Our agenda today for this interim management statement includes the status and outlook for our business, and it also provides an update on the overall data center market and future opportunities for Napatech. I'll also spend time on outlining the progress in our strategic plans, with focus on our investments in product development and our earlier success in partner and business development for our growth initiatives. We'll conclude with a review of our Q3 financials and expectations for the rest of 2023. I'm pleased to report that we have made progress in two areas of equal importance: our near-term business operations and our medium to long-term strategic plans. To briefly summarize here, we are on track to meet our overall objectives for the fiscal year 2023, and in some areas, ahead of schedule in our strategic plan that underpins our growth aspirations.
To begin, I'd like to quickly restate the three primary components of our strategic plan, as the remainder of today's presentations will highlight the progress made in each of these areas. First, we continue to service our valuable installed base of current customers, who represent the earliest adopters of programmable SmartNIC products. Because of these innovative customers, Napatech established our position as an early leader in the market for the next generation of server networking. Second, we'll continue to accelerate investment in engineering, research, and development of new SmartNIC and IPU products. These investments build upon our current products, where we are extending, enhancing, and expanding both our software and hardware solutions, enabling our new SmartNIC and IPU products to meet the most demanding requirements in the projected new high-growth segments.
Third, we are pleased the success and traction in the first two areas have strengthened our position in the broader industry ecosystem. We are pleased to announce additional solutions and fulfillment partners this quarter that are instrumental in expanding our go-to-market reach and making it easy for customers that need Napatech SmartNIC and IPU solutions to acquire them. With those three strategic imperatives in mind, I'm happy to share today that our development efforts, which are part of the previously disclosed collaboration agreement with Intel, remains on track. Also, our broader set of R&D investments are defined by lighthouse prospects, input, and progresses. Combined, these efforts continue to expand our sales pipeline and design win prospects, and are expected to turn into initial product sales by 2024, leading to meaningful growth in 2025 and beyond.
While we are optimistic about our growth aspirations, we are equally pleased with our short-term metrics, as we are reporting a 44% quarter-over-quarter revenue increase, making Q3 2023 revenue $7.2 million and delivering strong product margins of 73%. These results, combined with our opportunity pipeline and backlog, give us the confidence to reaffirm our 2023 guidance. In addition to our internal execution of our strategic plan, we continue to see many positive signs from within the industry that validate our plans and business aspirations. At every turn, we continue to see mega trends developing within the IT communications industry that are having a significant impact by driving new network architectures, requiring programmable SmartNIC and IPU products, and therefore enables opportunities for Napatech.
These mega trends includes a massive list of next wave cloud service providers, who are creating tailored solutions for targeted enterprise customers, copying the SmartNIC and IPU architecture deployed by the hyperscale cloud operators. It includes telecom operators deploying new core and edge networks by advanced 5G services, private 5G networks for an infinite set of emerging IoT use cases. It also includes cybersecurity demands that are always pervasive. We see new verticals continuing to emerge within the fintech and financial services, as well as storage and content delivery. The rapid ascent of artificial intelligence applications and utilizations is unlocking a massive new demand for servers powered by SmartNIC and IPU products. In total, this is a long time since so many changes have impacted the way organizations are designing their networks.
These mega trends play a direct role in the significant growth forecasted in the market that Napatech are now capable of targeting. Today, programmable NIC products are known by many names, including SmartNIC and Infrastructure Processing Units or IPUs. But regardless of the name of the programmable NIC, they all aim to solve the biggest problem facing new network architectures that require acceleration of the most burdensome workloads running on the servers. The networking, storage, security, and virtualization functions are critical components of the next-generation network design, but at the same time consumes a large amount of the most valuable resources in the server, the compute resources delivered by the CPU. Napatech SmartNIC and IPU products deliver a complete solution of hardware, software, support in a production-grade solution that return those valuable compute resources to the application and services that generate the real profit for the network operators...
When Napatech provides our programmable NIC, we uniquely enable IT organizations of every size to achieve the performance, business, and sustainability benefits that were previously only available to a small number of the largest hyperscale operators. In support of these mega trends, Napatech in September was pleased to share with the world the launch of our first-ever IPU product. An IPU is a programmable NIC like Napatech's other SmartNIC products, but even smarter. In addition to the powerful FPGA technology, the hardware also includes a high-performance Intel Xeon CPU, and this Napatech F2070X IPU was developed in collaboration with Intel and is the first and only production-grade 200 Gigabit IPU based on the Intel Oak Springs Canyon architecture. It is purpose-built for cloud, enterprise, and telecom customers and includes software solution for highest growth use cases.
We'll talk more about our Intel collaboration and the new IPU product later in this presentation. I'd like to provide an update on the programmable NIC market as it provides insight into both our short-term expectations and long-term aspirations. As I've mentioned several times, programmable NICs are known by many names, including accelerator card, intelligent NIC, SmartNIC, Data Processing Unit, DPU, and Infrastructure Processing Unit, IPU. But regardless of the name used by a given vendor, analyst, or press, one thing remained consistent: an increasingly uniform forecast from experts that programmable NICs will play a critical role in networks of the future. A special note, this quarter, several trusted sources increased their forecast of the future, amplified new market insight, and initiated new coverage, and I'd like to share a few with you here.
Crehan Research noted that IPU and DPU revenue tripled in first half of 2023, primarily by demand from early adopter hyperscale operators who built their own solutions. Moving ahead, they forecast significant growth, with demand expanding from general IT organizations expected to be served by vendors like Napatech. The Dell'Oro Group also provided new market guidance that validate many key points behind Napatech's strategy and aspirations. Like Crehan, they noted an increased set of opportunities for off-the-shelf vendor-built solutions, and the SmartNIC continue to cannibalize legacy basic NIC demand. Combined, the SmartNIC market is forecasted to grow at a 42% CAGR through 2027.
Omdia also provided the latest quarterly market update, echoing the same trend that programmable NIC make up most of the revenue growth within the NIC market, and programmable NIC increasingly cannibalize all other forms of NICs previously available in the market. At the same time, Omdia also notes that there still exists a significant server market volatility driven by macroeconomic headwind, and predicts that the trends seen in first half of 2023 will continue rest of the year and even into 2024. Finally, ABI Research initiated coverage of the IPU, DPU, and SmartNIC markets. Their report analyzed top suppliers of SmartNIC solutions and included Napatech among the leaders in both innovation and implementation. What shines through these recent reports is that the programmable NIC market is proven and established within the early adopter hyperscale cloud operators.
Hyperscalers have previously built their own solutions, but are increasingly open to merchant-vendor-built solutions. Further, the market is opening for non-hyperscale buyers like in Tier Two cloud, enterprise, and telecom networks, who will buy from merchant vendors like Napatech. So although it's still early days, Napatech has uniquely established our position, and we are one of the leading players outside of hyperscale buyers. This is a key point behind our strategic plan and the initiatives we undertake with Intel. To leverage this market-leading position, combined with our history, to deliver equivalent solution to the broader market as the mentioned megatrends unfolds. On this slide, I'd like to expand upon our Intel journey a bit further. In the first half of this year, we disclosed part of our strategic plan to take advantage of Intel's market-making position behind programmable FPGA-based SmartNIC and IPU products.
As a very important stepping stone in this partnership, our new SmartNIC and IPU product offerings were launched globally in September during the Intel Innovation 2023 event in Santa Clara, California. I'm also pleased to report that all our hardware and software development efforts to create Napatech's first Intel-based IPU product are on track, allowing us to begin accepting orders today and ready for first customer shipment by December of this year. The partnership combines the premier technology from Intel with the Napatech competencies in product design, development, delivery, service, and support that the end customers require. During the first three quarters of the year, we have begun joint sales, marketing, and business development efforts that are yielding early progress, somewhat ahead of the plans we envisioned at the start of the year....
These business activities unlock new prospects for Napatech that are projected to drive demand into the coming years on a scale that could be transformational for our business. Intel's selection of Napatech is an indication of Intel's commitment to expanding their leadership in infrastructure processing in data center networks. As part of the launch, Intel noted, Napatech's IPU can help deliver the scalability and high-performance products, solutions, and services customers require to make their cloud, enterprise, and data centers more efficient and cost-effective, with high feature velocity. While we are still, relatively speaking, early in the long design win process, we are seeing many signs of progress and success resulting from our collaboration with Intel.
Of note, beyond IPUs, we also launched our first two Intel-based SmartNICs, which have several customer design wins, including our previously disclosed design win at F5, where we anticipate sales beginning in 2024. While we have launched three new products based on Intel technology during 2023, I would like to call special attention to the recent global launch of our first infrastructure processing unit, or the IPU. The Napatech F2070X is the industry first and only 200GbE IPU, powered by Intel technology. Our IPU mimics the product and technology architecture that is used today by several Intel customers in the form of the Intel Application Development Platform, also called ADP. The Napatech product commercializes the ADP solution and make it available to IT organizations of every size.
So now, data center operators from enterprise, telecom, and Tier Two cloud networks can have all the price, performance, sustainability, and evolutionary benefits that were previously only available to hyperscale networks, but in a simple and easy-to-consume solution from Napatech. Napatech has benefited greatly from the collaboration with Intel, including the previously disclosed development agreement and related joint sales and business development activities, supporting our design win pipeline growth. Napatech was also pleased to participate in the global launch of our new IPU product during the Intel Innovation event, held in September 2023 in Santa Clara, California. Napatech product technology and solutions were included in numerous presentations and sessions conducted by Intel, reaching thousands of in-person attendees, and our solutions continue to be promoted heavily by Intel and Napatech.
More information on this exciting new product can be found on both the Intel and Napatech company websites. Finally, I would like to share that we are pleased that we continue to expand our partner ecosystem for solutions completion that includes Napatech products. These type of partnerships plays an invaluable role in Napatech's achieving our growth ambitions. While the first and critical part of our strategic plan is to develop products that align with the high-growth market segments, the second and equally important part of our strategy is to be able to deliver these products to customers who need them by aligning with their purchasing behavior. These partners provide many key functions, like application software, servers, and the system integration to form the final solution for the end customer. They also have an important direct relationship with the end customer that Napatech may not have.
The partnership activities, including joint sales and marketing and optimization of timelines around proof of concept, trials, and the old design win cycle, is also important. In many cases, this also include fulfillment in a way that is acceptable to the customer. In total, these partnerships play a crucial role in the pipeline development, fueling our growth ambitions. The partnership we announced in the first half of the year include those activities with leading server manufacturers like Advantech, Kontron, and Jabil. These server manufacturers, who the end customers traditionally do business with, consider Napatech's part of the solution imperative. We also announced partnerships with two of the most recognizable 5G software companies, A5G and Druid, who provide the software applications that power the 5G core networks. Finally, we have announced a partnership with Databento and Orthogone, companies that have developed software that require SmartNIC to accelerate their financial service applications.
Today, I'm happy to note that we expanded this list in Q3 with Dell Technologies and Lanner. These two global suppliers of servers and systems integration services both aid in fulfillment of end users and simultaneously validate the benefit of our solutions. I'll now hand over the presentation to our CFO, Heine Thorsgaard.
Thank you, Henrik. Revenue in DKK in Q3 was up 34% compared to Q3 last year. In USD, revenue was up 44%. For the first three quarters, revenue in DKK was on par with last year and amounted to DKK 124.6 million. In USD, revenue for the first three quarters was up 1% compared to last year and amounted to $18.1 million, compared to $17.9 million in 2022. Gross margins in Q3 ended at 78%, up 29 basis points compared to Q3 last year. The overall gross margin in Q3 is impacted by revenue from our large NRE project. The gross margins of our product revenue in Q3 was 73%.
As this margin shows, the extraordinarily high component costs resulting from the supply chain constraints we faced in 2022 are now behind us, and our product margins have returned to their historic levels again. The overall gross margins for the first three quarters of 2023 was 71%, compared to 56% for the first three quarters of 2022. Our staff costs and other external costs in Q3 amounted to DKK 32.1 million, compared to DKK 31 million in Q3 last year. For the first three quarters of 2023, staff costs and other external costs amounted to DKK 204.8 million, compared to DKK 104.6 million last year.
As communicated at the beginning of this year, we are redirecting resources towards our new strategic development projects and are adding R&D resources to accelerate investments in our new products even more. As part of this, we implemented some cost-cutting initiatives earlier this year and are now in the process of adding engineering-focused resources. EBITDA in Q3 amounted to a DKK +6.6 million, compared to a DKK -12.7 million in Q3 last year. EBITDA for the first three quarters of 2023 amounted to a DKK -8.4 million, compared to a DKK -16 million for the first three quarters of 2022.
Staff costs transferred to capitalized development costs in Q3 amounted to DKK 1.3 million, compared to DKK 5.8 million in Q3 last year, and to DKK 8.4 million in the first three quarters, compared to DKK 18.8 million in the first three quarters of 2022. The results for the period for the first three quarters of 2023 amounted to DKK -0.6 million, compared to DKK -12.7 million in the first three quarters of 2022. Net cash flows from operating activities in Q3 amounted to DKK -7.8 million, compared to DKK -14.7 million last year. For the first three quarters of 2023, net cash flows from operating activities amounted to DKK -5.8 million, compared to DKK -12 million last year.
Net cash used in investing activities in Q3 amounted to DKK 1.5 million, compared to DKK 7.8 million in Q3 of 2022. For the first three quarters, net cash used in investing activities amounted to DKK 10.2 million, compared to DKK 27.3 million last year. Free cash flow in the first three quarters of 2023 amounted to DKK -18.8 million, compared to DKK -40.1 million in the first three quarters of 2022. Cash and cash equivalents at the end of Q3 this year amounted to DKK 44.2 million, compared to DKK 27.9 million at the end of Q3 last year. Our annual guidance for 2023 remains unchanged.
We expect revenues in the range of DKK 180 million-DKK 200 million, corresponding to a growth rate of 20% in the middle of the guided range. We expect gross margins for the year to be in the range of 68%-71%. With performance in the middle of the guided ranges, EBITDA will be -DKK 10.5 million. Now back to you, Henrik.
Now we are ready to answer your questions. If you'd like to ask questions, you can submit it now on the live webcast page, or you may dial one of the phone numbers on the screen, and an operator will transfer your call. Operator, do we have any calls in the— Thank you. It seems we don't have any calls in the queue, but I got one from the text here. It goes like, can you please elaborate a bit more on F5? How is ramp going, and have you received product forecast for 2024? Yes, I can do that. So, we're actually doing quite well with F5. Integration, testing, and these kind of things between the our companies and also at F5 is going on, going well.
And we have actually received forecasts for both 2024 and beyond that meets our expectations we set out initially, when we started our business journey with F5. I hope that answered the question. And we do not have any more questions in the queue, therefore conclude today's call. Thank you very much for attending today, and have a great day. Goodbye.