Good morning, welcome to Nordic Semiconductor's First Quarter Result for 2016. We had a revenue of $40.1 million in the quarter. Bluetooth Smart revenue were at $18.2 of those $40 million. We shipped more than 1 million units of the new nRF52 family part. This is a part we released in June last year, and already this first quarter, we shipped 1 million units. I usually tell you that it's 12-18 months of design cycle from customer get a product in hand to the product. Here is half a year. That means that some customer already been using this product in parallel with us testing it out. We have talked about three Tier 1 customers that we have got the last half year, and we had pilot production of all these three customers in Q1.
We had strong growth in these emerging markets and unfortunate expected decline in wearables. One of our customers are not as large as Nordic as it used to be. The important thing is we have an accelerating number of design with the really larger customers worldwide. I would like to hand it over to Pål , and he do the numbers, and I will come back to underline the activity we have had through the quarter after Pål's presentation.
Thank you, Svenn-Tore. As I said, I will go through the main highlights of the numbers. Most of the numbers are detailed, explained in the quarterly report. I'll just give you the headlines and some key takeaways from today's presentation. So revenue is unchanged from Q1, at around $40 million. Bluetooth Smart revenues is slightly up to $18.2 million. Our gross profit, who is around 50%, of which is our target, I'll give you the more details about that later. Unfortunately, for the first time, we have a negative EBIT for some time and t hat's due to we haven't been able to achieve the operational leverage as is our target. We will see future revenue growth helping this.
When it comes to cash flow, the third consecutive month with positive cash flow, I think that's great because we've been able to keep or slightly decrease the inventory and also have better control of our accounts receivable. We're able to add the cash balance during the quarter. When it comes to revenue, as Svenn-Tore described, Bluetooth Smart sales are unchanged from Q1 at and down from Q4 by 37%. The reduction from Q4 is, of course, the seasonal reduction that you see every first quarter of the year. Related to last year, the decrease is mainly this related to one design win that we've haven't sort of supplied as much as we did last year, and it is being reduced.
I'll come more into details about the wearable markets later, but this is really contained to the wearable market. Despite the loss of one large design within wearables, we're able to see an increasingly last 12 months revenue. If you look at last year, the increase was, as you know, overall 76%. We're not able to see the same growth from the last 12 months now in Q1, but despite this reduced reduction from one large customer, we still have growth in the quarter. Part of this growth we're going to see in the next quarters to come, will come from the nRF52, as Svenn-Tore mentioned, we've shipped close to 1 million nRF52 during the quarter.
Most of the sale is related to one large customer. We will expect to see the products out in the market during Q2, so you'll hopefully see tear downs with the nRF52 in Q2. In addition, we've sold several or a lot, actually, to different designs. There is a great demand for the nRF52. I think this really shows that our strategy to focus on a more advanced System on a Chip really is going to bear fruit in the future. If you look at, quarter, the backlog ended at NOK 20 million. This is down from NOK 33 million the same time last year. The special thing is that we're actually able to show constant growth of the business, but at the same time, our order backlog is going down.
This really shows that management and the company is putting less emphasis on the backlog. The reason we put less emphasis on the backlog is twofold. First of all, we see a shift in the customer behavior. Some of the mid-size customers put in smaller orders. It's more a pull-in order. They order the things when they actually need it. Secondly, some of the distributors won't put in orders when there's sort of a new product in the market, which they are not completely sure about the outcome of it. Secondly, and even more important, is that in the semicon market, you see with the larger customers, they don't operate with orders. What they do is that they put in the forecasts for the entire year, and then they will do weekly, monthly pull-ups from the customer, or from us, or the distributors.
You will not see the same level as orders as you did before. We will have to inform when we get a big frame agreement or a big design win, but that's completely else than an order for the distributor or the OEM producer. I think it's important to not focus so much on orders going forward, because orders is not something that Nordic focuses on. We focus on winning the big designs. That's our target, and being able to support the big customers, the Tier 1 customers, with our products timely and accurately. That's Nordic's focus. Then, back to a little bit more on the different markets.
If we go to the established markets, which is, of course, the biggest, two markets for Nordic, you have the consumer electronics, has, as expected, a seasonal decline from last quarter. You will always see a 5%-10% decline in consumer electronics due to the Christmas holiday, et cetera. Bluetooth is getting more and more important within consumer electronics. Every quarter, this ratio is increasing, and in this quarter, it's around 25% of the NOK 20 million is actually Bluetooth Smart. At the same time, we're also seeing that the PC peripheral market is increasing the usage of Bluetooth Smart. From a very small level last year, it's now up to around 15%-20% of the PC peripheral is based on Bluetooth Smart, and this will, of course, grow.
If we go to wearables, wearables is significantly down, as we talked about before, 52% down from last year. Last year, in Q1, was very strong due to this one design win that pulled a lot of products. We don't have that product now, so we delivered $7.3 million. We're not so concerned about the wearable market. Wearable market will be. You all know that wearable market will be one of the key drivers for Bluetooth Smart. We're seeing a very broad design activity with nRF52. We think the nRF52 is designed for wearables, and we will compensate for the loss of this design. Not sure if it's going to be in Q2, Q3, Q4, Q next, Q1 next year, we do expect to gain momentum within wearables, and that's we're working on that every day.
If we look at the emerging markets, we have the two important, which both saw good growth, and as I mentioned in the capital market today, these two markets are very important because they really don't have the seasonal adjustment as the growth markets, sorry. Building retail is up 78% from last year. Compared to last quarter, they're up 40%. One of the reasons we actually are up as much as 40% compared to last quarter is, last quarter, you all know, we have one large RFID customer, which we've had for the last 2, 3 years. They didn't take anything in Q4.
Now they're back to around $1 million. It helps on the RFID market. One area that's going to be very important for Nordic is the payment solutions to the credit cards. You probably all saw the release we had late last week about the super thin CSP package, which is a perfect fit for the payment solutions market. Healthcare is up 200% from Q1 last year, stable compared to last quarter. This market has been dominated really by two main customers on the hearing aid and glucose metering, but we're now seeing design wins in multiple products. It's also heart rate monitors, oxygen metering, et cetera. Healthcare is and will be a growth market for Nordic.
If you look at other markets, first of all, you have the other, which this market is dominated by modules, around $1 million in module revenue this quarter. Svenn-Tore will talk more in detail about later, we have about 70 module customers, and several of these module customers can take large volumes from Nordic. A market to follow. ASIC, finally, pretty high at 2.5. This market will go up and down, depending on when the large projects hit in. Gross margins at 49% in Q1, slightly down from last quarter. The reason that we're down compared to last year, which was high at 53%, is that in the last first quarter of last year, we had a few very strong proprietary projects that were sort of non-recurring.
This quarter, as you all see in the numbers, we have a higher mix of proprietary, in normally, the proprietary business has a slightly lower margin than the Bluetooth Smart. In the short term, we will have an impact of low yields on nRF52, because when we start up the production of the nRF52 , you have lower yields. It takes normally between half year and a year to get the manufacturing of a chip up to full speed and maximum yield. When volumes in Q2, second half are higher, this can impact the margins. Finally, headcount, or not finally, we headcount. We are growing the business, albeit not at the same rate as we did last year. We added about 20 people this quarter.
We see that customers expect more and more complex solutions. Even though the team works on the hardware, there's a lot of work working on the software, the software development kits. And I think it's pretty obvious that Nordic's R&D team are delivering here. Just look at the google Eddystone, we're the only company providing or sort of releasing this, the software development for Google. Also, the Apple HomeKit, et cetera, which is very limited with semiconductor companies. In addition, we have to grow our sales and marketing, although we have a very decentralized sales model, where the distributors does a lot of our selling. We see that some of the major customers are demanding more attention.
We are adding mostly field applications engineers that are out there with the customers all the time. Briefly on expenses, Finland came in at NOK 3.5 million compared to NOK 4 million last quarter. The decrease from last quarter is that in Q4, we paid for a large tapeout. These tapeouts normally cost around half a million, the costs in Finland will go up and down, depending on when the tapeouts actually occur. Costs will probably hover around NOK 4 million-4.5 million in the quarters to come. Capitalized R&D is decreasing slowly as the nRF52 is into mass production, there's less development work on it.
Adjusted for these or for the capitalized R&D and options, expenses ended at $18.5 million, slightly down from Q4 last year. It shows that our cost has stabilized compared to last 12 months revenue. They went from 39% to 38%. Still too high, so we need to achieve more operational leverage, but that will come when revenue goes up. Of course, FX is negative. If the FX rate continues at about 8.2, which we have today, costs will go up by approximately half a million dollars per quarter. If it goes from 8.8, which was in Q4 last year, to 8.2 now. That's important to keep track of.
Operating profit ended at 0... m inus 0.3, down from NOK 4.4 million last quarter. Adjusted for Finland, it ended at NOK 3.2 million, including or excluding the NOK 3.5 million costs in Finland. Of course, down from NOK 6.6 million a year ago, which is a 52% reduction. This is partly driven by lower gross margins in Q1 this year. Of course, also, we've added people and added projects in the rest of the organization, not just Finland. Finally, I talked about the cash flow situation. We ended last year with NOK 29 million. At this, end of this quarter, we have NOK 39 million. The main reason for this increase is the accounts receivable. We had a DSO of 83 days at the end of last year.
We've been able to draw that down to 69 days, our target is to get paid everything within the quarter, we are sort of on track to get that. At the same time, net working capital is down from 35% to 38%. It's important to keep track of or to really focus on the cash conversion ratio when we are increasing our revenue. Low CapEx of just $1 million during Q1. We expect that to be around $2 million a quarter at least. It's on the low side. Okay, that's all I have. I'm going to hand over to Svenn-Tore again, he can talk more about the business outlook. Thank you.
As Pål have shown, it was not a fantastic financial quarter we've been through. If you look at the quarter from an industry perspective, it's been a fantastic quarter. It's been one of the best we ever had when it come related to customers fit. We also see what independent analysts talk about the market, and they are predicting a strong Bluetooth Smart growth the years in front of us. I would like to discuss why this should impact Nordic. I think the most important impact we get from the ecosystem that's going to drive the growth here. Currently, there have been very little ecosystem around to support all Bluetooth Smart. If you look at the companies that are putting focus into building ecosystems today, you know Samsung, you all heard about Google, AirFuel Alliance, the wireless chargers, you have Apple.
All these companies are driving the future of electronics, and they are putting support for Bluetooth Smart into these drivers, into these ecosystems. This is the simple reason why we see new designs from leading companies, and also why we're going to see large revenue growth years to come. Let's go through some applications that have happened through this very good quarter we left behind us. This week, there was a press release from Google, talked about a beacon, a beacon that takes this system to the next level. They call it Eddystone. 50 minutes after Google released a Eddystone statement, Nordic released the overstatement of the support for SDK for Eddystone. This had been done with a close collaboration with the Google team.
This SDK, software design kit, is unique. Nordic is the only one that has such an SDK out there today that any beacon builder can use to create this infrastructure and support Eddystone . I don't know if you've seen that press release, but there was lot of beacon vendor listed on that list. If you look through, might be some Nordic customers out of those companies mentioned. The excellent thing with this new system to support beacon is that you don't need to have an app. It basically goes straight to physical web. You accept this beacon concept once on your smartphone, and if you go to parking company one, two, or three, you don't need 3 apps. You have just one acceptance on your Eddystone , and you can drive into any of these parking houses and pay your fee.
There's also another important addition to this system: it is secure, so nobody, none of these beacons can hack your phone or create problems for you. This is a secure transaction. It work for both Android and iOS. If you look at this week already, ABI Research were out just some day after I saw Eddystone, and I believe that Eddystone will become the dominant standard in BLE beacons. As you see here, they didn't put any numbers on the charts, but at least you see the charts are growing. There is pretty big numbers already in beacons. We are pleased to see that there is more independent research that support the strategy we have on putting effort on beacons.
This is only one segment that we will see growing in the years to come, and we have a stellar position in this market. Also, a couple of weeks ago, virtual reality. Some of you guys heard about all the buzz around virtual reality? Actually, there was a U.S. semiconductor company that won a contract with one of these virtual reality customers. The day it was announced, the stock price went up 10%. This segment is predicted to grow strong. There is, again, leading companies that have put interest into these products. You might have heard about a company called Facebook. They are putting lot of effort into virtual reality. HTC, I see here, another company, Taiwanese company, that also put lot of effort into virtual reality. Virtual reality can be used not only for gaming.
What your first impression is that you, this is a gaming tool, but it's also for education, training. We really believe that virtual reality is going to be large numbers. The same we also see from Statista. They believe this will grow throughout 2016. The important thing is, to make this a nice and real experience, you don't need one Bluetooth Smart in the glasses. Total package, from 4-5 units in 1 solution. We see good designs. We have got some designs that's already been released and on teardowns. We have other designs in the same segment. Sure, this is going to contribute to revenue the next quarters to come. Pål mentioned modules. We have more than 50 modules with the 51 series, and approaching 20 already with the 52 series.
A module is when a Fujitsu or a Laird or a Hosiden or any of these on this list, Taiyo Yuden, puts all the part in a complete system, which they can ship to a non-electronic customer that doesn't know electronics. He just take a complete module, put in, and it performs the Bluetooth part. We've seen press releases from some of these customers saying they have capacity to run more than 2 million modules a month. My inner belief is that none of these customer build production lines to support millions of devices without utilizing it later on. Remember, this is generating reach for Nordic, because these are local brand names that are selling in their own region, and they're selling without Nordic salespeople. They have their own salespeople going out there selling these modules.
This means scalability for Nordic, diversity, and also, when you have a ready-made module, you don't need to go through the design process. Time to market is shrinking for customers using ready-made modules from these partners of Nordic. Extremely important to keep in mind that we have a sales force that is not a Nordic sales force now, out pushing their product with Nordic inside. We said that we will like to continue to update a bit what's happening in Finland. I said last time it was good. I think it's even better at this time. It's very good achievement. We started in Q4, going out, looking for potential customers into different segments, because we don't know which segment will implement these products first.
We want to ensure that we at least find the leading companies in each segment, or the leading company we predict will be leading. It's exactly the same we did when we went out to the keyboard, mice, potential customers, who are most likely to get a 2.4 GHz wireless mouse out in a short time. We do exactly the same here, and why we choose the customer is based on what value will Nordic's new product bring these customers? I'm happy to say that today, we have three, what we will call, first customers that are starting to working with our products from Finland. They haven't got products yet, but they have input on the specification, and they have plans in the R&D to use Nordic parts from Finland. Why they do it? Because they have user cases where we bring huge value.
For us, it's a tremendous recognition that what we have been planning for and what we've been putting into specification has been right. We should expect that, and we did, because the team we have in Finland, I think, is one of the few teams that have a track record, have worked with 2G, 3G, 4G for decades. These guys know what they're doing. Secondly, we also saw that we bought IP that was already developed, so that we had standard IP that we could modify. This resulted in that last week, I sent the second tape- out of the Finnish product to our ship manufacturer. We are absolutely on track to deliver product to customers as we have continuously said. We are positioned for a great market opportunity.
The expectation from Machina is close to 4 billion units in 2024 of these products that we are developing. Low-power WAN will start to generate revenue from Nordic in 2018. Remember, we can't say any exact price today on a ship we are shipping out in 2018. We know what the cost is today, approximately $10. We know what potential competitors are marking and talking and expecting the prices to be, and that's why I'm a little bit conservative and said, we believe the ship will be around $4-$5 in resale. With these numbers and we quadruple our current price, it's a chance of getting quite a good revenue growth. If you looked a little bit ahead, we are going to get strong growth in the 52 series revenue in Q2.
Wafers are in process, they are in the factory, we are packing and getting ready to ship. We expect significant wireless charging volumes in the second half of this year. None of those are accounted in Q1 numbers. We will continue to win Tier 1 design. We have new RFQ out in the field. RFQ is request for quotations from large customers. Obviously, Bluetooth Smart will revert to be the main revenue driver. Being a bit dependent on your larger customer, and the customer basically reduces his revenue in one quarter, it's hard to catch up. We did the hard thing, we caught up. We have actually higher Bluetooth Smart revenue in Q1 this year without this customer. This is what we need to look at.
All the other tail end customers have built up and caught up the revenue that we didn't get from the main customer last year. As I said, the opportunity for getting revenue in Finland is maturing. Now we are talking to specific customers on specific projects at a very early phase. For me, it's been a tremendous good quarter, despite that we struggled a bit with the revenue, but we see forward, and the sign wins are going to generate revenue and growth in revenue, the quarters, the years to come. We are pretty confident where we're standing here. We also put on some selection of new products, and you can see it for yourself. You see, there is adding on new customers every month, and that's the exciting thing for Nordic. Cool. I open for questions. Yes, get the phone.
Mike?
Hi, Bjørnsen for Carnegie. I have a couple of questions. I get a sense that most of the growth will come in the second half. Will that entail orders mounting in Q2, and we'll see that hit revenues in Q3 and onwards? Is that sort of the message you're trying to get across?
I think you're going to see growth in Q2 also, and of course, second half. I think the important thing is not related to backlog. If you look at how the larger Tier 1 customers are handling, as Pål discussed, they're ordering. They are not ordering for next month. They're putting a forecast for 12 months rolling forecast, and then they basically take out what I need each week. If I want to put in forecast as order backlog, it will be looking completely different. We can't count forecast as order backlog, so it's basically just call off. Even though they're large customer, but if I just want to have next week's consume, it doesn't generate large order backlogs.
Perhaps you can comment on consumer electronics, which was basically flat year-over-year.
Yeah.
If that was any particular products?
Basically, we had a stable production from a large proprietary customer. It's back to normal for us. We don't expect proprietary to grow, so we are very happy when it's sort of stable. Yes, Pål?
Thank you. Good morning. Just a few quick questions on the nRF52. You said that you shipped about 1 million units in the quarter. How do you see production and shipments ramping throughout the year? Also, obviously, on a year-on-year basis, adjusting for that, the nRF51 volumes must have been down slightly. How do you see growth for nRF51 series chips throughout the year?
We have a lot of nRF51 series design wins that not gone through production also. If you look at some of the segments, like wireless charging, it's all based on the nRF51 family. Some of these design have been in work for 3 years and more, and they're not swapping to nRF52. We see that the nRF51 will continue to grow, and the nRF52 designs will add on top, and some will be replaced in the nRF51. Because of the actual size of the design means we're having nRF51, but it's not in the production, it's going to be still growing pretty heavy.
And in terms of volumes, would you sort of dare to venture into anything on that?
We are not guiding, that's a principle, and volume is just multiplying with product price. I can tell you, we are producing pretty heavy at our subcontractor on the nRF52.
The reason I'm asking is obviously because, as you self allude to the Taiyo Yuden statement with respect to 2 million units per month from April. The Raytac going into mass production from April. Are these sort of capacities that you expect to meet already in Q2? Or are these sort of capacities that will be met later in the year?
It's a mix, but, we have the ability to meet them if it ramps up.
Then on Finland, if I may. You said that you shipped or taped out a chip which had a feature set that was complete. Could you tell us what that entails, please?
No, you have to have NDA to understand the feature set of the next generation products from Finland. We have four customers that have signed that NDA, and it's in their hands.
There's a question here on, from the web: Could you please address Bluetooth Smart growth in the first quarter, excluding the lost customer?
We had a significant drop, as you saw, in variables.
Seven.
Seven and a half million dollar. If you saw that we did a little bit better on Bluetooth Smart, generally, you add up this $300K dollars plus that loss.
Sure.
That's what we basically grew on the rest of the Bluetooth Smart segment.
Thanks.
Can you give us more details on the gross margin and the impact from the initial kind of tapeouts, or the 1 million tapeouts of nRF52, and how you kind of see that going forward, I mean, with yields.
Yeah. We can do that.
Like improving.
Yeah, basically, bringing product to market into volume half a year after release is relatively quick. We have been working together with one major customer that have been testing in parallel. Before we've been adjusting all the test lines, everything, usually the yield is lower, but it increases for each batch. I would say by end of this quarter, I think we will have normal yield on the nRF52. Hopefully, we get normal yield before we ship, actually, also in the end of the quarter. That's the target.