Welcome to this group call with Nordic Semiconductor. With us today, we have the whole team. We have CEO, Vegard Wollan, CFO, Pål, and the whole IR team. This call today will be mostly Q&A. If you have any questions, either just type them in the chat and I can read them out loud, or you can press the raise hand button, and you can ask them yourself. With that, welcome to you, Nordic, and maybe you would like to start with just a quick highlight from the quarter.
Yeah. Thanks, Øystein, and good morning, everyone. Let me just start with some brief overview of the headlines. Financially, we achieved record revenue both on a quarterly basis and on a rolling 12 -month basis, and revenue came in at $235 million, up 32% from the same quarter last year and 38% above the second quarter. Profitability moved in the same direction. Gross margin came in at 52.8%, up from 51.9% a year ago, helped by better product mix and more sales into the broad market and a growing contribution from our higher margin cloud services. Looking ahead, we are seeing broad-based growth across our revenue pillars and based on current customer orders, forecast and the acquired businesses we expect Q4 revenue between $215 million and $235 million, which is representing a 27%-39% growth year-on-year with gross margins continuing to stay above 50%.
Summing up, the market is strong, and demand is healthy. But what always matters the most to us is to continue to deliver on our profitable growth plan, which is based in renewing our portfolio, gaining share, enter new markets, expand to new addressable markets, and increase the value we deliver for each customer and product. I would say we are on track to reach our long-term ambition. That is something we are working hard on every day and what we control at the moment. With that, I will hand it over to you, Øystein, and for everyone for questions. Thank you.
Perfect. Just to reiterate, if you want to ask a question, feel free to type it in the chat or press the raise hand button. I thought we could start off on just looking at the two end market segments that you have, starting with consumer. Consumer was a bit soft last year, but this year we have seen very strong performance in consumer with 30% growth year-over-year. Maybe you just could highlight, are there some specific categories that are driving this growth? Is it the broad market? Is it tier ones? Where do you see this consumer growth coming from this year?
Yes. In consumer, I think it is very broad-based for us, and it is also following of the split you see between our top customers and the broad market. So it is broad based, absolutely. It is also probably to some degree starting to be impacted positively by some of the new products at the moment starting to influence what we see and I think consumer is of course a very wide category and that is, I think, a bit puzzling maybe to some people. We are in a position where we see there is a lot of discussion around the memory shortages and component shortages for certain aspects of the consumer segment. We are not to any degree, or to a very little degree, being impacted by that, which is good at the moment.
And maybe there is also an element of higher quality type end products in consumer where we are participating. So I think those are probably the colors we can add to the consumer part of it, Øystein.
On industrial and healthcare, you do not split those two out anymore. So it is a bit more difficult to track now than previously. We know you have had one huge win this year with SiBionics on the healthcare side, which is now grown to become the world's second largest CGM player. But can you say is it mostly the healthcare or mostly the industrial side that is driving that segment, or is it a flavor of both?
It is clearly a flavor of both, which we appreciate. So we are growing, and that is very intentionally, strategically from us that we want to be growing in industrial and healthcare, as a strong segment for us. You mentioned one positive customer and win there, and there are other positive customers and wins in that space. Also on the long-range side, we were winning both in industrial and healthcare. So that is something we are emphasizing a lot on. It is to some degree, less seasonal business and it is also an attractive, stable margin business. So we are investing and having emphasis on developing that positively for Nordic in the coming time. What also is true is that the segment for us has some very large customers and sometimes their product takeout is not completely linear. So that is causing some variations from quarter to quarter.
But I think the trend is positive and that's what we are pleased about and we're confident that this is going to be important for us in the coming years.
Great. And of course, there is increasing supply chain uncertainty in the world. Do you think that there has been some customers building inventory of your products due to the supply chain uncertainties? Or do you think the revenue growth that you have posted this year is in line with end market demand?
Yeah, it's a great question, Øystein, and it requires a bit of a complex longer answer, I'm afraid, because that situation is special. But I think first of all, the markets we are delivering to and participating in are strong at the moment and the demand is high. We are every day on a daily basis working with customers to make sure we supply to them, and that's the overall priority number one for the Nordic team at all points in time. We want to be a top-notch supplier on supplying to steady and linearly to our customers. And in that picture, I want to mention that we did win a Supplier Excellence Award with a key customer this week, just because our supplier performance is stellar. So that's good. Having said that, it is a market at the moment which is extremely tight and that's a component market.
It's not only a semiconductor market, but in semiconductor it is tight on all nodes, all types of products at the moment, particularly tight in memories as we all see and hear. But it's also tight on other components like antennas, PCBs, batteries, which you also need to build your products. And with that, since people are aware of this, I think it's just natural and we need to assume that there is a portion of maybe particularly smaller customers that may be a bit concerned these days and buffer up a little bit for their manufacturing.
I think not seeing that it is not a major part, but there is a part of that happening, that is clear. On the other side, you need to see that also in the full picture of things. We also have a situation where we as a supplier with these 50 new variants, which we talked about, which is a lot for us to ramp and bring into high volume production, during particularly this summer and second half, which is currently now happening. We also have some imbalances in that picture, which means that there are certain variants where we could have shipped more in Q3 if we had the ability, though that is also some revenue for us which was missed or moved to Q4. Again, I am afraid that there is a small element of that that will move from Q4 to Q1.
In that picture, there is also some delinquency from our side. Thirdly, in that bigger picture, which you need to think of, Øystein, when you talk about the market and pull-ins, there are also some few customer cases we see where they are unable to get other components at the moment, whether it is batteries or antennas or PCBs, as I mentioned. All of this is happening at the same time, and we see a picture where we believe this is going to continue to be relatively tight for the time we foresee.
Okay, first follow up to that, which product areas have you had to move some shipments from Q3- Q4? Secondly, do you see any risk of these supply issues for your sake worsening over the next few quarters, impacting your delivery ability?
Yeah, no. I do not think it is prudent of us to be specific on it. We are working very closely with the cases we have on that, both on the supply side obviously on a very intense basis day for day to improve the situation and we are managing it through with our customers as well. It is in the mix of products and in the mix of things. I think looking ahead I think we have done a good job seeing this coming, and there has been learning from the previous cycles. As you have seen, we have strategically sourced, such that we keep our fairly long days of inventories and continued strategically working that direction. We are working very intensively with our suppliers to secure our ambitious growth capacity for the next three, four years at the moment. These are excellent relationships.
They truly want to support Nordic in that growth journey. I do not see us heading into problems there, but is it tight? Yes, absolutely.
Mm-hmm. I understand. Just to follow up, like you said, you have built some extra inventory. The inventory was now up 77% year-over-year. You are now at 29% inventory to LTM sales from prior to 2021, at least it was around 18%. Can you say, is that mostly security stock? Or is it also investing or ramping up for future growth?
It is a good question. Inventory days as you compare to last year, it is just slightly up. When you look at revenue, I think it is not that much increased. Remember, the period before this, it was too low. We were operating at a too low level. Second comment is that, as Vegard mentioned yesterday, we have introduced 50 new products over the net product types over the last year. We need more SKUs. There are more SKUs. The challenge with all these new SKUs is that it is slightly different wafers, slightly different test equipment. We need to stock up a little bit to capture the growth we see on the new products into next year. It is very important. As you said, finally, strategically, it is important to have wafers.
It is important to show commitment to our suppliers that we have growth so that we get the wafers we need to support growth we are seeing.
Hmm. I see. Moving on to the effect of all of this tends to be price increases across the value chain when the market is tight. That always comes. There are several rumors out there that TSMC will raise prices in 2027. I think you commented a bit about this indirectly on the call yesterday, Vegard. If TSMC or any of your other vendors raise prices, will you push those price increases over to your customers?
Yeah, I think it's generally known that supply costs in semiconductor is seeing some cost increases and that comes with material cost, labor, energy, equipment, capacity, everything. I guess also TSMC has been fairly publicly on that. So there are some increases in the manufacturing side. Nordic is not immune to that either. So, without going into specifics, we are working closely, both with the suppliers but also on the customer side to manage this. We are also implementing price adjustments across our portfolio and in collaborations with our customers. I think what we generally can say is that our job is to balance our growth journey and profitability and keep our margins. I think that's the important thing in this picture, and we are doing that.
Now you've been above 52%, closer to 53% gross margin now for several quarters. That is, of course, above what you're guiding for with above 50%. Would you be okay to go down closer to 50% again, or do you think that more around the current level where you are or higher is where you aim for?
I think our ambitions is, of course, higher. So we're not going into individual discussions. But of course, we now have a very broad product portfolio, both in high-end and low-end markets. So some might be lower, and then we have ambitions to go higher on others. So it's a mix.
Yeah. To say something else than what we are saying, then will be some guidance.
Yeah.
It is above 50%, which is what we reiterate as our gross margin target. I think on the other side, the key thing for us is also that we capture and extract the value we can in the product and what we deliver to our customers. That's really what we focus at the moment. It's also in the third pillar of our growth and execution strategy, where we bundle more products. We want to sell PMICs, we want to sell the cloud lifecycle services, and potentially also more complex SoCs and all of that. In a very seamless fitting together solution, which is of great value for our customers. With that, of course, our job is to extract that value.
On that topic, lifecycle management is, of course, like you said, one of the ways you could lift your margin. We haven't gotten any specific updates on Memfault since that acquisition. I think you guided for a 50% ARR growth, where in 2025, when you acquired it, I think you've also had some comments after that it's been going well. Is it tracking at around that growth rate? Or can you say anything about what that is mean that it's going well with Memfault?
Yeah. I think generally we are pleased about that, and the strategy is working out well for Nordic. Øystein, we are not sharing details on that either. But I think the key thing is that we were able to do a fairly quick and solid first level integration of the product offering and the lifecycle services with Memfault because they were a strong Nordic partner prior to the acquisition. What we now see that we're starting to launch products this summer and this second half is truly integrated and seamless hardware, software, and lifecycle services fitting together. Part of that is, for instance, the CRA readiness requirements which are coming up from EU. Other parts of it is related to AI-assisted development. Finally, another part of it is related to our leading-edge AI technology.
Also publicly, as I think we launched in the first half, power optimization tools, power monitoring tools. So it's really becoming a very integrated part of the Nordic offering to bring value on the ultra-low power delivery we give our customers and enable our customers with.
I guess this is a good way for you to capture value if customers have this at, I guess, close to 100% gross margin on top of what they already pay you for the chips. That's a good way for you to capture value as well, and maybe.
It's a very good way of capturing value. I don't think it's 100%, Øystein, but it's high.
It's high. Very good.
I want to mention, which I think we see, of course, as we already deliver a lot of software to our customers, we do a lot more at the moment on that. We obviously have the leading hardware, but when you do hardware, software, and the services, and this is seamlessly also working together, it is becoming quite sticky. Of course, that stickiness should be rooted in top-notch technology that we deliver in each and all of these areas, but also seamlessly fitting it together.
Makes sense. Just to reiterate, if you have any questions, feel free to post them in the chat or press the raise hand button. You can also get your own questions across. Moving on a bit to power management. This is, of course, one of those key new growth areas where we see a lot of potential, and I also think you've been very positive in your comments on those last few calls. So I know you don't want to say anything about attach rates or what you're achieving there, but could you say how many of the products that uses a Bluetooth chip from Nordic today also uses a power management chip from any vendor?
Yes. I'm not 100% sure if I captured the question, Øystein, because you're also there. I guess if I gave you that number, it will be to give you the attachment rate.
You won't have 100% market share, so we can't kind of. It's not fully possible to extract that.
Right. I think what we do see is, which we have known for some time, is that the gain and the usability and the benefits you get by power management is substantially higher with 22 -nanometer than 55 -nanometer. That's just a technology thing. As a leading node, I think many people don't realize that, how leading our 22 -nanometer technology platforms are at the moment with TSMC and GlobalFoundries. With so many new products and a lot more exciting stuff coming as well, you gain quite a lot by adding power management to it. Of course, we have tailored our power management portfolio to fit our SoCs. It's from a design win point of view, growing very nicely for us. It is an area where we have also on what accretive margins I think we have communicated previously.
It's positive from that point of view, and it's just a great thing to add to the story of adding more value to each and one of the end products we are selling to and participating in.
Just to clarify then, when you say it's accretive to margins, are you talking about gross margins or EBIT margins?
We're talking about gross margins.
Hmm. We've seen kind of, if PMIC of course, we can't see how that is tracking yet, but it's part of their technology segment, which was very strong in Q2, now came back down a bit in Q3. Is that kind of just normal lumpiness? Are there some of these delivery issues that you're talking about that cause this? Or what can you say about that kind of up and then down again that we've seen in that segment?
Yeah. I think it's still relatively small in the total scheme of things, so it's just lumpiness and linear shipments from us. But it's not happening truly linearly while things are small. I think you guys recall that from long range also when it was a few million dollars.
Yeah.
With the comments you're making about the benefit being much higher on 22 -nanometer versus 55-nanometer, we should now see that as you're ramping up nRF54, it would be natural that you're also ramping up PMIC, that that follows that nRF54 trend.
Yes. It's two things of that. It's the benefit becomes larger with the more modern product or these products like nRF54 and others. I can also say it will be the same with long range and WiFi in 22 -nanometer. So you pretty much use PMICs aside them, and that's part of it. I can also mention, as you asked, I think, on that the supply side on PMIC is tight. I think we're managing it at the moment. We are also expanding to more suppliers on our portfolio there at the moment. Something we actually started 13, 14 months ago because we saw this coming. So I think we are in a reasonably good shape, but it is tight there as well.
Hmm. You said in your kind of intro to this call that you are tracking well towards your financial targets, your 2028 targets. You have there a target of $50 million in revenue on PMIC. Are you also tracking well towards reaching that ambition?
I think we were not specifying and specifically updating each one of them at the moment, Øystein. I think we are overall probably a bit ahead of plan if you look at it from that point of view. There are bits and pieces and nuances to that. We are tracking well to making what I think we called scale-up businesses profitable in the timelines we have promised, and that's important for us. That's important for us to say also because that's important for those teams. They are very motivated and driving that journey. That's a good thing happening.
You said at the CMD when you presented this target that there will be increased accountability. If you see that you're very far away from reaching any of those targets, would you then consider doing anything with the cost structure of any of these business areas? Or are you now so confident in kind of the long-term potential here and what you're going to achieve here long term, so the investments you're doing now will be the correct investments and cost in those areas will continue?
Absolutely. I have promised that to all of our shareholders. We will be extremely accountable on the cost side if we are not seeing the traction coming. I can promise you the traction is coming. There isn't any reason at the moment to look at that. We are behind time-wise, which I think we have communicated a bit on our nRF71 Series product. I'm almost smiling as I'm sitting here because we're approaching launch time for the nRF71 Series and that's going to be a fantastic product.
Hmm. What you said that I think you also reiterated that now that?
I think for those of you who knows us, you will then understand that we also work with customers on these products, and that's really what counts for us. What we see in the engagement of our new products with our customers.
Hmm. I see that we also got a question from James Dejong. Please go ahead.
Hi, guys. Congratulations on the results. Clearly some of the new short-range products are really resonating in the markets and Øystein talked about what a win in CGM in particular. I was wondering, for those of us who are trying to follow the story, are there any particular sub-areas, either in consumer or industrial and healthcare we should be paying attention to if we want to follow it?
Sorry, I missed the question. Could you repeat the last part?
If there are specific sub-areas to pay attention to on the nRF54 Series. I think what we have said on the nRF54 Series is that, which is also natural, Nordic has thousands of customers. They are all, of course, exposed to our new products, and it's firing fairly well everywhere. I think the competitive power of our new products is extremely strong. It's creating the right functional performance, larger memories, and we are working on even larger memories. Leading-edge AI is being utilized by more and more people, which is integrated as NPUs on the Axon NPUs inside some of these products, and more and more products will come with that. It's just firing with everything we do across the whole customer base.
On top of that, if there is something we are paying particular attention to, is that we do want to grow more in industrial and healthcare because that's a bit of a market which I think appreciates a lot of the strengths in our product and hasn't necessarily been the key attention, maybe in the attention span of a smaller Nordic. We are now at the scale and size where we clearly want to be driving more customers in that space as well.
Just to add to that, James, I think that if you go to that slide in our deck that shows the growing portfolio, I think what we're trying in part to illustrate there is the breadth in terms of the product offering that the nRF54 Series has over and above the earlier generations with respect to addressing a much larger part of the overall market with more specialized variants across those attack vectors. So what Vegard spoke to in terms of capabilities and feature sets in terms of the higher end, we also sort of address mid-market and the lower end of the market to a much larger extent with our updated product portfolio. That was also sort of mentioned with respect to showing the illustration on products in terms of the slide.
But we also have variants, obviously, underneath those products that was talked about, Pål, which is quite a significant number of SKUs that again sort of drives those pillars of growth that we've earlier spoken about. So growing technology leadership, but also growing the overall attack vectors in terms of market. So nRF54 for us is very important strategically.
Understood.
Yes.
And if we're good.
Any additional questions from you, James?
Anything you want to highlight just in terms of changes to your competitive landscape? You obviously have a major U.S. competitor who's being taken over. But just anything else in terms of changes in who you're seeing in competing for slots?
No, I think overall, there aren't any bigger changes. There's obviously a lot of competition out there, and that's something we are used to.
We are benchmarking ourselves and competing effectively against them. I think as we are broadening out our portfolio, as you have seen we have done now over the last year, we are better equipped competing because we are kind of having the modern new products also fitting from the low end, as Christer mentioned, to higher compute products, and you can tailor them even more effectively in that competition. Chinese players are good technically, so that's part of it, and that's really where we benchmark us. We have to win in China against the Chinese competitors, and we are also winning in China against Chinese competitors. So that's the technical benchmark to our team.
Just mentioning again sort of the overall aspects in terms of competitive vectors. We have the utmost respect for our competitors for sure. But surely we're also glad to see that we were able to introduce very early on the AI-assisted development tools that we now see other competitors talk about as well. I think that gives us a strong foothold and position in terms of showing directionality in this market, in terms of what is important and how we can address the needs and desires of our developer communities and touch upon and hopefully be able to solve quite a few of the pain points they have with respect to utilizing LLMs in terms of their core development in the future.
We try to be a step or two ahead on some of these areas, and we'll continue to be vigilant with respect to developing this going forward.
Thank you.
Perfect. We have also received a question from an investor, a written question. Could you give a bit more detail on the inventory increase? What kind of materials are you stocking? Are there these materials where there is shortage at the moment, or areas where you fear there might be a shortage in the future?
Our strategy is always to keep as much as possible for us, for inventory as wafer bank, meaning that because a lot of decisions on which end product is taken after you produce it from wafer to a chip. A lot is on wafer level. That is important.
But wafers, of course, related to the new introduction of the nRF54 from our side is important.
Pål, to explain the reason for that, too. If you keep the inventory as much as possible as wafers and wafer bank, typically from one silicon type and one wafer, that derives into multiple products.
Yep.
That's something you typically do in a shorter timeline than manufacturing wafers.
Right.
When you have that, you have already come two third through the manufacturing timeline, but you still have the flexibility as demand is obviously also constantly changing between the subvariants.
That makes a lot of sense. Are you afraid of there being wafer shortages on the 22-nanometer or 55 -nanometer nodes? Are you more kind of afraid of what's going to happen after the wafer is produced in a testing assembly phase, for example? Where do you see the biggest risk?
I think it's fair to say that in the semiconductor supply chains at the moment, there isn't any excess capacity. Everything is being utilized both in wafer fabs and on the back-end part, which we call it, which is the test and assembly side. We already have multiple wafer fabs we are manufacturing in. We have even more back-end test and assembly facilities, and we are expanding this picture constantly, both for capacity but also for diversification and resilience reasons. That's something we are working on, Øystein, and I think we are doing a reasonably good job planning that ahead strategically. But to say that we are absolutely not concerned is probably not right either.
But we are sleeping at the moment and we are working, but we are also working to make sure we have the capacity for the planned growth that Nordic has ambitions about delivering on for the coming years.
Sounds very good. One area which we haven't talked about at all yet is cellular. We've now seen some news that you've had some major consumer wins also in industrial, now with cellular, showing that you're now broadening out new use cases for that product. You added satellite. You talked previously the first satellite product to be launched this fall. Can you say how is the adoption take rate of the satellite functionality and how you're seeing that impacting cellular for the next few quarters?
Yeah. Thanks, Øystein. It's a great topic. I think it's one of the proudest areas we have technology leadership-wise at the moment. We captured what I've said multiple times, satellite technology leadership on low data rate communication from last summer, which I think is great. I'm not going to comment on any specific wins as you may do that, Øystein, but we cannot mention
Okay
specific customers or products. That's very promising and good examples of that technology and how it can be utilized as a combined utilization with mobile cellular technology, such as you have satellite, where as a backup, where you are not in cellular coverage. We see a lot of designs coming with that. We also see another range of products utilizing us and coming with that because they have the ability to upgrade their products later to enable satellite. It's a great optionality to have for our product developers and customers. Further again, maybe I can mention that, but if you really look into the details of some of the rumors of products we are in, it's also switching from another supplier to Nordic, which we believe more people are doing at the moment.
It's something we are extremely proud of, and it's good for us. That's obviously at the moment based on the nRF9151 and we are now working hard to launch and bring our first customers online on the nRF92 Series, which will take that performance just even further. A significant uplift in performance, memory, abilities and lower power consumption and all the aspects our customers want with the nRF92 about the nRF91. On top of that, we launched also and commented in the previous quarter that we are now having broad availability on the nRF93 Series, which is really truly expanding to new markets for us because it takes the data rates up from about half a megabit per second up to 10 Mbps throughput, which allows for different type of long range solutions, for instance, utilizing audio and video.
That's also an area where we have quite a lot of designs in the pipeline and have been working with the lead customers now in that space for about half a year.
Hmm. Very exciting. I think you have some very exciting quarters ahead of us for the cellular segment. Unfortunately, now our time is up. Thank you very much to all of you for coming here and answering our questions. And thank you very much to everyone who listened in.
Thank you.
Thank you.
Thank you.
Wish you all a great weekend. Bye.