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Nordic Semiconductor — Interim / Quarterly Report 2010
Apr 28, 2010
3680_rns_2010-04-28_56d61ed6-0c13-4d90-887d-a47540e2341e.pdf
Interim / Quarterly Report
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NORDIC SEMICONDUCTOR
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Nordic Semiconductor 1st Quarter 2010
- Total Revenue of MUSD 29.5
- Operating Profit of MUSD 8.2 (28% EBIT margin)
- Order Inflow of MUSD 67
- Order Backlog of MUSD 71
- Earnings per share of USD 0.15
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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Q1 2010 Financial Summary
| Amounts in USD million (unaudited) | 1. Quarter | ||
|---|---|---|---|
| 2009 | 2008 | Growth | |
| Revenue | 29,5 | 10,5 | 182 % |
| Order inflow | 67,2 | 12,8 | 427 % |
| Gross Margin % | 55 % | 60 % | |
| Operating Profit (EBIT) | 8,2 | 0,7 | 1067 % |
| Operating Profit % (EBIT %) | 28 % | 7 % | |
| Net financial items | -0,6 | -0,3 | 116 % |
| Net profit after tax | 5,1 | 0,3 | 1563 % |
| Cash flow from operations | -6,1 | -1,0 | N/A |
| Cash and cash equivalents | 21,7 | 19,6 | 10 % |
Nordic Semiconductor reported exceptional growth in revenue and operating profit and a record high level of order inflow during the first quarter 2010. Total revenue in Q1 2010 was MUSD 29.5, representing a 182% growth rate from the prior year. Growth was driven by a large increase in sales to the PC / Media controller business segment.
Gross profit was MUSD 16.2, or 55% of revenue. The company's gross margin was relatively high during the first quarter 2010 due to a favorable mix of products sold. The company estimates that it will maintain a gross margin above 50% for the coming quarters.
Total operating expenses were MUSD 8.0 in Q1 2010, an increase of 44% from MUSD 5.5 in Q1 2009. The company's operating expenses are driven by payroll costs and are primarily incurred in Norwegian krone where most of its operations are based. In Norwegian krone, Nordic's operating expenses grew by 23% from the prior year, with the difference due to the appreciation of the Norwegian krone against the US dollar during this time.
Nordic Semiconductor had 125 employees at the end of the first quarter of 2010, of which 80 worked in R&D. R&D costs of MUSD 0.2 were capitalized in accordance with IAS 38 criteria, compared with MUSD 0.2 in Q1 2009.
Net financial items were MUSD -0.6 (expense) in Q1 2010, compared with MUSD -0.3 in the prior year. Net financial items were primarily driven by the impact of exchange rate changes on balance sheet items.
Profit before tax in Q1 2010 was MUSD 7.6, compared with MUSD 0.4 in Q1 2009. Net profit after tax was MUSD 5.1 or USD 0.15 per share, compared with MUSD 0.3 or USD 0.01 per share during Q1 2009.
Component orders received during the quarter were a record high MUSD 67.2, with a book-to-bill ratio of 2.28. The component order back log was MUSD 70.6 at the end of the first quarter.
NORDIC SEMICONDUCTOR
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Market segments
| Market Segment
Amounts in USD thousand | 1st quarter | | | | 01.01.-31.12 | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | 2010 | | 2009 | | 2009 | | 2008 | |
| Components | | | | | | | | |
| PC / Media controllers | 19 947 | 67,7 % | 5 716 | 54,7 % | 41 213 | 62,6 % | 27 820 | 48,3 % |
| Sports / Health monitors | 2 538 | 8,6 % | 716 | 6,9 % | 5 197 | 7,9 % | 4 294 | 7,5 % |
| Audio devices | 400 | 1,4 % | 453 | 4,3 % | 4 695 | 7,1 % | 3 337 | 5,8 % |
| Other applications | 3 555 | 12,1 % | 1 403 | 13,4 % | 5 947 | 9,0 % | 10 235 | 17,8 % |
| Standard components | 26 439 | 89,8 % | 8 289 | 79,3 % | 57 052 | 86,6 % | 45 686 | 79,3 % |
| ASIC components | 2 810 | 9,5 % | 1 886 | 18,0 % | 7 028 | 10,7 % | 11 465 | 19,9 % |
| Consulting services | 204 | 0,7 % | 278 | 2,7 % | 1 802 | 2,7 % | 451 | 0,8 % |
| Total | 29 453 | 100,0 % | 10 453 | 100,0 % | 65 881 | 100,0 % | 57 602 | 100,0 % |
| Geography
Amounts in USD thousand | 1st quarter | | | | 01.01.-31.12 | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | 2010 | | 2009 | | 2009 | | 2008 | |
| Norway | 5 | 0,0 % | 322 | 3,1 % | 1 299 | 2,0 % | 3 143 | 5,5 % |
| Europe | 3 089 | 10,5 % | 1 959 | 18,7 % | 7 607 | 11,5 % | 8 645 | 15,0 % |
| USA / Canada | 2 889 | 9,8 % | 979 | 9,4 % | 6 806 | 10,3 % | 4 210 | 7,3 % |
| Apac | 23 470 | 79,7 % | 7 164 | 68,5 % | 50 139 | 76,1 % | 41 164 | 71,5 % |
| Other | - | 0,0 % | 29 | 0,3 % | 29 | 0,0 % | 440 | 0,8 % |
| Total | 29 453 | 100,0 % | 10 453 | 100,0 % | 65 881 | 100,0 % | 57 602 | 100,0 % |
Nordic Semiconductor has modified its business segmentation from the start of 2010. Due to the similarities in customers and product types for PC peripheral components, game controller components, and components for RF consumer electronics remote controls, the company can no longer provide a reliable breakout of sales across these segments. These segments are now merged into the PC / Media controller business segment. The former Audio / Media device segment will now contain Audio applications only. This does not affect prior reporting for the Audio / Media device segment, as revenues for RF remote controls were not material in prior quarters.
PC / Media controllers
PC / Media controller sales in the first quarter were MUSD 19.9, compared with MUSD 5.7 in Q1 2009, an increase of 249%. Nordic Semiconductor is benefiting from widespread adoption of Nordic's 2.4 GHz RF solutions among PC peripherals manufacturers.
Sports / Health monitors
Total revenue in Q1 2010 was MUSD 2.5, compared with MUSD 0.7 in Q1 2009. Growth in this segment has been driven by new designs from entry-level product manufacturers.
Audio devices
Sales of components to Audio devices were MUSD 0.4, compared with MUSD 0.5 in Q1 2009. Audio streaming applications for gaming headsets were the primary source of revenue in this segment.
Other applications
Other application revenues (e.g., toys) totaled MUSD 3.6, compared with MUSD 1.4 last year. One emerging application is currently driving revenue growth, and many new designs are in development.
ASIC components / consulting
Revenue for customized ASIC components and consulting to the industrial segment was MUSD 3.0 in Q1 2010. 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 March 2010, Nordic Semiconductor had total assets of MUSD 66.9, of which MUSD 57.4 were current assets. Total liabilities were MUSD 19.9. The company has no interest-bearing debt. Total Shareholders' equity was MUSD 47.0, which represents an equity ratio of 70%.
Cash flow from operations was an outflow of MUSD -6.1 in Q1 2010, compared with an outflow of MUSD -1.0 in Q1 2009. Cash flow from operations was affected by the company's high growth, which resulted in higher working capital requirements. In addition, the company made large annual income tax and employee bonus payments during the quarter. Cash flow from investments was a net outflow of MUSD -2.8, as the company made investments of MUSD 2.5 in new testers in order to increase capacity. In Q1 2009, cash flow from investments was an inflow of MUSD 0.6 as the company received a deferred payment from the 2007 sale of its data converter business.
There was no cash flow from financing activities during Q1 2010. This compares with a net outflow from financing activities of MUSD 0.2 during Q1 2009 as the company acquired its own shares. The company's cash balance was MUSD 21.7 (32% of total assets) at the end of Q1 2010.
Market Outlook
Nordic Semiconductor currently has excellent sales momentum, 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 MUSD 67 in the first quarter, and exited the quarter with a record high order backlog of MUSD 71. This order inflow was partially driven by strong underlying demand, but was also greatly lifted by a lengthening in order cycles from previous quarters, with delivery dates spread throughout Q2 and Q3 2010.
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 / Media controller segment: In particular, PC peripherals manufacturers are rapidly converting from older 27 MHz technology to Nordic's 2.4 GHz solutions. This business segment has been the primary driver of Nordic's revenue growth in Q1 2010. While manufacturers of PC peripherals have historically sold these devices through retail channels separately from PC's, they are now also starting to manufacture 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 / Media controller 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 Other applications business segments during Q1.
- Improved market environment with longer order cycles: As the global economy improves, demand in the semiconductor market is recovering from a severe downturn. According to recent data from trade associations, the global semiconductor market is projected to grow by approximately $20\%$ 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 further growth in order inflow and backlog.
Based on Nordic's sales momentum, the company projects strong revenue growth during the year. The primary driver of growth will remain PC peripherals applications, 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
Media applications: Remote controls for home media centers
Sports / Health monitors: New health devices and remote patient monitoring
Audio devices: Audio streaming applications for music and gaming
Game controllers: Controllers for new interactive games / game consoles
Other applications: 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 EDUCATION
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Condensed financial information for the three months ended 31 March 2010
Consolidated Income Statement
| Amounts in USD thousand (unaudited) | 1st quarter | 01.01 - 31.12 | ||
|---|---|---|---|---|
| 2010 | 2009 | 2009 | 2008 | |
| Total Revenue | 29 453 | 10 453 | 65 881 | 57 602 |
| Cost of materials | (13 234) | (4 154) | (29 367) | (27 311) |
| Direct project costs | (54) | (63) | (910) | (79) |
| Gross profit | 16 166 | 6 236 | 35 604 | 30 211 |
| Payroll expenses | (5 276) | (3 643) | (14 947) | (16 228) |
| Other operating expenses | (1 493) | (1 353) | (6 087) | (7 278) |
| EBITDA | 9 397 | 1 239 | 14 570 | 6 705 |
| Depreciation | (1 224) | (539) | (2 616) | (2 532) |
| Operating Profit (EBIT) | 8 173 | 700 | 11 954 | 4 173 |
| Net interest | 119 | 204 | 582 | 1 200 |
| Net foreign exchange gains (losses) | (714) | (479) | (2 733) | 4 453 |
| Profit before tax | 7 579 | 425 | 9 803 | 9 826 |
| Income tax expense | (2 484) | (119) | (2 830) | (2 184) |
| Net profit after tax | 5 095 | 306 | 6 973 | 7 642 |
| Earnings per share | ||||
| Basic Earnings per share | 0,15 | 0,01 | 0,21 | 0,22 |
| Fully Diluted Earnings per share | 0,15 | 0,01 | 0,21 | 0,22 |
Consolidated statement of comprehensive income
| Amounts in USD thousand (unaudited) | 1st quarter | 01.01 - 31.12 | ||
|---|---|---|---|---|
| 2010 | 2009 | 2009 | 2008 | |
| Net profit after tax | 5 095 | 306 | 6 973 | 7 643 |
| Difference with translation to USD | - | 1 663 | 6 993 | (10 672) |
| Comprehensive income for the period | 5 095 | 1 970 | 13 966 | (3 029) |
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Consolidated statement of financial position
| Amounts in USD thousand (unaudited) | 31.03.2010 | 31.12.2009 | 31.03.2009 |
|---|---|---|---|
| Capitalized development expenses | 3 562 | 3 938 | 2 332 |
| Software and other intangible assets | 1 693 | 1 982 | 1 882 |
| Property assets | 465 | 484 | 468 |
| Equipment | 3 838 | 1 562 | 1 910 |
| Non-current assets | 9 559 | 7 966 | 6 591 |
| Inventory | 9 787 | 8 990 | 7 690 |
| Accounts receivable | 24 032 | 12 021 | 9 450 |
| Other short term receivables | 1 904 | 1 667 | 2 739 |
| Cash and cash equivalents | 21 654 | 30 578 | 19 613 |
| Current assets | 57 376 | 53 256 | 39 493 |
| TOTAL ASSETS | 66 935 | 61 222 | 46 084 |
| Shareholders' equity | 47 002 | 41 907 | 35 644 |
| Pension liability | 2 089 | 2 330 | 1 404 |
| Deferred tax liability | 816 | 845 | 879 |
| Non-current liabilities | 2 905 | 3 175 | 2 283 |
| Accounts payable | 6 695 | 5 306 | 1 865 |
| Income taxes payable | 3 882 | 2 982 | 2 693 |
| Public duties | 461 | 813 | 716 |
| Other short-term debt | 5 991 | 7 040 | 2 883 |
| Current liabilities | 17 028 | 16 140 | 8 157 |
| TOTAL EQUITY AND LIABILITIES | 66 935 | 61 222 | 46 084 |
Consolidated statement of changes in equity
| Amounts in USD thousand (unaudited) | 1st quarter | 01.01 - 31.12 | ||
|---|---|---|---|---|
| 2010 | 2009 | 2009 | 2008 | |
| Equity at beginning of period | 41 907 | 33 908 | 33 908 | 39 576 |
| Net profit for the period | 5 095 | 306 | 6 973 | 7 643 |
| Purchase of treasury shares | - | (234) | (507) | (2 639) |
| Corrected exercise of employee options | - | - | (207) | - |
| Dividend to shareholders | - | - | (5 253) | - |
| Difference with translation to USD | - | 1 663 | 6 993 | (10 672) |
| Equity at end of period | 47 002 | 35 644 | 41 907 | 33 908 |
NORDIC ENVIRONMENTAL UNIVERSITY
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Consolidated cash flow statement
| Amounts in USD thousand (unaudited) | 1st quarter | 01.01 - 31.12 | ||
|---|---|---|---|---|
| 2010 | 2009 | 2009 | 2008 | |
| Profit before tax | 7 579 | 425 | 9 803 | 9 826 |
| Taxes paid for the period | (1 453) | - | (3 035) | 15 |
| Depreciation | 1 224 | 539 | 2 616 | 2 532 |
| Gain on sale of equipment | - | - | - | 4 |
| Change in inventories, trade receivables | - | - | - | - |
| and payables | (11 419) | (1 019) | (1 449) | (4 664) |
| Movement in pensions | (241) | 88 | 388 | 936 |
| Other operations related adjustments | (1 801) | (1 056) | 5 566 | 3 925 |
| Net cash flows from operating activities | (6 112) | (1 023) | 13 889 | 12 573 |
| Capital expenditures (including software) | (2 640) | (217) | (328) | (3 303) |
| Proceeds from sales of equipment | - | 954 | 1 808 | 5 |
| Capitalized development expenses | (173) | (179) | (2 421) | (1 563) |
| Net cash flows from investing activities | (2 812) | 557 | (942) | (4 862) |
| Dividends paid to shareholders | - | - | (5 192) | - |
| Changes in Treasury stock | - | (162) | (441) | (3 122) |
| Other financing related adjustments | - | - | - | 4 |
| Net cash flows from financing activities | - | (162) | (5 634) | (3 118) |
| Effect of changes in currency rates | - | 910 | 3 933 | (5 278) |
| Net change in cash and cash equivalents | (8 925) | 282 | 11 247 | (685) |
| Cash and cash equivalents at start of period | 30 578 | 19 331 | 19 331 | 20 016 |
| Cash and cash equivalents at end of period | 21 654 | 19 613 | 30 578 | 19 331 |
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Notes to the consolidated interim financial statements
Note 1: General
The condensed first quarter interim financial statements for the three months ended 31 March 2010 were approved for publication by the Board of Directors on April 27, 2010. From January 1, 2010, Nordic Semiconductor has reported its financial statements with US dollar as the functional currency. Comparative financial statements for periods prior to January 1, 2010, are presented in US dollar, with Norwegian krone as the functional currency.
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 2010 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 2009.
Note 3: Important accounting principles
The accounting principles for 2009 are described in the Group annual accounts for 2009. The group accounts for 2009 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, 2009.
Note 4: Use of estimates
In the interim financial statements for 2010, 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 2010 and the major sources of uncertainty in the statements are similar to those found in the annual accounts for 2009.
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 / Media controllers, Sports / Health monitors, Audio devices, ASIC components and Other applications as well as Consulting services.
Note 7: 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 8: Risk management
A description of risk factors can be found in Note 19 of Nordic Semiconductor's 2009 annual report. The company does not anticipate material changes to its risk profile during the remainder of 2010.
Note 9: Events after the balance sheet date
Nothing has happened since the end of the first quarter of 2010 that affects the evaluation of the submitted accounts.