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Nordic Semiconductor Investor Presentation 2010
3680_rns_2010-02-11_430e235b-35f9-44e3-bf95-0b34ba9f6d5f.pdf
Investor Presentation
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Q4 2009 Investor Presentation
Svenn-Tore Larsen, CEO
Robert Giori, CFO
February 11, 2010
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Strong growth, record order inflow in Q4 2009
High revenue growth in Q4 2009 driven by PC Peripherals segment – conversion from older wireless technology to Nordic's 2.4 GHz RF solutions
- Group revenue of MNOK 113.3 (MNOK 68.9)
- Record high order inflows of MNOK 193 (MNOK 21)
- Operating Profit (EBIT) of MNOK 19.1 (MNOK – 6.4)
- Strong cash flow from operations of MNOK 38.1 (MNOK 23.7)
Business Outlook: Excellent sales momentum entering 2010, with positive outlook for long-term growth and profitability
- Record high order backlog (MNOK 190), due to:
- Nordic's competitive advantage in low energy wireless applications
- Successful launch of low cost system-on-chip solutions
- Rapid adoption of Nordic's solutions within PC Peripherals segment
- New product designs with Nordic components across other segments
- Improved market environment with longer order cycles – order backlog extended across Q1 and Q2
NORDIC SEMI CONDUCTOR
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FINANCIAL HIGHLIGHTS
Robert Giori, CFO
Q4 2009 Financial Highlights
| MNOK
Financial objectives | Q4 2009 | Q4 2008 | Comments |
| --- | --- | --- | --- |
| Growth | | | |
| Revenue | 113,3 | 68,9 | 64% annual growth |
| Order Inflow | 193,3 | 21,4 | Book-to-Bill: 1,71 |
| Profitability | | | |
| Gross Margin % | 51 % | 53 % | New chip release, customer / product mix |
| Operating Income (EBIT) | 19,1 | -6,4 | Revenue growth and Opex decline |
| EBIT Margin % | 17 % | -9 % | |
| Net Financial Items | 0,0 | 23,6 | Changes in NOK / USD exchange rate |
| Net Income | 13,9 | 12,8 | |
| Cash Flow | | | |
| Free Cash Flow | 35,3 | 21,0 | Strong Cash Flow Operations, low CapEx |
| Cash Balance | 176,7 | 135,3 | Dividend payment of MNOK 34 in Q2 09 |
| Accounts Receivable | 69,5 | 59,2 | Very low DSO relative to prior quarters |
| Inventory | 51,9 | 58,0 | Low inventory levels |
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Group Revenues
- Q4 2009 Revenue of MNOK 113.3 (64% annual growth)
- PC Peripherals segment is key revenue driver, with 174% annual growth
- Increasing adoption of Nordic 2.4 GHz components within PC Peripherals segment
Segment revenue by quarter 2007 – 2009 (MNOK)
PC Peripherals
Game controllers
Sports / Health monitors
Audio / Media
Other components
Industrial / Consulting
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Revenue growth vs. Global semiconductor market
- Nordic has a 23 % growth premium (in USD) compared with the global semiconductor market during all of 2009
- Analysts project continued recovery in semiconductor market during 2010
Nordic Semiconductor — Global Semiconductor Market*
- Source: World Semiconductor Trade Statistics
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Revenue Mix
- 80% of revenues are to Asian distributors
- Many component units are sold through distribution to Asian OEM's for manufacture and export of devices to North America / Europe
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New sales / order backlog
- Record high order inflow of MNOK 193
- Many new product designs with Nordic's wireless components, boosted by recent launch of low cost system-on-chip solutions
- Drives record high order backlog of MNOK 190 at end-Q4 2009
Order Inflow and Backlog 2007 – 2009 (MNOK)
Strong recovery and growth in order volumes since Q4/08
High order inflows and lengthening order cycles result in record high order backlog
Order backlog extended across Q1/Q2 2010
Order Inflow
Backlog
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Gross Margin
- Gross margin of 51 %
- Customer mix shifts to larger customers, compared with 1H 2009
- Temporarily higher COGS on initial sales of new system-on-chip release
GROS SERVICE
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Operating Profit
- Operating Profit (EBIT) of MNOK 19.1 (17 % EBIT margin)
- Driven by high revenue growth within PC Peripherals segment
- Decline in operating expenses from Q4/08 due to lower payroll and overhead costs
Operating Profit
4 Quarter Rolling Average
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Cash Flow
- Strong Cash Flow from Operations and Free Cash Flow in Q4 2009
- Operating profit and collection of Accounts Receivables offsets large tax payment (2008 income taxes)
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Free Cash Flow
- Free Cash Flow of MNOK 35.3 (vs. MNOK 21.0 in Q4 2008)
- Ending cash balance of MNOK 177 (MNOK 135)
- Very low net working capital requirements at end-Q4 relative to revenue growth
Free cash flow by quarter 2007 - 2009 (MNOK)
□
Free Cash Flow
4 Quarter Rolling Average
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Q4 2009 Financial summary
Strong financial performance, record high order inflow
Revenue growth
- Group revenue of MNOK 113 (MNOK 69)
- 64% growth rate
- Driven by 174% growth in PC Peripherals segment
- Order inflow of MNOK 193 (MNOK 21)
- High demand, lengthening order cycles
Profitability
- EBIT of MNOK 19.1 (MNOK – 6.4)
- Strong increase in revenue, decline in Opex
Cash Flow
- Free Cash Flow of MNOK 35.3 (MNOK 21.0)
- Profitability and reduction of net working capital balances offset large income tax payment (2008 taxes)
- Ending Cash Balance of MNOK 177
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Other financial items
Proposed dividend policy
- The Board of Nordic Semiconductor will propose a dividend of MNOK 2.00 per share at the Annual General Meeting on June 9, 2010
Change in functional currency
- Nordic Semiconductor will adopt USD as its functional currency from 2010
- The business has evolved so that the company’s revenues and direct production costs are now almost entirely in USD
- The new functional currency will better reflect business activities and enable a more accurate comparison of financial results
- Pro-forma nonaudited US dollar historical annual and quarterly results from 2007 - 2009 are available on the Nordic website: www.nordicsemi.com (investor relations / reports and presentations)
- To facilitate analysis and comparison of financial results, the 2009 annual report will be presented in USD (with NOK as functional currency)
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BUSINESS OVERVIEW
Svenn-Tore Larsen, CEO
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Business Overview – Q4 2009
Very strong demand environment for Nordic's wireless solutions
Record high order backlog (MNOK 190) due to:
- ☑ Nordic's competitive advantage in low energy wireless applications
- ☑ Successful launch of low cost system-on-chip solutions
- ☑ Rapid adoption of Nordic's solutions within PC Peripherals segment
- ☑ New product designs with Nordic components across other segments
Future Outlook
- Excellent sales momentum entering 2010, with positive outlook for long-term growth and profitability
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Our vision
Short-range personal interface devices will soon become entirely wireless.
Nordic Semiconductor shall be the preferred global vendor of low power radio solutions that enable wireless transmission of information across these devices.
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Competitive advantage in low energy wireless solutions
- Nordic has strong competitive advantages in wireless performance and low power consumption
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> Designed for the specific requirements of wireless personal interface devices
- High data transfer rate
- Coexistence with other wireless devices (low interference)
- Rapid response time
- Ultra-low power consumption
> Key wireless target markets
- PC Peripherals
- Sports / Health monitors
- Audio / Media devices (wireless audio streaming and advanced remote controls)
- Game controllers
- Other (Toys / RFID applications)
Competitive technologies:
> Bluetooth (& other 2.4 GHz solutions)
- Strong data transfer rate and coexistence, but power consumption is major limitation
- Dominant in voice applications
> Sub-1 Ghz RF (e.g. 27 MHz wireless)
- Limitations in data transfer rate, interference from other wireless communications
- Losing market share to 2.4 GHz solutions in many applications
> Infrared
- Severe limitations in data transfer (one way), interference and range
- Most commonly used technology in consumer remote controls
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Successful release of low cost wireless solutions
Launch total solutions at competitive cost to attract entry-level and mid-market vendors
1. 2.4 GHz transceiver
- Nordic proprietary 2.4GHz RF transceiver
- Market leading technology for low energy wireless applications
2. System-on-chip solution
- Nordic 2.4GHz transceiver, plus
- built-in microcontroller
- memory
- application peripherals (e.g., USB controller)
= Key components built on chip
3. Reference designs
- Complete application prototype (includes PCB + plastics)
- Total solution with application specific firmware that operates on system-on-chip
Q4 2009 Actions:
- Release of low cost system on chip solutions with one-time programmable memory
- Nordic's System-on-chip solutions cost less than purchasing and integrating components separately
- Marketing of reference designs, and launch of new toy design
- Reference designs reduce costs and risk of product engineering for vendors
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Penetrate mass market with new solutions
New product releases reduce the price difference with lower-performance solutions, enabling greater penetration of high volume mass market
Successful migration from higher-end to total market with reduction in component and development cost
Nordic Semiconductor proprietary 2.4 GHz solutions
Low end wireless (ex. 27 MHz keyboard / mouse)
Non-wireless devices (ex. wired keyboard / mouse)
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Capturing new product designs
System-on-chip solutions and reference designs drive increased development activity among customers
- Significant growth (172%) in sales of product development kits ordered in 2H 2009 vs. 2H 2008
- Sales of development kits indicate high design activity among customers
-
Rapid adoption of system-on-chip solutions and reference designs within customer engineering teams
-
Typical product lifetime of 3+ years following design win and product release
- Design requirements create barrier to entry from competition during product lifetime
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Rapid adoption within PC Peripherals segment
- Wireless PC Peripherals manufacturers are rapidly converting to Nordic's 2.4 GHz technology, from older (27 MHz) wireless solutions
- Some PC Peripherals manufacturers are starting to provide 2.4 GHz wireless mice / keyboards to major PC vendors, but volumes are still relatively small
Source: ABI Research (model only)
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New product designs across business segments
PC Peripherals
Wireless mouse, keyboard, PC remote
Q4 Revenue*: MNOK 68 (MNOK 25)
- Conversion from 27MHz to Nordic 2,4GHz solution in low-end / high volume segment
Sports / Health monitors
Sensors, watches, GPS
Q4 Revenue*: MNOK 7 (MNOK 4)
- Growth driven by increased penetration of entry-level and mid-market vendors
Audio / Media devices
Remote controls, microphones, media player accessories
Q4 Revenue*: MNOK 13 (MNOK 8)
- Audio streaming applications driving current growth
Gaming controllers
Controllers and consoles
Q4 Revenue*: MNOK 1 (MNOK 6)
- Several new designs for specialized controllers in development
Other components
Toys, RFID, etc.
Q4 Revenue*: MNOK 10 (MNOK 7)
- Release of new reference design for remote control toys drives product development
Industrial applications / consulting
Wide sector span
Q4 Revenue*: MNOK 16 (MNOK 19)
- Sales of custom ASIC components to support existing customer; not a focus area for growth
- Reflects Q4 2009 revenue (Q4 2008 in parenthesis)
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Bluetooth Low Energy to drive new product designs
Overview
- Bluetooth Low Energy is the first open standard for low energy, short range radio technology (available to consumers in 2010)
- Offers interconnectivity between small, button cell battery devices (sports / health sensors, watches, etc.) and mobile devices (phones / PC's)
- Nordic Semiconductor has taken a leading role in developing the standard within the Bluetooth SIG, and expects to be first-to-market with single-mode chipsets based on Nordic's existing 2.4 GHz platform
Bluetooth Low Energy
(single mode) peripherals
Host device
(dual mode)
Other Communications
- Classic Bluetooth
- GPS
- Web / data services
Source: Bluetooth Low Energy SIG
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Status of Bluetooth Low Energy release
System components
- Sensor device with Nordic 2.4 GHz low energy wireless solution
- Proprietary communications protocol (through device vendor, Nordic, 3rd party)
- Host device with Nordic 2.4 GHz low energy wireless solution
System components
- Sensor device with Nordic $\mu$Blue™ single-mode Bluetooth Low Energy solution
- Bluetooth Low Energy communications protocol (open standard)
- Host device with Dual-mode Bluetooth solution (e.g., mobile phone from outside vendor)
Q4 2009 Status
On track to be first-to-market with single-mode solutions
- Bluetooth SIG announces introduction of Bluetooth Low Energy technology (12/09)
- Nordic ships beta implementation of Bluetooth Low Energy solution to lead customers
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Business Overview – Q4 2009
Very strong demand environment for Nordic's wireless solutions
Record high order backlog (MNOK 190) due to:
- Nordic's competitive advantage in low energy wireless applications
- Successful launch of low cost system-on-chip solutions
- Rapid adoption of Nordic's solutions within PC Peripherals segment
- New product designs with Nordic components across other segments
Future Outlook
- Excellent sales momentum entering 2010, with positive outlook for long-term growth and profitability
NORDIC SEMICONDUCTOR
Future Outlook – 2010
- Growth driven by conversion from older wireless technologies (27 MHz) to Nordic's 2.4 GHz solutions within PC Peripherals business segment
> Demand environment
- Record high order inflow / backlog entering 2010
- Longer order cycles contribute to order inflow / backlog
- Sales mix shifts toward larger customers and system-on-chip (OTP) solutions, with greatly reduced seasonality projected than in prior years
> Business Segments
- PC Peripherals: 2.4 GHz solutions to capture very high percentage of aftermarket in 2010
- Smaller volumes of wireless components sold via PC manufacturers
- Other segments: Accelerating growth driven by new product launches
> Operations
- Headcount: Target employee growth of 20% across R&D / Sales / Supply Chain teams
- R&D: Focus on launches of Bluetooth Low Energy, next-generation IC platforms to maintain market leadership in ultra-low power 2.4 GHz solutions
- Sales: Increase key account management, field engineer staff
- Supply Chain: Expand production capacity, invest in 4 new testers during Q1 (MNOK 10)
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Future Outlook – 2011/2012
- Growth driven by adoption of wireless connectivity technology into existing (wired) products, release of new applications featuring 2.4 GHz / Bluetooth Low Energy technologies
> Demand environment
> - Growing adoption of 2.4 GHz RF technology across all business segments, with Bluetooth Low Energy (single mode) achieving significant unit volumes by late-2012
> - Overall demand growth will be influenced by macroeconomic climate
> Business Segments
> New growth opportunities include:
> - PC Peripherals: Replace wired mouse and keyboard in PC shipments
> - Sports / Health monitors: New health devices and remote patient monitoring
> - Audio / Media devices: Media center remote controls, audio streaming
> - Game controllers: Controllers for new interactive games, game consoles
> - Other components: Includes RFID, Toys, Proximity sensors, Watch applications
> Operations
> - Moderate growth in headcount, continued scaling of operating expenses relative to revenue growth
NORDIC SEMICONDUCTOR
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