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Edited Transcript of NOD.OL earnings conference call or presentation 11-Jul-19 6:00am GMT

Q2 2019 Nordic Semiconductor ASA Earnings Presentation

Oslo Jul 15, 2019 (Thomson StreetEvents) -- Edited Transcript of Nordic Semiconductor ASA earnings conference call or presentation Thursday, July 11, 2019 at 6:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Pål Elstad

Nordic Semiconductor ASA - CFO

* Svenn-Tore Larsen

Nordic Semiconductor ASA - CEO

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Conference Call Participants

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* Aksel Øverland Engebakken

ABG Sundal Collier Holding ASA, Research Division - Lead Analyst

* Andreas Bertheussen

Kepler Cheuvreux, Research Division - Equity Research Analyst

* Christoffer Wang Bjørnsen

DNB Markets, Research Division - Analyst

* Henriette Trondsen

Arctic Securities AS, Research Division - Research Analyst

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Presentation

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Svenn-Tore Larsen, Nordic Semiconductor ASA - CEO [1]

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Good morning, and welcome to the Nordic Semiconductor's second quarter presentation for 2019. So it's like every quarterly presentation, I'll do a quick business update; Pål, our CFO, will go through the numbers; and then we come -- I come back and do business outlook.

So we put together some highlights. What we will see when you look through the report is that we had a very strong backlog, and that's basically increased because of Tier 1 contribution, and it also impacted our revenue this quarter.

And Nordic Bluetooth design win certification this quarter grew by 21% from 125 in Q2 '18 to 151 this quarter. And Nordic design win market share was again at 43%, strong market share.

We have reported quite a few major design wins [report] during this quarter. The record-high backlog was driven by new design win with Tier 1 customers and it's globally.

We had a strong margin this quarter as a result of the investment we've done in supply chain. As you might recall, we got $100 million we raised in April last year. We bought test equipment to be faster to market with the optimal yield, and that really shows on our margins today.

We promised to release software for the cellular IoT products last quarter. We did so now in June.

And also there has been some market uncertainty, and that's been impacting the business willingness to keep inventory. And we have basically managed this adaption to current situation throughout this quarter.

So our revenue was in line with the guidance, was $70.5 million. It's a decrease of 0.9%. The important thing is that Bluetooth had an increase of 7.1% year-on-year. If you recall the quarter, it was an increase of 50% quarter-on-quarter. But we still are impacted by this market uncertainty, but we keep our market share, which is very important.

We had a down of 25.6% in proprietary, and that was basically due to inventory adjustment and I would say not PC, which is the biggest chunk of our business, PC accessories, but non-PC accessories contributed to this revenue decline.

We sampled cellular IoT products for $200,000. It's not bad doing sampling. And back to the backlog, $112 million is close to 40% growth year-on-year.

Our gross margin, 51.2%, is an expansion of 2.2 year-on-year. We really get payback for the investment we did on supply chain, on test equipment. This is the best margin we have had in 4 years.

We see that the design wins that are contributing to revenue growth is the higher n52 family. It really shows that our new customer base, more or less the Tier 1 customers, they want advanced Bluetooth chips.

EBITDA was at $9.8 million. If we adjust that for short range only, we had an EBITDA margin of $15.3 million, which is 21.8%. So that's basically EBITDA on short-range business from Nordic.

So Pål, I'll hand over to you and you do the numbers.

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Pål Elstad, Nordic Semiconductor ASA - CFO [2]

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Thank you, Svenn-Tore. I will go through the financials now.

So it's good to be back on higher revenue. Last quarter, all our operational KPIs saw very negative variances compared to what we've historically shown. But when we're back to $70 million in revenue, we see that the operational leverage gets our KPIs back to what we've seen as the historical trailing numbers.

I'm going to go through this model now, as always. Just remember that the cost items here are the reported numbers, so we haven't adjusted for noncash items. First of all, as Svenn-Tore said, revenue down 0.9%; good growth in Bluetooth offset by the negative proprietary variance. Gross margins, up 2.2 percentage points compared to last year, positive contribution from cost improvements and also a favorable customer and product mix compared to last year.

If you look at our total costs for the quarter, it was 37.3% of revenue or $26.3 million. That's a 5% -- a 5.6% increase from the $24.9 million last year. It's actually down compared to last quarter, but that's the effect on salary pay that we always have in this -- in Q2.

Total R&D, $23.8 million, up from $20.1 million last year. Included in this number is a capitalization of R&D of $3.8 million, slightly higher than last quarter's but more or less the same number as last year. The difference in capitalization this quarter versus last quarter's is that it's less cellular in this number now. This month -- this quarter, it's only $2 million, so $1.8 million relates to the short-range business, which is then development of new products and new variants that we're coming with.

So total cost for the cellular operation in the quarter was $5.6 million versus $3.4 million reported last year. However, the underlying cash cost is an increase from $6.8 million to $7.5 million or about 10%. We're close to 200 people in Finland now. The 200 people is not only working on long range, some of it is also short-range people, but in total, 200 people.

Finally, SG&A, $9.5 million versus $10.6 million last year. Actually, if you adjust for the IFRS 16 effect of $1 million, SG&A is more or less the same. So in the challenging market, we are actually conserving cost while we, at the same time, are ramping business to sell the cellular business in next years.

As Svenn-Tore mentioned, EBITDA margin of close to 14%, same as last year, above 20% for the first time adjusted for the cellular business.

Now I'm going to jump to revenue per market. Nordic, after 2 quarters with negative growth, we have the first quarter where we have flat numbers, and that will, of course, be seen in the change in per market. So you see all of them are more or less flat compared to last year and have a significant growth compared to last quarter. That's both the market improvement but also the seasonal effect Q2 versus Q1.

I'm now going to highlight the main items in each of the markets. If we start with Consumer Electronics, down 3.4% compared to last year. You remember proprietary is down 25%, and proprietary is, to a large extent, in Consumer Electronics. That means that the Bluetooth business in Consumer Electronics is pretty strong and showing a good growth. That growth is sort of a mix between a transition from proprietary to Bluetooth on some of the PC accessory products but also some good designs that we've -- Svenn-Tore has mentioned previously, most of them actually come in, in Consumer Electronics.

Wearables, up 7.3%. $12.7 million is actually the strongest number we've had in Wearables since Q4 of 2015 when our previous big customer in Wearables was at its peak. So we had a rebound in Wearables. There's really 2 reasons for this increase or this good number. First of all, Wearables was very weak in Q1 because Wearables is the market that was hit most of the issues the ODMs had earlier this year due to the trade issue. Secondly, we do have quite a few of very good new design wins both in [Norway] and in China domestic markets within the Wearable market, so a good number.

Building and Retail, more or less flat compared to last year. Really, the only big difference between last year is this RFID customer that we've had for ages had had lower numbers in this year compared to last year. Compared to last quarter, a 60% increase. There's some really good smart home applications and also beacon, asset trackers in that number.

Healthcare has been more or less flat for the last quarters, also this quarter, up 1.5% versus last year. This is a market we're investing a lot and then coming up with new products and new variants, so we hope to gain traction in this market because it's an important market in Bluetooth.

Finally, Others, good contribution from all our module partners.

Talk about gross margin. In 2016, when we experienced significant yield problems on the -- in connection with the introduction of the 52, we had margin far down on the 50s. We started guiding on a target for 50% on gross margin. Since that date, we've been able to more or less constantly increase our gross margin. And for the fourth consecutive quarter, we're above our 50% target.

We've talked about these improvements many times. It comes as a result of strong operational performance, where we now don't have all the waste when we introduce new products. We've had good wafer savings. And also we now have a much broader portfolio, so we're able to sell direct products to the right price. Also as Svenn-Tore mentioned, we've done investment in test equipment. So when we ramp new products, scrap is much less than it was back in 2016, 2017.

If you look at what it was last quarter, it's more or less flat, a little bit unfavorable customer mix but a favorable product mix as there is still like a pull for the more high-value Bluetooth products. We do anticipate quarter-to-quarter fluctuations. And also when cellular IoT starts ramping, you need to look at the total gross margin for the group.

Cash OpEx, this number is adjusted for capitalization and equity compensation. As reported previously, we are continuing to ramp to capture future growth opportunities. So we are increasing the number of employees. If you look at Q1 versus Q2, there's a small increase of 0.2% in cash cost. There's a reduction in salaries due to salary pay, holiday pay. There's an increase in other OpEx. That's mainly costs related to all the certification work we're doing now with our cellular product.

Compared to last year, there's an OpEx increase at around 5% or 8.8% if you adjust for IFRS 16. This increase is mainly driven by a 14% increase in employees. We're now 717 employees compared to 629 a year ago. The reason the OpEx goes up less than the employee increase is that we do have a continued favorable FX effect in accounts with the weakening of the NOK compared to last year.

Final slide on cash flow. Since Q2 represents the quarter where we're back to growth, so we've had 2 quarters with decline in revenue, we will then in Q2 always have a cash outflow due to buildup of working capital. We've also seen this in Q2, so a negative cash of $10 million in the quarter. This was compared to a negative cash of $4 million the same quarter a year ago.

However, if you look at the reduction in accounts receivable -- or the increase in accounts receivable of $10 million, this is actually less than the $70 million increase in revenue, so it shows that we're able to keep the payment terms and the DSO with our customers even in a challenging market. So I think that's good.

If you look at the CapEx, $4.1 million, slightly below the guided amount, we are -- it's taking time to build the lab equipment and ramping the facilities we've talked about, so this is more or less a delay into the next quarters, and Svenn-Tore will mention that on the guiding slide.

Finally, we're continuing our disciplined cash strategy, and we do have a very tight cash management, and we're trying to optimize our cash generating ability.

Okay, Svenn-Tore, I hand over to you again.

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Svenn-Tore Larsen, Nordic Semiconductor ASA - CEO [3]

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So every quarter, we show some new Nordic powered products. This time, we pick a selection of products I think very much representative of what we've been doing of design-in activity and where we do design-in activity.

We have -- Logitech have just released a G703. It's a new gaming mouse. And Logitech are doing very well on gaming if you look at their numbers. And Nordic is part of this gaming wave. We are continuing to winning the BLE products at Logitech, so we are proud of that.

Sikom is a Zigbee thermostat. We've been talking about Zigbee for many years. This is the first pure Zigbee application with Nordic inside. Who do we compete with? We compete with the guys that basically are pushing and selling Zigbee only. So our multiple platform product won against our optimized Zigbee product. We're proud of this design.

We also see that energy measurement, this is basically a product you can put onto your power core and measure your electricity flow, again with the 52 series.

Another meter is sub-water meter reader using Nordic again. We see that these meterings are getting more and more smart. They have to use either Zigbee or Bluetooth or might be even some of them use Thread. And remember, we have solution for all those 3 protocols. It's a target market for Nordic.

At the right-end corner, you see Braveridge, which is a Japanese company using Nordic for asset tracking both for short and long range. That's the first product we see. We combined the cellular long-range product with the 52 family. We spoke about that some years ago when we started doing the cellular that we might see combinations in the same end product. If you look straight ahead, you see it. It's great.

Every half year, we show this slide, how many design kit did we ship into the market. We shipped close to 40,000 products into the market the first half. It's a new record. It's a 33% growth from first half 2019. And what we see is that there's a significant contribution of the 52840. And to remind you, the 52840 is the most complex BLE shipped from Nordic. We believe that the applications we see now is getting more and more complex. You need CPU power. This is what we took the bet on 4 years back, and it was correct.

Also, if you go under the numbers, you see that we shipped 2,791 the long-range kit first half of this year. So we still believe this is a leading indicator of the market growth. And what we also see is there is a continuous strong diversification of application where we get in. So this is a leading indicator of our position, and we have an attractive and also competitive solutions. If I go back one slide, if you look at Sikom, we compete against the guys that are doing Zigbee. We won with our combined platform, the 840.

It was a record quarter for our certifications. End-product certification ended at 151; it's the largest number we've ever seen. It's a 21% growth year-on-year, and it's up 11% from last quarter. And you see, again, that this red bar at the right-hand side, which is Others, are contracting. We see that there is coming newcomers into the market every half year or every quarter, but still, you cannot have a sustained workplace in this market with 1 or 2 or 10 design wins a quarter because investment to be able to give value to customers is not supported by companies doing 1 to 5 design wins a quarter. This will consolidate.

So last quarter, I spoke about a segment called lighting. We believe that professional lighting will be smart. This quarter, we're talking about commercial asset tracking, and you've all seen tags to make assets smarter. You see all the sensors out there. Nordic is winning those designs and obviously, makes easier for doing safety, inventory and security. And usually, it's a relatively simple application where our low-end part, the 52810, fits in.

And then you have more advanced parts where you do tracking and gateways. And these gateways, the indoor location, they support mesh protocols, and some of them are using Bluetooth, Zigbee and Thread. Is it familiar? It's what Nordic support. So basically, one product, the 840, support all these 3 protocols, and we can enable these gateways to be built.

And if you want new data up to cloud, we can add on a 91 module and basically have a complete system built around our technology. So this is a segment that's going to grow over the next years to come.

Well, obviously we have what we are familiar with, the stand-alone asset tracking application. The 52810 can be used on low-cost consumer application. And then we have the 9160, which is a GPS tracker. And what we have shown you is pets, livestock, this application that's already out there. And we see again asset tracking really fits the Nordic technology.

And our customers tells us, too. Tile, one of the leading companies within trackers, and CJ, he has actually had a press release and toured around the world saying how important it is for Tile to get part of the Nordic infrastructure. We are building an infrastructure that these partners want to hook up with. That's our, I would say, secondary strength.

The first strength is obviously the parts itself. But when you do have your infrastructure build out there and most customer using the Nordic, then basically, others want to hook on to the same infrastructure. On consumer is Tile. On industrial is a company called Quuppa, which some of you might know of, which is doing the same but more for industrial applications. And we have a company called H&D Wireless, which are basically using a combined solution again. So it just proves that the combination of short- and long-range makes new segments open for Nordic.

We have now a qualified Amazon FreeRTOS for nRF52840, so it's available now. So basically, you can go to AWS and use the software and use the Nordic chips. We are not the first but we're there, and it's a new opportunity for all the -- everybody using the AWS.

A quarter ago, we talked about production status for 91, and we said they're going to be delivered in June. We did so. 9160 SICA, the SIBA, the SIAA is all now in production.

We are finally getting certification in place both for LTE-M and narrowband IoT. It has taken some time, a little bit longer than we had anticipated, but now it's coming. And obviously, it is impacting the time to revenue for us, but we are there at the moment. And we support all LTE bands: both LTE-M, all the bands; narrowband IoT, all the bands. We're certified by GCF, PTCRB, CE, FCC, ISED. And we are very close to get the Verizon certification out, and we expect that to happen now in July.

So guys, if you have a project in your room at home, you can start buying modules from Nordic. If you're working in a large corporation and you want to have a secure and good LTE connection, again, you can contact us and we deliver.

And I have to say there is a lot of good and smart engineers in Norway also. I mean, this is a product which a company called Telespor is doing. I call it Radiobjella. For you that's listening on the webcast and doesn't know Norwegian, it's a product that you stick around the neck for sheeps. It's out there in the market today. I mean these sheeps are walking around with this orange Radiobjella today in the West Coast of Norway.

It reports GPS position at different intervals. You can define what you want. Tagging is a 2-way device. You can set alarms. For example, when there is no movement, you think that the sheep doesn't move for a day, must be something wrong. And if you know, currently, there is a lot of legal requirement for livestock, and this help the farmers to fulfill their legal responsibility. And if you see here on the left side, in the bottom, this is the actual size.

So this is a product that we see -- we have shown you one more similar product, it was on livestock in Finland at the reindeer. Now we see sheeps. And we all know that there is a couple of sheep, for example, in New Zealand. So this market is relatively significant for Nordic.

So if you look at our guidance now for 2019 Q3. We have a range between $78 million and $83 million. We have a strong backlog, and we're certainly back to growth in Bluetooth. And we think that within $78 million to $83 million is a good range to expect.

When it comes to gross margin, we're going to have a continued strong gross margin. If you look at our backlog, it's strong, was $112 million. Then we said that there is Tier 1 customers that contribute to this backlog. That's why we want to set the expectations that it's not going to be another 2.2% growth in margin, but we're going to keep it around 50%.

We know that we will use around $4 million to $5 million in CapEx to continue to expand and accelerate the 9160 product to the market. And also, we need to ensure we have test capacity to ship out this $112 million that's going to be increasing over time.

And just a brief foil at end. We want to have a Capital Markets Day. It's going to be following the Q3 presentation on October 22. We're going to deep dive into sales model, go-to-market strategy for both short and long range. We will have an update on the progress with long-range certification and design wins. We're going to be more open with our technology and R&D road map. And we will send a detailed information to you guys in September.

This concludes the presentation. And then Q&A, and then we have some questions here. Can we get the microphone, please?

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Questions and Answers

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Henriette Trondsen, Arctic Securities AS, Research Division - Research Analyst [1]

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Henriette Trondsen, Arctic. Good to see that you are now back to -- with the smart growth this quarter. First, your order backlog was quite solid this quarter. And you write in your presentation that you have increased Tier 1 contribution in your backlog.

So first, could you give some more color on the customer concentration, the backlog? How much of your backlog is from Tier 1 customer or your top 5 customers, for instance?

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Svenn-Tore Larsen, Nordic Semiconductor ASA - CEO [2]

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We are not commenting on whether it's Tier 1 or each customer, but obviously, to have this jump of 40%, it must be some larger companies in the backlog. And we are going to see a shift in our current top 10 customers as a result of invoicing the backlog this coming quarter.

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Pål Elstad, Nordic Semiconductor ASA - CFO [3]

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But the top 10 has been around 10 -- 30%, 35%. It's probably going to increase, but it's not going to increase -- it's not a huge increase. It's gradually going to increase.

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Svenn-Tore Larsen, Nordic Semiconductor ASA - CEO [4]

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It will gradually increase as more than one product from each customer starts going into production.

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Henriette Trondsen, Arctic Securities AS, Research Division - Research Analyst [5]

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Okay. And your Q3 guidance, could you give some more color on the split between Bluetooth Smart and proprietary? Because Bluetooth Smart, you are now back to growth, and you have eased your year-over-year comps and also may be supported but (inaudible).

And last one, on cellular, you mentioned that you expect cellular to pick -- growth to pick up in the second half of '19. Could you quantify this somewhat more? And also for 2020, do you still expect the cellular segment to break even during next week? And if you could remind us -- no, next year maybe? And if you could quantify what that implies in revenues for 2020?

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Svenn-Tore Larsen, Nordic Semiconductor ASA - CEO [6]

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Yes. Let's take each question. I mean if you look at cellular, we have had some great progress lately. We're starting to get certified globally, so a lot of good things have happened. It's been a slower certification process than we expected, so this will be a stretch goal to reach the breakeven, but we still believe that it's absolutely possible. And it's another 18 months before we end 2020, so we are positive, optimistic and believe that the goal is still achievable.

So you wanted to know more about Bluetooth contribution in Q3. That's going to be strong. And the other part of your question, Henriette?

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Henriette Trondsen, Arctic Securities AS, Research Division - Research Analyst [7]

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You wrote that cellular revenues will pick up during the second half; if you could quantify this.

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Svenn-Tore Larsen, Nordic Semiconductor ASA - CEO [8]

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No, we cannot quantify. We are not guiding on each product line, but we see that we have been shipping around 200,000 samples in Q2. And there will be some of these customer that will go to production in end of 2022 -- 2019, as we have said. But we are not going to split it out.

Christoffer?

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Christoffer Wang Bjørnsen, DNB Markets, Research Division - Analyst [9]

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Christoffer here from DNB Markets. Just to clarify on the guidance for proprietary, you did some commentary on it in the Q3 report and said they were going to be down single digit, if I remember correctly. Was that incorrect or do you expect it to be down single digit year-over-year in Q3?

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Unidentified Participant [10]

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More than single digit.

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Pål Elstad, Nordic Semiconductor ASA - CFO [11]

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More than single digit, I think. Are you talking about the Q -- this report? We said more than single digit.

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Svenn-Tore Larsen, Nordic Semiconductor ASA - CEO [12]

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In Q3 report -- in Q2 report, we arrived that we have strong comparables in Q3, and we expect to be more than single digit in Q3. Second half is a different answer but we'll come back to that in the markets -- Capital Markets Day.

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Christoffer Wang Bjørnsen, DNB Markets, Research Division - Analyst [13]

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Sure. And is that based on -- you wrote that you had some issues like you still -- like you said with the smaller customers in the proprietary business. When you have the guidance for more than single-digit decline, is that assuming that these guys will still be out of the picture? And -- or...

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Svenn-Tore Larsen, Nordic Semiconductor ASA - CEO [14]

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Yes, we can -- yes.

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Christoffer Wang Bjørnsen, DNB Markets, Research Division - Analyst [15]

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Yes? Great. And then just as kind of a follow-up on Henriette's question on the cellular business in the second half, could you just give us some more color on what recent events gave you confidence that you will see revenues ramp?

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Svenn-Tore Larsen, Nordic Semiconductor ASA - CEO [16]

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Because we've been shipping samples already from Q1 this year, and it takes some time to build the end product, but when it's built, when we've been certified, the whole infrastructure is ready to go. So it very much depends on our customers' initial production rate, but we will get some customers into production this year.

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Christoffer Wang Bjørnsen, DNB Markets, Research Division - Analyst [17]

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Yes. Okay. Then a final one from me is on head count. Could you say anything about how much we expect head count to increase year-over-year in 2019?

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Pål Elstad, Nordic Semiconductor ASA - CFO [18]

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We haven't exactly said that. But you look at what I've said previous quarters is that the growth will be more or less at the same pace, at least not more, so around the average we've had the last quarters.

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Svenn-Tore Larsen, Nordic Semiconductor ASA - CEO [19]

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But I think we have to turn that question a little bit around. We have to look at opportunities we have and the means to be able to fulfill those opportunities. And as we are getting more into new segments and, I would say, a new customer base, we have larger opportunities, and we have to deliver faster, and we are not restricting head count.

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Christoffer Wang Bjørnsen, DNB Markets, Research Division - Analyst [20]

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Sorry, I just -- maybe another one. There was news out, I think it was yesterday or the day before that, that keyboards from Logitech and mice and presenters have been found to be exposed to some security vulnerabilities. And these are products where you supply the only chipset in there.

I'm not asking you to comment on Logitech in particular because you can't do that. But in general, how do you usually handle these kind of situations? How does it kind of risk? Does this mean you could lose your customer? Or you just do firmware update? Or how does it work?

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Svenn-Tore Larsen, Nordic Semiconductor ASA - CEO [21]

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First of all, we never comment on individual customers. Secondly, any MCU or any radio can be hacked so -- but obviously, if such a situation occurred, we will work with our customer and ensure that they get the optimal security. So it's a case that will happen in the future also, and we are working tightly with all customers to ensure not to reoccur.

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Aksel Øverland Engebakken, ABG Sundal Collier Holding ASA, Research Division - Lead Analyst [22]

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Aksel from ABG. So first, a question on backlog, no guidance methodology. So you say that the uncertainty in the market that -- and you heard in Q2 will also prevail in Q3. Now how does that impact your guidance range? Is it such that you put in a safety margin and lower the guidance range or do you make a wider guidance range? How do you approach market uncertainty in the guidance range?

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Svenn-Tore Larsen, Nordic Semiconductor ASA - CEO [23]

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If you look at the percentage, it's not increased, so we don't increase the range. If you look at the general conditions, I mean there is parameters outside Nordic control. So I think based on the company's history, it's better to be very realistic when you do guiding.

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Pål Elstad, Nordic Semiconductor ASA - CFO [24]

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And also, the backlog, it seems to have some more impact of bigger customers. It's the range or the time line is increasing. It's sort of going into 2020 also. So it's a mix from quarter-to-quarter.

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Aksel Øverland Engebakken, ABG Sundal Collier Holding ASA, Research Division - Lead Analyst [25]

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Okay. But better safe than sorry is the correct interpretation.

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Svenn-Tore Larsen, Nordic Semiconductor ASA - CEO [26]

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I think any company that are guiding today is more conservative than aggressive when you know what current state we are in.

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Aksel Øverland Engebakken, ABG Sundal Collier Holding ASA, Research Division - Lead Analyst [27]

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All right. One more question on the proprietary sales. So you mentioned the channel effect, and you mentioned weak PC.

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Svenn-Tore Larsen, Nordic Semiconductor ASA - CEO [28]

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No, no. We did not. We said there were weakness outside PC.

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Aksel Øverland Engebakken, ABG Sundal Collier Holding ASA, Research Division - Lead Analyst [29]

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Weakness outside PC, yes.

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Pål Elstad, Nordic Semiconductor ASA - CFO [30]

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Not on PC.

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Aksel Øverland Engebakken, ABG Sundal Collier Holding ASA, Research Division - Lead Analyst [31]

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Is it possible to sort of split those 2 effects?

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Svenn-Tore Larsen, Nordic Semiconductor ASA - CEO [32]

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It is, but we basically did. We say that the PC peripheral business has not been as affected as medium-sized, smaller customers that are in a lot of other applications.

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Pål Elstad, Nordic Semiconductor ASA - CFO [33]

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Your question is really is can we split between inventory and non-PC's weakness. I think that it's more or less a double dip because there's -- if there's weak in other, there will also be inventory adjustments because there's a weak market. So I would say that these 2 are linked, and they're probably similar.

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Svenn-Tore Larsen, Nordic Semiconductor ASA - CEO [34]

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Or we can be even more specific. What we see is that our distributors' channel are basically limited their inventory, holding of inventory, and it's an effect that have been on all semiconductor companies. As we are growing relatively strong on Bluetooth low energy, most of the inventory we are shipping to our distri partners has to reflect what's going to be the fast-growing product.

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Aksel Øverland Engebakken, ABG Sundal Collier Holding ASA, Research Division - Lead Analyst [35]

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Okay. And just a final one, following up on previous questions on cellular revenue. Towards the end of the year, what would make you pleased being able to ship out? What kind of volume in, say, Q4 would make you very happy as it's done now?

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Svenn-Tore Larsen, Nordic Semiconductor ASA - CEO [36]

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I think we are not looking at cellular proprietary or BLE separately only to make us happy. What we are -- making us happy is that we achieve the goals we set. And we've been working for many years now to be the leader of BLE. We want to ensure that we get those Tier 1 customer contribute to the revenue growth that Nordic as a company need.

We know we've been doing a lot of good things, and things are starting to happen on long-range, the cellular. And we will be disappointed if we don't see revenue end of this year, but we haven't put a range of where we are going to disappoint or where we're going to be happy. We know that we have a goal is to try to get breakeven in 2020, and that's the first milestone where we're going to be happy or not happy.

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Aksel Øverland Engebakken, ABG Sundal Collier Holding ASA, Research Division - Lead Analyst [37]

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And just remind me, the implied revenue to break even in 2020, what kind of run rate revenue would that be?

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Svenn-Tore Larsen, Nordic Semiconductor ASA - CEO [38]

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It depends on margin, but currently, we look around 65.

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Andreas Bertheussen, Kepler Cheuvreux, Research Division - Equity Research Analyst [39]

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Andreas Bertheussen, Kepler Cheuvreux. Two quick ones, if I may. So you reported revenue growth in Bluetooth better than expected, I guess. Can you help us get comfortable that the 7% increase in year-on-year on Bluetooth was driven by actual new growth in Bluetooth and not sort of a cannibalization of the proprietary business, which was again weaker than expected?

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Svenn-Tore Larsen, Nordic Semiconductor ASA - CEO [40]

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Yes. Quick answer is yes. This is new application using Bluetooth and not really taking out from proprietary.

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Andreas Bertheussen, Kepler Cheuvreux, Research Division - Equity Research Analyst [41]

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Then I guess will you change the way you do this?

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Svenn-Tore Larsen, Nordic Semiconductor ASA - CEO [42]

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No.

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Andreas Bertheussen, Kepler Cheuvreux, Research Division - Equity Research Analyst [43]

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Okay. And second question, there is, of course, now becoming a mismatch between the backlog and the guidance for Q3 in terms of size. Can you help us understand what your customers are telling you when they place decent big orders? Of course, it's, as you say, out in 2020. But what are they feeling right now? Are they seeing that, yes, we will; we're hopeful for 2020? Or we will buy this in 2020, but we, of course, won't buy now because things are uncertain?

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Svenn-Tore Larsen, Nordic Semiconductor ASA - CEO [44]

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Obviously, we have customers that have production plants and plans, and we also go in and replace existing or older products in existing end product that is keep running. So this is a more stable production. So we know exactly when to ship, and we have days on all backlog. So this is not a hopeful orders. This is real orders are going to be affected on real dates.

Cool. Thanks a lot for your questions. You guys have a good day. And...

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Pål Elstad, Nordic Semiconductor ASA - CFO [45]

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Thank you.

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Svenn-Tore Larsen, Nordic Semiconductor ASA - CEO [46]

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A nice summer. Thank you.