Operator: Welcome to the Nordic Semiconductor quarterly presentation for Q2 2021. Pål Elstad and myself will show you what happened through Q2. Pål will dive into the finances and I'll go into – show a little bit the happenings in Q2 and also a little bit about what's going to happen going forward the rest of 2021. We had a strong demand in all end user markets. We had a stronger demand than we basically managed to supply.

Growth was capped by the wafer supply. The revenue ended at $147.6 million. It was up 67% year-on-year and up 3% quarter-on-quarter. Our gross margin ended at 50.9%, which is 1 point down from year to year, up 0.7 quarter-on-quarter.
Pål Elstad : Thank you, Svenn-Tore.

And I go through the financials for Q2 2021. As Svenn-Tore mentioned, we report yet another record revenue quarter with the growth we saw during 2020 and early 2021 also continues in Q2 2021. We have the growth of 67%. As Svenn-Tore mentioned, this growth is really capped by the availability of wafers in the market. Revenues amounted to $147.6 million.

This growth we had comes from a broad space of the market. Both are large customers, the tier one customers are driving the growth. The new technologies, the massive adoption of IoT is driving it. And of course, the broad customer base is also pulling for products from Nordic. During the constraint situation, our focus is on helping customers who experienced strong end product, end user demand.

Bluetooth revenue increased by 75% to $123 million. Proprietary continues the strong growth that we've seen over the last year and was now $17.7 million, slightly down from last quarter, but still a very strong number. But as we've said before, there is a transition from proprietary to Bluetooth in the home PC or the PC market. So, we continue with our guidance that proprietary will decline over the next coming years. For cellular, Svenn-Tore mentioned the first time we have meaningful revenue of $4.6 million.

This is a little bit impacted by Q2, which had some supply issues. But $4.6 million is still a good achievement. And it's showing that we now have several projects that are now beginning to really come into the commercial phase. There's especially one car tracking product that's driving the revenue in this quarter, and that can – together with other tracking products that have a potential to be good in the next few quarters. It's important for cellular that it will be a little bit lumpy because there is – it really depends on when large projects come into the commercial phase.

Also, for cellular IoT, we are depending on a little bit more variables in the whole supply chain depending on products from other suppliers. So, it can be a little bit lumpy going forward. I'm going to go to revenue per market. First of all, this slide does not include cellular IoT. It does not include Wi-Fi.

It does not include the PMIC product. So, at the Capital Markets Day we're planning later today, we will come up with a new method to show how we report our business and how we show the markets we operate in. As the overall market showed strong numbers, of course, each of these markets will have a positive development year-over-year, but it's important to emphasize what we talked about before that, since there is a constraint in the market, how much products that are allocated to the different markets will depend on the availability of wafers.
Svenn-Tore Larsen : Thank you, Pål. Before I start, if you have any questions, please post them, so that we can respond to them after I've been doing the summary.

I think listening to Pål's presentation on the numbers, you will understand that Nordic is a long lasting growth . Basically, if you see, we have never grown as steep as now. And obviously, when the wafer supply is opening up, we will continue to have very strong growth. And it's because of this widespread IoT adoption. Nordic has spoken about this for many years.

Other customers – other companies have also started talking about this last couple of years and now it's finally happened. And we are working hard as possible to ensure that we are getting the supply to keep the total market growth. That's our plan for at the moment, with $1.2 billion in backlog. We need to get wafers. We need to turn these into products, so end customer can maintain the penetration of this fast growing market.

And as Pål said, we spend more than $9 million this quarter to build up our test park. So, we can get wafers any time and turn them in seven days into product. We have a solid market position. We are market leader in Bluetooth Low Energy. I will point back to the 43% sign market share.

We are taking position to take lead in cellular IoT. We're complementing our portfolio with Wi-Fi. We are accelerating the Wi-Fi development. And thirdly, we released PMICs this quarter. PMIC, if it's a good product, which Nordic has made, it's accompany every design that we do with our Bluetooth Low Energy.

Our customers know our quality of products. There have been, as I said, more than 10,000 parts shipped out sample to customers already. There's customer testing our PMIC today. So, the only challenge we have, which we work very closely with our vendors on, is to ensure capacity increase on wafers. And we will, obviously, update you as soon as we have any substantial information about this plan.

What we can say today, though, is that the commitments we have for Q3 is giving us ability to guide for $130 million to $150 million and is the widest range I showed so far. But it really reflects the fact that we don't know when the wafer comes in. If we get wafers in mid-September, we can turn them to product and revenue this quarter. If it's too delayed, then we have a challenge. We are working very hard and close with our suppliers.

And we expect that at least we get the minimum same level throughout the fourth quarter. We obviously work hard to increase. But today, minimum, the same level. We understand that the capacity might remain tight for at least another year, even though TSMC have communicated CapEx of $100 billion over three years. But a good thing is they also confirm expansions on the technology nodes that our current Bluetooth Low Energy parts are running on.

So, despite that we are growing strong, we could have had a significant higher growth if parts were available. Our guidance for Q3, $130 million to $150 million, margin will be more or less in line in what we delivered this quarter. What do we need to do this quarter is to look after our customers. It's a tough work for our sales force. We are expanding sales force.

We are working closer to each customer and to ensure that we put the parts to the customer that had most use for it at any time. We see that the technology adoption continues. It strengthen our long-term growth potential. And we expect that, as soon as the capacity sort of ease up, it will be very positive situation for Nordic and our customers. On the margin side, we expect that we keep, as I said, the same margin.

And on the long term, I would say, we expect the margins for Nordic to stabilize around 48% to 50%. So, thank you all for listening into our quarterly presentation and we very much look forward to see you all again and I hope physical for those who can be in Oslo at the Q3 presentation. And we would very much look forward to have our Capital Markets Day the same day after presentation. And mark your calendars, it will be October 21. Hope to see you all there and we are open for questions.

And, Ståle, have you got some questions in?
A -

Ståle Ytterdal: Yes, we have some questions. We have splitted up in topics. We can start with the backlog. This is from Christoffer, DNB. Is the duration of the backlog still about 12 months? Or is it now getting artificially inflated? Just trying to understand how much of the backlog is true demand and how close to the $1 billion target this backlog puts you?
Svenn-

Tore Larsen: The backlog is very real, but it's stretched out through all 2022.

So, basically, what we see is that customer are placing orders ahead of time. And it's a terrible situation that we can't ship all our backlog at each quarter. But it's also a good thing when you have long backlog, is that at least you can focus on producing exactly the parts that is needed to the market. But long activity is the reason. And obviously, as we get larger customer, higher volume with longer orders, that adds up to this increased backlog.

And, Christoffer, you're right. We are very close to the $1 billion mark. On the Capital Markets Day, we will talk about what is our next goals, and we do that in October.

Ståle Ytterdal: We continue on backlog. And we have one question from Arctic, Kristian Spetalen.

Could you provide some flavor on the Q2 order intake mix and for what period the deliveries are due?
Svenn-

Tore Larsen: If you look at the intake we took in Q2, most of this covered the first half of 2022. And obviously, it was a good mix of new projects and existing tier 1 volumes. But as Pål said, the tier 1s are the larger customers. The actual revenue, part of it was going down 1% or 2%. So, it's all the long tail, all these new customers that are connecting to these hubs that basically were contributing most.

Ståle Ytterdal: Then we go over to the topic of supply constraints. From Rob Sanders, Deutsche Bank. What is your initial view of your 2022 fund reallocation versus 2021 in terms of percentage growth? You can just continue here. All the fabless companies are saying they are worried of the initial discussions with foundries on this topic. Svenn-

Tore Larsen: What other customers are worried about, I can't comment on.

But I'm sure that Nordic will have a good growth in 2022, and we are working together with our vendors to convert the good to better. I can't comment more at the moment.

Ståle Ytterdal: We continue with Petter Kongslie, SpareBank 1 Markets. Do you expect same wafer availability in fourth quarter as in third quarter?
Svenn-

Tore Larsen: It's too early to say because we are just in the beginning of Q3. We are working every day to increase.

I know that our partners are doing whatever they can to increase output. So, the best we can do is what we guided on in the slides that we just presented.

Ståle Ytterdal: Rob Sanders, Deutsche Bank. Are lead times at distributors at around 52 weeks?
Svenn-

Tore Larsen: Lead time depends from customer to customer to importance of project. So, having a general lead time today doesn't account very much, but it's very good to place your orders early to ensure delivery.

Ståle Ytterdal: Then we go over to the topic cellular. From Christoffer, DNB. You mentioned that you are working with vehicle tracking company in Cellular IoT with potential to become a top 10 customer for the company. Can you say anything about what kind of timing we should expect for this to happen?
Svenn-

Tore Larsen: I didn't put it on the slide, but I can inform you. In June, for the first time, we had a customer from cellular amongst the top 10 customers.

Already in June.

Ståle Ytterdal: Then we have a question from Øystein Lodgaard. Should we expect to be lumpy also going forward? Or is it likely to continue to increase in Q3 and Q4? This is about cellular. Svenn-

Tore Larsen: Cellular is the most complex product we have because here we are dependent on getting third-party components on to the module. So, we are very – everyone knows in the industry that substrates is scarce.

It's difficult to get some crystals. It's a very hard situation. We have been working heavily with other suppliers to ensure that we get enough products to assemble our modules, and it will be lumpy because of availability of external components.

Ståle Ytterdal: We continue on cellular. Christoffer from DNB.

Shipments on nRF91 based dev kits seems to be down significantly year-over-year, if we understand your numbers correctly. Can you help us understand why this does not reflect a slowdown in momentum for cellular IoT?
Svenn-

Tore Larsen: Yes, we can. The reason is basically that we were having less development kits out in the market was shortage of components. We were not able to produce as many kits as possible. So, if that ratio had been what it should have been, the question wouldn't have come up.

But the fact that we are now going volume is starting to be meaningful is that we have had projects ongoing for a long time that now moves to production. And obviously, when we get more than one product or one customer in production, it sort of leads to that kind of growth.

Ståle Ytterdal: Then we go over to the topic of PMICs. Christoffer, DNB. If I heard you correctly, you're saying hundreds of millions of units shipments potential for the new PMIC product.

Is it fair to assume this is a significantly lower price point than the Bluetooth part?
Svenn-

Tore Larsen: You heard me correctly. And it's not fair to assume it is very much cheaper.

Ståle Ytterdal: Then we have a question from Johannes Reese . How fast could PMIC accelerate?
Svenn-

Tore Larsen: Usually, we see development time – we have always said, 12 months to 2 years. We see shorter development time – 12 months to 2 years.

We see shorter development time the less complex the product is. But now, we also have this situation where you have shortage of supply. And development time, I would say, at least a year. So, a year to two, we will see significant – or I would like to use the same word as I've done with cellular, meaningful revenue.

Ståle Ytterdal: Then we go over to revenue.

And we have a question from Christoffer, DNB. Can you please give us an update on how much revenue comes from the top 1 and top 10 customers during Q2?
Svenn-

Tore Larsen: Top 10, 36%, Pål?

Pål Elstad: It was slightly ticking above 40% earlier quarters and now it's just below 40%. On the top 1, 2, 3, we're not going there. Svenn-

Tore Larsen: No, we're not sharing that data. But the important thing is that the top 10 as a total were down compared to previous quarters, which means that the long tail constitute of all the new customers that are connecting to the hubs.

Ståle Ytterdal: Then we have a question from . Congratulations on your another stellar quarter.
Svenn-

Tore Larsen: Thank you.

Ståle Ytterdal: You say your market share based on certification is 43% as of Q2 2021, which is down from Q2 that was at 46%. Should you shed some color on where you see your market share lost? And whether or not you expect this market share to rise, fall or remain in the coming quarters?
Svenn-

Tore Larsen: That's a complex question, which takes half an hour to discuss.

But the most important thing, this is the sign share or the sign win market share. We're working now with larger customers, larger accounts, and focusing on projects that have a higher volume. So, if you look at the total market share for Nordic, I think it's been increasing and will continue to increase in dollar wise. Obviously, we have a shortage period and has been – some customers, we're not able to support because of existing customers that already have projects, which we have to support. I hope to see that this is changing throughout next year and that we can be as aggressive on the sign wins as we've been previously.

Ståle Ytterdal: And we continue with . In Q2, you gathered wafer volumes from later quarters to cope with the increased demand. You shift some volumes to Q3 also. If so, how much? And does this affect later quarters?
Svenn-

Tore Larsen: As we said in the presentation, we expect a minimum the same amount of wafers to be shipped to Nordic throughout the second half of the year. So, as we did now in Q2.

Ståle Ytterdal: We have other questions. From Rob Sanders, Deutsche Bank. Are you seeing any designs using Bluetooth classic moving over to BLE? It seems that Bluetooth classic lead time are even longer than Bluetooth Low Energy?
Svenn-

Tore Larsen: Yes, we've seen that for a long period that customers are changing from classic to BLE.

Ståle Ytterdal: Christoffer from DNB. You say the technology nodes, our current Bluetooth parts are running at, do you expect move to a lower node to give you more wafer capacity in 2022?
Svenn-

Tore Larsen: Answer is yes and no.

We expect on the long term, it could do – we'll do. But for 2022, it wouldn't have any effect.

Ståle Ytterdal: We have a question from Petter Kongslie, SpareBank 1. Is it possible to say anything about the average selling price on the Wi-Fi products?
Svenn-

Tore Larsen: We don't have a product out in the market yet. We have estimates of cost.

And when we've done the first products and get them into the lab, then we will start looking what will be the prices on these products when we have a full cost overview. The answer is no.

Pål Elstad: Wi-Fi, it will be above Bluetooth, of course. Svenn-

Tore Larsen: It will be significant about Bluetooth.

Pål Elstad: But lower than cellular.

Ståle Ytterdal: Thank you. That was all the questions. Svenn-

Tore Larsen: Thank you to everyone that sent those questions. Again, looking forward to October 21. See you.

Pål Elstad: Thank you.