder of 2009.

Note 10: Events after the balance sheet date

Nothing has happened since the end of the fourth quarter of 2009 that affects the evaluation of the submitted accounts.