Svenn-

Tore Larsen: Welcome to the Nordic Semiconductor Quarterly Presentation for Fourth Quarter 2021. It's been an eventful quarter, and we are pleased to go through the presentation with you all. Our revenue grew to $171.2 million and our margin were 58.9%. And the underlying gross margin, I would say, was 53%. Pål will go through our margin in details later on in the presentation.

We did increase prices to distribution in December last year. Bluetooth revenue accounted for $136 million, a growth of 39% since last year. Cellular revenue ended at $5.9 million, very much capped by supply from our vendor. We have, exiting Q4, record high backlog. The backlog more than tripled in 2021.

And we see that the backlog stretches into 2023. Timing of delivery is very much dependent on wafer supply. And the job at Nordic Semiconductor now is to focus on customer and ensure that we can keep customer going with our production. It's tough times, but we have extreme close discussion with customers and we are able to ship to most of our customers. And you can see that over here.

Basically, if we went into the year, we had more revenue towards the top 10 than we have today. So, balancing the revenue per customer has been a challenging and difficult exercise. But as I said, I think we've been able to balance it across the tier 1s, the large ones, and the broad market in a good way. Not everyone are happy with allocation. Obviously, if there was no supply challenges, this would have looked different.

So, all numbers we are showing today is basically not market driven. It's allocation capped. So, we grew across all verticals, obviously. And consumer electronics remains the largest segment for us. Healthcare is driven, as we have spoken for many, many years, really strong, and its new applications.

And what we see is, finally, the disruption in several applications like asset tracking, smart home, smart light, and, again, healthcare. New product that we saw in Q4, which are cool, we now start seeing again products with both cellular IoT and Bluetooth. We see gaming mice that are cutting the wire. Basically, the first, I will say, Nordic had was the cut wire for keyboard and mice with the 24 family. Now, we're seeing that latencies in Nordic Bluetooth is a good addition, even start using Bluetooth or wireless keyboard mice for gaming.

We continue to have the certification market share above 40%. And if you look into 2021 as a whole, we had 42% market share. In Q4, we managed to achieve 44% market share isolated. So, we continue a very, very good trend on winning designs. And we looked at our development kits as we do every half year and now we have surpassed 100k kits out in the market.

So, more than 100,000 engineers have kits on a desk. What we see here now is that we've continued to sell kit to the new products we released. nPM1100, which is our PMICs, are also selling strong. And we have seen a strong sales of kits to this product. We participated at CES this year.

And we demonstrated some cool demos. We did a low energy audio using the 5340. And we did new the science there with cellular IoT on location services. And we also showed the Matter protocol working with customers like Nest, Leedarson and Yale smart door lock. So, it was fun for us to show that these protocols now are working out in customer applications.

And I think it was especially excitement around the next evolution of wireless audio where we show the 5340. So it was a successful CES, despite that there was maybe a little bit less customers than usual. But we had a steady feed to our booth. Despite the conditions, we thought it was value to participate. Going over to cellular IoT.

I would say we have global coverage now. This quarter, we certified with Vivo in Brazil. And I think we can say that there is a global coverage now for Nordic cellular IoT products. We said very early when we started this that we're going to use the same scalable business model as we are doing for Bluetooth Low Energy. We want to reach out to the broad market and that's a basic difference from Nordic compared to our competitors.

And the designer can basically use our design kit and be able to achieve a product through either support in our support portal or local support. So, our slogan is making Cellular IoT easy and we see that when we add up the numbers of customers that it's working. We are expanding our Nordic Partner Program. Edge Impulse is a company that make development tools for cellular IoT with machine learning. A1 Digital is a turnkey platform that basically develop all the power to the cellular IoT product.

And you can basically use our platform and make the device connect to the cloud. Polte is a company that do IoT location services. And we see some of our customers using asset tracking solutions, working with Polte. So, we are expanding the ability to get a useful product out there partnering up with leading companies in each segments. What we do is that we've been doing exactly the same as we did with Bluetooth Low Energy.

We're focusing on growth verticals, and we try to find which customers are leading in each of these verticals. So, we see the science in asset tracking, both industrial and consumer. We see sensors, metering, both consumer and industrial, we see the science is smart home, consumer applications, and we also start seeing – appearing the science in healthcare. And the final vertical I will talk about is modules. Nordic has a growing revenue in BLE module partners.

And now we see the same partners and even new ones using cellular IoT product from Nordic to create new modules. Pål will do the financials. Thank you. Pål Elstad : Thank you, Svenn-Tore. I'll now jump to and give a little bit more detail on the numbers for Q4 2021.

Nordic Semiconductor continues to strong report the growth as achieved in the previous quarters both compared to last year and compared to last quarter. This growth comes despite the fact that we are still heavily impacted by the availability of wafers and the revenue, hence does not reflect the full underlying demand across all end user markets. If we have had higher supplies, we would have had, to a much larger extent, been able to take advantage of the strong demand. Nordic is, as we've communicated in earnings update we gave earlier in January, impacted by the inflation that, during the second half of 2021, has been observed in semiconductor market. As a result, Nordic has been passing on the price increases that we have and will get from our suppliers.

Revenue came in just above the guided range for Q4. And for the full year, revenue ended at $611 million, representing an impressive growth of 51%. This is significantly higher than what we expected earlier in 2021. It comes as a result of strong management of supply chain, including us being able to pull in additional wafers, higher prices, improved and favorable product mix. Nordic reported revenue of $171.2 million, as Svenn-Tore mentioned, which was an increase of 35% from last year where we have earned $27 million, and it's 15% higher than last quarter.

As I said, the revenue comes as the effect of the general product increase across all technologies made during Q4. It comes as an effect of higher volumes. And finally, it comes as a positive effect of the product mix. With product mix, we mean that we, during the quarter, have sold more for high value products to our customers. We saw strong Bluetooth revenue in the quarter.

However, proprietary continues showing impressive numbers, driven by continued strong demand for PC accessory products to our high quality customers. For the full year, proprietary is $84 million, representing a 10% growth. This is in contrast to the single-digit decline that we guided for a few years ago. Cellular at $5.5 million for the quarter and $17 million for the year. Just as for the overall revenue, individual markets show a strong growth compared to last year and relatively flat compared to last quarter.

However, it's difficult to analyze markets as it is important to keep in mind that allocations based on wafer availability will impact revenue in the various markets. Also, the price effect that was mentioned earlier takes effect and is reflected in all markets. Consumer electronics, which is by far our largest market with 36% of total, which is actually a slight reduction from 39% last quarter, the market shows a 14% growth from last year. Wearables is the market that, during the last quarters, has been hit most by the product allocation, which showed a revenue of $17.6 million. Building retail is the market showing the highest growth with a growth of 76% versus last year and 20% up from last quarter.

This increase reflects continuing growth for both industrial and home automation applications. Healthcare revenue is strong with 63% growth to $17 million and up 40% versus last quarter. In healthcare, we have stable base of drug delivery systems mainly for diabetes, including new products being introduced during the last period. We are preparing changes in the markets reporting that will take effect from Q1 2022. Gross profits increased by 50% to just above $100 million in Q1 2021, up from $67 million a year ago.

With the gross margin of 58.9% in the quarter compared to 52.7% the same quarter last year. We have seen a temporary inflation in gross margins as we have increased our prices and cost of goods sold on the sale in Q4 is based on materials purchased prior to the price increase from our suppliers. We will see the full effect of the wafer cost increase in Q1 2022, and, therefore, we will see the gross margins more in the same range and normalized at 53% to 54% in the next quarter. Adjusting for the effects described above, the underlying gross margin was around 53% in Q4. This strong gross margin came despite significant cost increases that we have already seen in the markets.

We managed to get this strong gross margin as the effect of positive product mix and very strong operations during the quarter. I'll now go through the operating model. The numbers on this slide reflects reported numbers not adjusted for capitalization. First of all, the strong reported revenue in the quarter has resulted in improved KPIs, although the underlying absolute spending has increased. We're investing in line with what was communicating during the Capital Markets Day a few months ago.

Although volume growth currently is being capped, we have seen margin expansion as a result of the higher revenue. Our total reported R&D spending during the quarter was 23.3%, up 21.6% versus last year. And, of course, the main driver there is that we've added around $4 million in spending related to the R&D acquisition we did a little bit more than a year ago. For cellular R&D, we are continuing to invest. And in this quarter, we've invested $12.5 million or 7.3% of total R&D spending.

Now, SG&A spending at just below 11% or $18.5 million in the quarter, up from $13 million a year ago. In total, EBITDA of 24.7% in the quarter, up from 21.1% a year ago. Most interesting is actually the full year EBITDA percent of 20.4% for the year, which is the first time since 2015 that we're actually able to hit plus 20% in EBITDA margins. As I mentioned, we are investing in continued growth. So, total cash operating expenses amounted to $56.5 million in the quarter, which is an increase of about 38% year-over-year.

$41 million of the cash operating expenses relates to payroll expenses, which was $30 million a year ago, also a 38% growth. The company continues to invest and add new employees to support higher activity level, strengthening customer relations and continuing our technology innovation. The number of employees in R&D increased 24%, and we now count 926 engineers working in R&D. Other cash operating expenses at $15 million in Q4, up from $11 million a year ago, with increase reflecting more product introductions and generally high activity level, including marketing and travels that has been very low during the early quarters in 2021. For the full year, cash operating expenses increased to $200 million from $141 million in 2020.

CapEx was $6 million in Q4, up from $4 million a year ago. We are continuing to invest in additional test capacity, so that we are able to quickly turn around wafers to finished products when we get them from our suppliers. CapEx intensity for Q4 was 3.5%, so more in line with the total for the year which was 4%. For 2022, we expect CapEx intensity to continue to be at around 4%. My final slide.

We do see continuing strong cash position and cash generating ability in the company. During Q4, we added $33 million to our cash balance which ended at $279 million. Operating cash flow was $42.5 million in Q4. The strong operating cash flow comes in as a result of the EBITDA we reported, only partly offset by increased work capital. So, the absolute number of working capital increased by $11 million, mainly as a result of higher accounts receivables.

However, net working capital remains at record low levels. Now it's down to 18%. This low ratio comes as a result of very low inventory, now approximately at half a quarter of revenue. So, net working capital will increase when we have a more normalized situation. For the year as a total, we increased our cash balance by $37 million, mainly driven by strong operating cash flow of $96 million.

Svenn-Tore, I'll handle to you now for the final guidance.
Svenn-Tore Larsen : Thank you, Pål. So, despite all the supply challenges, we expect a solid Q1. We are putting guiding range from $170 million to $190 million in revenue. And that's really reflect the wafer allocation for Q1.

And it's a wide range. And the important thing is, if we get our wafers early in March, so we can turn it into product. And we, as Pål said, expect the margins to be around 53% to 54%, which is the margin that is going to be, I will say, rest of 2022. One thing we know is that Q1 is going to be the quarter where we get less wafers for all of 2022. So, we expect higher supply in the remaining quarters of the year.

And also, we hope to pull in more in Q1, but obviously it's not confirm at the moment. But $170 million to $190 million is a range we are comfortable showing today. We'll be building a solid platform, continued strong growth. If you look at the capacity support plan we have today from our vendors, it really puts us on track to achieve the 2023 revenue target of $1 billion. So, despite all the work we're doing on pulling in and accelerating test and production, it's going to give us results.

We are confident on reaching a good revenue for 2022 and be very well target towards the $1 billion revenue in 2023. We are working every day – as Pål said, we are doing more than any other semiconductor company in R&D investment. And we are determined extending the lead on connectivity. We are going to deliver the features that IoT products require going forward. We are working on new cross technology platforms.

Basically, the effort we are spending today is gaining our short range products, of our Wi-Fi products and our cellular products. So, we can sort of leverage on all these three technologies on our new technology platform. It's exciting and it's working very well. And we are, I would say, en route to deliver these products, which are going to be another disruptive product family. We do R&D innovation the same way as we've done previously.

We have high customer involvement to ensure that the products and the specifications are aligned with what our customers need the next decades. These are multi-year projects, with large R&D teams and they are spread multiple sites globally. And we are leveraging state-of-the-art development ecosystems, so we can do even better parts now than we did when we introduced previous family to the market. We are using leading process technology, optimized for IoT. Obviously, through the year we have behind us and the year we have in front of us, we see having more suppliers will enable stable supply going forward.

And our first short range product will be ramping second half of 2023. With our investment, obviously, the reason we do this is that we have high financial ambitions. When we reach the $1 billion target in 2023, we are aiming to more than double revenue in the period of 2023 to 2026 with all new exciting, leading products we are bringing to the market. We see there is going to be a continued strong growth in short range, it's accelerated in cellular IoT, and we see the early traction in Wi Fi. And we are going also to see that the adjacent products are going to contribute to revenue as we go further in this year.

So, basically, we open for questions. A -

Steel Ytterdal: This is steel from IR. We have a lot of questions for you, gentlemen. And we have split them up in topics. We start with customers.

We have question from Oliver Kielland from SEB. Can you give some color on your customers' reaction to the recent price adjustment? Any pushback? There's no doubt that the demand seems to be very strong. Svenn-

Tore Larsen: The last part, demand is very strong. Customers have gotten price increase from all our competitors through all of 2021 and we have basically not adjust any pricing before end of 2021. So, customers, they're sort of expecting this.

And it's been more important for customers to get part than to basically argue with part pricing. And obviously, they want to have a solid vendor that's going to be here and grow with them for years to come.

Steel Ytterdal: We have a question from Robert Sanders, Deutsche Bank. Can you discuss new ramps in second half at your largest OEM and how that could affect your 2022 sales outlook, especially when combined with higher pricing?
Svenn-

Tore Larsen: Our largest OEM. We don't comment individual customers.

If it's a general to our largest customers, we see that, basically, the answer will be the same as I did previous question. It's a fight to get parts. We try to allocate as fair as possible. And our customers are working close with us. And we are laser focused on next production batch for each of our customers and try to overcome the challenges.

Steel Ytterdal: Then we have a question regarding guiding. And this is from Christoffer Bjørnsen, DNB. The bottom end of the revenues guidance for Q1 is implying negative growth in volumes sequently, which is hard to believe given the current pricing environment and what your peers are reporting. How do you explain this? Some people would worry it's because of the inventory buildup we have seen at some of your logic customers during Q4. Or is it just because you are not prioritized by your foundry partner?
Svenn-

Tore Larsen: I will say we are prioritized by our foundry partner.

What we need to account for is that we don't know exactly now if we are able to produce all wafers coming in in March and turn it into revenue. If we're not able to turn it into revenue, it will come in Q2. And there is time from when they first arrive at our facilities until we can get them out as revenue. So, that's why we have a wider range than we usually have because it's more important for me to ensure that the information we give the market is in line with what we achieve rather than taking a risk and being optimistic of arrival of parts. The second part of your question is, do we see build-up at our largest customers? The answer is clear.

No. What we do is that we are not – today, we are shipping directly from our testers to customers' production facilities because there is no buffer on the product lines that we are supporting our customers on.

Steel Ytterdal: Then we go over to the wafer situation. It's from Petter Kongslie, SpareBank Markets. We have seen some peers reporting and several orders that the wafer supply is improving.

Have you received any new information on this?
Svenn-

Tore Larsen: We are guiding only quarter by quarter. Apart from that, we are saying that we are on track when it comes to the capacity support plan to achieve the $1 billion goal in 2023. Obviously, then we need to get more wafers. But we haven't seen any significant change on capacity support plan in the latest quarter on the node that Nordic is using for our product lines.

Steel Ytterdal: Then we go over to the gross margin and I think this question goes to Pål.

Petter Kongslie from SpareBank 1 Markets. What do you mean with the comment of full effect of wafer cost increase in Q1 2022?

Pål Elstad: What I mean is that we increase pricing in Q4. Cost of goods sold is based on inventory produced at the earlier stage. So, it will take time to turn around inventory, so that the new cost of goods sold will be linked to the higher prices from our suppliers. Therefore, there's a lag in when cost of goods increases.

Steel Ytterdal: We also have a question from Christoffer Bjørnsen, DNB regarding gross margin. You comment in the report that available capacity has been allocated towards higher margin areas and, as such, structurally lifting the gross margin? Furthermore, you guide for underlying gross margin to remain at the current level through Q1. Will you allocate back to lower margin segments in the rest of the year? Or is it fair to assume that the gross margin will stay above your long-term model at least for the remainder of the year?

Pål Elstad: Yes, the comments I made on the strong underlying gross margins in Q4 related to product mix, we believe, will continue for the rest of 2022. We don't foresee any major changes to that assumption.

Steel Ytterdal: We also have a question from Adam Angelov, Bank of America.

Can you discuss the trajectory of gross margin throughout 2022 from your guided Q1 levels? Your peers in the US yesterday was talking down gross margin from the current guided level throughout 2022?

Pål Elstad: I think I just answered that. Svenn-

Tore Larsen: I think Pål just responded to that question. I think the important thing is that we as a vendor now see that need for more advanced feature and design wins that we have done up till now has been more and more skewed towards high value products and high value products, as most people understand, has higher margins.

Pål Elstad: But for the long term gross margin target, I'd like to refer to what we said in the Capital Markets Day.

Steel Ytterdal: If we go over to the topic of OpEx.

Petter Kongslie, SpareBank 1 Markets. Cash OpEx for cellular was NOK 12.5 million. Is any of this capitalized R&D or is it all OpEx now?

Pål Elstad: For cellular, it's all OpEx. That's right.

Steel Ytterdal: And you have on the same topic – Kristian Spetalen, Arctic – could you comment anything on the cost development in 2022 versus 2021? Can you hire in the same space as before? Or should we expect organic OpEx growth to come down in absolute terms?

Pål Elstad: I think I'll refer to what we said again in the Capital Markets Day.

We expect R&D to be at around or declining towards 20% and SG&A also have a slight decline. Although with the revenue growth, of course, the absolute numbers will continue to increase. But of course, in today's market, it is challenged due to hire – and there is inflation also in the hiring market. So, the absolute terms will increase. Sven-Tore?
Svenn-

Tore Larsen: That's correct.

Steel Ytterdal: You have one more question from Kristian Spetalen, Arctic. You highlight higher performance pay. Was that primarily for Q4, given the sharp OpEx increase quarter by quarter? And should we look at this as a one-off or continue to expect this seasonality in years to come as well?

Pål Elstad: You have to look at it, firstly, for the total year. It was slightly at higher level in Q4, but year-over-year, for the total year, it's probably where we would be.

Steel Ytterdal: Then we've got one more question from Kristian Spetalen, Arctic on CapEx.

Could you clarify, when you say 2022 CapEx in line with 2021, is it in relative terms and not absolute?

Pål Elstad: Now it's the percentage. Not the absolute number, but the percentage of revenue.

Steel Ytterdal: And we have a very nice question from Petter Kongslie, SpareBank 1 Markets regarding the reporting on the markets we have. Why are you changing reporting and how worried are you about the consumer electronics exposure?
Svenn-

Tore Larsen: Not worried at all about consumer exposure. Basically, what we see is that consumer vertical for us will continue to grow because we've won some of the leading global vendors on consumer products.

And I think his question is more related to existing consumer products. And we see strong demand from our existing customers that's driving consumer stronger than we've ever seen.

Pål Elstad: With the new reporting, it will also be easier to see, actually, what the industrial and retail business represents in the total. Svenn-

Tore Larsen: Yes. I think it's important for us to show that we also are growing on the industrial leg of the industry.

Steel Ytterdal: Then we have questions on cellular and we have one from Johannes Reese . Will cellular IoT accelerate during the year? Revenue contribution of cellular IoT included in your 2026 ambition. What is it?
Svenn-

Tore Larsen: The important thing with cellular is that, current, we are selling a module. This module is dependent on external suppliers' products. And we have had challenges getting the external component that we need to build this module.

We hope and expect, as we work in close to our vendors, that we will get more of these external components because we are able to support our own model, our own silicon on these modules, but we are restricted because of lack of external. But we expect to see a strong momentum in 2022 on cellular IoT.

Pål Elstad: And in relation, of course, to the 2026 target we discussed in the Capital Markets Day, cellular will be a material part of the equation. Svenn-

Tore Larsen: Yeah.

Steel Ytterdal: And Johannes Reese also have a question regarding adjacent products.

Adjacent products, do you have any plans for further products in this category in 2022? How important will this part of your offering get in the coming years?
Svenn-

Tore Larsen: We're going to see meaningful revenue on PMICs through 2022. And obviously, as we are progressing, this is going to be part of why we are changing our segment reporting to show that adjacency is adding on revenue for Nordic. It will be an important part.

Steel Ytterdal: We have questions regarding backlog from Petter Kongslie, SpareBank 1 Markets. Can you provide us with how much demand increase was part of the order backlog? Any thoughts would be helpful.

Pål Elstad: So, the increase in order backlog is, of course, as we mentioned earlier, a mix of price and volume increase.

Steel Ytterdal: Also, in the same time, Petter Kongslie, SpareBank 1 Markets is asking, have you increased the lead time from the 52 weeks seen in Q3 2021?
Svenn-

Tore Larsen: I think it's very important that analysts understand that we are shipping through our distribution channels. We have closed discussions with our distributors every day. Obviously, our aim is not to extend our backlog outside the 52-week window. But as we are getting some major customers now having long production planning due to not only Nordic situation, but all the suppliers that have long lead times, we see that approximately 200 – actually not approximately, $203 million is outside the 52-week window of this backlog.

Steel Ytterdal: Then we have a question from Oliver Kielland from SEB. Given the supply demand imbalance, double ordering seemed to be an analyst concern on earning calls across the semiconductor industry. How widespread do you think that is across the industry? And how do you work with your customers to make sure your backlog is real demand only?
Svenn-

Tore Larsen: I think that's a question that we've been sort of monitoring, obviously, since the beginning of this year. And what we see is that all the ODMs that are placing the order have a related price quotation to these orders, and it matches the customers' demand. So what we see is more doubling of volume than double orders.

And that's really an important thing for us now is to ensure that we are able to give sufficient supply to these additional high volume orders, so that we can get the new products into the market and sustainable until the supply challenges are eased.

Steel Ytterdal: We have a question from Henriette Trondsen, Arctic. Can you comment on the level of price increase in the backlog? Expectation is that TSMC has increased prices by around 10 to 15%. Svenn-

Tore Larsen: No, we have not disclosed our exact price increase, and it varies from vertical to vertical. And we feel that it should basically not be disclosed what our customers get of price increase.

Steel Ytterdal: And the last question here from Henriette Trondsen, Arctic. Svenn-

Tore Larsen: Well, I think I would like to do another comment because you believe that we have been increasing costs or prices more than the other suppliers have increased it. But, basically, if you listen to what Pål said, it's mainly driven by product mix. More features is more costly. That's basically what have increased the margins more than price adjustments, except from what happened in December, which Pål explained.

Steel Ytterdal: And we have the last question from Henriette Trondsen, Arctic. In your backlog and Q1 guidance, can you comment on the split between Bluetooth Low Energy, proprietary and cellular?

Pål Elstad: I think the mix is – like, the revenue, Bluetooth or short range is the vast majority of the backlog. We don't split out the backlog per technology.

Steel Ytterdal: We have one more question. The last one before we can let you go is from Øystein Lodgaard, ABG.

When do you think that the current wafer situation is going to normalize? Could that happen in 2023? Or do you think we won't see a normalization until 2024?
Svenn-

Tore Larsen: That's something that I'm not qualified to answer because I think more than Nordic, it is exceptional take-off of IoT. And I think what we do is to build new products on alternative platforms and we will add new products in our portfolio. So, we will ease up the situation on existing platform by adding new products. When the situation is sorted out when it comes to generic supplier shortage, I think it's best to ask the leading suppliers of semiconductor to the market.

Steel Ytterdal: Thank you.

Then I think we are finished with the Q&A questions.
Svenn-

Tore Larsen: Thank you.