Svenn-Tore Larsen - CEO Pål Elstad - CFO

Welcome to Nordic Semiconductor's quarterly presentation for Q4 2020. It's been a great year for 2020 for Nordic.

We are accelerating our growth, and we see strong demand across all end user markets. The revenue totaled to $127.1 million last quarter, which is a good quarter for Nordic.

It's actually the best quarter we ever had. It's a growth of 52.9% year-on-year and up 6.5% from last quarter.

Our margin ended at 52.7%, up 1.1% year-on-year. Our Bluetooth revenue accounted for $97.6 million, is a growth close to 50%; while proprietary revenue ended at 25.3%, is a growth above 55%.

Our cellular revenue showed $2.7 million. And the gross margin of 52.7% really underlines the fact that our high-margin, high-complexity System-on-Chip really contributed to this growth, and I'll come back to why and how it's contributing.

Our order backlog is at new and even higher level. We exited Q3 with $288 million in backlog.

Okay. Thank you, Svenn-Tore.

I'll now go through the financials for Q3 -- Q4 2020. As Svenn-Tore mentioned, Nordic has been showing accelerating growth throughout 2020 and especially in Q4 2020.

2020 is actually the highest revenue recorded and is 8% -- 7% higher than Q3 2020, which is $8 million above last quarter. For the first time, we continued for the second year to actually show that the seasonal down in Q4 is sort of disappeared.

We now see that Q4 is the strongest quarter. How has this happened?

Well, the main reason is, of course, that we do have a strong pull towards the end of the year. And then also we've been able to sort of shift a lot of our customer markets to markets that are not so depending on seasons.

So less on consumer and more on industrial, health care, et cetera. The revenue in Q4 was slightly above our guided range.

We did have in Q3 report we will have a cap on supplies, but we were able to fulfill that and came out for the quarter slightly above what we guided. For the quarter, Bluetooth revenue amounted to close to $98 million, more or less the same as in Q3, and up 49% compared to last year.

Bluetooth share is ow this quarter 76% of total, slightly down from last quarter. This is really explained by the very strong proprietary revenue we had in the quarter.

Proprietary was $25.3 million in Q4, which is actually an increase of 55% versus last year. Proprietary has, of course, been driven by the very strong pull to home office equipment that we've been talking about for the last few quarters.

However, also in Q4, we saw some very interesting proprietary projects in both fitness-related products and also in gaming. For 2021, Nordic sees stable proprietary demand from PC accessories because some is still moving over to Bluetooth.

Thank you, Pål. The technician is working a bit on the slides set here on the PC, but I hope that you are not too affected about the hangup on the PC.

So I just want to remind you when we do the outlook here that Nordic is on a long-lasting growth journey. We started to pick up the first wave -- or I would say, the start of IoT.

And then we now see that we are moving into, I will call it, a mass IoT adoption. More and more customers are now seeing what connected sensors, what connectivity can do.

And obviously, for Nordic, it's important to be in the lead of this connectivity trend. And I would like to come back to an important point here.

Let's just find the right slides here. I mean this is not working, but I'll try to find my slides.

So it's important that -- to understand that we are a strong and resilient company. The most impressing I have seen in the company the last year through this tough situation we have had is that people are continuing to deliver, sales force are continuing to do the sales and we are expanding our customers.

If we analyze our customer base, we see that we get more than 100 new customers in volume production throughout a disaster year around us. I'm extremely proud of the effort the people internally have done.

I'd like to say that we've certainly proven resilient. And if you look at how this acceleration in revenue has arose, it basically arose because acceleration in Bluetooth and multi-protocol, 43% growth in 2020 on multi-protocol and Bluetooth.

Proprietary revenue driven by all the home offices made us grow 27% and this is leading customers that see this growth in the market. This, as Pål said, was better than expected, but we still see that '21 will contribute with a huge amount of revenue and maybe we can be slightly down.

But based on the forecast we get, we're going to get a good proprietary revenue in '21. Bluetooth and multi-protocol will obviously continue to grow.

Why am I so sure? We need to look at our backlog.

Our backlog is now at $490 million, more than $490 million, is going to be depleted over the coming quarters. And we are extremely solid position.

Now when you look at all the design kits we've been sending to the market in cellular IoT, these customers also start producing products in volume throughout this year. And we had a fortunate opportunity to complement our portfolio with the WiFi.

Now we can, as I earlier commented, build combo products. So we are in a position that we've never ever been previously, and we have grown our manpower to 1,000 people now.

We have people all regions. We have them outside each customer's door.

We can give the support the customer demand in this situation we are now. We have FAEs, we have application engineers globally that will help out all our customers to accelerate development because everything is about accelerating time-to-market for our customers.

Nordic has to be laser focused on getting customers into production, and that's our main focus now. We also need to be even more focused on the customer now than ever because there has been, in media, a lot of discussion regarding global semiconductor shortage.

Yes, there is shortage. It also apply to Nordic, but we knew we will get a lot of new customers in '21.

So we placed early orders to ensure that basically we will cover our customers' need. We have been notified of limitation of wafer supplies.

But I know with current allocation, we will have at least a 25% increase in production volumes for '21. We're not guiding for the year, but we know we have a 25% minimum production volume increase.

We know that, Q1, we could guide for $130 million to $140 million revenue. If we end up in the upper range, it's a doubling of revenue from Q1 '20.

And we also see that the largest impact on wafer shortage is expected to be Q2. We will see higher volumes in second half of '21.

And the good thing is that semiconductor hubs are stepping up their investment. And TSMC, our partner on wafers, are telling us that they're going to spend $28 billion investment in '21.

They believe in semiconductor content growth years to come. And they'll not spend $28 billion to sort of level out for Q2 '21 shortage, they do it because they believe in the growth in the industry.

And I believe in growth in the industry is going to be contributed a lot by IoT products and connectivity. And if you go through the Nordic presentation, this is what we've been talking about the last hour.

Connectivity is going to take a large part of this capacity extension, and Nordic should be part of this. So as I said, we expect a strong Q1 in a very challenging supply environment.

And we also see that risk and uncertainty remain regarding the pandemic. But the most important thing is to see that the adoption of IoT is really happening.

And I think the supply capacity is a temporary issue. So if we look ahead of the bump, there is a fantastic situation to be in, being Nordic at the moment.

And we see also for Q1, just to guide a bit, is that there will be high volumes of lower-margin System-on-Chip. So we guide down the margin to 50% to 51%, and as I earlier said, a revenue range between USD 130 million and USD 140 million.

As I repeat, because I like the number, to meet the upper end is a doubling from Q1 2020. So we have a Q&A session now.

. So I would like Pål to come back, and we go to questions.

And thank you for listening in. And now we take the questions.

Okay. We have some questions coming in from -- on the webcast.

So I start with in from Sparebank 1 from Petter. Supply shortage.

I did not fully understand the 25% wafer cap. Assuming you had 0 wafer available going into 2021, you could max deliver 25% year-on-year growth then?

It says a minimum increase of 25%. That's the exact words that we used.

For the year as a total.

Yes.

And this 25% wafer cap, is this related only to Bluetooth? Or is it Bluetooth, cellular and proprietary wafers?

It's basically a mix. It's based on the -- if you look at TSMC's report to the market, it applies most nodes.

And Nordic are using all of those nodes that are mentioned in this press releases.

Another question from Sparebank 1. When were you notified about the shortage?

And when will you have a second look at this?

We have a second look every day. This is a matter of having communication.

We have a leading supplier. We have a supplier that invests $29 million -- $29 billion into new equipment this year.

I mean we are fortunate to have such a good partner. And obviously, what such a partner will do is to sort out the bottleneck as the first step.

And when we knew it, it was actually very, very recently. We knew it when we heard or saw the comments in the newspaper start leaking a week ago or less.

Continue with questions from Sparebank 1. Can the cap be changed in 2021?

I guess setting up a new production line for TSMC takes a long time.

I think he guessed right, it is, but it depends where in the process the bottleneck is, as I commented on. And I'm sure that TSMC is a company with high technical skill and will sort out this as soon as is possible in the industry.

And then the last question from Sparebank 1. What do you mean by the largest impact of wafer shortage are expected in Q2 '21?

I mean that we will get more wafers in the second half of the year. I say that we guide for $130 million to $140 million in Q1.

So obviously, it wouldn't impact too much in Q1. And I think we're going to see the impact in -- the maximum impact in Q2.

But again, we have been secure a minimum 25% increase in volume. What I say is that we have a extreme high demand.

We have to be laser-focused on delivery to our customers, help our customers through this period in the best possible way for the customers and for Nordic.

Thank you. And then we have a question from Kepler, from Andreas.

Can you give us an indication of how much top 10 customers are likely to represent of your '21 revenue?

We -- I have not prepared to do that today, no. But it will be a significant increase, but also been a significant increase in our revenue in '21.

So we see that the broad base continued to grow also.

Thank you. We continue with another question from Andreas, Kepler.

Can you expect foundries to increase the price of component production due to the very high utilization?

We see sign of that in the market. And I think that's really -- it's important to understand the relationship and the partnership you have with your customers -- or also customers, but mainly with our vendors.

And I don't foresee that we're going to see that situation for Nordic.

Thank you. Then we have another question from Kepler.

In the event that the foundry capacity constrains your volume growth to 25% in '21. Are you able to push the year-on-year revenue growth beyond this through inventories and better mix?

We will come back to that because we guide quarter-by-quarter. So obviously, for Q1, we will continue to grow.

And it's driven by mix and -- combination of mix and volume. And we will guide on Q2 when we do -- deliver the Q1 numbers in April.

But the large reduction in inventory beyond what we have today, some streamlining you can, of course, do, but not massive.

Thank you very much. Then we have a question from Christoffer, DNB.

What is the product mix in the backlog? And what is the customer concentration in the backlog?

Product mix now started to lean towards high-end SoC multi-protocol products, which are contributing significant more than they did just 2 quarters ago.

Thank you. Another question from Christoffer, DNB.

Are you now ahead of the schedule when it comes to reaching the $1 billion revenue target? The U.S.

-- the $1 billion target was before WiFi. Now that the WiFi business is acquired, what -- was this necessary to reach $1 billion?

Obviously, we are much better positioned to reach the $1 billion than ever. Whether we are ahead of schedule or not, I think, is a point we will bring up in our next Capital Markets Day when we go through more of the strategic drivers of the company and what we have achieved through the period from last Capital Markets Day until the one we're going to hold next time.

Thank you. And the last question from Christoffer, DNB.

While you have a minimum growth in supply of 25%, this shouldn't reflect revenue growth. Isn't it fair to assume that these wafers are converted to chipsets with significantly higher average selling prices than you sold for in 2020?

In this sense, growth in '21 is, in worst-case scenario, 25%.

I would not object to anything that you asked about. I think it's a good sort of thinking.

Thank you. Then we have a question from .

How much of the order backlog is related to cellular IoT?

It's -- if you look at cellular IoT and if you look at the backlog of $1 billion, it's a small portion. As I said, it's very much the multi-protocol chips and the volume regarding smart home, and that has significant increase.

Thank you. And the last question from .

This wafer production -- is wafer production increase of 25% limited to revenue growth of 25%? And how big effect are you expecting for the second quarter?

That was 2 questions. And obviously, as we are commenting on wafer capacity and production capacity, it's a significant delta between revenue growth and production capacity.

So that's why we are not mentioning or commenting on Q2 revenue because traditionally and we have agreed to stick to quarterly guidance.

Thank you. Then we have a question from .

Your targets for low-power wireless LAN in 2021, when this business will reach larger part of your business VLAN-wide?

We won't have any revenue from WiFi or wireless LAN in '21. We acquired IP and we are going to convert this IP into hardware and combo product with Bluetooth, either Bluetooth or LTE.

And we shouldn't expect revenue from WiFi, I would say, at least 2, 3 years.

We said 2 to 3 years in the announcement in December.

Should we...

We can have 1 final question.

Yes. From Christoffer.

Great to see 12% of dev kits coming from cellular IoT. Should we see this as an indicator of future share of revenue from cellular IoT?

And what is the typical lead time for this to go from 12% of dev kit to 12% of commercial volumes?

I will say, as we always said, a year to 18 months. I think with LTE, it's sometimes a little more complex.

So 2 years' conversion time from a project start until you see revenue. Well, I totally agree with the question.

It's an impressive number. It's a lot of customers out there, and there are some very exciting new applications that will change the world based on the Nordic chipset.

And what is important is to understand the initiative of leading operators and leading tele equipment manufacturer like Ericsson. When they do, they reference the site for the industrial customers.

I mean we have eased the situation now for industrial customers that want to adapt to LTE-M and Narrowband IoT through these reference signs with Ericsson as one of them.

Thank you. I think we should check if there are anyone waiting in the dial-in.

Thank you all for listening in and also for good questions, and look forward to see you next time. Thank you.