Nordic Semiconductor — Investor Presentation 2019

Apr 24, 2019

Quarterly Presentation Q1 2019

April 24 (Oslo, Norway)

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This presentation was prepared for the interim results presentation for the first quarter, held on April 24, 2019. 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.

New Director Investor Relation Ståle «Steel» Ytterdal

• Working in Nordic since 2001
• Director Sales & Marketing-APAC
• Last 15 years stationed in Hong Kong
• Work tasks
• Build up the sales channel in APAC
• Implement Nordic Business strategy
• Now phasing over to IR

Today's presentation

Business update Financials Business outlook

	Svenn-Tore Larsen

CEO

Pål Elstad CFO

Svenn-Tore Larsen

CEO

Business update Svenn-Tore Larsen, CEO

Q1 Highlights

• Continued strong market position in Bluetooth® Low Energy
• Nordic Bluetooth design certifications grew by 33% from 102 in Q1 2018 to 136 in Q1 2019, with Nordic market share of 37%
• Record high backlog driven by new design wins with Tier 1 customers worldwide
• Continued strong cost focus results in solid gross margins above 50%
• Successful certification progress in all targeted markets for cellular IoT
• Semiconductor industry still impacted by channel inventory adjustments

Quarter in line with guidance

Total revenue of MUSD

52.6

Y-o-Y decrease of -12.6%

• Bluetooth: -2.7% y-o-y decline
• Revenue impacted by channel rebalancing
• Maintaining market share
• Proprietary: -37.4% y-o-y decline due to strong Q4 shipments prior to tariffs
• Cellular IoT samples revenue of kUSD 100
• Solid backlog of MUSD 89.0, +9.9% y-o-y

Gross Margin

51.0%

Gross margin expansion +2.1 p.p y-o-y

• Higher value nRF52 Series devices continues to be the main revenue driver
• EBITDA* at MUSD -0.7 (MUSD 4.4 in Q1 2018)
• Adjusted short range EBITDA of MUSD 4.5

Revenue by market*

Consumer Electronics	Wearables	Building /Retail	Healthcare	Others
MUSD	MUSD	MUSD	MUSD	MUSD
21.1	7.6	8.0	4.3	8.8
-10.6%	-25.1%	-34.2%	-9.2%	+15.6%
-15.3%	-18.4%	-19.3%	-22.1%	+10.6%
y-o-y	y-o-y	y-o-y	y-o-y	y-o-y
q-o-q	q-o-q	q-o-q	q-o-q	q-o-q

*Excluding ASIC's, consulting and other revenue

Financials Pål Elstad, CFO

Operating model performance Q1 2019

	Q1 2019*	Q1 2018
Revenue change y-o-y	-12.6% (MUSD 52.6)	+27.0% (MUSD 60.1)	Revenue within guidance in challenging market
Gross margin	51.0%	48.9%	(+2.1pp) Continued positive contribution from cost improvements and favorable customer and product mix
R&D short-range	24.2% (MUSD 12.7)	18.5% (MUSD 11.1)	(+5.7pp) Continued investments to capture growth opportunities
R&D cellular IoT	9.9% (MUSD 5.2)	7.8% (MUSD 4.7)	(2.1pp) Preparing for commercialization
SG&A	18.3% (MUSD 9.6)	15.3% (MUSD 9.2)	(+3.2pp) Increase spending during ramp of cellular IoT
EBITDA margin	-1.4%	7.3%	(-8.8pp) EBITDA margins impacted by weak revenue

Gross margin expansion

Gross margin 2015 –2019

Gross margin 51.0% +2.1pp y-o-y

• Continued positive contribution from cost improvements and stable yield on nRF52 Series
• Increased revenue og high end products
• Quarter to quarter fluctuations to be anticipated due to change in product and customer mix

Cash operating expenses*)

Cash Opex MUSD

• Continued cost discipline during the quarter
• Q1 cash operating expenses decreased 6.3% compared to last quarter
• Excl. IFRS 16 adjustment cash opex decrease 3.2% q-o-q
• Compared to last year, cash operating espenses increased 6.5%
• The increase is driven by new product releases and headcount growth of 13.5% from 615 in Q1 2018 to 698 in Q1 2019
• Continued investments to capture future growth

Maintaining cash

Cash flow Q1 2019 Strong financial position

• MUSD 6 cash outflow during Q1 2019
• Cash positively impacted by high customer payments during the quarter
• NWC/LTM at 21.9% (22.6% in Q4 2018)
• Capex of MUSD 4.2 test equipment for production releases on high-end nRF52 and nRF91 Series. Deferred capex to Q2.

Continued disciplined cash strategy

Tight cash management and optimized cash generating ability

Business outlook Svenn-Tore Larsen, CEO

New Nordic powered products

Leading and broad position in Bluetooth

Bluetooth Low Energy end-product certifications*

Professional Lighting Mega Trend

Building Automation Horticultural lighting

• Light control is getting smart
• Simplifies installation
• Adding functionality:
• Beaconing for customer interactions

• Bluetooth 5.1 for indoor position/asset tracking

• Vary color temperature in order to optimize growth

• Reconfigure during seasons
• Energy saving and reduced installation cost

Nordic Design Strategy

Example: nRF52 Series

Bluetooth, Thread, ZigBee, ANT and Proprietary

• Extensive computational power
• Substantional amount of on-chip memory

• Advancements in security and peripherals

• Variants tailored to markets and verticals

• Continued integration
• Scalability across series

Nordic Design Strategy

As implemented in long range

• World-wide cellular band coverage for design once, deploy everywhere
• Substantial amount of on-chip memory for low power operation

• Enable mass scale adoption by integrating and certifying functionality needed in most applications

• Cost of on chip features << value

• IC cost only portion of system cost
• Integration of MCU, power management, LTE and GPS provides synergies

nRF9160 SiP Production Status

Hardware	Supported features	12th, 2018 Dec	May	June
nRF9160- SICA	LTE-M/NB IoT/GPS	Public Sampling of HW and LTE M SW	Production of HW. Public sampling of GPS and NB-IoT SW	LTE-M, NB IoT, GPS SW production
nRF9160- SIBA	LTE-M		Production of HW
nRF9160- SIAA	NB-IoT		Public sampling of NB-IoT SW	Production

12% of all customer engagement in Q1 from nRF91

Engagements per quarter

• Rapid growth in customer engagements seen from nRF91 Series
• Growth exceeding any previous product introduction
• Significant efforts undertaken to train global support organization

Cellular IoT – Nordic's next growth driver

M Units* Strong position to take market share

• A complete Nordic cellular IoT Solution
• SOC and SiP module suited for a broad range of verticals
• Market-leading power consumption
• Software and developer community
• Broad customer engagement model and synergies with short range
• Plan to achieve long range break even in 2020 requires less than 10% market share*, we aspire for more
• *ABI Research Q1 2019 Current ASP at >10X Bluetooth

Guidance Q2 2019

Revenue	MUSD 69-74	Continued uncertainty related to trade tensions results in temporarily reduced growth rates in Q2 2019
Gross margin	Appr. 50%	Continued focus on cost improvements and customer and product mix

Increased capex related to investments in lab equipment to secure future growth in cellular IoT and Tier 1 customers' requirements transferred partly from Q1