Good morning, and welcome to 4th quarter 2019 presentation from Nordic Semiconductor. Welcome also to Herbalife listening on webcast. So we had a record strong quarter. It's also on high revenue from Nordic at $83,100,000. Is up 36% year on year.
It's a good margin, 51.6 it basically shows that all the effort we spend on the investment we gained here 1 year ago on the lab to get early products up at a high yield as early as possible. Have really paid off. Our BLE revenue ended at $65,500,000 is up 63% compared to the same quarter year before. Exiting Q3, we had a strong backlog. We almost carried the same backlog with us exiting Q4.
And exiting Q4, we go into the Chinese New Year quarter, And obviously, there is a couple of weeks less production. So, it's a very strong backlog. It indicates good for Q1, but there is some other issues, which we will discuss a little bit later. Regarding Q1, but the backlog, as you see, is 52% up compared to the same period last year. And we finally see that some of our Tier 1 customers are contributing to building this backlog.
And one thing that's really good when you get Tier 1 customers, they have a more predictable production and a longer order backlog. But saying that This backlog is basically covering, I think most of it is into the first half of the year and very little for the second half. We still are the undisputable leader in Bluetooth low energy. If you look at the certification levels for 2019, we ended up with a market share of 41%. If you look 2018 versus 2019, we have 110 new design wins that can generate revenue for in 2020, which we didn't have in 2019.
The number is good. 110 was Maybe it's even better is the quality of these customers and the potential volume behind each customer. We've been talking a lot about the excitement, and we really like to excite developers We had 34% growth in kit shipment in 2019. We shipped close to 50,000 kits, the second half of this last year. And if someone remember 2 years back, was a lot of discussion where the Nordic should have a lower cost ship that could basically go into the ulta low cost market.
We said, no, we want to do a more advanced shift. We want more advanced features. And we counter that with the 502840. And if you go behind the numbers here in Kitsscript, is a heavy contribution from 52840, more feature, more complex, higher ASP. The great ship to sell.
And being frankly less competition, which is also important. Seller is gaining traction with the Nordic thingy. We have shipped totally 5600 and 9160 related kids second half last year. It's not that it's around 5600 individual engineers sitting playing because with this part, there is also some that buy more to test out the sort of applications but it's a huge number of customers behind this 5600. There has been some product launches with Nordic this quarter or last quarter also.
We have a leader currently in tracking system is called Tide. They are made, asset tracker with a 502811. Another asset tracker company called APS detector is using 52,840, the Advanced Thing product. And for those of you that went to CES, you might have seen an extremely cool wall was a wall of Colgate tooth pressures. It's 52832.
It was a wall of 52832s, you saw. We as a company that I really fancy, is called mesh check, is using Bluetooth for local communication, mesh communication, and then it used our LTE ship to go to cloud. And we're going to see another example where this technology is used. And we see independent companies doing their own LTE boards is a company called Actenius. They are doing a kit where they also offer to do the software for the customers.
So basically, like, software as a service based on Nordic Chipset. For those of you that saw the presentation we made for, Capital Markets Day, We said we are well positioned for a smart home. And why do we claim we are well positioned for a smart home? Because we have multiple customers compared to any others, we are absolutely the leader on the broad market. There is millions of Nordic devices out there, which these platforms can hook up to.
We have HAR, number 1 here. And as we start seeing now, that our partners that keep delivering the platforms are focusing more on smart home Nordic will become the natural choice if we provide the solutions that make it easy for both you as a customer and you as a developer to make innovative products. That's what we're doing and working for every day. So what's important when you come to SmartHome? Is interoperability, co existence, security.
What do Nordic have? We have Bluetooth, we have Sigve, we offering thread. We also have LTE. We do have The protocols is going to be the preferred ones in these solutions. When you have basically collected the information at home, we can help you bringing it to the cloud with our LTE products.
And we see now that there is not only those 2 that I showed you here that you're seeing a combined solution with Bluetooth locally and Nordic LTE up to the cloud. There is starting to become an infrastructure among of our customers. Some of you might have heard about the Connected Home over IP. There were some major companies that made this initiative. And we have been a partner of this working group since January this year.
And Nordics broad range of multi protocol again is really compatible with this new standard. And it's going to be a benefit for consumers I don't know if you some of you remember early days when you bought a Bluetooth headset and want to connect it to your phone. It was hard. But not before it was easy to do it, ease of use is important for volume This is going to bring volume for smart home up relatively quick. We have talked a lot about But what we've been working a lot about is software.
I mean, we have to have a complete solution from the PCB to the board. And our scalable software for next generation of IoT devices are fantastic. It's a unifying software platform. It support all of ICS support all of the wireless technology and it's modern. What we see is that all new engineers coming out today require RTO's integration.
They like to use open source and they want to have a modern development and distribution module. If you start working on something and you want to have a module that somebody else have done previously. We would like to speed up time to market, take this open source module and put it into your software. Nordic software suite enables that. I think it's a great job done by the guys that have done this latest software.
It's scalable is really what a modern designer likes to see. And mix that with all our parts. I said it support all of our Nordic ICs. We have high end loan to low end. And we might even do even lower end, but it's still going to be advanced features.
And we spoke a lot about the roadmap on Q on the presentation we had for Capital Markets Day, I just want to bring out a couple of products. The $53.40 is the world First system ownership with 2 Cortex Processors now is a really leading microcontroller. It supports all the expected standards. It's also been extended to industrial temperature range because we see some of these smart homes will be outside commercial temperature range. So we have given it test up to 105 degrees.
If you look at the right hand side here, you see the 2150 is a front end module. It's our first power amplifier. Basically, And we see that some application you want to have a longer range on your signal. If you put this between your antenna and the output of the radio, you can, for example, out or we can do kilometers of transport of radio signals with the 2 150 in front of the antenna. If you do insight, we're talking about hundreds of meters.
So this is something that usually a company the PCBs that we see our customers are producing. This 2150 will be seamless interface to all of our radios is a natural choice. To put beside your radio. So now we are, for the first time, delivering a product that is not connectivity, which is closely linked to connectivity is going to bring revenue in a new segment for us. We'll be coming a real semiconductor company, not only connected connectivity company.
We really enjoy over products. The important thing is what does customer say? That's the number one, but also what does the total community how do they appreciate Nordic product? We won the GSA Global Semiconductor Alliance award for the most respected merchant semiconductor company, December this year for the 2nd year running. We also in tough competition with a lot of other Nordic Norwegian technology companies, we won the annual tech award for over 9160, it's really see that the communities see the value of our LTE product.
And in China, we got the IoT Innovation Award for our thingy 91 of a cellular IoT platform. So more people understand the value of the products we are bringing to market. If you look at the 9160 or the thing in 91, since the 1st day, we shipped them We have reached over 10,000 units. Remember, IDB is something like 5000 this year, but we have totally shipped 10,000 units. And we have had some releases to do on the software and the software releases we have done now in Q4.
Is very well perceived with customers. It's been really an update that has take us to the next level. And I say here that the acknowledgement of destructive lead and public consumption If you take a 9160 ship and start measuring and comparing it to competitors, is a significant improvement. It's so significant that I wanted to use the word disruptive. Important thing when it comes to seller is that we need to ensure that we get certified.
In Q3 2019, Verizon certified the Nordic Ship. Q4, we got Deutsche Telekom certification, and it's not related to Q4 I'm so pleased to see that in Q1, we also got Vodafone certification, and there is more to come in this quarter. In addition to that, we have a GCF Global Certification Forum Improvement. So if you look at the map and see Where can you use our Nordic ships at a day? It's pretty well covered.
And we take advantage of that. We had earlier said there is a lot of verticals that we're working in. And we see now some of these guys are placing orders and we expect that we're going to see a result of this in Q1. We're still working on the same verticals. And, I think some of the ones I've been talking a lot about what pest lives of trackers that was the first, but now we see more industrial applications starting to appear, and one of them comes here.
The company called appreciative is a water heater controller for real time demand driven utility load management. Basically, if you are somewhere where you and everyone has full power on the water boilers. And there is 40 degrees and you also want a full power on your air condition, this will shut down your appliances. They are going to use the 52840 on the local grid and then send it up to the cloud and shut off the total energy users. It's talking about sustainability.
I mean, basically, some of, countries have dirty power plants with coal. If you can avoid taking those dirty solutions in use. Using a most clean energy by controlling energy consumption, this is a great product. And I think it's a specially great product because it's 2 Nordic Technologies in there, has The Bluetooth for mesh and then it has the 9160 or connecting to the cloud. So now I want to hand over to Paul, just talking about the numbers.
Thank you, Santoya. I'm going to go through the financials for Q4 2019. Then I'm going to hand over to Santula. We'll do the the guidance at the end of the presentation. As Santula mentioned, we exceeded our revenue guidance in q44 2019 and then that at $83,100,000, this, the strong number was driven by end customer demand, but also a strong pull in prior to the Chinese New Year that came earlier in 2020 versus 2019.
Bluetooth, growth rate of 63%, compared to last year. This came as a result of strong customer demand, but also a very strong end customer pool compared to last year. And then finally, some easing of the trade tensions that we've talked about during the last months. The growth rate looks dramatic compared to 2018. But just remember that 2018 was influenced by the same trade situation and also inventory adjustments in the entire value chain.
For Paracari, underlying 7% decline in the quarter, more in line with what we've been guiding for on the proprietary business. Earlier this year, a larger decline, but that was impacted by the same inventory adjustments as I just mentioned. For the full year, revenue ended at $288,400,000, an increase of 6.4 percentage points year over year, we think that that's a good number because we had a very weak start of the year. We managed active to do a 22% growth on Bluetooth low energy compared to 2018. Gonna talk about the individual markets.
Of course, when the total number shows, the growth rates we do, each individual market will be positive. I want to pinpoint the few interesting areas. 1st of all, our largest market, which is the consumer electronics. It's always been the big market and continues to be, a growth rate of 36%. Remember that Bluetooth decline of no, the proprietary decline of 7% actually is in this number.
So the underlying consumer electronics figures are are are good. We see a lot of new designs, also a conversion from from, proprietary that ends up in, in the consumer electronics markets. However, the biggest growth rate we see in the wearables with a 72% growth, wearables shows a very positive development, mainly driven by new NR52 designs, especially in the high end Chinese domestic markets. Another area that's, interesting is the building of retail a lot of the smart home solutions that's until we mentioned early in the presentations will fall into the building and retail markets. On the negative side, we have health care.
We do have very high aspirations for this market, and then we do have some very interesting design wins that we're working on. However, this market, there is some products that are in between generations. So this will impact the growth in 2019. Turning to gross margins, it exceeded our targets of 50%. Actually, the full year of 2019, we were above just above 50% in gross margins.
The main reason for the favorable gross margin is is the product mix. We did have a high number of the high end, products in in this in this quarter. Also, as Santura mentioned, we did invest a lot in facilities lab equipment to get new products fast up to the to the right yield levels. And I commented in Q3 that we had the introduction of new products that were slow on the yield. This has been solved in Q4, so they're back on track.
Finally, both product mix and then in new product introductions will vary from quarter to quarter. So we reiterate the medium term gross margin range of 48% to 50% for the short range business. Of course, the the long range business has another, gross margin, level. I'd like to sum up our operating model performance, the combination of high revenue growth and strong gross margins left us with a gross profit of $43,000,000, up 0.6 percentage points compared to last or sorry, the gross margins, but the gross profit had a very strong increase. R and D in the short range was slightly down, compared to last year, while R and D on long range was up $2,600,000.
This of course shows that we're now going into the commercialization phase of this project and and are investing more money. Here. SG and A, absolute numbers are more or less the same year over year. Although we're continuing to invest in order to capture future growth, we do see at these revenue levels, we are actually getting some operational leverage out of our business model. EBITDA at $12,200,000, which is 14.7 percent margin.
I'll now turn to the Cas operating expenses. These are the costs adjusted for capitalized R and D expenses and equity based compensation. Increased by 4.8 percent year over year or to $33,400,000. A large part of this increase is in in, in salaries where we actually increased the number of salaries by 12% year over year. This increase came from most areas, both a short and long range R and D, but also the teams to develop and commercialize the the products.
Although we have a 12% increase, as I said, the the the underlying number of cost increase was less. This is of course the fact that we have a very favorable FX development with weakening of the Norwegian kroner. Other OpEx, relatively flat, shows that we do have a base level of OpEx to to cover the increase in investments that we do. In the business. As previously discussed the the the cellular business is is is, is only an investment case, currently.
So so we do wanna show our EBITDA margins excluding, the long range business, from a tough start of the beginning of the year, We've now had 3 consecutive quarters with margins well above the 20% level for the short range business. Ashley, for the year, we are above 20%, which is the target that we communicated at the Capital Markets Day. CapEx for the quarter was $5,300,000, so little bit above the $4,500,000 guidance we had. The reason it's higher is that we did some, some, some final investments in in the build that's a new R and D lab in Trondheim to to speed up the development and testing of new products. Total for the year, we ended at just around $20,000,000 in in CapEx.
Q1 guidance is a little bit back to what we guided for Q4, so $4,000,000 to $5,000,000 the lab is now completed. We're now going to invest more in increasing, equipment for capacity utilization in in Asia. Annual CapEx remain around current levels in absolute terms. But of course, compared to revenue, they will go down. Finally, I'd like to turn to cash flow.
We had a positive cash flow of $3,900,000, in the quarter. Which is strong, given that we had the strong growth in in the quarter and really reflects the disciplined cash strategy that we have in the company. It came as a result of keeping net working capital stable, it did increase from 22.6 percent last year to 24% this year, but this should be seen in context with the higher revenue, but also the higher backlog. And of course, a bigger requirement for inventory at the end of the year could to last year. Cash flow for the total year was, was a slight $13,000,000 negative.
Mainly driven by the high CapEx and investments we do in the business. So, Santoya, I'd like to hand over to you to do the final comments before we do the Q
So we, as we've gone through today, received a strong Q4 Both revenue and gross margin above the guidance. We had good cost discipline and positive cash flow. And as you see here on the slide, we have a wider revenue range for Q1 that we normally would have had. There is only one reason for that is that there is some uncertainty due to the coronavirus outbreak in China We have seen some push out lately. And, we just have to monitor the situation, but according to what we have of input this morning, we have made a of $64,000,000 to $71,000,000 When it comes to our midterm outlook, nothing have changed, if it's changed maybe to the better, So we expect the 20 to tour annual growth for Bluetooth low energy and our multi protocol solutions We expect to be around the 50% gross margin for short range, and we will continue to invest in R&D.
We have an opportunity now, which we really are taking and are investing co investing with larger companies to make sure that infrastructure for short range and long range connectivity is going to grow in the years to come. It's really a good time for us to do this investment. So this ends our presentation. Maybe you'll come back again, Paul, and we do a Q and A session.
And after Johnson Arctic. 1st, congrats with a strong Q4 report and also especially strong short range growth. First, on your Q1 guidance, you have a quite wide range. Could you quantify more what is needed to reach the midpoint of your guidance? Does your, for instance, your current backlog support the low end of your guidance.
And also, would be appreciated if you could give any color on the split between Bluetooth and prepare, Terry, in your guidance for Q1?
If you look at our backlog, it's spread between Q1 and Q2 mainly. So obviously it's has a very strong support for reaching our guidance, we if there is not going to be more complications with CEMs in China. What we get a feedback today is that most operations will start again coming Monday. Over this weekend. Maybe some few that's going to extend this another week.
But if the implication is that it's been stopped this week and most of them start again next week. We we feel very good about our guidance. If things get the escalating from this level, we don't now. But if it does, obviously, we will have to inform, and the world will know anyway.
And just
Do you want to know the split on Proprietary versus Bluetooth? I think basically We have guided on the proprietary, and we don't see that we need to do any changes on the guiding. So it's going to be around where it is today, I believe. It's not going to drastically change. But obviously, Bluetooth is going to drive this revenue growth.
We will also get some addition from our new products LTE in Q1.
So, yeah, in Q1, LC, just a follow-up on that. When do you expect to see any inflection points here in commercial deliveries from seller? 2nd half, Q3, Q4?
We did a major update on software in Q1. We will start seeing customers applying this update and start producing with the 9160 module during Q1. And we have not guided, in the presentation, and we're just going to say that you're going to see some revenue in Q1.
And last one for me. And the boosted SIG announcement on the new audio over Bella's on there. And in your partnership with Cirrus Logic, can you give any color on when we can expect its commercial deliveries from this part partnership and what kind of product?
In the report, the full report, we say you won't see much revenue from the audio a product in 2020. So that means that you're going to see it later.
Thanks.
Kristofer here from DB Markets. So on December IoT, again, just following up on Enerth's question, could you just elaborate a bit on what has been the problem on the software side and kind of how many customers have been placing these orders, which are now being postponed the team due to the software?
We can do some add some few comments The one that start at a very early with our products did have, unfortunately, and more unsure software than we were fully aware of when we start shipping it out. As customers start deciding with the products, obviously, we get aware of the challenges we have. And it's been basically in two, three areas. Remember, this complete software is more than 2,000,000 lines. So debugging such a software package takes time.
And maybe the most important is qualifying these debugs takes the same amount of time. So the release we managed to bring to the market in Q4 is very promising. So we expect to see some customers and we'll come back to these customers in Q1 presentation. Great. Aristi is one of them.
On the front end module, if you could just help us understand what is kind of the ASP potential on that one, how it affects gross margin and also how many were customers today are using a similar solution from a competitor? So kind of the penetration that we expect to see on that?
We have made a part that's going to be competitive in the market. And we are not discussing margins today. We are selling it in. We're checking out the market to see what is the right cost to be And we are sure we can satisfy the customer's need. 1 on the technology side, basically, world's side.
And the second thing is also on cost. So we come back to ASP and price leverage later on.
Think you can answer it. There's quite a few customers who already use this solution from competitors, as you said. We we we haven't given that number, but it's a quite interesting number.
All right.
And obviously, we have designed this when we have been in very close contact with some major Tier 1 customers and the standard way for Nordic to do specifications. Is to listen to customers and see what can we solve for you is the customer. I don't think we're done any different in this product. So we have a great expectation for the 2150.
Then last one for me before I jump back in the queue. One of your new kind of significant customers tile on the, which you on the asset tracking side a few weeks ago testified before Congress in the U. S. That they are afraid that Apple's new product air tag will their future at risk basically because they think it will be such a great product and have a real advantage of, for example, tile should we be afraid of your kind of the volumes coming into Norge as well due to this risk for Thailand and the other tracking companies that are very important customers of yours?
I cannot comment on customer, except from what we've done already. So we don't comment on individual customers. We can comment on the market. I think it's very exciting. They'll get more trackers onto the market.
It's a good opportunity for Nordic. It's a market we lead, and we're going to continue lead.
Yes. Axel, from ABG. Congrats with a great set of numbers. So you're right in the report that the timing of the Chinese New Year, which came 10 days earlier impacted you positively in Q4? Is it possible to quantify that, that positive effect?
How much impacted that there?
Yes. We went out the guided arrange, and we also expect it to slow down a little bit at the end of December. But it was more full end of December than we expected. And I will say if you look at the range between our guidance and what we achieved, is the surprise.
Alright. And, next with regards to the push out of orders that you have seen. Have those been pushed out in terms of you expecting them to come in Q2? And in that case, how much are we talking about?
We we don't want to quantify it. It's not, I mean, if you look at our guidance here, it's include the consequence of coronavirus on Nordic. And obviously, we believe that there would be as of this morning, Vida could have been 1 more week of production ongoing. And if most of the CMs are back next week, That's the good scenario. If there's going to be any change on that, it's going to be, less good scenario.
Good. And the then it's positive to see the variable category growing so strong, ups 70, more than 70%. You say it's driven by wind in the high end, Chinese applications. Is that because, the category is expanding in, in China into the, with new applications, or are you winning from, other competitors?
It's both.
Both. Yeah. And Then, yeah, on health care. So, health care, we are seeing you win a lot of designs across different applications, but the revenue from health care is sort of flattish.
The revenue from health care is a bit down. But I'm really appreciating that you see the wins because we do see a lot of wins. And we also see that there is major companies that have good market share with the products. So we are still very positive towards health care.
Yeah. But, so my question was, do you expect health care to sort of be a positive drag force in 2020, or will it take longer?
2020. 2020.
Yeah. Finally, on gross margin. So When you are growing now more with tier 1 customers and at the same time, the gross margin is super strong, can you sort of explain the potential correlation between those 2? You have previously said, I think that Tier 1 customers have about same margin as others. But how is this for for Q4?
There there is a mix. I mean, we have had More customers do remember, I said we had 110 new design wins in 2019 on BLE. So we have had more customers doing production in Q4. Some of them were medium sized, smaller sized. And then we also had some higher volumes from our new tier ones.
And it seems like over tail and business have kept the margin up. So it's all a balance between how much contribution come from high end, lower cost customers versus high volume, smaller customers. And this quarter, it balanced in the right direction.
Alright. Good. Yeah, that's all. Thank you.
Yes. Actually, a follow-up on that. I would also like to
add another comment to the previous question. Don't forget also there is a third component Paul talked about that was cost reduction. And when we do cost reduction, we all and when we do production, we always take the oldest way for ramp it into the packet and send to the market. As we now empty out older wafers getting newer wafers packed and shipped, we see the effects there also.
Yes. Yes. So on that topic as well, should we kind of see the the development of the gross margin as an indication that a lot of these Tier 1 customers that you have been talking about is just in the backlog, but not yet in the revenues. Significant not?
They're not been into that peak volume revenues. Contributing to
Okay. And then on the backlog, it's been growing 50% for a few quarters now. Is that indicating that 2020 would be kind of a year coming off easy comparable in 2019 where we should expect to see kind of growth at least in the upper range of your kind of medium term target range?
And basically what we've done is that we've given a guidance on Capital Markets Day and we stick to that guidance. And everything about that will be communicated as we achieve it.
Of course, on the backlog, it's also important to know when the overall semiconductor is in positive trend, customers want to put in orders to make sure that they get deliveries on time. So you see a better visibility in the market. Think it's important.
And also there is another factor when inventory distributors inventory are more aligned with customers' demand, You'll also get a more better and optimized, logistic flow.
Yes. We have a lot of time left I see, so I can do more. On the CapEx side, you say that it's going to stay at the kind of roughly the same level, the nominal nominal level, don't you expect that to kind of grow as the business growth to kind of keep investing in future opportunities?
That's what we've been investing around 6, 7%. I think that's a little bit high in the running basis. So we talked on the Q on the Capital Markets Day that we want to get that down to 3, 4. But absolutely, yes, absolute numbers will be at this levels.
Thank you. So if I remember, we're taking a huge lift in investment in Lab equipment, and we need to do all this ahead of revenue. So I think we have been equipping the Nordic Labs, the Nordic facilities, with state of the art equipment and can basically only supplement going forward. We don't need to make any major investments.
And then on the investments, you mentioned co investments with with other companies. Is that kind of the typical work that you're doing towards the chip project or is that can you just elaborate on what that means?
I didn't say co investment, if I recall right, but we are cooperating with guys. And we are investing I would say design activity, we were not doing any financial investment with other components.
Then one last one. On the guidance range, some of your peers and your suppliers have kind of handled this various situation, they keep the guidance, let's say it's depend on no further deterioration, while others are just taking the whole range and put it down. So you kind of just lower the bottom of the range? Or are you taking the whole range that was originally there and then moved it down?
We have adjusted the range. The whole range?
Yes. So, I have a follow-up question on cellular. So that seems to be the point now where there exists some some uncertainty with regards to timing. You're right in the report that software delays, the delivery delays impacted a ramp up. This is fixed now in 1, and you will get a positive effect from that in Q1.
Can you just elaborate on that? How did the software delays affect the customers? Did it affect all the customers? Or all the lead customers? When was it fixed?
And just
It can be, we can start with the last when was it fixed during Q4. When we did the last release of the software. It does affect, customer that have been in early design phase with early software versions. For customers starting as of, I would say, mid January, are doing a different track and customers start before mid January. So those who start mid January onwards have no sort of issues.
The other ones, we have to support a bit to get up to the same level as the new release from beginning.
And now that it has been fixed, how how sort of agile is the process? How much lead time is there? Is it such that we will see some effect in Q1, but more effect in Q2 or are they able to take?
Yes, this is a brand new product. So you will see some business trickling through in Q1. At a higher level than Q4, and it will most probably continue like this into Q2 as more customer comes onboard. And we expect gradual to see the revenue building up through the next three quarters we have ahead of us.
Thank you.