Welcome to Nordic Semiconductor's Q3 presentation for 2017. Pleasure to see all of you here, and a warm welcome to everyone out there on webcast. Today, we do as usual, I will do a quick business update, Pål will dive deep into the numbers, and Thomas will go through the outlook for Nordic Semiconductor. It's going to be an exciting outlook, please hang on for Thomas' part of the presentation. If you add, sum the quarter, we did a revenue of $65.7 million. That's a 25.5% increase year-on-year, close to 12% quarter-on-quarter. Bluetooth revenue was up 26.7% quarter-on-quarter. Strong growth. It was up 46.8% year-over-year. Proprietary revenue were down to $16.8 million, Thomas will discuss this a bit later in his presentation.
Our gross margin were up 1.6 points year-on-year, 1.1 points quarter-on-quarter. Our adjusted EBIT ended at $5.9 million, which is a 52.3% up from last year, 24.3% quarter-on-quarter. We did a one-off $1 million write-off for one customer, unfortunately. What drives the growth? That was a question. Bluetooth. This quarter, we had, as I said, all-time high revenue. Bluetooth did a growth of 46.8%. It is the fastest-growing quarter we ever had in Bluetooth, consisted of a lot of customers. We are very proud that we managed to get the gross matching up again, 1.6 quarter-to-quarter, or 1.6 year-on-year is a good improvement, and our EBIT, 52.3%, is a good increase.
If you look at this number, Bluetooth revenue consists of 70% of the total Nordic revenue. Again, the largest share we ever had of Bluetooth revenue. Again, you see here that ASIC is contributing 5%, is still we have some projects that keeps running, that we are doing, that are related to RF. If there is an ASIC related to RF, we are still maintaining these customers. What we've done, of obvious reasons, going a year-and-a-half back, we try to diversify our customer base and grow it. If you look at active customers a year ago compared to this year, we have 13% growth in active customers. If you look one year back, the top 10 customer represented 36%. It's not much change, but it's at least a change to the right direction.
35% account to the top 10 customers this quarter. Every quarter, I show some new products that we have announced to the market. This is not all, part of all products that have been coming into the market. This is those that we done a press release on to the market. If you look here, out of five, there is three that are designed with a 52 part, but still we have two out of five that are released to the market today with the 51 family. It really shows that even though 51 family is designed and released to market a long time back, customers still are using the 55 for design that's are released today. Here we have what we call, Veta Smart Case.
It's basically a case where you can keep all your needles and things that you are delivering drugs with, and it knows where the box is, and has also other functions. We have something we call Shoreline IoT, which are controlling industrial lighting. Basically, what you're going to see, as we are moving more to LED lighting, there will be much more individual control of each lighting point. The Nordic solution with the mesh protocol that Nordic developed, is ideal for such a product. We believe that lighting will be a significant contribution to our revenue in years to come. We have a Japanese design we show here, called Shiga. It's a safe meter. It's basically, you put it on your dashboard in the car, and it gives you information if it thinks you're doing things that you shouldn't do.
CarePredict is a healthcare product. It's basically a product that if you get to a hospital, or you're getting older, getting into an old man's home, you will get this bracelet, and you can monitor if you do things that you don't usually do, and then start looking after you and find what's wrong. More and more of those products are getting released to the market. Bluetooth is a perfect solution for these products. We have a new smart lock, and we there, you will see, actually, I don't think any of you guys deliver newspapers in the mornings anymore. If you go into big blocks and look, you see quite a lot of flats are changing to these automatic locks with Bluetooth. As we speak, it happens. We want significant part of the leaders of producer for such locks.
How this, this develop our market? Consumer electronics, bulk of revenue, $26.1 million. It's a 31% up compared to last year. It's more than 10% up compared to last quarter. Variables is down 4.2% compared to last year, you see that we have been saying that there will be more customers coming with variables, and it reflects here. The $10.6 million is a 22.4% growth from last quarter. We are seeing that we are growing again in variables, which is nice. Building retail was a bit down, quarter-on-quarter, 6%, still very strong if you compare to last year, 108%. That represent $15.7 million.
Healthcare, NOK 4.6, a relatively small number, but we have a lot of strong design win in this sector, and it was a good growth, quarter-on-quarter, 85.7%, compared to last year, 32.5%, growing. Others, NOK 5.5 million. It's a significant number, and, it was a 5% growth, quarter-on-quarter. If you look compared to last year, it's a 56% growth on all other applications that we can't classify. This is maybe the nicest foil, so I would like you to pay attention to this foil that we have in the presentation. What this really shows is that from being totally driven by consumer customers, the blue one, we've been talking a lot about the emergence of IoT into non-consumer applications over the past years.
If you see that orange line, is basically tracking what we've been discussing. We are now getting great contribution from our non-consumer business side. What is characteristics with non-consumer business? It's usually much longer-lasting business, it's more stable business, and it's really a business segment Nordic want to grow years to come. We spend tremendous efforts into non-consumer, and we feel we're getting payback. We are not able to open any, I would say, newspaper or magazine today without reading about IoT, and we've been there from day one, and we are now starting to ride this mega trend. There is no doubt that Bluetooth Low Energy is the driving technology for short-range, low power. That's just accepted by everything, everybody. There is no doubt that Nordic is leading the Bluetooth Low Energy market, which Thomas will show later on a foil in his presentation.
I've been talking about design win for a long time, and the good share we have had of these design wins. We start seeing them appearing in revenue. Here, you start seeing it appearing in non-consumer. We are not a one-segment company anymore. We are a company that covers large segments in many different industries. We're getting growth in the number of customers, which is important to maintain our lead. All over, it's been a great quarter for us, both revenue-wise and order intake been good, design win has been good, and requirement to Nordic, we are treating more and more customers that are demanding, they're demanding for one case, because they are dependent of a technology to have success in their market, and we follow up by adding support to these customers.
Now, I would like to hand over to Pål, and he does the number in depth. Thank you.
Thank you, Svenn-Tore. I'll go to the financials for Q3 2017. You might recall this model from last quarter. We've sort of changed the way we want to present how our operational performance measures are done, so we're showing them in percentage of revenue. Revenue went up, as Svenn-Tore said, 25.6% last quarter, which was really driven by the Bluetooth growth of close to 47%. It's important to remember that the quarter is seasonally strong, so the OpEx KPIs will, of course, be better, but I'll also show a more trailing number on the next slide, so you can compare. However, in relation to seasonal, Svenn-Tore just talked about, we're moving to non-consumer-related markets, so you will see a less seasonal effect going forward.
Down to gross margins at the 47.8, which is a, is a good 1.6 percentage point increase from last year. This is driven by mainly the yield issues we had a year ago on the nRF52. I come to, to cost, so total OpEx was 33.5%, compared to 32.9% last year. It shows that our OpEx is, is really following the, the growth of the company. OpEx is important to, to get the, the revenue we, we are looking for, and, and with a 46.8% revenue growth, this, this is on, on Bluetooth, our cost base is, is where it should be. I've split the, the cost in R&D short-range, R&D cellular, and R&D, oh, and SG&A.
R&D short-range is more or less the same ratio as last year, at 14%. Of course, you read all about all the new products, all the new development kits we're having. We're doing a lot of things to make sure that we're the market leader in Bluetooth Smart. This you see in R&D short-range figures. We then go to R&D for Cellular IoT. The number there is NOK 5 million, which is sort of the guided number we have on cellular. Cellular will be coming into the sort of the last phases now. As Thomas will come to later, we are soon going to sample the first products on cellular. SG&A more or less growing with revenue.
We are building a team to capture the revenue opportunities we have going forward. The adjusted EBITDA, adjusted because we have adjusted for the write-off of the receivable, as Svenn-Tore talked about, at 14.3%. The increase there comes, of course, as a result of higher revenues, significantly improved gross margins, offset by higher cost. As I mentioned, it's important to look at the trailing SG&A. These numbers are the mainly the reported numbers. Later, I will talk about the cash OpEx, which are slightly different. Semiconductor is really one of the markets with the highest R&D spending in most industries. We've seen that industry averages are around 18%-20% compared to revenue.
Nordic is at 22.8, we are sort of trailing on, on the high end, but that is, of course, because of the high IoT cellular investments we're currently undertaking. This ratio should decrease when cellular revenue commences in 2019. The same on SG&A. Industry averages are at around 12%-15%, Nordic is at 12.9%. Normally, a smaller company like Nordic should be sort of on, on the high end. However, the distribution model sort of drives reduced cost because we sell most of our goods to the distributors. This will, of course, or can change given the model we will have when we start selling cellular. Gross margins. Gross margin at 47.8%, 1.6 percent points up compared to last year.
This inc- improvement comes of course, mainly due to the nRF52 issues we had last year. However, we also are working on cost improvements every day, both on sort of what we pay for the raw materials and the yield and also test times in our production. Compared to last quarter, we do have a good increase. However, you can recall from the Q2 presentation that we had sort of a write-off of inventory, so the underlying improvement from last quarter is 0.3 percentage points. This is sort of a mix of improved yields, also less proprietary sales, but it's offset by high ASIC sales at lower margins in this quarter. We are maintaining our 50% target. As I mentioned, we are continuously improving on our cost basis.
This will go up and down based on the product mix and the customer mix from quarter to quarter. We are also introducing several new products in the early part of 2018. Margins will trail, but we still have our maintaining our 50% guidance. I'll now turn to cash operating expenses. The previous slides has been sort of the reported cash OpEx, cash OpEx. We do adjust for capitalization and equity-based compensation. These numbers are relatively stable from quarter to quarter, at around between NOK 1.5 million and NOK 2 million on the capitalization. Overall, OpEx went from NOK 18 million- NOK 23 million last year, which is an increase of 27%.
However, if we do compare this to revenue, it's up 1 percentage point. Unfortunately, this quarter, we've had a very negative effect of the weakening of the U.S. dollar compared to both the NOK and the euro. This has cost us approximately $1 million in the quarter. Adjusted for that, the increase in OpEx is at around 22%. The increase in OpEx comes mainly as a result of more employees. We've increased from 521 employees last year to 588 at the end of Q3. We've also done some adjustments to salaries, in order to retain and attract key talent in the highly competitive technology space we're operating in. I've also included the year-to-date numbers.
You can see we are sort of trailing on the 39%-38% of compared to revenue on the cash OpEx. I've included this slide mainly for sort of information, as you all will see, that both OpEx related to salaries and other OpEx has gone up compared to last quarter. On the left-hand side here, I have salaries. I'm bridging the increase in salaries from NOK 13 million in Q2 to NOK 15.5 million in Q3 this year. As you can see, FX is the main driver, with NOK 800,000, and salary increase of NOK 900,000. Then we have the normal adjustment, because in Q2, salaries are always low due to vacation payment in Norway.
On the other side, we have other OpEx, more or less the same number if you adjust for the write-off of one receivable we had in Asia. This is one of the few small distributors we have in Asia, where we've been forced to take a write-down. Other OpEx will mainly vary with the development phases of the projects. We've talked about tapeouts, et cetera, so this will change. However, Q4 will broadly be in line with Q3, adjusted for the write-off, which we did not expect, of course. Profitability. I've shown here the EBITDA, which has gone from NOK 6.9 million- NOK 9.4 million underlying.
This is a good increase of 36.2%, of course, driven by higher revenue and better margins, offset by the cost. However, we still feel it's important to show the underlying EBITDA, excluding the Finland operations or the cellular operations, since we do not have revenue from that market. That has increased by 32.1%, which is a good number. Finally, I'm going to talk about cash flow. Normally, Q3 has a negative cash flow, mainly because there's a strong increase in revenue towards the end of the quarter.
However, this, this quarter, we've been able to, to sort of, show a positive cash flow, mainly because we have control over AR, inventory has gone down, and we've also been able to keep CapEx at a low level in this, this quarter. Overall, we had a net cash flow of NOK 2.8 million. Net working capital has only increased by NOK 1.5 million, meaning from. However, the, the, the KPI on, on, net working capital compared to revenue has gone from 31%-34% to 32.7%. We are, keeping a tight cash management and an optimized cash-generating policy. We are keeping our AR at, at a sound level, not increasing payment terms. We are working on reducing inventory.
Inventory will go down, or at least go down in comparison to revenue when we get better predictability on the revenue and the planning of the manufacturing. Overall, we have a financial headroom at the end of the quarter of NOK 56.1 million, including undrawn facilities of NOK 30 million. Now I'd like to hand over to Thomas.
Thank you, Pål. I'm gonna start off with a couple of comments on the third quarter. I'm pretty pleased to say that the Bluetooth revenue and the Bluetooth growth was actually ahead of the anticipated range that we had for Q3 when we were building the guidance. Proprietary was within the range we anticipated for Q3, however, on the lower end of that range. What we see going on in proprietary is essentially two things. It's change in product mix, the type of components we are selling into our proprietary customers, and we see transition to Bluetooth Low Energy and Bluetooth Low Energy capable component. Keep in mind that some of our Bluetooth chips are being used in proprietary applications, but it's impossible for us to trace, whatever our Bluetooth-capable components are reported as Bluetooth revenue.
It is likely that some of the, the, the premium growth for Bluetooth comes from that transition between proprietary and Bluetooth. Backlog going out of the quarter was at $65.4 million. That, that's up 191% year-on-year, and up 0.2% quarter-on-quarter, which is pretty strong, going from Q3, which is typically the best quarter, to Q4. It is dominated by Bluetooth, suggesting continued Bluetooth growth. We also see a very positive trend, that the length of the backlog, when we look at the horizon of the backlog, how long it stretches, it is extending and growing both year-on-year and quarter-on-quarter. Our backlog is, is getting longer and longer, and at the same time, it's growing.
When we look, look into Q4 short-term outlook here, we see proprietary revenue stabilizing, so that we believe that for the full year, we're gonna be single-digit % down, which is in line with what we've said on the proprietary market since early this year. We see continued and strong growth in Bluetooth. We do believe it's gonna be lower year-on-year versus what we've seen now in Q3, so year-on-year, Q4, slightly lower than what we've seen this quarter. Gross margin will fluctuate, and even though the cost cost is really improving, we anticipate to see some sort of flux on the margins due to fluctuations in customer and product mix.
Based on where we are now at Q3 and the outlook for Q4, we are maintaining our revenue guidance of at $120 million-$130 million. We do make an adjustment to Bluetooth growth, so we are upping our Bluetooth growth guidance by 5 percentage points, so from 30%-40% to 35%-45%, basically signaling that a larger portion of this revenue is going to be Bluetooth. Gross margins, we are maintaining our guidance of 46%-48%, mainly to take into account and have some range and, and, and, and working room on fluctuations in customer and product mix. Last quarter, we talked about the introduction of the nRF52810, which is essentially a baseline system-on-chip.
It's a simpler system-on-chip solution in the nRF52 Series family that is designed to be used in simpler applications. I said about a quarter ago that we had strong design win momentum with this part. Today, I wanna give you just a little bit of flavor on the type of applications that this chip is being designed into. We are getting design wins into mobile PC HID-type applications, which is as expected. That is one of the key things for this simpler part. We're also getting additional momentum in wearables and actually on smart clothing, the nRF52810 is being designed into some new, pretty exciting smart clothing applications. We have a medical device design win with the nRF52810.
We're seeing continued momentum in building retail with enterprise and office automation applications with the nRF52810, and also beacons for smart tracking and building and retail, also adopting this new component. Thanks to DNB, we can also show some design certification statistics. If you look at end product certification, that means product that was certified with the Bluetooth SIG and/or the FCC in Q3, the total number of certifications, total number of products using Nordic chips was 146. That's 15% up year-over-year and 52% up quarter-over-quarter. We have record share when we look at us versus competitors, so we are at 48% share of all the end product certifications.
If you do the number backwards, you'll actually see that cumulatively, we are continuing to grow our position, so we are getting more and more of the cumulative design wins. We are beating the market in terms of year-on-year growth on design certifications and quarter-on-quarter certifications. About a year ago, I was standing here, and I, I said that we anticipate to have strong Bluetooth momentum, that we had a very, very strong product lineup in nRF52, and I think that this really proves that that is going on, and then we, we continue to have strong design win momentum, and that should drive the revenue down the road. We remain very excited about the medium-term market opportunity in low-power IoT. Bluetooth Low Energy market seems to be doing very, very well.
We believe that this market, over the next three years, is gonna grow somewhere between 30%-45% CAGR. That means we're gonna hit 1 billion units, total market shipments, in 2020. Bluetooth Low Energy is really driving short-range, low-power IoT, no question about it. It is, it is probably with this forecast, in 2018, it's gonna be the biggest short-range, low-power technology of them all, surpassing wireless and sub- or proprietary and sub-1 GHz. Low-power Cellular IoT, the market continues to develop in a favorably way. We're seeing sort of some of the first applications and use cases being demonstrated using this technology. We believe this market is gonna hit around 100 million unit shipments in 2020, and that's more than 100% CAGR.
We are getting into the market now, this year, with our components. Proprietary, especially around mouse, keyboard, and some other applications, we believe is gonna continue to be relatively robust. However, year-on-year going down somewhere between 0% to -10%. It is depending a little bit on how fast we see transition to Bluetooth Low Energy. All of these three markets really have a sound and good diversification across consumer, industrial, enterprise, automotive, healthcare, smart city, agriculture, and utilities. It's good, diversified, high-growth market opportunities, and we believe we are very, very favorably positioned in these markets. We are remaining on track with Cellular IoT.
We continue to see that some of our competitors is showing their cards, and we feel confident that what we have and what we are intending to sample is gonna really be differentiated when it comes to size, through our very high level of integration, when it comes to power consumption, and when it comes to ease of use of the overall solution. We remain on track to sample those lead customers, basically in Q4. It's gonna be, as I said, last quarter, limited set of lead customer. We are executing on a U.S. LTM first strategy, and we continue to see strong interest and positive feedback on the solution we have. Certification testing, working with carriers and infrastructure vendors are progressing, and we are doing that in parallel to preparing for the customer sampling.
Looking at this, our goals moving forward, first and foremost, growth and expansion in low-power, short-range IoT. As I said, Bluetooth Low Energy is really the driving technology behind low-power, short-range IoT, and our objective is to build on that leading position and grow with Bluetooth Low Energy. We are also doing, and I'll give a little bit more flavor on that, some selected and strategic expansion in this category, where we are looking to add value to customers, but at, and at the same time, expanding our addressable market. Our objective is to start to build a leading position in low-power Cellular IoT, basically leverage the strategic investment we started back in 2015, leverage those synergies with the short-range market on the technology side, but also on the market side.
We see sort of a good, good overlap in, in customer base here, and these technologies are complementing each other at those customer opportunities, and essentially establishing a second growth vehicle that comes in addition to our short-range, low-power products. We will continue to do value-add integration and build more valuable solutions, especially on the system-on-chip side, software tools, and this is happening both on the short-range side and on the Cellular IoT side. The objective is to increase our value offering per design socket. This is also extremely important when it comes to competitive differentiation. We need multiple parameters to compete on in, in competitive space like this. Just an example of expansion in, in short-range IoT. This quarter, we announced that we had Thread certified the 52840.
Thread is a complementary protocol to Bluetooth Low Energy developed by Nest, it's based on IPv6, and it's delivering advanced mesh solutions for targeting smart home type of devices. We're actually the first company to certify a true multi-protocol solution with concurrent Bluetooth and Thread. We are first to market with this concurrent certification, and we are then ahead of those established 802.15.4 and Thread companies. As I said, the nRF52840, in addition to in order to support Thread, it has support for something called 802.15.4 support. There are other wireless technologies, for example, Zigbee, that is also based on this RF transport.
Essentially, what we're doing is that we are expanding our addressable market, so adding now Thread and potentially other 15.4-based technologies along the way, focusing on advanced mesh for smart home and industrial enterprise type of networks. If you do the numbers looking into 2020, around those other protocols, we believe that the volume opportunity is around 250 million units. That means close to 25% of the Bluetooth Low Energy opportunity. We believe multi-protocol is really gives us a competitive edge and a value add. Multi-protocol is valuable for legacy support, so someone that already have installations of other protocols, but also for people that want to build heterogeneous ecosystems. That means they want to take advantage of multiple different protocols in the same network.
The opportunity for us, by having this technology, is to sell higher-end system-on-chips that has more memory, more capabilities to support all of these protocols, and obviously have advanced software that gives us a competitive edge over other companies. Just to summarize Q3, Bluetooth and ASIC revenue ahead of our anticipated range for Q3. Proprietary, in the range, but on the lower end, due to change in product mix and shift to Bluetooth. We are remaining on track with our product roadmap, both on the short-range wireless side, so the 52 Series line extensions and Cellular IoT. On the outlook, we are maintaining our guidance on revenue, maintaining our guidance on gross margin. However, we are adjusting up the second half 2017 guidance on Bluetooth growth with 5 percentage points.
We see strong momentum entering Bluetooth in 2018, both on the customer side, design certification, we also see backlog is very, very Bluetooth-dominated. Overall, I think we have a fantastic momentum in the Bluetooth market. We will continue to invest for leadership positions in low-power, short-range IoT and Cellular IoT moving forward. Couple of upcoming events. We will do an investor brief on Cellular IoT, time and venue of this will be announced shortly after we do the lead customer sampling. In that investor brief, we will provide some additional information on the solution that we then have sample to our lead customers. Guidance for first half of 2018 will be provided at February 15th, basically at the Q4 presentation. That was it for me. Thank you.
We're just waiting for Mark here.
I first, I first.
In terms of the backlog, can you give us some indication in terms of how much of that 65 is for Q4?
Yes, obviously, we can. We're not sure if we want to, but as Thomas said, it's we see that as we are entering the non-consumer segment, we get more predictable revenue. Some is over in 2018, but as you say, we are upping the guidance for Bluetooth in Q4, so there is a significant part of it for Q4.
Thanks. On the OpEx quarter-over-quarter bridge that you showed, the NOK 0.4 million was based on the employees, which, it's our understanding was about 22 people?
Yeah.
Is that representative for the run rate expense of those 22 people, or should we see OpEx increase also in the quarters ahead, especially Q4 then?
That, that run rate, I think in Q4 is correct. In certain periods, salary per employee is lower, and in this quarter, it's higher. The 22 people is a lot in sales, product development, et cetera. In the other quarters, we will strengthen our operations at other costs. That's correct.
Thomas, you mentioned that proprietary not as strong as expected due to product mix. Could you elaborate on, on what you mean by that? Is that's just a shift towards Bluetooth or, or particularly within the chips that goes to these proprietary customers?
We actually have multiple different proprietary chips. If you look at, at our proprietary lineup, there are sort of higher-end proprietary chips with, with, with flash and, and, and a lot of RAM, right? There are some lower-end proprietary chips with OTP memory. What I'm suggesting here is that there is some shift towards the, the, the lower ASP proprietary parts.
Okay. Thanks. We've seen some competitors come out with IoT chips now, specifically that do both Cat M1, NB-IoT, and Sigfox. Is that something that we should worry about in terms of your positioning? Also, that we see the US operators starting to roll out networks, specifically then based for the most part, Cat M1, with one exception. You've previously mentioned that you would introduce NB-IoT first. Should we then expect that you're actually rolling out in Europe rather than in the U.S. as as call it, towards your first lead customers, or you're now going Cat M1 and NB-IoT at the same time?
I believe what we've said is that we do LTM first, not NB-IoT first, and that it's gonna be U.S. first. That's our main strategy, and then trailing with NB-IoT. When it comes to Sigfox, you know, I've said multiple times that we are not doing anything on Sigfox. Depending on your perspective, how important Sigfox is going to be, you know, you can take that positively or negatively.
Thank you.
Sorry. Christoffer from DNB. Thanks for sharing some color on the potential for Thread in 2020, could you also share some color on potential in closer years, so 2018, for example?
Let me clarify. That 250 million unit was not on Thread. That was on total 15.4-based protocols, which basically includes Thread, Zigbee. There is quite some industrial enterprise-focused protocols that are based on 15.4. It's a good spread over those. What I've taken out of that number is the market forecast for RF for CE. That's the consumer type of opportunities. I was looking at the smart home and industrial type opportunity. When it comes to I, I don't think I can I mean, Nest, Nest, Thread is mainly driven by, by Nest, and, and, and, you know, their success. Zigbee is gaining momentum. You know, IKEA has adopted Zigbee, so, so, so that's, that's gonna be an important technology.
As I said, I think I said it last quarter, we do do believe that looking into 2020, smart home volumes equally spread on, on, on Bluetooth and, and, and, or 30% Bluetooth, 30% Zigbee, and then 30% rest, including Wi-Fi. It's really the smart home opportunity that's driving the Thread investments short term.
Hi, Axel from ABG. I have a couple of questions on the costs, but first on the gross margin. You maintain your range, 46%-48% for Q4, and you delivered 47.8% this quarter. My understanding is that there is an underlying positive trend in the gross margin. You have resolved your yield issues, and it seems a little bit strange that the range isn't hiked now for Q4. I can understand what you say about fluctuations, but would you say that if there are no sort of material hiccups or unforeseen events, that we should expect a stable to increasing margin for the next quarter?
Yeah. let, yeah, let me, let me comment on it.
You do it first.
Okay.
I think you summed up a lot, but you didn't sum up fluctuation and mix of products.
Yeah.
That's the last parameter, mix of products. Thomas?
Back to one principle with guidance. We don't want to be in a situation where we guide on half-year basis and then on quarterly basis. Unless there is something very, very, very specific with regards to the result from one quarter, we are not gonna change the guidance. As long as sort of the, the outlook is within the guidance, we're gonna maintain the guidance. Now, the Bluetooth side was a little bit sort of extraordinary because of the very, very strong momentum we had on Q3. When we did the numbers, sort of looked at it your way and said: Okay, how can this add up? Clearly that we had to adjust the, the, the Bluetooth thing.
We are then suggesting that within this range, and as you say, you know, looking at that and the trend suggests that we are, you know, we have good confidence in the upper end of the guidance on gross margin.
Okay, thank you. Just a follow-up question on that. In terms of the product mix, do you have any visibility on that now for Q4? Is it tilted, so it has a negative effect or a positive effect for Q4?
I think we summed up your answer in the first part of your question.
Yeah, okay. On to the next one. On the salary increases, it had a quite substantial effect in, in, in Q4. Previously, we have seen sort of the average wage per worker go down because you hire in, a lot in low-cost countries. Now we see an opposite trend. Can you just, just elaborate on the wage inflation level that, that we see in, in this quarter, and how much has wages gone up, and, should we expect the average wage per worker to, to further increase going forward?
I think we, as a company now, are entering into a new customer base, which mainly need local support, the building next door. We can't put these guys in India, because that's not where our new customer base arise. We need to have highly qualified, skilled people, and we need to compete about this with existing semiconductor company, because we are building our support on experienced people. You will see that we are strengthening the organization to achieve this dominant position we are awarded, which means that we won't be low-cost wages.
Okay. One final question on Finland. You had an OpEx related to Cellular IoT in Finland of NOK 5 million this quarter. Do you expect that to, to further increase, say, the next two quarter as you enter sort of a ramp-up phase now? Or is NOK 5 million sort of representative for where you expect to be, the next two quarter as well?
I can answer that one, too. I think that the important thing for Nordic is to employ people where you have skills. There might be more available skills in Finland. We might even put people that's not going to do cellular in Finland. You might see that the Finnish operation will cost more, but it's not because it's going to be only on LTE.
It will be reported. It will be reported as, as cellular still. The cellular should stay around ±5 million. Little bit depending on when we do the tapeouts, et cetera.
Okay, thank you.
Andreas Martelson Kepler Cheuvreux. Just one question from me. What will be the key driver behind the increase of gross margin from 46%- 48% to, to the 50% target of 2018?
Continued effort on cost, then diversification of our revenue. Introduction of- it's diversification across higher end chips, and diversification continued growth in the rest. Not the top 10, but, but the rest of our Bluetooth revenue. What we're seeing, like Svenn-Tore said, is that the rest category is growing faster than top 10, year-over-year and quarter-on-quarter.
Okay, is it, is it the cost or is it the-
Both.
It's a mix.
It's a both.
Is it a 50/50 mix of those two components?
I can't comment on that.
That will vary from quarter to quarter also.
Thanks.
Okay.
Well, the, the important thing is basically that you see that over, split with large and smaller customer are trending towards smaller customers. We have never got as many new customers any quarter on Bluetooth as we did this quarter. That's an indication. Then if the large customer get larger than we predict, then that will be in the negative. We see that have some strong customer growth.
Erik Rustad in Berenberg. Could you comment on the progression of the binary out- outcomes that you discussed in the second quarter?
I didn't discuss any binary opportunities. I just said that they were outside of the guidance.
Yeah, has there been a progression in those?
This, if you look at the Bluetooth upside, it is not related to any sort of binary opportunities as such. Again, I was signaling that there is no wireless charging or wireless audio revenue in that guidance range.
Thank you. Recently, we saw that OSRAM's industrial lighting was, was certified with Nordic inside. If we look at these kind of use cases going forward, not OSRAM specifically, but, but obviously these kind of use cases, what kind of volumes could you anticipate that this, this would drive over the next few quarters or year?
I can say, so enterprise lighting is something that we sort of featured on both design wins and new products, multiple times. All I can say at this point is that when we look into 2022, that means five years ahead, and we break down sort of the top verticals that sort of contribute to that volume, none of them is significantly larger than 10%. However, enterprise lighting is, is one of the big ones.
Thanks.
Okay, I think we're done. Thank you for all the good questions and your time.
Thanks.