Nordic Semiconductor — Investor Presentation 2019

Feb 5, 2019

Quarterly Presentation $\sqrt{Q42018}$

February 5th, 2019, Oslo, Norway

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This presentation was prepared for the interim results presentation for the fourth quarter, held on February 5, 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.

Today's presentation

Business update

Financials

Business outlook

Svenn-Tore Larsen	Pål Elstad	Svenn-Tore Larsen
CEO.	CEO.	CEO.

Business update Svenn-Tore Larsen, CEO

Q4 Highlights

• Continued strong market position in Bluetooth
• Strong Bluetooth design wins with Tier 1 customers $\mathcal{L}_{\mathcal{A}}$ worldwide
• Successful production launch of cellular IoT product
• Nordic's leadership in the connectivity market acknowledged through industry awards received during the quarter
• Solid proprietary revenue due to accelerated shipments out of China prior to tariffs
• Challenging market in China due to trade tensions $\mathcal{L}_{\mathcal{A}}$

Quarter in line with updated guidance

Total revenue of MUSD

$\bigcap$ $\bigcup$

Y-o-Y decrease of -5.0%

• Bluetooth: -9.0% y-o-y decline (FY 2018: +23.3%)
• Revenue impacted by trade tensions and low demand in China
• Maintaining market share
• Proprietary: -4.0% y-o-y decline (FY 2018: -0.2%)
• Solid revenue in challenging market
• First cellular IoT revenue of kUSD 232
• Solid backlog of MUSD 70.0, +30.4% y-o-y

Gross Margin 51.0%

Gross margin expansion $+3.4$ p.p y-o-y

• Higher value nRF52-series devices continues to be the main revenue driver
• $\blacksquare$ EBITDA at MUSD 2.1 (MUSD 4.0 in Q4 2017)
• Short range EBITDA at MUSD 7.0 or 11.5% margin

Our product life cycles in short range

Financials Pål Elstad, CFO

Operating model performance Q4 2018

Gross Margin 51.0 %		Q4 2018	Q4 2017
R&D short- range 21.5 %	Revenue change $y$ -o-y	-5.0%	+22.3% (MUSD 61.1) (MUSD 64.4)	Disappointing revenue in challenging market
	Gross margin	51.0%	47.6%	(+3.4pp) Continued positive contribution from cost improvements and favorable customer and product mix
R&D cellular IoT 8.2 %	R&D short-range	21.5%	16.4%	(+5.1pp) Expansion in short-range IoT
	R&D cellular IoT	8.2%	9.3%	(-1.1pp) Started capitalization ahead of first production release
SG&A 18.0 %	SG&A	18.0%	15.6%	(+2.4pp) Increase spending during ramp of cellular IoT
EBITDA 3.4%	EBITDA margin	3.4%	6.2%	(-2.8pp) EBITDA margins impacted by weak revenue

Operating model performance 2018

Gross Margin 49.8%		2018	2017
R&D short- range 17 % R&D	Revenue growth $V$ -O- $V$	+15%		+19% (-4pp) Bluetooth growth in line with (MUSD 271) (MUSD 236) medium-term target, strong proprietary
	Gross margin	49.8%	47.2%	(+2.6pp) Continued positive contribution from cost improvements and favorable customer and product mix
cellular IoT 6 %	R&D short-range	17%	15%	(+2pp) Expansion in short-range IoT
SG&A 15 %	R&D cellular IoT	6%	8%	(-2pp) Started capitalization ahead of first production release
	SG&A	15%	14%	(+1pp) Cost control whilst scaling organization
EBITDA 11%	EBITDA margin	11%	10%	(+1pp) Revenue growth drives improved reported EBITDA margin

Revenue by market*

Consumer Electronics	Wearables	Building /Retail	Healthcare	Others
MUSD 24.9	MUSD 94	MUSD 1()()	MUSD 5.5	MUSD 79
-28.6% -4.6% у-о-у $Q - O - O$		-3.1% $y$ -o-y q-o-q $y - 0$ -y-o-y q-o-q $y = 0$	+10.3% -22.5% +39.3% y-o-y q-o-q	$-21.4\%$ $y$ -0- $y$ $Q-O-Q$

*Excluding ASIC's, consulting and other revenue

Gross margin expansion

55.0 % 50.0% 45.0 % 40.0% 35.0 % 30.0 % Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2015 2015 2015 2015 2016 2016 2016 2016 2017 2017 2017 2017 2018 2018 2018 2018

Gross margin 2015 - 2018

Gross margin $51.0\%$ +3.4pp y-o-y

• Continued positive contribution from cost $\mathcal{L}_{\mathcal{A}}$ improvements and stable yield on nRF52
• Favorable impact of ASIC revenue and $\overline{\phantom{a}}$ volume bonuses in Q4
• Quarter to quarter fluctuations to be $\mathcal{L}_{\mathcal{A}}$ anticipated due to change in product and customer mix

Cash operating expenses*)

Cash Opex MUSD / % of revenue

• Q4 cash operating expenses increased 10.0% y-o-y
• The increase is driven by new product releases and headcount growth of 14.0% from 601 in Q4 2017 to 685 in Q4 2018
• Continued cost discipline during the quarter, $\blacksquare$ increase in cash opex in % of revenue due to weak revenue in quarter
• Investments to capture future growth

*) Operating expenses, excl. capitalized R&D, depreciation and amort, and option expenses

2018 EBITDA growth in challenging market Short Range Business

	Q4 2018	Q4 2017	Change	2018	2017	Change
Revenue	60.9	64.4	$-5.3%$	270.9	236.0	14.8%
Opex	24.1	20.6	16.7%	87.2	68.2	28.0%
Opex / revenue	39.6%	32.1%	$+7.5$ p.p.	32.2%	28.9%	3.3 p.p.
EBITDA	7.0	10.0	$-29.5%$	47.7	43.4	9.9%
EBITDA Margin	11.5%	15.5%	$-4.0$ p.p.	17.6%	18.4%	$-0.8$ p.p.

* Figures excluding cellular IoT

Positive Cash flow

Cash flow Q4 2018

Strong financial position

• MUSD 9 cash flow during Q4 2018 Ì.
• Cash positively impacted by high customer $\blacksquare$ payments during the quarter
• NWC/LTM at 22.6% (32.1% in Q3 2018) Ì.
• Ì. Capex of MUSD 5.4 - test equipment for production releases on high-end nRF52 and nRF91, plus additional purchased IP
• Including purchase of treasury shares of MUSD 12.1 Ì.

Continued disciplined cash strategy

Tight cash management and optimized cash $\overline{\phantom{a}}$ generating ability

Business outlook Svenn-Tore Larsen, CEO

New Nordic powered products this quarter

Leading and broad position in Bluetooth

Bluetooth Low Energy end-product certifications*

*Source: DNB Markets

New all time high kit shipments in H2 2018

New record second half + 33% y-o-y for H2 2018

• 39% y-o-y for full year 2018 Significant contribution from nRF52840 kits

Leading indicator of market growth Continued strong diversification

Leading indicator of our position Attractive and competitive solutions

Bluetooth 5.1 puts Bluetooth in its place

Nordic Semiconductor supports the new 'Direction Finding' feature in our latest nRF52811 device and all subsequent devices

Enhancing Bluetooth Location Services with Direction Finding

The Bluetooth Special Interest Group (SIG) has added a new direction finding feature that holds the potential to significantly enhance the performance of Bluetooth location services solutions. The new feature allows devices to determine the direction of a Bluetooth signal, thereby enabling the development of Bluetooth proximity solutions that can understand device direction as well as Bluetooth positioning systems that can achieve down to centimeter-level location accuracy.

Cellular IoT - Nordic's next growth driver

Strong position to take market share

• A complete Nordic cellular IoT Solution $\mathcal{L}_{\mathcal{A}}$
• Modem and SiP module suited for a broad range of verticals ×
• Market-leading power consumption ٠
• Software and developer community ×.
• Broad customer engagement model and synergies with short range $\mathbf{r}$
• Plan to achieve long range break even in 2020 requires less than 10% × market share*, we aspire for more
• Current ASP at >10X Bluetooth $\mathcal{L}_{\mathcal{A}}$

David Stein, Vice President Global Supplier Management

Cellular products spark excitement

«We would like to congratulate you on the tremendous interest in your product (...),"

says David Stein, Vice Presiden Global Supplier Management at DigiKey

nRF9160-DK and nRF9160-SICA were ranked #2 and #4 in product views among 97 000 new parts that Digi-Key has stocked in the last 6 months

• • ▪▪▪

• ▪▪▪

Nordic facilitates Telenor LTE deployment

«Nordic's dual mode LTE technology fits perfectly with the new networks, making it easier for more people to take use of loT on 4G,» says Ove Fredheim, head of Telenor Business.

Nordic's nRF9160 Development Kit to be sold in Telenor's web shop.

Guidance Q1 2019

Revenue	MUSD $50 - 55$	Continued uncertainty related to trade tensions results in temporarily reduced growth rates in Q1 2019
Gross margin	50%	Continued focus on cost improvements and customer and product mix
Other	Capex MUSD 7-8	Increased capex related to investments in lab equipment to secure future growth in cellular IoT and Tier 1 customers' requirements