Nordic Semiconductor — Investor Presentation 2016

Oct 18, 2016

Investor Presentation Q3 2016 October 18th 2016, Oslo, Norway

Introducing our new Director of Strategy and IR

Svenn-Tore Larsen CEO

Pål Elstad CFO

Thomas Embla Bonnerud Director Strategy and IR

Business update Svenn-Tore Larsen, CEO

Q3 2016 headlines

$#1$ Q3 2016 revenue at 52.3, down 3.0% compared to MUSD 53.9 in Q3 2015

$#2$ Bluetooth revenue at MUSD 31.1, down 8.9% compared to MUSD 34.2 in Q3 2015

#3 Q3 2016 EBIT of MUSD 3.9, compared to MUSD 10.0 in Q3 2015

Bluetooth momentum with underlying growth of 45%. Growth and diversification of #4 customer base.

Positive momentum for our cellular IoT investment with several infrastructure and carrier #5 announcements supporting our strategy.

Late incoming supply hits Q3 revenue

$MUSD -4$ for Q3 2016

Minimum customer impact

$MUSD + 4$ for Q4 2016

Late incoming supply Product mix

Safety stock used to meet customer demand

Rebuild of safety stock in progress

Sales funnel is a leading indicator

Visibility on trends

• Our competitive position $\blacksquare$
• The overall market $\overline{\phantom{a}}$
• $\rightarrow$ Q3 2016 $\overline{\phantom{a}}$
• Outlook on 2017 2018 Co

Design-in cycle: 9 - 18+ months

• Development activity ×
• Design wins ×
• Product certification ٠
• Product launch $\overline{\phantom{a}}$

Record high development activity

On track for a record year 40% is nRF52 kits (H1 2016) nRF51 still going strong

27% growth in posts YTD Diversified type of customers And verticals

Most popular platform SoC, software, tools and support Availability and ease of use

Strong tier 1 design win momentum

All time high and #1 on product certifications

Bluetooth/FCC certification

⁽Source: DNB Markets, Bluetooth SIG, FCC)

Selected Nordic powered products in Q3

Star Wars Force Band Toys / Robotics Powered by nRF52

EnOcean Light switch Smart Home / Lighting Powered by nRF51

Kontakt.io Beacon Pro Beacon Powered by nRF52

Furby connect Toys / doll Powered by nRF51

Growth and diversification of customer base

50% y-y growth

Bluetooth revenue distribution

% share of top 10 customer $50\%$ Q3 2015 $\rightarrow$ 36% Q3 2016

*) 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)

$\left( \ldots \right)$

Unique market position across verticals

Nordic Bluetooth customer base 2016

	Wearables
Healthcare	Remote controls
Beacons $T$ e $O$ $O$	PC/phone/tablet HID
Smart Home ō I. - V M	Gaming
Automotive $\langle \cdot \cdot \rangle$ $\bullet$	Proximity tags $\sqrt{20}$
Wireless Charging	Toys

Emerging

Established Verticals

Broad coverage of the verticals

• Established, emerging and $\blacksquare$ long-tail
• Mix of leading players and up I and coming players
• Consumer and nonconsumer

Positon to grow with the market

• Existing verticals
• Exciting new verticals

Momentum in Medical

Broader range of applications Monitoring Drug delivery systems Diabetes Asthma Allergy Reusable Disposable

48% y-y growth in healthcare segment

Lots of hard work over the last years Product offering, customer engagements Design wins, certifications, volume production

Strong underlying growth for Bluetooth

Adjusted y-y Bluetooth revenue growth Loss of tier 1 wearable customer Large gaming product stopped in 2015

Regained 30MUSD Bluetooth revenue in less than a year

Built a diversified robust position

Financials Pål Elstad, CFO

e and

Q3 2016 financial highlights

Revenue

Gross Margin

EBIT

Overall y-y decline of 3% $\mathcal{L}_{\mathcal{A}}$ and $q$ - $q$ 0.8%

• Backlog MUSD 22.5 (30.3)
• Q3 GM of 46.2%
• Yield issue on nRF52 impacted GM in Q3
• EBIT of MUSD 3.9
• Continuous investments in future growth

CF from Operations

• Seasonal strong cash flow from operations of MUSD 11.2
• Strong focus on improving cash conversion

Revenue by technology 2012-2016

Gross Margin

• GM of 46.2% in Q3 2016 (48.5%)
• Gross Margins in the lower end as a $\blacksquare$ result of lower yields during the volume ramp of the nRF52
• Issue with nRF52 solved during Q3, $\overline{\phantom{a}}$ however depletion of nRF52 inventory manufactured in Q3 will impact gross margins also in Q4 2016.

Cash Operating Expenses*)

• Cash operating expenses increased 9%, of $\mathcal{L}_{\mathcal{A}}$ which 3.5% relates to Finland
• The increase driven by headcount growth of 21.2% from 430 in Q3 2015 to 521 in Q3 2016
• Target to have 3 R&D facilities in order to get $\mathcal{L}_{\mathcal{A}}$ the best resources at correct cost
• Investments made for the next 2-5 years $\blacksquare$

*) Operating expenses, excl. capitalized R&D, depreciation and amort. and option expenses **) % of LTM Revenue

Operating Profits (EBIT)

Reported EBIT

• EBIT margin of 7.4%. Adjusted for $\blacksquare$ Finland EBIT margin of 15.1%.
• Continuous R&D investments for ٠ future growth reduces EBIT

Cash flow

• Net cash flow in Q3 MUSD 5.7
• Seasonally strong in Q3. NWC reduced by MUSD 4.7, or from 36% of LTM to 33%

• Capex mainly related to purchase of new test capacity

• Positive net profits offset by capex $\blacksquare$

• Financial headroom with replacement of MUSD 20 credit line with MUSD 40 RCF - buffer to secure future growth

Short term outlook

• Given the delays in certain Q3 2016 deliveries we expect Q4 2016 to be strong and in Revenue the range MUSD 54-57.
• Although solution for the nRF52 yield issue rectified, depletion of Q3 inventory will Gross continue to negatively impact gross margins in Q4. Q4 gross margins are expected to Margins be in the 46-48% range.

Nordic expects to regain growth in its Bluetooth business in 2017. Guidance for 2017 Guiding for will be provided on the Q4 2016 results presentation on February 10^th, 2017. H1 2017

Business outlook Thomas Embal Bonnerud, Director Strategy and IR

Continued Bluetooth market growth

Strong volume growth

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

Diversification in types of ICs

• High-end SoCs $\overline{\phantom{a}}$
• Mainstream SoCs
• Baseline SoCs
• Network processors

We see strong growth indicators

Record number of opportunities

The total volume opportunity

Record number of $10MU+ /y$ opportunities

Diversified over the verticals

Short term, medium and long term

Across the verticals Outside of wearables and wireless charging

Competitive outlook - Bluetooth 2017-2018

Maintaining our

井 |

Regain market

shares in 2017

Positive trajectory in 2016 More robust position

position

2017 roadmap for nRF52 Lower and higher-end categories Barriers of entry getting high

Opportunities and risks

Vertical specific upsides Deliver on the roadmap

Extended nRF52 line-up on track for 2017

Nordic IC roadmap and strategy

Technology leadership

• First IC in Series $\overline{\phantom{a}}$
• Broad range of verticals $\overline{\phantom{a}}$
• Scalable and cost effective platform

Lower cost and higher value

• Cost optimized subsets ×
• Higher value supersets $\overline{\phantom{a}}$
• Targeted verticals $\overline{\phantom{a}}$
• Common software and tools $\overline{\phantom{a}}$

Growth outlook - Bluetooth 2017-2018

Growing with

ASP and

the market

Margin

Leading and dominant position Expecting speed bumps

Opportunities and risks

Short/medium term vertical specific upsides

Broader range of IC price points and margins Customer and product mix

Cellular IoT

Low power cellular- the next big thing for IoT

High speed cellular has shaped mobile computing

Low power cellular will shape the future of loT

Industry momentum building

High-speed connectivity ... anywhere

Low power, secure, reliable connectivity ... anywhere ... for anything

Wave of network deployment announcements last 6 months

Cellular IoT status and outlook

Advancements in product development

Complete RF prototype in lab Fully integrated IC ready for TO Pushing forward with software

Momentum lead partners and customers

Very positive reception Infrastructure, carriers and modules Lead customers in key verticals Logistics, Industrial, Consumer

Gearing up for a high impact market entry

Lead customer 2H 2017 Broad availability 2018

Upcoming events

New York, 14th November 2016

Oslo, December 2016

February 2017

Investor Presentation Q3 2016 October 18th 2016, Oslo, Norway

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This presentation was prepared for the interim results presentation for the third quarter, held on October 18, 2016. 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