Nordic Semiconductor — Investor Presentation 2016

Feb 12, 2016

Investor Presentation Q4 2015 February 12th 2016, Oslo

Q4 and FY2015

Svenn-Tore Larsen, CEO

Headlines

• MUSD 46.5 revenue in the quarter and MUSD 193.1 in 2015

• nRF52 is progressing as planned with strong design wins and volume shipments expected in Q2-Q3 2016

• Full transfer from defined benefit plan to defined contribution plan resulting in an income (de-recognition) of MUSD 7 in Q4 2015

• Past period adjustment on inventory valuation impacting historical gross profits

Bluetooth Smart Revenues

• BT Smart revenues in Q4 at MUSD 28.7 representing 25% growth from Q4 2014

• BT Smart revenues in 2015 at MUSD 110.8 vs MUSD 62.9 in 2014 representing 76.3% growth

BT Smart Revenue comparison 2014 - 2015

Financial Highlights

Pål Elstad, CFO

Q4 2015 Financial Highlights

• Revenue diversification drives Bluetooth Smart growth $\sum_{i=1}^{n}$
• Gross profits restated, but continues at around 50% $\sum$
• EBIT of MUSD 3.8 excluding pension income $\sum$
• WC initiatives improves cash conversion ratio $\sum$

Group Revenues

Revenue Split by Technology 2012-2015 60 50 40 30 20 10 $\circ$ $Q1$ $Q2$ $Q3$ $Q₄$ $Q2$ $Q3$ $Q4$ $Q1$ $Q2$ $Q3$ $Q4$ $Q1$ $Q2$ $Q3$ $Q1$ $Q4$ 2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 2014 2014 2015 2015 2015 2015

Growth Markets

Consumer Electronics

• Seasonal reduction compared to Q3 2015 of 15.7%

• BT Smart share of CE increases with design wins in PC Accessories and Toys/Gaming

• Wearables revenues down 24% from Q4 2014 due to large projects in Q4 2014

• Seasonal reduction compared to Q3 2015 of 20.7%

Emerging Markets

• Compared to last quarter revenues are down 15.5%

• Mainly explained by reduced sales from one RFID customer

• Healthcare revenues up 284% from Q4 2014

• Compared to last quarter revenues are up 9.2%

Other Markets

• ASIC's/Consulting revenues at equal level with Q4 2014 and significantly up from Q3 2015

• A few project drive revenue with ASIC's

• ASIC's projects exist of surveillance cameras, industrial sensors and healthcare

• New segment with large growth from 2014

• Consist mainly of module OEM's and direct sales where no end customer is identified

• Key growth market for Nordic

Gross Margin

Restatement reduces quarterly gross margin by approximately 1%

• Nordic changed functional currency to USD in 2010

• System challenges resulted in overstating of historical inventory values

• Due to FX volatility and inventory build-up, issue increased over time

• Slightly overstating gross margins, but accumulating impact on inventory. As of December 2015, this amounted to MUSD 6

• After adjustment, gross margins in 2014 and 2015 have been close to 50% as targeted

Operating Expenses

• De-recognized MUSD 7 in pension liability in Q4 2015

• Reduced capitalized R&D in Q4 expect MUSD 1 per quarter in 2016

• Estimated underlying increase of 20% Year over Year in 2016

USD '000	Q4 2015	Q3 2015	Q4 2014	Growth Y-o-Y	2015	2014
Total Cash Operating Expenses, excluding Depreciation*	18 6 69	17010	13673	37%	67625	52 319
Add: Pension liability adjustment	(6981)				(6981)
Add: Options expense	85	(763)	2071		(100)	4700
Less: Capitalized R&D	(1451)	(2400)	(206)		(8300)	(1800)
Total Reported Operating Expenses, excluding Depreciation	10 3 21	13847	15 5 38	$-34%$	52 244	55 219
Total Cash Operating Expenses excluding Depreciation* in % of LTM	39 %	35 %	33 %		35 %	31%

* Adjusted for options, capitalized R&D and related depreciation expense

Operating Profit

Operational leverage short term offset by investments

Reported EBIT

• High investments in Finland reduces EBIT margin

• Reported EBIT in 2015 up 137% compared to 2014

Adjusted EBIT

• Adjusted EBIT excluding Finland in Q4 2015 down 12.8% from Q4 2014 as a result of high spending in Q4 2015 (nRF52 launch)

• However, adjusted EBIT in 2015 excluding Finland is up 41% compared to 2014 mainly as a result of higher revenue only partly offset by increased operating expenses

Cash flow - effective cash conversion

• Q4 2015 improvement in WC Assets offset by reduced AP

• Inventory reduction (restated) from MUSD 45 to MUSD 41. Appr. 50% of balance is raw wafers

• Improved DSO (adjusted) from 91 days to 83 days

• Overall NWC approximately 38% of LTM revenues

• Reduced from 91 to 83 days during the quarter

• Stable inventory

Business Outlook

Svenn-Tore Larsen, CEO

Awareness through wide engagement

• Global Tech Tour 2015 was successful

• More than 4000 engineers participated

• High quality technical sessions

• 30 global locations

• 10 weeks

• nRF52 Development Kit

Bluetooth Smart Active Large Customers 2013-2015

Sales of Nordic Kits 2011-2015

Bluetooth Smart Revenue 2012-2015

The IOT opportunity is large

1. CAGR = Compound annual growth rate 2. Connected devices includes all autonomous connected things (every forecaster has own definition) - does NOT include computers, mobile devices, tablets

Sources: Cisco, Ericsson, ABI Research, Gartner, IHS, IDC, Harbor Research, IoT-Analytics.com

Massive opportunity in Bluetooth Smart

Incredible Breadth Fueling Growth

Wearables Beacons Remotes HID Established Verticals

Established product categories Significant volume

Wireless Charging

Smart Home

Medical

Automotive

Emerging Verticals

Industrial

Consumer

Long Tail

Significant design-in activity First wave of products

Fast paced innovation Massive amount of designs

Fundamental Enablers and Drivers

Adoptions in Hubs

Enabling new verticals Driving innovation

$I \circ T$

Internet Connectivity Smarter Things, Smarter Services Ease and cost of Adoption

Fuels innovation Drives breadth

Accelerating Ecosystem Adoption

Apple Home Kit, Health Kit, and iBeacon AirFuel™ Alliance Wireless Charging

Google Weave, Physical Web, Edystone, Fit

Samsung S-Health SmartThings, Artik

Finland - Long-Range Low Power

• Unique experience and track in record in 2G, 3G, and 4G cellular connectivity

• Powerful synergy with Nordic's ultra low power DNA

• Foundation for our expansion into the Low Power Wide Area Networks (LPWAN) market

A leading vendor of wireless connectivity and embedded processing solutions for internet connected things

WAN $(lkm+ )$

LAN $(100m+)$ PAN $(10m+)$

Things we wear

... we carry around

... around us at home

• ... around us at work
• ... around us in the city

... around us in the country side

Things - not infrastructure, ... not PCs, ... not phones ... not tablets

Massive opportunity in LPWAN

• According to Machina Research +3 Billion LPWAN connections by 2023*

• 4X ASP of Current Bluetooth Smart

• Innovation will be key

*Machina Research (2015)

Business Outlook

• Widened the technology leadership with introduction of the nRF52 family

• Continuous strong design wins

• Several tier 1 design wins

• Diversification into new product segments and strong growth in customer base $\sum$

• Bluetooth Smart continues to be the main revenue driver, we also see exciting opportunities are emerging in Long Range Wireless with products from the Finland Operations

• The BT Smart standard is continuously evolving and expanding through the planned ratification of the BT 5.0 later this year. With these updates, BT Smart will further accelerate its competitiveness.

A tiny selection of Q4 Product News

• "Swiss-engineered turnkey Bluetooth Smart smartwatch platform delivers a two year battery life using nRF Series wireless technology"

• "Nordic-powered Bluetooth Smart module simplifies development of wireless wearables, toys, and smart home solutions- developed by Wireless-Tag Technology"

• "Ioliving's temperature monitoring devices employ nRF51822 Bluetooth Smart to ensure food service operations meet safety and quality requirements"

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