Good morning, everyone.
It doesn't seem to have opened.
It does still look like it's only five participants on our screen. Roxana, are you still there and listening?
Yeah. Good to begin the call. All good.
All good. Okay. Welcome to the Nordic Post Q2 group call for European investors. The analyst from UBS is a little bit delayed, I think we will start to do an introduction. With us, we have the CEO from Nordic, Vegard Wollan.
Morning.
The CFO, Pål Elstad. From IR, we have Christer and Stig. Should we start with a small-
We can.
-highlights and just a little bit before Harry is arriving?
Yes. We understand that Harry is having some technical difficulties, and we do appreciate people's time. That's why we are starting anyway. Let me start with the headline. I think since we delivered another solid quarter with the revenues of $219 million for the second quarter of 33% on a year-on-year basis. We are particularly pleased about the fact that we are seeing the growth being broad and happening in actually all segments, all technical segments, product segments. Also by key customers in the broad market, as well as geographically spread and also between our markets, consumer, industrial, healthcare. Particularly strong growth in the broad market and profitability also moved positively. Gross margin up 2.4 percentage points to 53.3%, compared to a year ago. Helped by better product mix, and again, larger share to the broad market and a growing contribution from our cloud services.
EBITDA of 16.6%. Operationally, which I'm particularly pleased about the team's execution, we are continuing to release lots of new, modern, very competitive products, which is a core part and the key part of our plan and strategy, which we're executing towards and launched our new AI-assisted development platform, which is working across our hardware solutions, our software, SDKs, as well as our cloud lifecycle services solutions. Really binding this together and helping developers to develop with higher quality and develop products faster. Something which is also strategically and farther an important plan for us to bind these three pillars together. Looking ahead, if we look at our next quarter, we plan for continued growth and are guiding based on current orders and forecasts for a Q3 revenue between $220 million-$240 million, which represents between 23%-34% growth year-on-year.
Gross margins to continue stay about 50%. Summing it up, we are pleased about progressing to our plan, which is an important part of our strategy, financially, operationally, and strategically. With that, we will try to see if we can hand over to-
To Harry.
-questions and to back to Harry, who has now joined us. That's good. We understand you had some technical issues, Harry.
Yeah. Thank you, guys. Apologies for that. Would've thought after three, four years of using Zoom, would've been able to iron out all the technical difficulties. Thanks for getting started in my absence, Vegard. Delighted to have you all, and thanks everyone else for joining. Thanks for that intro as well. Maybe I guess we could dig a little bit more into the performance in Q1. I know kind of strength across the board, so broad market and also tier 1. Are you able to give any more color, drill down a little bit into particular strength areas? I know industrial was stronger, but yeah, any additional color you could give there would be great.
Yeah. I guess we don't share particular details more than what we already do. That's also related to competitive reasons, obviously. I think overall, as you say, industrial market is good and strong. Most of our cellular business and long-range business is also in that segment. That's a positive for us. I think otherwise between the key customers and broad markets, it doesn't come completely linear at all points in time, and it's also related to when we launch products. It's related to when our customers are launching products. That is creating some nuances to that.
Back from the beginning of 2024 till now, for the greater part of the last two years, our larger customers has been, of course, having a bit more steady and stable growth with us and are now really continuing at all-time highs, whereas the broad market has come back to us more so in 2026. Geographically, it's happening pretty much everywhere, that's also good and solid, and it's happening on all product verticals.
I guess maybe drilling down into that geographical dynamic, I know the Chinese market there have been some kind of big swings over the last three to four years where you had to deprioritize supply going there and you might have lost a little bit of market share. How's that coming back through this up cycle?
Yeah. Great question, Harry. To say we benchmark ourselves well in China because we have strong competition there. They are technically good, and that's why I'm particularly pleased that we are continuing to win the signs there. It's true, as you say, because of some prioritizations and the extreme growth that Nordic had compared to the supply situation. We probably lost some share in China in 2022, 2023. That has grown gradually back up since then. I think that is a blend of some people coming back, but maybe even more so quality design wins, one with also new customers. We do see, I would say generally and particularly the new products are performing well in China. nRF54 Series and selected parts of our other offerings as well, PMICs are competing well in China.
We are not talking about particularly how big a share China is for Nordic anymore, but it has grown back up quite solidly, which is good. I also think we're winning quality design wins there, which is good for us. For instance, also in the healthcare industrial market where we do see wins across our product lines, even in the long-range space for medical healthcare type products.
I think throughout 2025, we have said it every quarter that we see activity with the new nRF54 family. That tells us that the Chinese customers also need the performance, the features that the nRF54 family is bringing.
Got it. Super helpful. Through this year, you've made a few comments around not ruling out that part of the growth that you're seeing is inventory pull forward or kind of inventory rebuild or any kind of supply chain related building of inventory. I'm wondering, is that just kind of extra caution from you conservatism based on what you're seeing across the industry, or have you actually seen any signs of it, or had any conversations that would suggest that that is happening?
Yeah. It's a good question, Harry. I think the engagement we have with the customer base, which is constituting a very large part of our overall revenue, is so tight that I think we can have good exchanges and see what they have and don't have regards to their inventory. It's probably even more than the 80/20, 20/80 type ruling we are talking about here in that type of direct engagement. We are fairly confident that for those parts of our customer base which we have that exchange with and of course, that's where we are also doing most our manufacturing forecasting, you can imagine, because it's constituting such a large portion of our business.
I think the precaution is made mainly because of, I think experience-wise, we know that for the absolute smallest customers, which again counts for the smallest part of the revenue total picture-wise for us, that part there, the buy power leverage is of course limited for some of them. In an environment which we currently have, that might be an element of some safety stockings for some additional weeks or whatever happening there. We don't engage much with that class of customers, that's why we are making that precaution generally. I think it's even much more so experience-based that that could happen in an environment as the one we are currently seeing. I think we are taking the stands and the mechanisms that we can do to prevent that from happening. We don't fully control that picture.
Got it. Maybe moving on to the growth margin. It was very strong in Q2, well over your over 50% target. There's obviously a lot of news flow around what's happening to foundry pricing, also semi pricing as well. I know you can't give specific details on either of those things, wondering if you could run through the percentage this quarter of what's driving that trend.
Maybe you want to talk about the pricing, I can start on the gross margin. First of all, we're very happy with the development. It's hard work, both on the production side, getting down the cost. We're also working on the customer side. I think it's stellar work by the team this quarter. As I mentioned, it's a little bit the same as the other quarters. It's a mix of product customer mix and also the increased cloud business. On the product mix, we're selling more of the high-end products versus the low-end products. There, on the customer mix, it's really the increase in the broad market. Vegard showed on the slide that the broad market over top 10 is decreasing, the broad market is growing.
We have a continued positive effect from the cloud business after the Memfault acquisition [in our mix] helping on our gross margins. On the pricing.
Yeah. As you alluded to also, Harry, which and I think what we have also said, we don't comment specifically on pricing either to our customers or the cost we are getting from our suppliers. Having said that, the semiconductor market is very tight, and it is very tight for us as well. We haven't seen restrictions or limitations on us, and we are working this resource-wise intensively and continuing to do that to plan for further growth. It's tight within the semiconductor market, all process nodes, back-end assembly, and test. The key thing for us is that we are working both ways, continuously, both with supply partners and with customers. We are very committed to an aim to be balancing our growth and margins.
Okay. Maybe you could just talk a little bit about your comments that you made this quarter around the inventory build and then testing capacity that's coming on. It's obviously an indication as to where you think the demand is going there, but what timeline is that in terms of the inventory you're building? Is it just preparing for next quarter, or are you also looking a bit further out as well?
Yeah. Well, the buildup is strategic and planned. We're preparing for the continued revenue growth and especially the new ramps we're having, and especially the nRF54. That's both related to having wafers available, but as we also said, having test capacity available. If you look back in history related to test, we do some step-ups in between to take us to the next level. We did that before 2022. We're doing it now so that we have more capacity available, because as Vegard mentioned, it's tight. We need to put testers at more OSATs to make sure that we have the available capacity. It's both to secure, but it's also to secure future growth. We have the capacity in the wafers, but also that we have the equipment available.
To add to what Pål said there, which is absolutely right. I think we are happy to see that we proactively took the actions late last year, early this year to start really stepping up our back-end test capacity, which we're growing a lot this year, probably 40%-50% throughout the year. Ringing on to two new OSATs at the moment. We are installing new equipment with existing and new OSATs these days, and that's really required. It hasn't limited us yet, but it's very tight. It's running at its almost maximum pace. I'm very happy that we took those decisions and the whole thing, which is, of course, our job, is to try to be planning ahead here. That's what I think we have been able to do so far, Harry, and we are working on to stay on that side of it.
Maybe jumping back to margins. The target that you gave around SG&A and R&D as a percentage of sales, we're still running a little bit above that. Is the timelines for getting down to your target model still a long the timelines that you gave at the CMD, so by 2028, or any changes in expectations there?
I think we said 2028. I think we actually said before the second of the decade. Was that? Yeah.
Yeah. It's important. I think some of the specific-
Yeah
-targets we gave on growth and profitability related to some of our new investment and early stage and scale of product lines barely related to 2028.
Yeah.
I think we are overall on track for that plan, which is good. To move towards that target operating model, I think we said by the end of the decade.
We see we took it, isn't set up now in Q2 and adjusted that 16.6%, so we are moving in the right direction, I think.
Yeah. For sure. Then maybe on double-clicking on those new growth drivers. Agree with you, long range almost looks like it's surpassing expectations and should easily be above $100 million on this current growth rate by 2028. PMIC and Wi-Fi seems like it's growing a little bit slower. I mean, it sounds like you're still confident that those are on track. Wondering if you can give a bit of color as to what you're expecting, or what you're expecting to drive a bit of a pickup in the PMIC and Wi-Fi revenues.
Yes, that's a good question, Harry. Let's talk about them and deal with them a bit separately because they are obviously separate.
I think the PMIC part is executing very well, we are delivering towards the plan. The pipeline is very strong, it's growing well. Many designs starting. It's also the area where we are probably the tightest managing our capacity at the moment because it's in terms of growth, growing quite a lot. On Wi-Fi, I think we are good according to the plan overall with PMIC short range, long range. I think on Wi-Fi, it is challenging for us. We are open to that because nRF7000 Series is very limited. We do have a very strong, very committed, highly executing sales team. We don't want to burden them with products which they are not winning with. We want them to be focusing on all the new stuff where they are winning.
We have de-emphasized a bit the focus on the nRF7000 Series, we are only winning in selected areas with that. nRF71 Series, which is coming slightly later than ideal and what we are wanted, but it's coming very good when it's coming. It's going to be a very strong and great product for us. It is absolutely key and important for us to be delivering on the Wi-Fi opportunity, and also plan. Wi-Fi a bit more challenging, I would say probably more important and that product's promise. For those having seen the details, even more promising and optimistic, but ideally, we would have had it slightly earlier.
I know in the past you've spoken about bringing out a Bluetooth Wi-Fi combo chip. Do you think that's something that could drive growth for the Wi-Fi market? I don't know. That would probably be included in your Bluetooth.
Oh, no. The upcoming nRF71 Series, which we have said is launching towards the end of the year, Harry, is a Bluetooth Wi-Fi combination.
Those include the NPU.
Yeah.
Yeah.
Also include NPU for hardware acceleration AI. It is very tailored for ultra-low power with this from our most modern 22 nm platforms. It's going to be a very exciting product.
Should you say that, of course, we haven't launched it or announced it, but we have been talking to customers, key customers.
Absolutely.
The feedback is very good.
Oh, absolutely. We are quite optimistic on that. Wish we had it earlier, the premise for the product is extremely solid.
Great. I guess linked to that, there's a few products that you're bringing out, like the nRF54H20, that are also kind of AI, ML exposed, or I guess enabled. Wondering whether you can talk a bit about the market's appetite for these types of products, and when you think demand will really start ramping.
Yeah. On all of the nRF54 Series, I would say all those products have a fairly strong pipeline on products in development. The nRF54LV10 probably is going to move a bit slower than the rest because it's also tailored for the healthcare medical market, but we already have designs there that are verging to the start. All the other plain L Series, LS Series, H and LM has products, and quite a lot of designs in the pipeline. They are starting to contribute right now, and that's going to be accelerating in the coming quarters. I think that's executing exactly to plan. On that side, we see all kinds of utilizations of our AI initiatives at the moment, which is encouraging.
We can talk about the latest AI-assisted development tools, which is really tying the hardware, software, and cloud services solution space all together in a minute. That's a great developer assistance, which is also part of the picture. Of course, you have either AI modeling from the Neuton.AI-type systems which we acquired last year in the software systems, which is applicable across the nRF54 Series family and being utilized by people for selected algorithms, selected part of their firmware software solutions already. Furthermore, some people starting to utilize the NPUs and the accelerators, either with tools from us or with tools from themselves. In some cases, we have tool insights what's happening, in other cases, they are doing it based on their own systems.
Really encouraging. It's going to be hard to see from the outside world exactly what's being utilized there because you will just experience that the products are getting better, more accurate, more reliable, use less power. You get all those types of benefits. It's not necessarily being listed as a variable with AI inside.
You could say that even with the nRF52 family, nRF51 family, there has been some kind of an AI at the edge already with algorithms.
Absolutely.
now.
Neuton.AI systems are supporting-
Yes.
-those products as well.
now.
On the hardware side, hardware acceleration on the NPUs, that's applicable for currently for the nRF54LM20A family, which is extremely popular, by the way, the nRF54LM20A family, as well as, the nRF92 Series in long range and the nRF71 Series in Wi-Fi. Also, I would say AI-assisted development tools, which I think we are early out with is an really encouraging track at the moment. Maybe, Christer, you want to share some thoughts on that?
Absolutely. I think that, hopefully, some of you have picked up the news that when we announced it and also, parts of the announcement yesterday, because we are really proud of what we're doing here. This is trying to alleviate some real pain problems that developers have had on our platform, I think, in general. That goes to the assistance of using LLMs as part of developing. I think on an embedded platform with the capacity constraints that are real and inherent in the various products we have, I think that there is no room for non-optimized code, for sloppiness and, obviously for coding for a recent footprint that is completely different than the chips we actually have offer. That's what we are caretaking for our developers with respect to the solution that we are now delivering on.
We've linked this to all the technical documentation that we have on our products and all the practical examples as well as best practices that are to be found in our user forums and the knowhow that our development teams push on to our customers. This is all available now in terms of the AI assistant development tools that we're offering, ensuring that time to market increases for developers with respect to developing on our products. We aim to continue to add services and features to this platform as we go forward.
Thanks for that. Two pieces of color. Just as a reminder to everyone, I think there should be an option to log questions in the Q&A function, and I can read any out if people have questions. I guess in relation to competitive dynamics in this higher-end processor connectivity chip space, there are a bunch of other companies that seem like they're more, I guess, processor first and then connectivity second focused. Wondering whether you can comment on how you see yourself positioned versus these other players in the space.
Yes. I think for us, Harry, that's both first, the way we look at it. We obviously are a high quality, high performance, ultra-low power connectivity leader. I think that's undisputed. The quality and performance you get by using Nordic there. I do think it's also fairly clear that we are investing in a lot of compute capabilities, with AI additions on neural processing units, NPUs side, and also doing this in the same ultra-low power, very highly integrated, ultra-small footprint context, where I think we are also physical size matters in many of these products. If you make that comparison between Nordic and others, you'll see that we are a leader also in the physical footprint. Ultra-small chip scale packages is a strength of our team. We are manufacturing a lot of that for many of our key customers.
I'm quite confident in our pipeline and design wins ability, and the fact that's coming from making this full integration and combination of advanced memory technology, compute, and processing capabilities from the MCU systems and AI, NPUs added but also having the unique wireless connectivity performance of Nordic on the same silicon and the same chip.
Great. Super clear. Maybe on Memfault and just how you're thinking about it. When you bought it, the kind of ARR for it was not immaterial, but it wasn't going to move the needle for the group. Are you seeing it as more of something that you're able to offer on top of your products that enables you to maintain share, enables you to maybe even gain further share? Is it something that if you look further into the future, it could start resembling a larger chunk of the business?
I think the answer is yes and yes. We're using it a bit selectively and I think what we can say on that regard, Harry, is that I think we see that that strategy we laid about a year ago is playing out, and I think we are early with that. Having that solution suit together seamlessly with hardware, software, and the cloud services. We do believe that with upcoming regulatory requirements like the CRA, but also the speed and the nature of speed of developing products faster, getting to market faster, managing the fleets of products as they are available. We do see this playing out, and more and more people will appreciate that. Of course, value add we provide by providing all of this technology to our customers is increasing a lot.
The key thing for us is to add that value. Monetization-wise, it's going to be a combination of monetizing it directly and monetizing it by stickiness. I think those are kind of going hand in hand. We are not splitting out how this is going for us for competitive reasons at the moment. We're going to continue with that for a while. We see other people seeing the same nature of the game happening. We believe we started early and have a lead on that since we are where we are. We want to keep that leadership, and we are investing and developing fast in that direction. Monetizing-wise, I think you can see from the public interaction on it that we have a self-service part for the broad market that's growing quite nicely.
We believe that's very important, as a high quality, best in integrity player that you engage with Nordic on that regard also for in the broad market. We have enterprise arrangements with key customers and larger customers. Both progressing well for us and that's positive. Of course, the key thing now is also that we are gluing this even further together with the AI-assisted support and the MCP Server, enabling this, which is truly very powerful and efficient. Both from, I would say, the experienced expert developers, they get better faster by using it, and they are, of course, also, to some degree, the early adapters and early stage users of these type of systems.
It's also assisting, let's say, the less experienced developers and the smaller entities in the way that they actually may be able to develop and make products which they, in the past, were not able to make.
Is it also something that you're able to use internally, or I guess generally, LLM use internally? It would be super interesting to hear how that's changing your business. Whether it's faster go-to-market, faster product development times. Just interesting to hear that.
Absolutely. We are great utilizers of AI internally, I would say across the board, but obviously also a lot in our R&D teams. AI-assisted development is developed with AI. It's AI for AI.
Yes. Yeah.
A lot of that is being utilized and, yeah, it's a tremendous transformation and change we are in the midst of, and I think we are definitely we want to be leading that. I think the key thing is that this is getting only as good as the building blocks you have and the systems you have in place already. That is the advantage that I think we have. We have very high-quality building blocks, lots of data, lots of insight which AI can utilize. At the same time, we also had the three pillars ready. They were seamlessly working together and that's the starting points you want to have to build on. It's interesting times, that's for sure.
Definitely. You're well-positioned. Maybe one last question. I know we're approaching time. Just on, there was obviously, one of your big competitors, in the U.S. has been acquired and I wonder whether, I know you can't speak directly about competitors, but wondering whether that's caused any kind of disruption in the connectivity space that you're noticing and benefiting from, whether it's kind of pushed customers towards you where you have a supply situation or a situation that's perhaps more stable for them to deal with. On the flip side, maybe they might prefer dealing with a larger company that has more supply, all of these types of things. Yeah. Any color you can give there.
Yeah. No. We're not going too much into the specifics there. We are obviously. Our job is to take advantage of any situations occurring, That's a situation which is changing the competitive landscape. Of course, for some customers, they for various reasons are concerned about changes like that, Of course, we are there and we are present and available when that happens for those type of customers. You have other customers who care less about that. That is a mixed picture. I think that's probably as far as we can talk about that at the moment. Other than that, I think we are selectively strengthening our teams as well. It's good to see that there is interest also amongst people to come to Nordic internationally.
That's also part of the picture, which is to some degree changing when you have changing situations like that.
Great. Well, I think that's us at time. Thank you so much and to everyone at Nordic, Thank you investors that have joined as well. I think it was a very interesting and engaging discussion.
Thanks so much.
Yeah, look forward to speaking next quarter.
Yeah. Thanks a lot.
Thank you, everyone.