Nordic Semiconductor

Investor Presentation • Feb 15, 2018

Quarterly Presentation Q4 2017 February 15th 2018, Oslo, Norway

Today's presentation

Business update

Financials

Business outlook

Svenn-Tore Larsen CEO

Pål Elstad CFO

Thomas Embla Bonnerud Director of Strategy and IR

Business update Svenn-Tore Larsen, CEO

4

Financial summary - Q4 2017

Revenue	Revenue Bluetooth	Revenue Proprietary	Gross margin	EBIT
MUSD 64.4	MUSD 441	MUSD 18.3	47.6%	MUSD 78
	+22.3% -2.0% +43.9% -3.5% -6.5% +8.4% +1.4pp -0.2pp -44.3% -83.1% y-o-y q-o-q y-o-y q-o-q y-o-y q-o-q y-o-y q-o-q y-o-y q-o-q

Met our guidance for H2 2017

Revenue	MUSD 130 O	Upper end of the MUSD 120 to 130 guidance due to continued strong growth in Bluetooth.
Bluetooth growth	45.4%	Upper end of the 35 to 45% guidance due to robust Bluetooth sales in non-consumer markets.
Gross margins	47.7%	Upper end of the 46 to 48% guidance due to positive contribution from cost reductions.

Financial summary - H2 2017

Revenue	Revenue Bluetooth	Revenue Proprietary	Gross margin	EBIT
MUSD 130.0	MUSD 89.7	MUSD 47.7% 35.1		MUSD 5.8
	$+23.9\%$ $+22.7\%$ $+45.4\%$ $+48.6\%$ $-10.8\%$ $-17.1\%$ $y$ -o-y h-o-h $\frac{1}{2}$ y-o-y h-o-h $\frac{1}{2}$ y-o-y h-o-h $\frac{1}{2}$			+1.5pp +1.0pp +6.9% +22.6% y-o-y h-o-h y-o-y h-o-h

Bluetooth dominated revenue mix

Revenue by technology 2014 - 2017 (MUSD)

Split and growth by technology Q4 2017

Revenue by market

Consumer Electronics	Wearables	Building /Retail	Healthcare	Others
MUSD 26.1	MUSD 97	MUSD 15.9	MUSD 5()	MUSD 5/
$+3.0\%$			+0.3% -5.5% -9.2% +89.9% +1.1% +80.0% +7.4% +65.6% +3.6% y-o-y q-o-q y-o-y q-o-q y-o-y q-o-q y-o-y q-o-q y-o-y q-o-q

Robust non-consumer revenue

Nordic revenue by consumer / non-consumer *

2014 - 2017 (MUSD)

43% of total revenue

Driven by diversification in Bluetooth Nordic mirror underlying market megatrend

Less seasonality Growth on non-consumer Q3 to Q4

Robust growth potential Growth in existing verticals New emerging verticals

New Nordic powered products

Noke Pro padlock	Cassia Networks E1000	Wearpai Technology "K1"	Aveine wine aerator	3M Smart Filter
Enterprise lock	Enterprise IoT router	Wearable	Consumer	Smart Home
nRF52	nRF52	nRF52	nRF52	nRF51

Strengthened our sales organization

Manage and fuel continued growth Bluetooth, 802.15.4/Thread and low power cellular IoT Combined broad market and tier-1 customer engagements

New Nordic offices in Beijing and Shanghai Local sales, field application engineers and customer engineering

Expanded sales teams in US and Europe More local sales and field application engineers

Scaling supply chain to meet 2018 demand

Volume growth and ramp of new products Higher volume and increased mix of more complex products

Expanded test capacity New and additional testers and engineers

Improvements to meet tier-1 requirements Quality and turn-around time

Nordic joins Thread Group Board of Directors

THREAD

Connecting home and buildings Low power, secure, IPv6 based mesh wireless technology Highly complementary to Bluetooth

Pär Håkansson, Nordic Eleventh member of the Thread Group BoD Actively contribute to the future of Thread

Part of our expansion in short-range IoT

Fast growing smart home and buildings market verticals Leading multi-protocol Bluetooth / Thread solutions

Unveiled our low power cellular IoT solution

QOLVO

all around you

nRF91 Series

• Cellular made easy
• Cellular for everything else

Strategic partnership

• $R$ F Front-Fnds
• Advanced SiP assembly

Live LTE-M demo

• Telia in Norway
• Verizon Wireless Network

2017 - strong growth in Bluetooth

growth in Bluetooth revenue

• Result of our strategy and investment
• Diversification of our customer base
• Gross margin expansion
• Solid foundation for future growth

Investments

to fuel accelerated growth

• Unique position in fast growing IoT markets
• Low power short-range and cellular IoT
• Sales, R&D, Quality and supply chain
• EBITDA margin kept in line with 2016

$3,411$

H1.09

2.216

$60₁$

$19$

2,335

$1302$

Financials Pål Elstad, CFO

	$\sqrt{6}$ $\sqrt{60}$			محمده	$-111111111111111111111111111111111111$
$-11011$			$-H108$	H 2 08	H109
FR1 ATALOGICA		i income lasses in	4,784 $\begin{array}{r} (2,225)\ 852 \end{array}$	5,074 (4,065) 811	10,489 (3,507) (893)
colton		्रह .cm harges and other credit provisions	3,411 (1,226)	1,820 (1, 197)	6,089 (1, 874)
$12^{\circ}$		ioottie	2,185	623	4,215

Operating model performance Q4 2017

Gross Margin 47.6 %		Q4 2017 Q4 2016
R&D short-	Revenue growth $+22.3\%$ $y$ -0- $y$			+13.2% (+9.1pp) Bluetooth driven growth with (MUSD 64.4) (MUSD 52.6) robust contribution from non-consumer
range 16,4%	Gross margin	47.6%	46.2%	(+1.4pp) Continued positive contribution from cost improvements
R&D cellular IoT 9.3%	R&D short-range	- 16.4%		15.6% (+0.8pp) Expanding product offerings
	R&D cellular IoT	9.3%		8.9% (+0.4pp) Sampled first lead customer
SG&A 15,6 %	SG&A	15.6%	12.6%	(+3.1pp) Organizational scaling to manage and fuel growth in 2018
FRITDA	EBITDA margin	6.2%	9.0%	(-2.8pp) Continued impact from low power cellular IoT investment
6.2%

Gross Margin

Gross margin 2014 - 2017

Gross margin recovery year-over-year

• Gross margin 47.6% +1.4pp y-o-y $\mathcal{L}_{\rm{eff}}$
• Continued positive contribution from cost $\overline{\phantom{a}}$ improvements
• Quarter to quarter fluctuation due to product and $\mathcal{L}_{\mathcal{A}}$ customer mix

Maintaining 50% target within 2018

• Continued efforts on cost reductions ш
• Continued diversification of customer base and ٠ volume ramp of higher-end nRF52

Cash Operating Expenses*)

Cash Opex MUSD / % of revenue

$Q4$ Opex $*$

• Q4 cash operating expenses increased 40% y-o-y $\overline{\phantom{a}}$
• The increase is driven by new product releases and × headcount growth of 12.8% from 533 in Q4 2016 to 601 in Q4 2017
• Setup og new office locations and employee bonuses $\overline{\phantom{a}}$
• Limited FX impact compared to last year $\blacksquare$

2017 Opex*

• 2017 Opex increased 23%
• In percentage of revenue OPEX is up 1 pp $\blacksquare$

*> Operating expenses, excl. capitalized R&D, depreciation and amort. and option expenses, excluding write-off of receivables

Strong cash flow

* EBITDA Adjusted for Capitalized Development Costs

Strong cash conversion during quarter

• Net cash flow of MUSD 10.6
• NWC reduced by MUSD 10.8, reducing NWC/LTM from 32.7% to 26.9%
• Continued improved cash collection in % of revenue

Disciplined cash strategy

• Tight cash management and optimized cash generating ability
• Increase available financing by adding MUSD 25 in a 5 year RCF
• Financial headroom of MUSD 94.0 including undrawn facilities of MUSD 57.3

Full year 2017 operating model

Gross Margin 47 %		2017	2016
R&D short-	Revenue growth $V$ -O-V	+19%	$+2\%$ (MUSD 236) (MUSD 198)	$(+17$ pp) Bluetooth $+40\%$ and Proprietary -6%
range 15 %	Gross margin	47.2%	47.0%	(+0.2pp) Gross margin recovery, closing in on 50% target
R&D cellular IoT 8 %	R&D short-range	15%	15%	(+0.2pp) Investment for continued growth and expansion in short-range loT
SG&A 14 %	R&D cellular IoT	8%	8%	(±0.0pp) Investment for accelerated revenue growth and improved profitability on a mid term basis
	SG&A	14%	13%	(+1pp) Organizational scaling to manage and fuel growth
EBITDA $10\%$	EBITDA margin	10%	11%	(-1pp) Continued impact from cellular IoT investment

0.28 113.92 91.7 144.12 241.68 179.77 247.49 301.21 17,879.22 221.49 211.27 166.13 139.72 151.37 175.88 158.17 155.21 181.75 10,730.91 $125.8$ 89.93 69.77 41.65 2.472.26 24.74 32. 103.95 100.98 103.95 99.99 84.81 109 99.47 129.9 34.69 136.24 131.82 135.98 8,019.79 83.48 56.29 7 68.02 107.21 78.21 58.34 197.41 $92.3$ 108 187 166 213 12.674 128 140 158

Business outlook Thomas Embla Bonnerud, Director of Strategy and IR

Guidance for H1 2018

Revenue	MUSD 123 - 133
Bluetooth growth	$40 - 50%$
Gross margins	$47 - 49%$

Based on current visibility, we anticipate revenue for H1 2018 to be in the range of MUSD 123 to 133, representing 21% growth at the mid point. For Q1 2018 we expect normal sequential seasonality.

We expect Bluetooth to be the main growth driver also for H1 2018. The revenue guidance range is based on 40% to 50% y-o-y growth in Bluetooth revenue.

We expect gross margins to be in the range of $47 - 49\%$ , driven by continued underlying improvement from cost improvements with variations from customer and product mix.

Another record year of Nordic certifications

Bluetooth low energy end-product certifications*

New all time high kit shipments in H2 2017

Record half and full year + 57% y-o-y for H2 2017 + 29% y-o-y for full year 2017

Leading indicator of market growth Continued strong diversification

Leading indicator of our position Attractive and competitive solutions

Confident in the market opportunity

Overwhelming response on nRF91 Series

Highly differentiated and value add solution

• Level of integration, size and power
• Ease of use and go-to-market model
• Extended industry press coverage

Massive interest in our lead customer sampling program

• Incredible diversity type of applications
• Exploring options for expanding the lead customer sampling program for H1 2018

Business aspiration for cellular IoT

Short-term

$(*2018)$

• Secure design wins $\overline{\phantom{a}}$
• Production ready and certified solution п
• Help and drive customer production ramp $\overline{\phantom{a}}$
• Surpass break even on a running basis; cellular IoT I Mid-term gross profits > cellular Opex on a running 12-months basis $(*2020)$
• Significant contribution to Nordic total revenue × Long-term and profitability $(*2022 \rightarrow)$

Objectives for 2018

Expansion

and continued growth in low power short-range loT

• Strengthen our leading position in Bluetooth
• Expansion in low power short-range loT with our 802.15.4 / Thread offering
• EBITDA margin expansion driven by growth in short-range business

Build a position

in low power cellular IoT leveraging existing customer base and market reach

• Secure first design wins and production ramp with lead customers
• Build foundation for accelerated revenue $\blacksquare$ growth to drive improved profitability on a mid-term basis

Summary

Q4 2017

Continued strong Bluetooth growth

• +44% y-o-y with robust contribution from non-consumer markets
• Solid, Bluetooth dominated backlog

MUSD.	+88%	$-18\%$
53.7
	$V$ -O-V	$Q$ -0- $Q$

First half of 2018

• $\bullet$ 123 to 133 MUSD driven by +40 to +50% growth in Bluetooth
• Sequential gross margin expansion from continued cost improvements
• Continued design win momentum strengthening our position IoT

Disclaimer

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Important factors may lead to actual profits, results and developments deviating substantially from what has been expressed or implied in such statements. Although The Company believes that its expectations and the presentation are based upon reasonable assumptions, it can give no assurance that those expectations will be achieved or that the actual results will be as set out in the presentation.

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This presentation was prepared for the interim results presentation for the fourth quarter, held on February 15, 2018. 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.

Quarterly Presentation Q4 2017 February 15th 2018, Oslo, Norway

Customer growth and diversification

Continued growth in number of Active Customers* on Bluetooth Diversified Bluetooth revenue

*) 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)