Welcome to Nordic Semiconductor's quarterly presentation for Q3 2020. I'm Svenn-Tore Larsen, the CEO of the company, and later on I will do the presentation of the situation and how we are doing today, and Pal will go through our financial just after me. We had a continued strong growth in Q3. This was driven by both Tier One and also a strong uptake from the broad market. We had a revenue of $119.4 million. It's up 45% from last year and 34.9% from quarter past. Our Bluetooth revenue was $97.1 million, up 56% year-on-year. Proprietary revenue up to $19 million, plus 3%. Remember when we entered this year, we expected that we should have a decline in proprietary, but despite, it's been growing 3%. Our cellular revenue amounted to $1.6 million.
We start seeing more of our pre-production getting on our order backlog, and it looks certainly even better for Q4. Our gross margin ended at 54.1%. This includes a $2 million recalculation from Q2 and Q1. That accounts for 1.7 percentage points. Basically still very strong gross margin. Why we have this strong gross margin is basically that we are shipping more and more of the complex high featured advanced products from Nordic. Our order backlog is at a new level and it's a higher level. The backlog ended at $288 million. It's 154% year-on-year. Bluetooth account for 82% of this backlog. We see that there is a technology shift trend. It's getting more of the previous Bluetooth Classic users are now moving over to Bluetooth Low Energy. Also we see the customer mix.
We see our larger customers are basically contributing more and more to our backlog. These customers is placing order with longer length than our traditional customers. Top 10 of our customers account for 42% of the Bluetooth backlog. I think the most important thing about this backlog, it shows that we have got some really larger customers in, and we also see these customers are placing order for with longer lead times. The shift could you see here, if you go one year back in Q3, our larger top 10 customers accounted 33% of the backlog. It's approximately $20 million. This quarter, they accounted 43% of our backlog and it's basically a doubling over the year. Important thing, despite that this is growing heavily, the existing customers also grew 34% year-over-year.
It shows that there still are activity and very fast-growing activity at our traditional customer base. Why are the larger customer contributing so much to the backlog? Because these new technology platforms are determining the future, I think, of short-range connectivity. They put the specifications for the new protocols, the multi-protocols that Nordic been working on for a long, long time. We have been leveraging on this strong relationship we have had with these customers over a year, and now we start seeing this new infrastructure entering into the market. We have examples that we've been mentioning in a press release a few weeks ago when it come to Sidewalk, where we've been working with Amazon, and we also see that CHIP, which was a new multi-protocol Nordic been working with for a long time.
We also work with other larger customers that will bring out new ecosystems, which all the ODMs are going to hook up to. We see hubs made by the big platforms, and we see accessories built by ODMs. Basically, it's a good position to be in. We earned it. We worked hard for it for many years. We continue to get high certification market share. We had 44% this quarter, and average over year, we have 45% market share. What we see, though, is that due to the horrible COVID situation, there is quite a bit of medium-sized smaller customers that have put projects on hold. The total number of design-wins have been shrinking a bit. Larger accounts of the total volume of our design-wins are significantly higher than they were a year ago.
We always show some product that we launch during the quarter. These are products that are publicly known. TAIYO YUDEN is a Japanese module maker. They enter into the market now with a new module based on the brand new chip, the nRF52805. I'll come back and discuss the nRF52805 later on. We also see Meizu, which are doing a ECG tag, which you can wear. Imagine 10 years ago, having a wearable ECG tag.
Today you can do it because of Bluetooth Low Energy and connectivity. AirBolt, I put it up here because it's a asset tracking device using both our LTE, our nRF9160 module, and the nRF52833, our new chip that is multi-protocol enabled. We also see consumer IoT, cellular IoT here, LTE smartwatch from ProMOS. The final example here is also a LTE product. It's Rohde & Schwarz, which make testers for high volume production.
They are sending all the data they test to the cloud through a Nordic nRF9160 module. It's exciting to see that some of these applications that we have been aiming at finally entering into the market. I said TAIYO YUDEN was using the nRF52805. We launched that nRF52805 back in June. Already our customer have a product out in the market. It really shows and proves a couple of things that we've been talking about.
Its ease of use, and that they have a common software platform. Another Chinese module maker also have product in production already with the nRF52805. nRF52805 might be a cost-effective product, but it's really a strong product based on Arm Cortex-M4. It's compact size and obviously coming from Nordic Semiconductor, extremely low power consumption. As we saw, Bluetooth is growing fast. We also see great advancement in cellular IoT.
We get traction with new designs and good to see that we are also getting into higher volume products like smartwatch and trackers. We started off with quite a bit of utility meter work, and now we see that consumer products are employing our product. We also got the first 100,000 unit order for a single design win. This was actually in Q4. It was the second day of October, but I thought it was important to see that we get larger orders, production orders, and is comforting for Nordic to see. We keep on doing certifications with leading operators globally. In Q3, we were certified by China Telecom, AT&T, and Bell in Canada. Now the map is covering the most vital areas where we need to be present.
Obviously we are continue to work on the LTE products, and we are able now to do a 30% reduction in our sleep current for the next generation of nRF9160. It really implies 10%-20% longer battery lifetime for our end customers. The product has a 15% reduction in data transmit power. We had a customer, actually, I was having this conference call with a customer, and he said, "It's impossible, the specification that you're showing us. It doesn't work." Now we are in a phase where customer can get the module and test out. It really shows that it's possible. Should not never forget that the team we have back in Finland, which have designed these products, are maybe one of the most experienced team within LTE globally.
We can't do magic, but we can get really good thing to save power and make a solid product. Another case study on 9160 is asset tracker. Why using Nordic again? The small form factor. If you look at our 9160 module, it's tiny and small. It fits in and make the end product small. Extremely low power, and it include GPS.
What we see is design wins are our different, I will say, segments. We have in construction tools, lot of building places. The workers are running around trying to find their equipment. We put a LTE chip in, and you will identify where the tools are straight away. Fleet management is another area where it's important to know where the fleet is. Also when you ship high-value items globally, it's good to know where it is at any time.
I'm pretty sure that this product will find its way into a lot of these applications. Now I hand over to Pal and he do go through the financials. Thank you.
Thank you. Thank you, Svenn-Tore. I will now go to financials for the third quarter. Revenues amounted to $119 million in the third quarter and $278 million for the first nine months, corresponding to a growth of 45% and 35% respectively compared to last year. The Q3 revenue is actually $31 million higher than Q2, which was previous record month. This steep change comes as a result of increased revenue from our larger customers, but also a strong pull from the broad market.
The revenue was, as Svenn-Tore mentioned, above the guidance range provided in the financial report for the second quarter 2020 and also updated guidance given earlier in September. The higher-than-expected revenue primarily reflects sales for end-use applications in the consumer electronics and wearables markets. Bluetooth revenue amounted to $97 million in Q3, an increase of 56% from $62 million last year.
Bluetooth now constitutes 81% of our revenue. Proprietary revenue was $ 19 million in Q3 2020, which is an increase of 3% compared to last year, and Q3 last year was also the strongest proprietary revenue quarter in 2019. The demand for proprietary products reflects high sales volumes for PC accessories in connection with increased focus on building home offices. For the first nine months, proprietary grew by 17%.
This is in contrast to the expected single-digit decline that we had when we entered 2020. I will now discuss revenue per markets. As overall revenue shows a strong growth, both compared to last year and last quarter, the underlying markets also show a growth. However, I'd like to highlight a few key areas. Firstly, consumer electronics, which was by far our largest market, representing 50%. Actually, last quarter, this was a third.
The market shows a strong 49% growth compared to last year, mainly driven by high demand for proprietary solutions related to home office products. Also a lot of these products now use Bluetooth. We see a growth in Bluetooth also in home office equipment. Another very important area within consumer electronics is gaming, where we see very interesting products both in PC gaming, but equally important, VR equipment.
Wearables continues the strong revenue growth with a 40% increase. Just as last quarter, we see high design activity on our most advanced system-on-chips, especially in the Chinese market. Healthcare revenue amounted to $8 million in the quarter, representing a 54% growth from a modest level in 2019. However, compared to the extremely high $14 million in Q2 2020, it's a 44% decrease. This was a decline from extraordinary second quarter, which was boosted by deliveries for COVID-19 related applications.
In Q2, we saw a spike in current products being repurposed to solve COVID-19 challenges. Although the COVID-19 products saw a large reduction in Q3, we still expect new products coming in the following quarters related to this situation. More importantly, the COVID-19 has made a disruptive change to the entire health tech market, and Nordic remains confident in the large and long-term potential for connected medical devices.
Both for our short-range business, but more importantly, also for our long-range products and solutions. I will now jump to gross margins. As Svenn-Tore mentioned, we did have a spike in gross margins in Q3. This does include the positive effect of $ 1.7 million related to reversal of costs taken in Q2. Adjusted for this, the underlying gross margin in Q3 would have been 52.4%, so more in line with the gross margins we've seen in the previous quarters.
We have thereby been able to constantly execute at margins above our 50% gross margin target. The strong underlying gross margin comes as a result of continuing high demand for high-end products, as well as a favorable customer mix. In addition, high volumes and predictable outlook drives cost improvements. We expect this favorable product and customer mix to continue also in Q4. We reiterate medium-term gross margin targets of 48%-50%, both change in customer mix, but also the more impact of the cellular IoT products with lower gross margins. I'll now jump to the operating model performance. The numbers on this slide reflects reported numbers. The effects of capitalization of internal developed R&D and equity compensation is presented on the next slide.
The strength in Nordic's model can be seen in this overview, where the strong revenue growth of 45.3% results in an increased operational leverage and EBITDA margin surpassing the 20% target. Also excluding the effect of the gross margin, which I recently mentioned. Total R&D spending at 20.1%. This is down from 23.3% a year ago.
Nordic capitalized approximately $2 million. Most of this related to the short-range business. Although R&D spending is reduced compared to revenue, in absolute numbers, R&D increases from $ 19.1 million last year to $ 24 million this year. The reason we continue to invest is, of course, we see high growth opportunities within both short-range and long-range IoT. Related to SG&A, you see that compared to revenue, it goes down from 12.4% to 10% this year. However, the underlying number increases by approximately $2 million.
This is a mix of high costs related to equity compensation due to the share price increase, but also adding on quite a lot of resources in sales and marketing to capture future growth. On the bottom, EBITDA of $ 28.6 million or 24%. I'll now jump to cash operating expenses, which is operating expenses excluding capitalized internally development R&D and equity compensation. The cash operating expenses increased by 20% in the quarter. Compared to last quarter, it's more or less the same increase. Although we continue to have a strong cost focus, it's important to emphasize that the Q2 numbers was positively impacted by both the weak Norwegian kroner and also a very low activity due to the COVID-19 situation. For example, there was very little traveling and no exhibitions, et cetera.
We see now that the activity is picking up, so we do have an increase in cost and also increase in investments in the company. The year-over-year increase in employees was 16%, and at the end of Q3 2020, the number of employees totaled 872, up 50% in Q3. We foresee a continuing growth in employees at this level going forward. Other OPEX increased by 8%, so significantly less than the growth in employees should indicate. The reason for this is that, of course, we're doing less travel, et cetera, with more staying at home and working. Although, we've shifted the focus to do some activities virtually. The level of tape-outs of new products has also been very high in the quarter, however, on less costly development of new product platforms. This will, of course, vary from quarter to quarter.
EBITDA in Q3 2020 was a strong 24%, including the favorable impact of 1.7%. It's a very strong EBITDA compared to previous periods. In last year, the same period, we had 14.1%. This strong EBITDA shows the strong operational leverage in our business model. Especially the short-range business shows operational strength surpassing the 30% mark for the first time. If we look at the last 12 months numbers, it was 17.2% for the total business and 25% for the short-range business. We had very low CapEx of $2.3 million in the quarter, mainly because delivery of new manufacturing testers was moved into Q4, so they're coming now in Q4, ready for the growth in the future periods. We still keep the guidance at around $5 million also for Q4.
For the total, the CapEx intensity for the year will decline to around the 5% of revenue target that we set, down from 7% in 2019. Finally, on cash flow, we have a very strong cash position. Nordic completed during Q3 a successful private placement, issuing approximately 8% new shares. The transaction generated gross proceeds of approximately $ 125 million, with net proceeds to be employed to support the company's continued growth, including building working capital and increasing our supply chain capabilities. We also used the cash to ramp up new Tier One customers and strengthening the balance sheet. $40 million of the proceeds were used to repay short-term debt which the company drew during Q1.
Adjusted for these two items, we had a starting balance, you can say, in the quarter of $206 million. Overall, in the quarter, we managed to maintain a stable cash position, which is strong since we had a 45% growth. We had an operating cash flow of $8.6 million as a result of strong EBITDA, only offset by increase in working capital. Increase in working capital came mainly as a result of the high growth, but also the mix of customers in the model. The group's cash position at the end of the quarter was $215 million. Most of the cash is kept in the group's functional currency, which is US dollars, in order to minimize the impact of currency fluctuations. Finally, cash balance is now at 2.5% of last 12 months R&D spend.
We think this is an important KPI to show that we now have the strength and the balance sheet to deliver on the roadmaps Svenn-Tore talked about earlier. Now I'll let Svenn-Tore do a summary of Q3.
Thank you, Pal. Pal showed the numbers that really reflect on our operating model. It's a very resilient model. What we want to do is to lead on connectivity. We want to have low power, high performance, and feature-rich, reliable, and robust parts. Certainly, we have. It should be scalable solutions. We have to excite developers. We have to engage customers. We have shown now the last couple of years that we can engage the world-leading customer base by adding on new protocols and engage in these customers' development of their roadmap. That really reflects why the backlog is increasing as it has done. We obviously need to attract talent to achieve all our goals. As Pal showed, we had 16% growth in employees over the past year. It's a nice place to work in Norway.
Even though a lot of engineers think that it's costly to live here, there is also advantages, and we see that employees coming from abroad enjoy living in Norway. It's important task for Nordic to ensure that we get the right engineers and are able to drive towards the future we foresee. Sustainable business is important for us.
We enable a lot of customers to be more eco-friendly. We do obviously what we can do to be eco-friendly as a company, but the most important is what our customers really enable globally. We have to move early. We were early out with cellular IoT, and don't be surprised if we are early out with next type of standards for communication. We are going to be a leading connectivity company for a long time. We have a solid market position and we have ambitious targets.
We are a market leader in Bluetooth Low Energy, and I will say multi-protocol solutions. We have a dominant share in broad market. You saw we grew more than 35% last quarter in the broad market. We have strong ties to large platform and vertical leaders. This is extremely important, and it comes because we have ability to deliver protocols and do optimized solutions for these customers.
We are positioned for leadership in cellular IoT. I showed you the form factor, the power consumption. Nordic has a leading IoT solution. Throughout this year, we see that we have been accelerating our growth. Bluetooth revenue year to date is up 40%, proprietary is up 17%, and we have shown traction in cellular IoT. We ended $1.6 million revenue in Q3 on cellular. We will be seeing a strong growth on that number end of the year and quarters to come.
When you see those numbers and link them to our ambitious targets, I think we have an increased confidence in the $1 billion revenue number that we said in Capital Markets Day a year ago. If you start calculating out this number, if you see our position with the global leading companies, we feel more confident today than we did even a year ago. With this backlog, it support a strong Q4. Our Q4 guidance is $115 million-$125 million. That's a 38%-50% year-on-year growth, and it will be flat quarter-on-quarter. Our gross margin expected to come in at 51%-52%. I think looking at this backlog, I know that someone think $288 million should support maybe more than $115 million, $125, but keep in mind that the customers here have a longer backlog than we used to.
There is obviously further upside here because we see a fast technology shift. As with all kind of businesses, when you grow so fast, there could also be a challenge to fulfill all these requirements. Currently we see, unless things are uncertain happenings, that the guiding range should be a safe area for Nordic to guide. No company can grow at this pace without having some challenges in supply chain, but we also have invested a lot in supply chain, so we feel pretty confident about the quarters to come. I'm looking forward to come back in February and discuss the Q4 numbers. Thank you for listening in. Now we go to the Q&A session. To those who have opportunity, please send in questions to the web.
Yes, we have questions. First, we start with backlog questions. Henriette from Arctic. "Congrats again with a strong Q3 result and a strong order backlog. What segments are driving the order backlog? I understand that 42% of the backlog is driven by top 10 customers. Can you give further color or which segments these are in?
Yeah, I think we can say that it's consumer segments. It's new product from customers that is entering into a new product category that I haven't been basically supporting previously.
Yep. Another question from Dirk Bakker. This is on backlog orders. First of all, congrats again with a good result. Is the increased order backlog connected to production capacity?
I would say there's a lot of discussion in the market whether people are doing insurance, basically buying more product that I need at the moment. What we see is there's new products that's going to come into the market in the coming quarters. I would say part of it, but main part of it is new products.
From Dirk again, "Can the ambition of Nordic be staggered by production limits or sub-suppliers?
It can. It always can. I think we've taken all the measures that's possible to prevent this happening.
We have a question regarding Bluetooth from Henriette, Arctic. In Bluetooth multi-protocol, I assume that IoT will have an even stronger position after COVID. Could you give any color or quantify if you think some of the growth is driven to COVID-19, like home office equipment, et cetera?
Obviously, home office has been boosted throughout the year, so that will contribute, but it's not significant if you look at the backlog. It's driven by new products from Tier One customers.
We go over to cellular IoT, again from Henriette, Arctic. "Cellular IoT is getting traction within consumer application, you state. When do you expect the inflection point for this segment, or what to happen for this inflection point?
We expect to see the real pickup in the second half of 2021.
Following another question, "What can we expect here in revenue for 2021? Can you give any color on growth expectations?
We did give some colors, and I think we are not going to go away from the point that we are guiding quarter-on-quarter.
We have a question about Bluetooth from Axel, from ABG. Can you elaborate on the opportunity within gaming? It has been an important area for a long time, but do you see some positive changes in the market now that increases gaming demand? Reflect on this, please.
We see more customers contributing to our gaming revenue growth. We can't comment directly on the customers because we are NDA with the customers. Obviously, everyone knows who's leading in mouse and keyboard for gaming segment. Obviously, it's been a natural sell to Nordic to go from consumer keyboard mice to gaming keyboard mice. We put a lot of effort, and a lot of the features we build into our product is absolutely of value to gamers. Latency, for example, is the number one, and this is where Nordic is extremely strong. Thank you.
Of course, gaming has been popular, just like Netflix and TV. During the last half year, we see a very strong pull for gaming products. We see no reason that's going to stop any time soon.
Also we see more maturity of Artificial Intelligence, AI products.
Great.
Axel from ABG has a healthcare question. Do you expect healthcare sales to go up sequentially from the current levels?
Clear answer is yes.
We have a question from Axel, ABG. What is the approximate USD value of the 100,000 unit order on cellular IoT these days?
We don't disclose pricing. Obviously, it's significant. About $1 million.
Christoffer Bjørnsen from DNB, is the cellular IoT order of 100,000 units in the order backlog?
Yes.
Yes.
Another question from Christoffer. The year-on-year development in BLE design wins for the market has been on a negative trend following COVID-19. Is there a risk that the current revenue strength is saturating the markets, leading to a tough comparable for the next years?
Absolutely not, because if you go beyond the numbers and look at customers, we see, as we discussed in the presentation, a trend shift where the leading customers, which have the highest volume, are moving to Bluetooth Low Energy and multi-protocol products. We are going to see a significant growth in our top 10 customer base, which obviously is contributing to the growth of the company. I sincerely hope that the COVID will disappear, and we'll get back to normal, so some of these small and medium-sized companies that have been having a reduced activity now will go back to their original activity.
We have a question from Petter Kongslie, SpareBank 1 Markets. Can you give some color on the application on the 100,000 cellular IoT order?
No, we don't want to do that.
Petter Kongslie, SpareBank 1 Markets. Can you give some color on the expected CapEx intensity in 2021 versus 2020? Guess there are few higher investment in 2021 versus 2020 and also 2019.
The intensity in 2019, we did a large investment in lab equipment. That's now done, so now we're more into the test equipment for products. As we indicated on the Capital Markets Day, it will be around 5% of revenue, we believe is a fair number.
We have a question from Axel, ABG. What are the material near-term challenges for Nordic now? Is it lack of software engineers to secure delivery capacity?
It's always challenging to have enough engineers when you're growing so fast and also when you have the activity level that we have at Nordic. We are encouraging every software engineer listening to this, which has interest in BLE or LTE, to apply for a job at Nordic. It's not any limitation of the growth for Nordic short term, no.
Thank you. We have a question from Petter Kongslie, SpareBank 1, regarding EBITDA. How should we think about the normalized short-range EBITDA margins, which now lies around 25%?
I think we've shown the strength in our operational model. Short term, we're confident that they should be within these levels, because revenue will continue to grow, and we will add on people. Still, 25% should be achievable target for this business.
When we say medium term and goal of 20 is that we will continue to develop the company. We will, for sure, bring new connectivity standards on the market and being able to move early, invest early, and take a lead in these markets going forward.
Thank you. Petter continue with more question regarding EBITDA. Can you break down the long-term EBITDA margin of 20%, given 25% on short range? Do you expect cellular IoT to be 10%-15% EBITDA margin?
No, it should be closer to the 20% for the total. As we say, we stick to the 20% EBITDA margin as discussed before.
Good. We say thank you for all the questions on the web, and we are now going to do a virtual roadshow with a lot of your investors, and we look forward to talk to you one-on-one. Thank you.
Thank you.