Nordic Semiconductor — Call Transcript 2019

Speaker 9: Good afternoon, everyone. Welcome to our combined event today. We're going to have a Capital Markets Day, we're going to release our Q3 numbers in the same moment. It's nice to see so many here, also welcome to everybody on webcast. Market leader in IoT is Nordic. We've been into IoT before it really existed, acronym saying IoT. We started with doing heart rates and send it to mobile phones and to the cloud before anyone mentions IoT. We've been capitalizing on this early start. Today, let's check out agenda very quickly. I do some financial highlights for Q3, talk a little bit about the pillar and the fact that we are a market leader within IoT. Geir, our sales director, will do go-to-market strategy. We have our honorable guest from FedEx talking about delivering the future. FedEx do deliver, and it's going to be exciting to see how they're going to deliver in the future. We're going to have a short break. Kjetil, Director of Product Management, will do a short-range update for you guys that are unfamiliar with short range, is BLE and products for BLE. Svein-Egil, our CTO, will do a speech on cellular IoT. Finally, Pål will do financials. We have some minutes set off to summary and outlook and Q&A by end of the day. We hope as many as possible will stay and get the whole event. It's great news even at the end. Let's look at the Q3 highlights. We guided a strong Q3, and we deliver according to guidance. We also continue to guide a strong outlook for Q4. We came in at $82.2 million. It's a 16.5% growth compared to last quarter. We guided margins around 50. We came in around 50. Q3 was all in line with what we guided. Q4 guidance, we see the sweet spot around 25% growth year-on-year. We also see we're going to keep the margins around the same level. Why? Because tier 1 customers are starting to place orders. If you look here, you see that it was a 45% up compared to Q3 2019. I think that the most important thing here is to see Nordic going out of Q2 with a record high backlog, was 112, going into seasonal peak quarter, which is Q3, is sound logic. It's pure logic. Should be a strong backlog going into peak quarter. Exiting Q3, we go into Q4 and Q1, which basically is not seasonal, the strongest quarter for us. Despite, we managed to increase the backlog to $113 million, $114 million, almost. This is because we see volume orders coming in from our new tier 1 customers. I said we are market leader in IoT. I am going to explain why we do it. I will take the overall picture, and the other guys after me will deep dive into each of these points. Most of you in the room know Nordic, maybe somebody on the webcast doesn't do it. I have to bore you that know that we are a fabless semiconductor company, specialized in low-power wireless connectivity and embedded processing. That's important. We are market leader in Bluetooth Low Energy. We have expanded into 802.15.4, Thread, and Zigbee, and we are now starting to get into low-power cellular IoT with LTE-M and Narrowband IoT technologies. Actually, we had a revenue of NOK 500 thousand in Q3 on cellular. We are approximately 750 people. We have been growing because the new customer base have pretty tough demands on us, both on timing and on products we have to deliver. This is what some guys internally describe as a perfect storm. We're getting through this. We are managing to do a lot of new work now, and we are able to get engineers to perform all the tasks that are put on Nordic. This has been a long-lasting growth journey, and it has just begun. We started back in 2002 with a slogan that we called Cut the Wire. We want to sort of free the gamers from the TV and the boxes. We did that with a 2.4 gigahertz proprietary solution. In 2006, we started to think, if we should get this curve up here to grow, we need to enter into a standard. We start working with other companies and form something we call Wibree Alliance. This Wibree turned in to be BLE, Bluetooth Low Energy, and was officially ratified by Bluetooth. We looked at where can we benefit from having the first Bluetooth Low Energy parts on the market, and wearables, the first application that we call IoT wearables, when you took your heart rate, move it to the cloud, was the obvious choice. We got a great position in wearables. I would say since 2016, we have seen the diverse of IoT, and today we have multiple segments that are in production, and we have some new disruptive segments, which we will talk about a little bit later in the presentation. That will take these revenue levels to new levels. We are the clear market leader in Bluetooth Low Energy. I mean, we have more than double the numbers of designs than number two, and we are seven, eight X times as many as the three to six guys in the list. We are proud to be the leader. In Q3, we had 44% market share. There is 2,100 Bluetooth Low Energy products certified since 2014. 2,100 products out there using Nordic BLE. If you look at last 12 months, the accumulated market share is 42% on design wins. We are proud to call it a success, and it's built on six strategic pillars. As a connectivity company, it's obvious we have to lead on connectivity. As a relatively small player, we have to excite the developers we meet. We need to show customer engagement. We need to understand every time we meet a customer, we need to perform, and we do. There has to be scalability within the company. Most of all, we need to invest early to ensure that we have products out in time to take the wave that comes. We have been pretty good with 2.4 gigahertz proprietary. We got the HID market, wireless keyboard, wireless mouse. We had a time where we are up to 70% market share. We were pretty good with the Bluetooth Low Energy. We have had a high market share years back behind us. We are going to be good in LTE. We have great products with Svein-Egil, we'll talk about later on. Obviously, with all this investment we are doing, we have to have high financial ambitions, which we have. Lead on connectivity. Most important, low power, high performance. You have to be feature-rich. Some of the applications we're in today demand more than just connectivity. With all these products spread around the globe, you have to have a robust protocol so you can connect to any device that is nearby Bluetooth. It's no point having the lowest cost Bluetooth chip if it does not connect. That's what we see. Sometimes our competitors have been used by certain customers when they come back to us because it didn't really connect. As we get into more advanced products, it could be basically serious if it doesn't connect. When it comes to a heart rate monitor, it's not that much matter because you didn't get your heart rate on your phone. If you don't get your insulin when it's required, it could matter a little bit more. Lead on connectivity. We have a strong connectivity and applications offering. Man, we have shipped more than 2 billion ICs. We made our Bluetooth chip into a broad platform. We can cover advanced features and less advanced. Most of all, as I have spoken about, as my team spoken for a long time, there won't be only one protocol when it comes to IoT. We think there will be multiple protocols. Nordic has flash memory. Why? We want to offer these multi-protocol solutions. I think when you see two, three years ahead, you will see more than just the Bluetooth that's going to take market share in IoT. Embedded software, we need to ensure that our customer can do his software onto our radio chip. We start maybe going a little bit away from calling it a radio chip. It's a microcontroller with radio. We make system-in-packages. Obviously, you can't have all the good ICs chips in the world unless you have development tools that support them. The feedback to Nordic is that we have excellent tech support, and we see the activity on DevZone, which is increasing week by week. It's in use, and it's a good addition to our standard technical support. We are winning prizes. It's great. I think it is cool to see that if you look here, [nRF9160 Cellular IoT], shortlist for best connectivity solution in China. We are getting recognition, which I think my team certainly needs. To everyone listening within Nordic, thanks for your great job to be able to win these awards. Excite developers. Who doesn't want to be excited? Sometimes in different occasions. When you sit on your desk 10 hours every day doing design work, if someone come in and excite you, it drive engagement. The important thing is we do have ICs, we do have stacks, we have SDK, we have DevZone, we have software, and it's going to be easy to design your product. From an idea to getting the product out there from production, it's important that you have less hurdles as possible. Our site, website, had more than 2.4 million hits the last 12 months. We've seen 80,000 independent developers. We are having what we call Nordic Tech Tours, where qualified engineers from Nordic travel the globe at locations where we think there is enough design community that they deserve a trip, and it works. We have blogs, we have guides, we have Wireless Quarter tutorials and web seminars. Basically, we are trying to drive this company as, I would say, technology-wise is possible with all tutorials and webinars to reach a larger crowd. We are reaching out. We, as a result, we see strong growth in our development kits. If you look at this last bar, 10% of this is related to the Cellular, the nRF91. 10% of kits shipped over the last 12 months has been related to Cellular. Engagement with customer. Geir will talk a lot about this in his presentation. We have to be able to combine the broad market and the tier 1 customers and engage with both of them. Why is that important? If you see on the under part of my presentation here, you see some companies that are providing hubs. These are the guys where IoT gadgets will use as hubs. It's important to penetrate these customers, as important it is to ensure that all new good ideas within consumer, within wearables, building retail, healthcare, have a hub to connect to. We need to ensure to work on both segments. We have to make sales optimized for both. Geir going to show how we do that. Lately, we have had increased focus on platforms and their growing ecosystems. Scalability. We need to scale across technology, market, and customers. It's important. I mean, we are all started off as connectivity. Power, performance, features, and features are important, and reliability. We understand that the customers need now is more embedded processing, we need to have performance, we have to have memory, we have to have IOs in, out. The software has to be easy to use, and it's going to bring value for the customer, so it's easy for the customer to write his own application software. Security, more and more important. Nordic were very early adapting security algorithms, and our R&D are using the latest IPs on security to protect customers' software and our end customers' use of end product. Over some time, quite a bit of people have told me that Bluetooth Low Energy is going to be a commodity. ASP is squeezed from everywhere. What we've seen is the opposite. Since 2016, our ASP had grown with 14%. It's basically features that Nordic is introducing into our chips. As we get more and more complex applications, it's important for us to understand and pick out the right feature to put into our platforms, which up till now has been maybe if you look back four or five years, was difficult. Lately, the last years, we've been talking to the tier 1 customers. Remember the ones that are going to make the hubs, the platform guys? They tell us what they require. Amazingly, we managed to do it. It's important to have good dialogue with customers, and that's what we have done for years. Invest early and identify high growth markets. Extremely important. From we start deciding that we want to build a new product until it's in the market, is years. We take sometimes decisions ahead of what we expect when it's going to be in the market, we have to take the right choices, and it's much easier for us to do that when we do have good intelligence from end customers. If you look at discussions around the globe on cellular IoT, even on paper you usually read, I think, The Economist a couple of weeks ago said this is chips with everything and for everything. If you look at all the forecasts that are out there regarding IoT market, it's billions and Business Insider talks of billions. Arm talk about trillions. I can say there is at least one common factor here. It's a large number. We are positioned to take parts of these numbers. We do have short range, long range. We are the only company that can cover the total footprint. Look at external analysts that talk from IHS and talk about the Bluetooth market, this is outlook I see from now till 2023 of million of units. Strong growth, this is the growth in what I call the established verticals. What we are going to talk about today is potential disruptive growth in several areas, which is not all covered in these outlooks. Smart home, a lot of you heard about smart home, smart lighting, medical devices, we are not talking too much about logistics asset tracking today because we have a representative from FedEx will do that. Get a third-party look on how they expect to see logistics panning out the years to come and what kind of technology do they need to realize their plans. We are confident in the long-term cellular IoT outlook. Unfortunately, volumes and revenues being pushed out in time by some factor, carrier and the industry ecosystem hasn't been as early mature as we had hoped. There has been more challenges with software development, is we have added functions. There have been some delay in certification process. We see that customer development cycle are relatively long. Despite, we are more confident in our long-term cellular outlook, IoT outlook than we have ever been. We start seeing these activities that we like. We recognize the pattern from what happened when we start getting momentum in Bluetooth Low Energy. It's not unfortunately going to be in 2020. It's disappointing for us, but it's a realistic thing and we have to accept that we live in a real world where we don't control all parameters ourself. Was a famous American that had a dream. We have an aspiration. We're going to build a NOK 1 billion company within five years. We expect a growth between 20%-30% for Bluetooth and multi-protocol products. We are gradually building up the cellular IoT business to be a similar size as the short-range business in five years. It's nice to have aspiration, and it's good when you can put it into a spreadsheet and see it works out. Now I will hand the podium to Geir, who's going to go through our go-to-market strategy.

Speaker 2: All right. Thank you, Svenn-Tore. My name is Geir Langeland. I'm the Director of Sales and Marketing in Nordic Semiconductor. I'll take you through our go-to-market strategy. First of all, I'd like to start by very quickly going through our DNA, what governs and rules our decisions, and how we behave. In Nordic, the customer has been in the center of everything we do for more than two decades. We've also believed in product leadership with quality, low power being our number one factors. We've also chosen to be very agile and try to be very disruptive in what we've put onto the market. As you've seen, in 2012, when we launched the first series of our Bluetooth Low Energy with Flash, and then 2016, and then the cellular products. We also pride ourselves in outstanding tech support, and that's what's reported back to us through our annual customer surveys. Next, ease of use has been extremely important over these last almost 20 years. We've always put the customer first and made our tools available. We've modernized. We've become an app company. We have mobile apps that's consistently receiving very high downloads. We have desktop tools running on different platforms. We're very scalable. Svenn-Tore mentioned that we ship development kits across the globe, and also very importantly, DevZone. I think with the growth of customers we've had over the last two decades, there is no way we could put enough application engineers in place in the globe. We need sort of scalable support. We like to think of ourselves as open. It's a very controversial topic. Do you want open source? We have nothing to hide. We open source a lot of the new software we make. Our engineers' comments are available to our customers' engineers, so they see what we've thought and stuff when we made the products. They're very familiar with the IDs. We also believe it should be easy to get data sheets and documentation. A few years ago, we removed the login needed to access that on our webpage. We also engage in education. We're active in university programs across the globe. We also contributed to the BBC micro:bit program that's rolled out with millions of schoolchildren across the globe. There's a lot of activity going on. Finally, Svenn-Tore mentioned engagement. We engage with our customers. Back in 2012, we started an initiative in the Nordic Tech Tour. All the other guys in the industry were doing Webex seminars. We think, "Okay, let's be different. Let's put people on the road and train the engineers." The first time we did this, we had sort of 1,000 engineers globally attend our seminars. They get to engage and meet our people. They get to feed back stuff directly into the source. All of this is constituting our DNA. It's what we believe in. It's what we practice every day. We like to think that it sets us apart from other companies with a huge follower on LinkedIn and Facebook. We actually get responses back. People are interested in what we're doing. I'd like to take you on a customer journey. This DNA has given us a strong position in the broad market era. How does it actually work? How do customers find our information? How do they get engaged with Nordic? In our situation, word of mouth from engineers to engineers is actually the number 1 referral factor. It's more important than Google searchability. It's pleased customers relating to others, "Okay, this is a good company. You should work with them." People will also read our Wireless Quarter that is distributed on your desks. It's actually a magazine we make as a company with high editorial value. It's online. They would search for our information. We're searchable on Google, Facebook, LinkedIn, Twitter, and Instagram. They figure out, okay, the next Tech Tour in my region, it could be in the U.S. or APAC or Europe, is coming up very soon. They will attend the Tech Tour and get the information from our engineers. The next issue is how do you get hold of development tools? 10 years ago, you had to find a distributor on the web page and set up an account and stuff. Now, people would go online, Digi-Key, Mouser, or any of the other leading retailers, and they ship it, and it arrives from the U.S. or any other warehouse to your desk in less than 48 hours. Of course, you go online, you download user manuals or look at the videos, the go-to guides, and start developing. You hook up the kit. As we're driving thousands of customers, a lot of these broad market customers get their information from the DevZone, where engineers support engineers. Some of them get supported from the Nordic team. Then in the timeframe of, could be 6 months, more likely 18 months, you have a product ready to go to the market. This has taken us from nothing to a broad market leader in five years. We didn't even know what a catalog sales company was a little more than five years ago. Now we have it confirmed for this term. We've actually done a survey with Digi-Key, Mouser, Nordic is now the number one company globally in the shipment of short-range wireless development kits. They are extremely important to us, but we're also important to them because you remember, we are creating engagement. Our engineers are active on their forums. They're using their video streams. It's not only Digi-Key and Mouser, it's all these other reputable companies. We need some other types of distributors as well. We can't just lean back and say, "Okay, we're going to support everything through a forum and ship from catalog sales companies." That's not going to cut it. We have some large distribution partners. We've turned them broadliners. There's Rutronik in Germany, there's Arrow and Avnet in North America, which are our global distributors, they're public companies. They're the giants. They typically carry tens or even hundreds of product lines that they support globally or in several regions. We engage with them. We're very interesting to them as well. We actually have value and interesting products. We train their application engineers, we train their sales people, and they in turn support our customers to create scalability. They also perform some very important fulfillment and logistics functions for Nordic. We can't ship directly to thousands of customers. These guys will actually carry the logistics and make sure stuff is arriving at the right time, setting up logistics arrangements with customers. Also, on a very wide scale, we do joint seminars and workshops with them to address a wider range of customers. They're also then promoting and selling both the long and short-range portfolio from Nordic Semiconductor. This is sort of a generic distribution setup. We actually complement this with a huge amount of what we call value-add distributors. Some of these are extremely important partners to Nordic Semiconductor. We actually signed the first of them up in 2001. They've been with us since the beginning. They have a small number of product lines. Some of them just sell Nordic Semiconductor. We share the blood in a way. They're typically providing design services for end customers. They have design engineers employed in the company. They would work on proof of concepts and engage deeply with the customer. In the case of Nordic, they have a deep engagement with our FEs and sales people, and we do very small seminars. Some of them are even at the customer site where we have one-on-one sort of relationships with customers. They are, of course, now all selling our long-range cellular portfolio as well. All in all, this has taken us to a number 1 in the Bluetooth broad market. Our claim to be the undisputed leader here is hard to refute, as we see consistently 40% share of new design. As I mentioned, up until recently, our distributor have had their focus on short-range products. What we've done on Bluetooth Low Energy, we're now in the process of repeating on cellular. If you look at the breadth of products we've launched in Q3, there's media remotes, luggage tags, electric skateboards, smart pill boxes, smart watch, cellular emergency buttons. We're everywhere, and we have all kinds of application. The universe is expanding. For us this is very important. This expansion of the technology into new areas has made us less dependent on single clients, products or verticals. You basically see here a reduced dependency on sort of top 10 customers in Bluetooth Low Energy moving from 60% in 2012 to 30% in 2019. That's not because the large customer have become smaller, it's because we've added a lot of small to medium customers carrying our revenue. That, again, doesn't mean we've taken the focus away from the major players in the key verticals. On the contrary, these customers, they need to be engaged in an entirely different manner. Whereas the key word for the broad market may be ecosystem partnerships, engineering communities, and catalog sales, the larger players need a much tighter follow-up. We have targeted business development teams working on the tier 1 customers and key account managers. We have key account support teams set up in order to service them. We engage early with them to establish proof of concepts. I mentioned this earlier. It's very important for us to have hardware very quickly up and running that can be used to create prototypes to sell into management. We spend a lot of time, and Kjetil will talk about this later, aligning our product roadmap to their requirements. We need to have leading products that fit their purpose. You see a few names there on the left-hand side of this slide. I've included Colgate, which we actually released just this morning. It's a new entry into our slide there. For this presentation, I'll look more on Tile, which is a clear market leader in the short range asset tracking market. They sold more than 20 million tracker units over the past 2 years. I just dived into them to show how we typically work. Tile recently announced a new lineup with Nordic, and you may think of this as a pure component supplier-customer relationship. It's not. It's actually a lot of engagement at management level, at high level, and we're also integrating Tile finding technology into our new Nordic software development kit. If you think back to earlier where I said we're scalable, we drive thousands of customers, we want our customers to have access to the Tile capability, and they could then compile it into their products. There is a symbiotic relationship as partners. That brings me to the next level of customers in this market, the platforms. As I'm sure you're aware of, more and more things are connecting through platforms and the cloud instead of point to point from a mobile phone and a device. You should all know these household names from the bottom of this slide, and we obviously see a large market opportunity in servicing these platforms and their ecosystems. Given our strong background in the broad market space, we're actually bringing in hundreds and thousands of customers that could potentially connect to their device. We also have multi-protocol devices. We've demonstrated over time that the interoperability we have is number one. There is a relationship there between the platform makers and Nordic in that we could offer a lot of customers to connect to their platforms. We also see that smart home here is a good example of how this could be done. There's a battle going on for the connected smart home with all the major players fighting to become the control center through smart hubs or speakers. In order to dominate the market and become the number one control center, you do need to connect as many things as possible. You do need to have an ecosystem around you in order to become attractive. It's got to work, right? Interoperability, again, is the key. We have that capability with our devices, and our devices are already inside many of these things. I'll take one example, the Chinese giant Xiaomi, which is not all that well known here, but it's one of the leading companies. We've actually announced, if you tally up the releases, we have five releases ranging from virtual reality systems, door locks, watches, tire pressure monitoring system, some educational robots. That's not the only thing you gain by starting to work with these ecosystems. If you look at a company like Xiaomi, we're looking at hundreds. That company alone has acquired several hundred companies that they folded into their portfolio. Then as a supplier, you get a vendor registration, and you're certainly part of that ecosystems. All of these customers are now potential clients for both our Bluetooth Low Energy, Zigbee or Thread products, and the long-range cellular IoT products. Not only that, we're basically getting third-party access for our customers in there as well. Xiaomi has an outspoken strategy to actually connect up third parties into their system. Moving on. This is what Svenn-Tore mentioned. I think there's a strong market outlook for Bluetooth Low Energy with 26% CAGR growth to 2023, provided by IHS Markit. If we dig deeper into the composition of this market, we see some segments are flattening a little bit out like mobile or PC hits. Whereas a lot of others are still growing and very solid, like smart home, wearables, retail, gaming, PC-based gaming, and virtual reality, et cetera. Our belief is that there are several verticals that could drive even higher growth, but not necessarily in consumer. What we see as a company is sort of a shift in our base. Consumer sales are still going to be very strong. A lot of the new applications we see may not necessarily be within consumer, and it's sort of moving over to non-consumer. You could ask, why isn't this happening tomorrow? Non-consumer is a market. It takes a little bit time to move over. Some of these will have 2-year, 3-year, 5-year cycle that is going to be there. The good thing is when you win this application, you're also very sticky. They have a long lifetime, when they come. Let's start looking at some major opportunities in disruptive verticals. We think that we may be underestimating the potential in some of the verticals. Some stand out for us in smart home, smart lighting, drug delivery and disease monitoring, and in logistics and asset tracking. Each of these may grow into several hundred million units over the next 5 years. We're spending a lot of time and resources into product and services, roadmaps development to target and unlock the true potential in these areas. Today, like Svenn-Tore mentioned, we're so lucky to have Ole-Petter Skaaksrud here, he's going to handle the logistics part. I've already covered portions of the smart home. Today I'm going to focus on the lighting and the medical part of this business. Let's dive into smart lighting. Why would you have smart lighting anyway? I mean, is it to switch on and off the light or dim it or change color? Not necessarily. I think you take the time, we've distributed a copy of the Wireless Quarter with 10 or 11 pages as a background around the lighting market. It's a large untapped market. Today, only a small fraction of the light fixtures are connected. There's light everywhere in offices, meeting rooms, bathrooms, everywhere. That's about to change. There's some significant growth factors out there. There's new EU regulations, that enforces lower energy consumption and sustainability. There are large government-backed initiatives on smart cities and programs with the same goals. We see a lot of really strong use cases in both enterprise and consumer markets. As a company, we're more focused on the enterprise side of things because of the interesting things it does for us. I mentioned to you, lights aren't necessarily connected to switch them on and off. What do they actually do? It's because lighting is becoming the building backbone with mesh networks enabling light control, monitoring, and automation on actual real-time big data. There's been a lot of focus in the media lately on compromised networks and servers, et cetera. The lighting backbone represents something which is safer, securer, and independent from the IT department in the company. The light must be there. It's everywhere. A chip in the network can make a light into so much more. I'll give you some examples. Nordic, we're partnering with the lighting IoT leaders. We partnered in Gooee with 2016. It's a U.K.-based company. Just this summer, Gooee announced an agreement with a Dutch real estate company to connect 5,000 buildings to Gooee's IoT platform. These connected lighting systems will, of course, need wireless connectivity, and connectivity from Nordic is a key ingredient in this setup. We're now not just looking at managing a room or a building. It's actually a portfolio of buildings controlled by lighting. What could it mean for the real estate owner? Here's an example of an office building where you actually have heat maps of people moving around. Where are people? How many people are there? Where are they? Are the desks occupied, or does the HVAC need adjusting, or restrooms need cleaning? You get real-time information across multiple buildings, all floors, et cetera. Similar could be used in gyms where gym equipment is idling in one corner, and if you move it, suddenly you get usage on it. You free up area. In the retail space, what's the most valuable space? Where are most people moving? Where are they stopping? Can we improve space utilization? Who's moving where? Can we influence consumers? I think on an aggregated basis, this really opens up for big data analysis, offering potential for both new revenue streams and lower energy costs. Moving on to the medical verticals, drug delivery, and disease monitoring. Just want to quickly remind you of the obvious use cases for connected devices for large disease areas. With diabetes, you basically monitor insulin injections and glucose monitoring. You could then have asthma or allergies that you want to control with injections or inhalations, respiratory diseases, growth hormones, blood pressures, and others. Some examples here are diabetes pumps or continuous glucose monitoring. You have metered inhalers and self-injection pens. The market will require continued time and effort on our part to develop products and solutions, meeting the technical requirements and also competitive price points for the solution. Of course, given the large potential, these are challenges we're willing to take on. Kjetil will address that more in the roadmap presentation. One important part here is to notice that there are some strong regulatory regimes that will influence the rollout. There's processes going on to streamline that as this becomes more and more mature, but it's sort of an external factor that is not controllable by Nordic. If you look at a very simplified case, then you could have a drug delivery. That could be the injector by Aterica Health, which is a Nordic customer, or a CGM from Dexcom. Typically, they would connect through a Bluetooth Low Energy into the phone. The phone would then report it to the cloud. It could then be part of medication management in an automated medication diary. I mean, what type of medicine did you take and how much did you inject? Notification and usage statistics could be sent to family or relatives or doctors, physicians. I think one of the very exciting things here in Nordic is that we do see a potential to sort of circumvent the connection to the smartphone by using our LTE-M and IoT lineup. Remember, we have small size, we have low power, and ease of use. A lot of these companies are basically looking to cellular connectivity now because you want to get rid of the hurdle of the pairing to the phone, et cetera. This represents a very exciting opportunity for us, where cellular could complement the traditional Bluetooth Low Energy-powered equipment. In order to summarize, we have an excellent position in the growing Bluetooth market as the broad market leader and with very strong ties to the vertical market leaders. We're strengthening our focus on the platform ecosystems, and we've begun to see the effect of this in our backlog and sales figures. Going forward, we will seek to fortify our strong position in the established verticals. Go hard after these new disruptive verticals that are coming out. I think very explicitly, we're extending and leveraging 2 decades worth of sales experience and distributor networks and everything to Bluetooth. We're going to repeat in Bluetooth what we've done for Bluetooth Low Energy. With that, I thank you for your attention, and I think I'd like to leave the floor to Ole-Petter Skaaksrud from FedEx, which we're so lucky to have here today. Glad to have you here.

Speaker 6: Thank you, Geir, for that introduction, also thank you to the rest of the Nordic leadership team for the invite to speak here today. It's always great to be back in Norway. I left 30 years ago and never came back. It's one of those things that happened and I've done. I have been a part of the advanced technology teams within FedEx ever since I joined. Through the years, I brought to life some of the more advanced and valuable innovations in recent memory for FedEx. Today, we're going to focus mostly on IoT and the journey that has taken us to kind of the next generation of IoT that we're about to be developing. I'll give you a quick overview of FedEx, just to make sure everybody understand, are familiar with all the facts of FedEx and how many pieces we have in motion every day. We operate across the world in more than 220 countries and territories. We are in multiple operating companies. Here in Europe, you mostly see FedEx Express. In the U.S., we have ground freight going after different segments of the market. We're delivering about 50 million shipments every day. It's all done by a huge team of people, more than 450,000 team members. There's a lot of pieces in motion every day. All these pieces are linked together through an information technology platform that fuels the value to our customers and also ensures that we drive and optimize the operations side of FedEx. This all started through the vision of founder Fred Smith. Smith is very much a visionary leader to this date within the company. He set the bar pretty high all the way back in 1978 when he stated that the information about the package is as important as the package itself. To recognize that value that early, I think is quite mind-boggling. It is that vision that continues to drive a lot of the innovations within FedEx, again, to this day. It started back in 1979, where FedEx for the first time introduced barcode scanning for all shipments. Today, that's just commonplace, right. If you shipped a package, you weren't able to track it, you would think something was wrong. That didn't happen before 1979. 1980, FedEx stood up its own private wireless network all across the U.S., recognizing that to have valuable information at the edge where it couldn't be connected to the business didn't make any sense. You had to make sure that the information that was captured could be brought to where it had the most business value. Again, FedEx would invest where we drive business value and differentiate our business. It was at this intersection between connectivity and capture that FedEx kept innovating for years and years. As new capture technologies came online, we kept investing. As new connectivity solutions came online, we kept investing and kept reinventing what it meant to deliver to our customers. This was early 2000s, and we've been looking at how do we take the next leap forward. How do we go from capturing information about the package to also introduce more information about the environment, to really get into IoT as a general broad offering for FedEx. The challenge was, there wasn't really any solutions out there that had a combination of enough compute power and also energy efficient enough to meet our use cases. Because at the base of our use case is we have to be able to operate within an aircraft. From the intro slide, you may have seen that we had a number of aircrafts. We actually have the largest cargo airline in the world. Then in 2008, we were able to put all these pieces together and launch what was called SenseAware, to this day, it's still called SenseAware. That had that combination of fairly low power, enough compute to be able to detect if that device was on an aircraft taking off or an aircraft landing. Much of IoT is driven through regulatory requirements, and operating with an airline is no exception. We had to develop that technology and then have the platform that it could run on. We spun that out of my team, and it went into production. We took it back in again about a year ago. We did that because technology is moving so quickly in the IoT space that they needed to take a little bit back from production to really go more towards the innovation R&D space to make sure they can capitalize on the enablers that are being brought to life through companies like Nordic. In 2019, we launched our latest SenseAware device, the SenseAware 3000. Now we have gone from it originally being a U.S.-only solution to now being a global solution. It has a number of capabilities. It's kind of a Swiss army knife of sensing for FedEx. It does humidity, pressure, shock, location, of course. It's a highly accurate temperature sensor in it, so you can detect and go after pharma shipments. Security is another big area that we're within. We have light sensors. You can detect if a package is opened when outside an area where it should not be opened. Again, the FAA approval is key because you have to be able to run within the airline. What we're providing to our customers is this end-to-end visibility that starts before FedEx has shown up and continues after we have left. So much of that, again, is driven through location, with location being both sat-driven, satellite-driven, cellular location, BLE location, Wi-Fi location, everything to drive location visibility. Link it so it becomes actionable on the business side, in this case, through geofences. Geofence is basically geofenced location, they can have business actions triggered from that geofence. The temperature, pharma is the primary area. You see a lot of regulatory requirements coming online that is driving customer demand for more pharma monitoring, with highly accurate temperature sensors. Now, that's where we have been, right? Now we look at what is possible today. We're continuously investing in the next generation of capabilities. This is really where it gets interesting. When you look at the capabilities that are being brought to life through low-power wide area network technology, that's where you have the Narrowband IoT, you have LTE Cat M1. You're changing the game completely when it comes to IoT, because now your battery life has suddenly gone through the roof. That means that your cost of ownership of that visibility has gone down. Today, it's no longer so much about the cost of the device. It's all about the cost of ownership as a complete package. How many times will an operator have to touch that package to retrieve the device to recharge it? How long can a device stay out in the field without any interaction, again, to drive down the cost of ownership, drive up the value to our customers. Also low power short range. Bluetooth Low Energy is very powerful and opens up for visibility that is similar to SenseAware within our network. SenseAware, being a cellular solution, can go anywhere. BLE-enabled solutions are great within ecosystems where you can leverage very low-cost devices, again, with a broad range of sensing capabilities. What's also different today is you have new ways that the information that's being captured is being consumed. It's no longer just a question of putting dots on the map. When we started down this road, even earlier in 2000, it was all about making sure that the user experience was right, make sure that people can engage with the data. Well, now it's all about making sure that the data is right for algorithms. If you're not getting the data in the right density at the right quality that it can be consumed by algorithms, you're falling behind. We're also, at the same time, seeing embedded machine learning advancing with more and more computing available within these embedded devices. Opening up for more compute at the edges network, which is really important when you look at highly congested RF environments. We have thousands of nodes working together in a very tight, small space. I have to talk about blockchain, because it just increases my value incredibly. Blockchain as technology is something that we have been investing in also for several years now. We are going after blockchain, both on the IoT space and beyond, to unlock new ways for systems and people and organizations to work together. There's a great article in Forbes a couple of months back, there's a link I can share with you all today, that talks about how we are heading down the path towards leveraging blockchain, specifically in the areas of customs and customs clearance, where the open ledger methodology is quite powerful. We looked at the combination of Bluetooth Low Energy plus the low-powered WAN network, that type of capabilities, and compute at the edge. You run into scenarios like this one, where at the package level, you can have a node that is Bluetooth enabled, that you can have whatever sensors that use case requires. Now the package is being managed by the WAN higher level device. The higher level device can do compute on the information coming from the package level device, so that you're reducing the load on the back-end systems. It's great that we have an endless, scalable cloud available to us. When it comes down to it, if you have billions of devices out there, as Geir had on his slide, if you're depending on all of that information going to the cloud, you're going to run into a scaling problem at some point. You have to bring compute to the edge, and you have to find a way to manage compute at the edge. Because ultimately, it is about making thousands and thousands of connections across the world and making that part of what we are offering to our customers. When we look at the 15 million shipments that go every day through our network, where do we add value through IoT on top of all those shipments? This one is from that same Forbes article I mentioned earlier. It's all coming from knowing what has happened to a package, going back to the tracking information. The tracking through a barcode gives you a historic view of what has happened to your shipment. With IoT, you're opening up for what is currently happening to your shipment. With the combination of IoT plus AI, you're moving into predictive and being able to tell what will be happening to your shipment. That's it, guys. Thank you all. And

Speaker 9: Thank you, Ope.

Speaker 6: Thanks. Up to you.

Speaker 9: Very good.

Speaker 6: Yeah.

Speaker 9: I hope it opens up the audience view of what we can do with IoT. These are very practical example. Thanks for flying out from the States and sharing this with us.

Speaker 6: Happy to.

Speaker 9: We soon have a break. I would like everyone to go out so we can get some more fresh air in the room, and there will also be some snacks out there. Before we go there, some of you might remember, some might even invest a little bit in April last year for us to build up our lab capacity. We've done that, and I would just like to show you a video of a world-leading FA lab.

Speaker 11: Here at Nordic Semiconductor, we're incredibly proud to show you our new state-of-the-art failure analysis lab. We have always focused on delivering parts with the highest possible quality. Armed with our FA lab, we are raising the bar to an even higher level. Please join us for a look inside. For the past year, we've been equipping our facilities in Trondheim with cutting-edge failure analysis tools. Close collaboration with our suppliers has enabled a record fast ramp-up. The FA lab is now equipped with all the needed personnel and tools to perform complex failure analysis and advanced device characterization. Among the multitude of tools available are the various sample preparation tools, fault localization tools, electron microscopes, 3D X-ray, circuit editing, and delayering tools. The mission of our FA lab is threefold. First, during the product development phase, we can assist our R&D department with advanced characterization and testing of prototype silicon. We can also perform design modification and then have the changes verified immediately. Because of the proximity to our main R&D office, we work efficiently face to face, which is very different from booking slots at external labs or with external experts at wafer foundries. We will also improve our products through the deeper and long-term analysis, which we are now able to perform. Secondly, for new devices, we can analyze and understand yield issues, which will enable us to reach mass production yield targets rapidly. Lastly, in the event of a customer complaint, we can offer increased service to our customers both in terms of response time and analysis quality. A full root cause analysis, which would have previously taken as long as 4 weeks, will in most cases be completed within seven to 10 days from receiving the device in our FA lab. We are certain that our internal FA lab will help us decrease the time to market for new products, enable faster ramp-up of high-volume production, and reduce the amount of customer complaint cases due to even higher quality devices. Here at Nordic Semiconductor, we are thrilled we can offer the attention to detail and quality of service that our customers deserve.

Speaker 9: Thank you for listening to our nice video. I also have one more comment before we have the break. Already, this installment has saved us time to market. Time to market is return on investment. I think in two, three years, this will all be returned. Break.

Speaker 5: Welcome back, everybody. My name is Kjetil Holstad. I'm the Director of Product Management at Nordic Semiconductor, I'm going to give a little bit update on the short range side of things. Svenn-Tore talked about the waves of revenue growth we've been going through over the past couple of decades. Behind that growth, there is pioneership on connectivity. Lead on connectivity is a strategic pillar for Nordic, we have done so by introducing more and more capable products, supporting more and more technology protocols over the years. You will see that these pretty much overlap with some of the growth that Svenn-Tore talked about. An important one was obviously the introduction of Bluetooth Low Energy in the 2011 timeframe. On top of that, we build more and more advanced multi-protocol capabilities with recent addition of 802.15.4. That is a standard, that is the basis for protocols like Thread and Zigbee. By doing this, we are also leading on integration, adding more and more value for our customers. I'm going to talk about how this advanced multi-protocol landscapes pays out when we go to our customers and try to solve their problems. I'm not going to dwell a lot about this, both Geir and Svein-Tore has mentioned this, but even though we're in a landscape where we're supporting more than five different protocols, in the short range landscapes, the Bluetooth Low Energy is driving pretty much all the growth going forward. Already now, Bluetooth Low Energy has surpassed all over low power short range technologies, and it continues to grow. Me, as someone who's looking at products for the next 5 years, are looking into this and are seeing the same trends that Geir and the others are seeing, where there's a continuous growth in the consumer segments, but there are also an accelerated uptake in non-consumer. That has changed a little bit on how we look at our products and how we are defining the products for the years to come. There's a healthy CAGR here that's supporting us, and even though the graph here shows a very smooth growth. I do think the waves that we have seen will continue to be present. Geir talked about the medical market, where there are some regulatory approvals and things that needs to happen before the market takes off. It will come in these kind of stages. End of Bluetooth Low Energy is driving the growth. We see an expansion with what we call 802.15.4. 802.15.4 is, like I said, basis for the Thread and Zigbee protocols that are starting to find its home in smart home and more industrial and enterprise automation applications. This is market where we today, on technologies, where we today have a very modest share. Going forward, we see that the importance of being multi-protocol capable and the importance of Bluetooth Low Energy also for this application, is spearheading our introduction into these markets. It falls very nicely with the higher-end SoCs that we've developed over the last couple of years. As soon as you start to talk multi-protocol, there's additional innovation that can happen in the software we own. We're spending a lot of resources making sure that our solution, not only on the ICs and the things that we sell, but also the software that our customers using, tackle this problem. In this kind of very fragmented and large ecosystem out there, and this is showing a smart home example. Geir talked about smart home being one of the growths. Here we can see how this is a very complicated picture. There are platform providers out there who are making the hubs, the voice assistant hubs for the home, and the gateways. They are depending on ecosystem around them to deliver thousands of various devices, sensors, security systems, et cetera. These large ecosystem providers have chosen different networking protocols to communicate in between them. There's Google, who are basing their ecosystem on Thread, Amazon on Zigbee, Apple HomeKit, who's using Bluetooth Low Energy and Wi-Fi. When customers are going to make sensors that talk and are a part of this ecosystem, they either have to make deliberate choices or work with a company like Nordic that has multi-protocol capability to design products that can be part of larger ecosystems. You can see here illustrated with a phone on the left, that for some of these ecosystems, the importance of phone connectivity, either directly into the sensors or the gateway, either for reading status or for setting up networks and doing pairing. It's very powerful to have a Bluetooth connectivity into these ones. On the back wall, there are gateways that are internet connected. You have 24/7 access to your smart home system. What we're seeing now is also emergence of people having security system and door locks on backends that might be cellular. If your internet provider goes down or there's a power shortage, there are batteries and cellular connections that allow these systems to operate even when there's a shortage. Combining the Nordic technology, we can help these customers to navigate these ecosystems to build the right solutions. That's just kind of one example. This wouldn't happen if there is not things like interoperability, coexistence, and robustness in place. When Geir talked about our position in this space and our market share, we have a proven solution that allow customers to build products for this. Breaking down the short range market units in a shipment map. As a product developer and making strategy for products, we are continuously monitoring the landscape. We try to look for complementary requirements within this space. Markets that are growing and overlapping in some of the requirements are extremely important to Nordic. We're also looking for new high growth markets. We of course have this picture also for the next five years. I can tell you the biggest boxes in five years are not the same that are the biggest today. When we build up a portfolio, we are looking for the healthy mix of these existing large markets that will continue to growth and these new markets. What this is also showing is extremely fragmented space where there are certain markets where Nordic don't have an interest to go after. We don't do extra additional effort to go after. In some of these markets, we might have a position with our devices, but we don't do targeted investments for those. What we're looking for is an opportunity to bring value to our customers and to differentiate from our competitors. A large thing of what we're doing right now is around investing in platform. It's about maximizing the R&D value. We spend quite a lot of money on R&D and investments to bring up platforms that scales on the IC side, where the nRF51 used to be a single chip with kind of small iteration. We're now building up families of devices, introducing new technologies, et cetera. We have platforms that scale internally. We have also platform that scales at customers. We see more and more customers, they use high-end devices from Nordic, and they use low-end devices. One device in the hub and one device in the sensors. That scalability that we do on the IC levels is very, very important. Platforms also allow us to do rapid and targeted expansion. You've seen that, and I will give some example in the nRF52 Series, how we can go out and deliberately target certain requirements or certain applications. The scalability also comes across software, where we're building up equally important platforms. These are framework that our customer depend on when they develop their products. It's a framework that has to cover all the Nordic ICs, from the very low-end to the high-end, from Bluetooth to cellular. We will do all this to bring this value to customers that Svenn-Tore and Geir has talked about, truly building a scalable solution across technology, markets, and customers. When we look at this for the nRF52 Series, that hopefully all of you are familiar with, there's a couple of things I want to point out. It was introduced in 2015, and over the year has built up a market share that is averaging 40% of the time lens every quarter. It's really market proven. A lot of the applications and customers we go after, the idea behind the product is not necessarily the connectivity. They have a greater idea and the value of their product is not necessarily related to connectivity. It needs connectivity to talk to a phone or talk to a hub or whatever, and this is something that is market proven, is an easy choice for this one. This graph to the left shows a different way of looking at that 40% market share. We have previously sort of talked about a big other category. This is now breaking down to a very competitive landscape. This year, we've seen 39 different competitors in the short-range landscape. A lot of companies out there trying to come after our customers and our base. With our share, we have something that is very unique to Nordic. We have a funnel of insights in terms of what the customer requirements are, in terms of the market requirements, and where this is going forward. We built up an nRF52 Series that allow us to tactically move into the right direction when and where we see needed. We also build up a huge amount of software that allows us to expand when and where we see it naturally. Because of this, we think that the nRF52 Series is a platform that will continue to grow for the next years. This shows the introduction of the nRF51 from year zero compared to the introduction of nRF52 from year zero, and the revenue share. Initially, the nRF52 Series was one device, and you can see it trails the nRF51 fairly accurately. As we started to introduce more members of the nRF52 Series, you can see that the growth of the nRF52 decouples from the nRF51. It is this low-end to high-end and still expanding through the customer engagement that we do, that allow us to capture this growth. The recent additions to the nRF52 Series has also allowed us to strengthen the ASP for our Bluetooth Low Energy offering, and this is in a market where the ASP has dropped. Yesterday we introduced the fifth member of the nRF52 Series, the nRF52833. We're not done there. With the growth that we have in front of us, with the insight we get from markets and the insight we get from customers, we are still looking to further expand the nRF52 Series. There are some capture new high growth markets that we're looking at that needs dedicated chipsets going forward, and the nRF52 Series as a platform is the best choice for us tackling those. Geir alluded to some of the markets that we're going after, and we're doing so aggressively in this space. The other thing that is changing now is when we introduced the nRF52 in 2015, it was to a large degree replacing a lot of the nRF51s. What we're seeing now is a lineup that is expanding and when we soon will introduce the nRF53, it will be very complementary to the nRF52. They will continue to grow and they will continue to be releases in both these families going forward to even have a wider net and wider coverage of low-end to high-end to mid-end and different requirements that are going forward. We're doing strategic investments in the nRF52 Series for high growth, and we're pushing the boundaries of what the technology can do upwards, we're introducing new devices. Yesterday, we introduced the nRF52833. It sits there in the higher end of the series. Not going to dwell into the block diagram on the left, but it's a snapshot of the capabilities. Anyone who has touched on an nRF52 so far, will find a lot of familiar building blocks. That is intentional. We want something that has the same architecture, the same software that allows customers that are already familiar with the nRF52 Series to have a rapid time to market. There are some important things that we have done here. Introduced extended temperature range up to 105 degrees. Geir talked at length about the lighting markets, and there are certain portion of that market that require temperatures above and beyond what we have supported so far. By extending this temperature range for the nRF52 Series, we are better tackled for some of the requirements. These requirements we also see in the industrial space when you go out the consumer. All of a sudden, there are much harsher environments, and supporting extended temperature range help us tackle those. Of course, multiprotocol is de facto in the nRF52 Series now. Having capabilities to tackle things like the smart home ecosystem landscape is really, really important for us. We are soon introducing the nRF53. It builds on top of the nRF52 Series and everything that is good with this one. Where the nRF52 is the benchmark, the nRF53 is pushing the boundaries upwards, significantly reducing the power consumption, significantly improving and adding the performance capabilities. Advancements in security. We talked about the importance of security in the IoT landscape. This one has the latest and greatest in terms of security, we are aligning it even further with the nRF91 than what the nRF52 Series can do from an architecture and a software platform capability. This is because, and Svein-Egil will go a little bit more into this, there's a large overlapping customer base between our short-range and our long-range business. This increases our scalability both at the customers and internally. There are aspects of the nRF53 that is also tailored to tackle some of this shift from consumer to non-consumer applications. There is a significant ongoing software investment in Nordic. With nRF91, we introduced the nRF Connect SDK, and this has the ambition to unify all Nordic ICs and all Nordic technologies into a common platform. There are some supporting components here that we also bring into the picture so that we have something that is complete from board level all the way up to the cloud. There's a new generation of engineers out there, that are behaving differently from when I wrote software 10 years ago. They depend on real-time operating system on their devices, open source, modern development environment, and distribution models. It is pushing the software for the new generation of engineers. We talked about scalability from low to high complex applications, single core to multi-core SoCs from Nordic. The idea here is to allow customers to focus on their application and their problem, and Nordic to help them with everything else. The 52 is made stronger through partnership, and we've shown some of the partnership already. This is because the technology landscape is going in many different directions. You've been following Bluetooth Low Energy, it added higher throughput capabilities, long range capabilities, location capabilities. Through partnership that have excellence in some domains, we can now further our customer reach on some of these verticals. This is just some example of the partnerships we've done recently. There's one particular I want to dwell on, and that's the partnership that we're doing on audio with Cirrus Logic. This is a strong, established partnership that really combine the excellence of two companies. Nordic is a world leader in low power and Bluetooth, and Cirrus Logic have a similar position when it comes to audio and voice processing ICs. What we build together is a demonstration vehicle showing the capabilities of combining the technologies from these two companies for a full end-to-end audio application over Bluetooth Low Energy. By combining these technologies, you will have the industry-leading ultra-low power consumption in wireless audio. This is something we now have under active customer relation to see what this technology could bring forward. Wrapping up, we see significant opportunities in the short-range wireless landscape and significant opportunities for growth, we are continuing to invest in the nRF52 and the nRF53 Series with accompanying software to accelerate this growth. We're expanding our reach through some of the strategic partnerships we have shown here today.

Speaker 8: Thank you. Good afternoon. My name is Svein-Egil Nielsen. I am CTO at Nordic Semiconductor, which means I'm responsible for all our development activities. Today, I get to speak to you about cellular IoT. Cellular IoT for us is a way that we thought about the company and how we can accelerate growth. How could we maximize the value of what we do in R&D? How could we become a bigger and more competitive company in the overall, how to say, ecosystem where we are? How could we eventually also improve profitability at what we do? When we look at these objectives we've had, I think we've come a long way in cellular IoT. We've developed products and ICs that are very complementary to short range. We have the leveraging our ease of use, which we talk a lot about and which we heard about at length today. We look at the market and how it overlaps. We talk about existing customer relationship, how important those things are. The broad market model that Geir described is perfect for this market, a market that's never seen any broad market at all. I mean, cellular IoT has typically been a very niche business where very few companies are actually able to make any product. Finally, I think that something that we rarely talk about, but is very important for us, is that our ability to manufacture. We produce more than 1 million devices per day. We are a manufacturing powerhouse. We have grinded our production facilities and our quality systems for the last 20 years. We've become a company that can make high volume, highly advanced devices with a high level of quality, and that's important for us. If you look at our overall perspective, I think cellular IoT adds as a very natural expansion to our business. We've invested around $100 million into our cellular IoT products. We've built a capable organization with cellular expertise that came into our organization, that has contributed significantly to our products. As you know, we have large facilities in Finland. A lot of these engineers that we hired there has cellular expertise that stretches back 15, 20 years from the Nokia, the Renesas, the Broadcom, the Ericsson times. These are things we've done before, and of course, it's been a really great opportunity for us to scale that organization. I think we started this in, the idea came about in 2014. We started developing in 2015, and today, I think well, I would like to say that we actually made a great product, which is super low power, great cellular IoT product, and we'll talk a little bit more about that today. The nRF9160 is our product. That's the product you can order today, and this is the most advanced product, most sophisticated product we know Nordic Semiconductor has ever made. If you look at the block diagram of the whole system-in-package, as we call it contains the nRF91 SoC, the chip itself, and it contains our front-end power management passives. You can see in the 91 SoC, we typically divide that in two. One part is the modem part of it, which performs the radio and the protocols itself. On the left side, we'll see the application MCU. The application MCU is what gives customers the ability to develop their application, to do their edge processing, to interface with sensors, to make something meaningful, not just transfer data. In a way, the system-in-package itself, it's what we believe is a self-contained as a component would be, because the only thing you need to put on external is battery. You need some sensors maybe, and you need a SIM card and antenna. There you go, you have a cellular product, so highly integrated. I like to think that this is the leading product in the world. From an ultra-low power perspective, we are better than any of our competitors on all power modes of different ways of measuring power consumption. We're better. We use techniques we've learned in short range of integrated memories, low leakage process technologies. The way we do power domains, there's an enormous amount of different things that could be on and off at any given time. All these things add to a power consumption that no one else has. Integration, important. Small size is good. That makes you available to make small products. I think we've been pushing the boundaries on this device about how small we can make it right now. Ease of use, again, important. This product should be able to something you can take, design, make a product, and get to market. I think we're leveraging what we have from the Bluetooth world and investing more into the space of ease of use. The modem or the radio part of it itself supports both LTE-M and NB-IoT. The reason for that is because it gives us the opportunity, of course, to compete in both markets that has either an NB-IoT or LTE-M. If you look at the pure hardware elements of it's not that big of a deal if you do both or just one of them. It made sense for us to do both, and it gives us a great opportunity when we go into market, where there still is territories that choose one over the other. We also add the GPS report to our modem or radio, which, as you heard about location and these kind of applications, is a great thing. Tightly integrated between MCU and modem gives the developers a good solution. Finally, this is also, up until now, the most secure product we ever made. There's multiple secure enclaves on this device. Customer partition is designed to be normal, secure. We have had this device certified for something called Platform Security Architecture Level 1. It's the first step of an industry-wide standard or architectural standard that defines the layers of security. This is the most secure device we've ever made as well. We believe that the cellular market is ripe for innovation and a little bit more than just the devices. One thing we want to make sure is that cellular products can be made by more than just cellular experts. You actually take someone can make a product and to enable that kind of cellular IoT ecosystem of getting something out there, we decide to make what we call the Nordic Thingy:91. Yeah, the name Thingy comes from a brainstorming where no one can come up with a better name than Thingy, and it sticks with us. It is a proof of concept tool, a tool that contains enough functionality for any customers or developers to go out and try out his idea. It has some sensors. It has batteries. It connects to the cloud. You can easily test out your ideas. Of course, as with everything else we do, the Nordic Thingy:91, the hardware descriptions, all the software we put into it, we make freely available to our customers so happy to see customers copy the design and get going. We launched this in August. We shipped around 2,500, and so far, looks pretty good. In fact, we're so excited about this thing that we actually made a video about it, and we would like to show that video to you now.

Speaker 11: Have you heard about this new startup, nRF Pizza Delivery guys? No. What are they doing? Cellular IoT pizza delivery. They're running prototype rounds now with the Nordic Thingy:91. Oh, that's cool. What are they doing differently from other pizza delivery services? They're taking pizza delivery to a whole new level. Every pizza box has a Nordic Thingy:91 inside, and this has sensors on it capable of measuring temperature, pressure, and acceleration, and much more. This is transferred over to the Nordic nRF9160 SiP. which also has GPS. All of this data is transferred up to the nRF Connect for Cloud using the new low-power cellular technologies, LTE-M and NB-IoT. That sounds cool, but what are they actually using the sensor data for? They also have this app called nRF Pizza, and after you've ordered your pizza, you can see exactly where it is on the map and when it will arrive. It will also show you the temperature of the pizza and if it has been flipped or not. The app extracts all this data through the nRF Connect for Cloud device API so that the app can get access to the GPS and sensor data directly. Nice. Yeah. The best part is if the temperature gets too low or the pizza is flipped, you get it for free. Oh, sweet. That sounds like something that will really disrupt the pizza delivery market. My pizza's here. Got to go. Yeah. See you. Here's your pizza. Sorry, it got flipped right outside. It happens, I guess. I get it for free now, right? That's correct. Where are you going next? I'm going to the other side of the city to Bosch. To Bosch? What a coincidence. Did you know that you have a BME680 sensor inside the Nordic Thingy:91 that can measure temperature, humidity, pressure, and air quality? I know. We plan on leveraging this multi-sensor even more. We plan to use the barometer for weather change notifications, and we're also in talks with the city council to monitor air quality all over the city of Oslo. It's exciting to see how well the Bosch BME680 sensor and the Nordic nRF9160 SiP operate together. The multi-sensor capabilities of the BME680 and the low-power cellular IoT connectivity of the nRF9160 SiP will open new markets and make brand-new applications and use cases possible. The Nordic Thingy:91 is an amazing platform for putting ideas into life and testing out prototypes quickly. nRF Pizza is still in its infancy, but it's only a matter of time until it takes over the world, delivering hot, unflipped pizzas to everyone. All thanks to the Bosch BME680 and the Nordic Thingy:91.

Speaker 8: If it was up to me, we would be just showing videos here today, but I was told to do some slides, too. We talked a little bit about tools, but I want to go back and look a little bit about competitive positioning when it comes to our nRF9160. There is really we like to compare the competitiveness on four axes, one being power consumption, and one of the benchmarks we look at is something called an eDRX-type power consumption mode. Actually means that you're pinging the base station towers, in this scenario, once every 82 seconds. It's a long interval, nothing happens. You're pinging the towers, and that's the number. It's a very relevant use case for a lot of things where you don't want to be sending data too often. You could argue that the nRF Pizza guys might even want to be doing a little bit more often, but in some cases, once every one and a half minutes is a good interval. The other thing we look at is size, and size is more than just X by Y. It's also X by Y by Z. When we look at size here, we think about it as cubic millimeters, not just square millimeters. That's an important element. Imagine you want to put something in a small form factor. The height becomes very important. The third one is the fact that you can actually do meaningful things on our device. You can actually have an application MCU that you can do your edge processing or your compute and interface to sensors. It might sound maybe when you know Nordic, you think about that as an obvious thing, but it isn't. It's something that we are very good at and the other guys are not so good at. Finally, what about our software development kit? We have extensive software development kits, and I think we shine when it comes to this element as well. Of course, we think we compare better on all these four axes. We do not operate with competitor names. We never do that. On all axes, we think we are definitely better than everyone else. I think one of the important things to think about is also the sum of it. You can be better on some things, but we think we're better on the sum of everything, which is good. Please note that there's some preliminary marketing numbers. In my experience, that means that number is going to go up later. We don't know where that's going. Yeah, we think we compare very favorably, and that seems to be the market acceptance as well. When it comes for our developers, we try to make it simple for them to take their device and get their data to the cloud and do something meaningful with it. Eventually, all data here is going to go to some kind of cloud somewhere. With our developer tools, the developer kit, the Thingy:91, together with nRF Cloud, you can provide a solution here that gives you a secure connection between the device and cloud. That means that all the data is encrypted all the way from the device to the cloud. It's safe. We can add services to our customers so they can add more Thingys, they can add more things as well. What you did see on the previous video is the way we can visualize data to nRF Cloud as well. You can make a website, and some of you may have done that many years ago, but you can make a website with an API, and you can pull data straight from your sensor. That might seem obvious too, but it's not something that you can always do, not that easy. From nRF Cloud, you can easily use an API, pull data and see your sensor data and present things like we saw on the nRF Thingy video. Finally, of course, with nRF Cloud, you can manage your devices, you upgrade firmware, you can manage SIM, and so forth. It's part of us trying to deliver more solution to the customers than anyone else does, and by that, also try to speed up the delivery, our customers' development time and get things to production faster. I was asked to talk about 5G. The story about 5G is pretty simple. First of all, you know that our LTE-M and NB-IoT is part of 4G, and we support that 4G LTE. The good news is also this, LTE-M and NB-IoT, as it is today, forms the basis for machine-type communication with 5G. Duh, that means that our nRF9160 is ready for 5G as well as 4G. Long story short, don't worry about 5G. We work on 4G networks, we work on 5G networks, and we're not depending on having a 5G network for us to be successful. Very simple, right? You don't have to get that question anymore. Anyway, that's good. I want to talk a little bit about readiness. Svenn-Tore started off, or ended off his slide deck talking about some of where we are. I started off with what we showed earlier today. We're confident in the IoT long-term stellar outlook, and I'll talk more about why we are in a few slides. We have seen that volumes and revenues have been coming in later than expected. We've seen research and analyst expectations moving some of that out. Svenn-Tore talked about some of these elements that have delayed or pushed some of that out in things like ecosystem maturity, our software development, certification processes, customer development cycles, so forth. I'd like to address, first of all, some of the things that I think have caused some of the delays, and I'll talk about why I think these are things are accelerating as we go forward. Very simplistically speaking, why do I think it's taking more time than ideally we would like to happen? I think there is something about network rollout. Although there's been a lot of rollout, there's been a lot of press about it, there's been many countries that has LTE-M and NB-IoT, it has taken longer time in many territories for it to be globally available. If you're seeing some carrier announcement, they typically talk about pilot, they turn on a city, they turn on some territories. If you're making products, you're not really ready until you have full coverage. You can't really sell your products and say that this only works in this part of the country. Until the network the carriers really roll out in the full countries, I think there's been some hesitation from customers and device maker to make going. That's part of it. One thing I also think maybe slows it down or something we get some grief about often is that, what about the cellular carrier business model? The short story is, it's so expensive to do it. Why in the world do they need X amount of money for this per month? That doesn't make sense kind of way. I think that the many carriers has, in some way, been struggling to find what is the right business model for cellular IoT. They come from a world where everything was phones, or most of it is phones, some 2G. Now they're going to come up with business model that attracts developers, that has pricing flexibility, that goes from, is it a monthly, is it a fixed year? What is it? That has taken some time. Some carriers have been successful, have been doing smart things, and others are still lagging in the space of coming up with solution that works for product makers and developers. I think the ecosystem has taken more time than we expected. We've been delayed with some of our software development, and I'll come back a little bit to that topic, but we would have loved to be in earlier with more deliverables than we've been able to get out, and that has delayed some of our customers. The ease of use, as we talk about, is not where it is on Bluetooth yet. It's not as easy to do cellular with Nordic yet as it is to do Bluetooth. Well, the bar is pretty high to do Bluetooth as easy as we do, but it's something that we will improve and we're continuously improving. Certification has also been a complicated matter, not only for us, but I think for the industry at all. I thought a lot about what about certification and why is that process that takes a longer time. One of the things is that I want to highlight is I call it the process maturity. It means that in practice, it meant that every time we go to a carrier and ask: "How's your cellular IoT core certification process? Where's the document?" They never had a document for us. It was always an early version, preview series or something. It wasn't really clear for them either how they were going to certify this product. While we've been doing a lot of certifications and we're still doing it, some of these requirements from carriers being in flux for a long time here. That makes things a little harder. Do you actually need that feature or is it optional? Is it voluntary or is not? Do you need to measure all networks? Do you have to do these things? I think that carriers has been struggling to simplify a certification scheme that is appropriate for devices like that is not sponsored. Apparently, of course, some of our certification efforts also been delayed because we had firmware and software that hasn't been ready at the time we needed to be. That's some of the delays reasons, I think. There might be more. Why are we optimistic that this is going to go forward? I wanted to show this map, some of you may have seen this map already. This is the map of LTE-M and NB-IoT deployments on carriers worldwide. It's data collected by GSMA, it shows the world. If you count up all the networks deployed is in the order of 130, last time I counted. Could be a few more. As you see, apart from large parts of Africa and some places in the Middle East, coverage is getting pretty good now. If you've been following this space for a while, you might also see that more and more of these slides went from being maybe yellow, meaning LTE-M only, to this color, which is purple maybe, which shows that they've chosen to deploy both kind of networks. That we see in many places. This map is getting plugged all the time. More and more carriers or more and more territories are doing both type of protocol. I think there's two reasons for choosing both. One is that you can actually address slightly different scenarios, but also because the investment of network upgrades, if you're doing one or the other protocol, may not be that significant. This is good news. Although it's come maybe later than expected, there's no question anymore in my mind that the carriers are embracing cellular IoT. The good news about our product is that we have made a worldwide product. Our product supports more LTE band than any other product in the market, meaning it fits in more markets. It fits in all markets worldwide. That matters for you as a company. When you make a product, you can make a product in a single SKU. Piece of hardware you can sell worldwide. Maybe there's software configurations you put in your product, but it will work in all the territories on the same piece of hardware. You don't need to do two different versions of your product or three different versions of product. That's very important for many customers who make sort of medium-sized quantities, where they want to address some 10,000 in each market. You really don't want to have to go out and make different products. We made a product that allows customers to operate with a single SKU. This nRF9160 has also been through a significant amount of tele-regulatory certifications, which is the FCC, FC, all these other abbreviations from different countries. We always done a number of them, and we are wrapping up a few more to make this map look pretty similar to the previous map. Of course, in addition to that, we've done global, the GCF, which is a standard for cellular protocol compliance, similar to like the Bluetooth SIG is for Bluetooth, and PTCRB, which is another organization that do similar. We're in very good shape when it comes to tele-regulatory worldwide SKU. This is in really good shape. We do also need to do, in some territories, carrier certifications. That's kind of certification that goes beyond the tele-regulatory and beyond things like GCF. Worth noting, and I want to emphasize that right, a lot of carriers do not require us to do this, but some do. You may have seen that we certified with Verizon in August. That was something we were happy with. It's a big carrier. They're very stringent on how they test, and we passed that. Right now, we are in active certification processes with nine carriers globally. That's three in the U.S., two in Europe, and four in Asia. This is going very well as well, and will again allow customers to deploy in more markets. I wanted to highlight something. When I said business models were not really there, some carriers are really trying hard, and Verizon is one of those carriers I think is doing a lot to make sure that developers find their portals and can actually make products. This is an example, of course, we're very happy to see nRF9160 on the Verizon website. It shows it's part of the ThingSpace ecosystem. With ThingSpace, there's also some software solutions that Verizon offers. By having this in place, you can go and order SIM cards, you can start doing your development, you can start going through your certification process as well because it's part of this system. Business models are improving. Carriers are putting up these websites. They're doing much more to promote this market. This is one of the benefits we get as well, when we engage with carrier and carrier certification, is that we become part of their marketing machinery as well. Software deliverables. We launched our first production release of our cellular software in early July. This is what we call Modem Firmware v1.0.0 and nRF Connect SDK version 1.0.0. That was launched in early July as we planned. I think one of the things that we're seeing is that some of the functionality that some customers want didn't make those releases. Kjetil talked a little bit about nRF Connect SDK and how that is a big lift for us in terms of software platform. Frankly speaking, it's been hard, a lot of effort for us to move to a new platform, which this is on. At the same time supporting existing customer base with SoftDevice and nRF5 SDK and having a lot of tier 1 customers asking for special software. It's been a tough last year, software development. The software development, the platform lift is getting to the point where the steep hill is starting to flatten out. I feel much more confident right now that with the development efforts coming on board and the new features releasing continuously, Q3 and Q4 will see significantly wider customer scope be able to go to production the software we provide. We have production releases scheduled for Q4, which will significantly add more functionality. We're not going to stop making functionality because this is an ongoing thing, but with the November releases and the interim release up to November, there'll be significant amount of software coming out of it. I feel like the hardest part is over, I hope, in terms of getting everything in place for this big lift. Market opportunity. I was told that this slide is too busy, but I wanted to show it anyway. This slide is an example of all the projects where we engage with nRF91. It's a long list, and I'm not going to go into details about the list, but the long list itself is an interesting thing. It just shows the breadth of all these different verticals we're currently seeing devices being designed into. Has everything from agriculture monitoring, parking systems, streetlights, logistics. It's all over the map. That's sort of what we thought and we believed all the time that, yeah, this is not just a market for smart meters. It is for a lot of different use cases, a lot of different industries. This is straight out of our project databases, our tracking of projects, and that's pretty cool. There's a lot of different verticals. Again, I think that serves Nordic very well with our business model and how we go to market. It was a highly complementary with short range. I think that's been mentioned before today, maybe. One thing that I may not know is that 61% of our customers who's now ordered our nRF91 chip has already ordered Bluetooth before. That's a nice overlap. Around two-thirds is existing customer base. Some is not. It really shows that our ambition of tapping into existing customer base is working. There's two ways of looking at that. It's already been mentioned here, but there's, of course, this product that has both a cellular and a short-range device in it. Those are the ones where different applications in the ecosystem using different kind of protocols. It's highly complementary and it's a great benefit for us moving forward. Asset tracking. When I think about asset tracking, I think about asset tracking as you want to know where everything is at any given time, regardless of what it is. You can really expand that to think about, yeah, you want to know where your kid is. You want to know where you put your mobile phone. You want to know where your book is. You want to know where everything is. You want to find your remote control. The guys at McDonald's want to know where you're sitting, they can put your burger in front of you. Everything you want to know where things is. It's in a way pervasive if you think about the whole concept. You need to know the location and the state of that device at any given time, whatever it is. Some of you might be scared about this. I said before in the previous slide, we've got people who want to monitor where your kids are. That'd be great too. I'd love to know where my son is going. This is I think a mega trend. Everything's going to be tracked. Everyone's going to be having a location. Everything's going to know the status. With everything being digitized, you'll see that everything gets put into massive databases. I guess to all piece points, it's in a way, you got to be able to figure out how to use that data and make something meaningful out of it. This is a big mega trend. We really think that our nRF9160 is really good for the space. It's low power and small, so it means you can make smaller thing, less batteries, last longer. We provide GPS for location. You can integrate your sensors with the MCU we put on board, so you can do like the guys did on the Thingy:91, the temperature, the flip. You can do some other nice sensors to make sure that the product is in the shape you want to be. Finally, I think with a global product, you can track things globally as well. We think it's a very strong product for asset tracking. How are we doing? I think we believe we're getting significant traction with nRF9160. Here's some numbers on this slide. We moved the nRF91 System-in-Package into full volume production. It produces good yield. We're very satisfied with what we're seeing in production. That's good and not a concern at all. We shipped more than 4,000 development boards. Those are these boards. We shipped around 2,500 Nordic Thingy:91. We have more than 200 customers who's ordered devices and building their own PCBs. It's a big step when you go from using a dev kit to making your own PCB and you're making your own product. That's an investment on the customer side, which is pretty significant. When we track DevZone, which is our support portal, this is the number 3 device, and it keeps growing. This means it's the third most popular in our portfolio, competing against the likes of some of our massive nRF52 Series devices. We had revenues around NOK 500,000 in Q3 on prototypes and development boards, which is pretty good. The traction is good. I believe it posts for greatness and great growth as we move forward. We've made a product that we think is very competitive. We believe that the carriers are fully on board with the LTE-M and NB-IoT in pretty much all markets. Certification of firmware availability is gaining a lot of pace. It's no longer such a, how to say, concern for me as the Chief of Development as it was a few months ago. Considerable design activity, as I showed, with more than 220 customers making boards. We know that it's highly complementary to Bluetooth, exactly as we wanted to do. We hope that the graphs keep growing. Probably will. We feel in good shape on cellular IoT. Thank you. Okay.

Speaker 7: Okay. Thank you, Svein-Egil . My name is Pål Elstad. I'm the CFO of Nordic. I'm going to do the last part of the presentation. I'm going to go through the financials. I'll start with a Q3 wrap-up. Then I'm going to give some more forward-looking views on the business. First, on revenue. Revenue, very strong revenue in Q3, $82.2 million. First time above $80 million in revenue. Also on the high end of the guiding that we provided in the Q2 presentation of $78 million to 83. That's a great achievement. The growth came as mix, mainly from Bluetooth, where we had 15% growth. Normally, I go through all the segments or markets in detail. However, due to the strong nature of Q3, which is always the strongest quarter of the year, I'm just going to pick a few of the specific areas. Start with consumer electronics. 6.6% growth from last year. It's actually very strong since proprietary, which is dominating this part of the business, had a 19% reduction. Showing that there's quite a few new design wins and design activity happening in the consumer electronics business. Wearables. Wearables was in 2018, early 2019, very slow, but now we've had two consecutive quarters with strong numbers. A 12% increase. A lot driven by the designs and the strong design activity we have in the Chinese ODM market. A very strong market there. Healthcare. Both Geir and Svenn-Tore has talked a lot about healthcare. It's of course short term disappointing that there's a decline of close to 30%. As Geir said, this is a market that's taking pace and it's a growth market going forward. The reduction this quarter is mainly driven by some of the customers in the mid of the product life cycles. Going to jump to gross margins. Nordic has continuously showed a great improvement in gross margins since 2016, really. It peaked at 61% last quarter. Actually a reduction of 1.14 percentage points quarter-over-quarter. The reason for this reduction is twofold. First of all, as Svenn-Tore and Geir have talked about, there's for the first time quite large influx of Q1 customers, which inherently have a lower gross margin. In addition, there is some mix in products. In Q2, we had a lot of the high end products sold. In Q3, there's more mix towards the mid and lower end products. This mix, as you've seen the last few years, has changed from quarter-to-quarter. That's why there will be fluctuations in the gross margins going forward. Going to the operating model performance. I've already talked about the 4.4 percentage points increase in revenue. Part of that increase is eaten up by lower gross margins, still a strong gross margin. On R&D, split between short range and long range or Cellular IoT. The short range business, we've invested NOK 12.4 million this quarter, which is around 15% of revenue. That's pretty stable compared to what we've seen in previous quarters. This money is used to invest to capture growth opportunities that we see out there, and especially working on the high-value customers. Of course, it's also spending to capture growth opportunities with new products, et cetera, in the future. Cellular IoT is in a heavy ramp phase with high activity on certification and development of software. That's why spending has gone from NOK 3.9 to NOK 6.7 million over the year. However, a little part of this is capitalization because in 2018 we capitalized a significantly higher amount. I'll come back to that in the cash expenses part. We've been able to keep SG&A costs relatively stable at just around NOK 10 million, and shows the scale of the operating model, and how we're able to leverage the strength of our distribution setup. Finally, EBITDA of NOK 11.5 million or 14.1 percentage points, down from 14.3 a year ago. However, as we always do, I think it's important to look at the split between short range and long range, because only the short-range business is generating revenue. If we exclude the investment we do in cellular, with the exception of the dip we had in Q4 last year and Q1 this year with exceptionally low revenue, we've seen that the short-range business had been giving EBITDA margins at around 20% and actually in Q3 even well above 20%. Given the guided range for Q4, we estimate that the full year EBITDA for the short-range business will be up compared to last year. Very brief on cash operating expenses. In this quarter, we've capitalized NOK 1.8 million. The corresponding total amount last year was NOK 3.1. The reduction is really driven by the cellular IoT project now going more into our final phase. More of the spending is done on finalizing project and then working on new products. For the cellular IoT project from Q4, we will start depreciation of that project, adding depreciation of around NOK 700,000 for those who dig into the models. If you look at the total number from Q3 last year to this year, it's gone up by 9.3 percentage points. Adjusted for the IFRS 16 implementation that we did earlier this year, the increase is around 13%. The growth comes as a result of increasing from 663 employees a year ago to 750 now, so a 13% increase. If you look at sort of the bottom light blue there, which is the other operating expenses, so all other things than employees, you see that we've sort of come up to a scale. We're able to utilize the base investment we already have and add on people on top of that without increasing the other part of the costs. Compared to last quarter, it's pretty stable. We do have a very positive effect of FX. The weakening of the Norwegian kroner is very positive for Nordic as we have a very strong base in Norway. Briefly on our cash flow. We started the quarter with NOK 87.9 million. A small reduction of NOK 1.2, ending at NOK 86.7. Normally in Q3, which is the growth quarter, we will see a negative cash flow, which we also did last year, where we actually had NOK 12 million in negative. We are able to reduce the negative effects of seasonally weak cash flow quarter. We've done that by really working on cash conversion. If you look at the net working capital, it's at around 27%, which is a significant reduction of 5.4 percentage points compared to last year. Also in Q3, we spent NOK 6.5 million in CapEx. A lot of this CapEx is related to the video you saw earlier today, the lab equipment, which is being finalized in these days. Overall, I think we're satisfied with the Q3 results. We're back to growth in Bluetooth. We maintain a quite strong gross margin, and we're able to keep the cost development under control. Now I'm going to go to a more out view of the cost basis going forward. First of all, on gross margins. As discussed earlier, Nordic has been able to stabilize and exceed the 50% target. We've been able to do this sort of a mix of operational things. As Nordic is growing, we get more favorable pricing from our vendors. We're able to forecast better when we get larger customers on board, it is much more easy to get visibility in our deliveries, and thereby we can significantly reduce costs. That's something we're going to continue to work on. Of course, the product mix, going forward and at least the customer mix going forward, we estimate that gross margins would go slightly down to the 48%-50% levels. We only provide outlook on medium-term for gross margin, as both ASP and cost levels is a little bit unsure in further terms. We launched Bluetooth in 2011, our aim was to provide our customers with a very easy-to-use, out-of-the-box experience, supply all the software, et cetera. We're doing the same on the cellular IoT, where we're partnering with Qorvo to make a module. When we deliver a module, you have to give away some of the gross margins to the external vendors. That's why, for the long-range business, we indicate a gross margin of 35%-40%. It's very difficult to give an exact point there because revenue has been limited and we're still ramping the production, so it's not exact to know the exact points of cost. For the time being, we have a medium-term guiding on 35%-40%. Effect on the group margin of the cellular business, of course, depends on the cellular ramp. It's too early to say anything there. On R&D, Nordic spent or will spend approximately NOK 74 million in R&D this year. This is based on the midpoint of our guiding, and this will represent about 26% of our revenue. Of course, you see a steady increase. The reason we have a significant increase also in 2019 is, of course, that we had lower revenue in the earlier part of the year. How much does this relate to the short-range business? Well, we spent around 17% of our revenue in R&D. In order to have a staggering 40% design win, we need to be a leading vendor of Bluetooth products. 17% is a adequate number to be there and is something we should expect. On the cellular business, it doesn't really make sense to compare R&D to revenue, since there's no revenue yet. It adds up so that we get 26% in revenue on the total. R&D intensity is expected to decline. We believe that this number is on the peak in 2019. Of course, the absolute number of spending in R&D will increase, although the KPI will be reduced. Also, I think Svein-Egil Nielsen talked a lot about the synergies between short range and long range. In the long range, we're working a lot on projects together between the two businesses. On SG&A, we are growing the organization to capture growth opportunities, both between short range and long range. That's why we're spending around 14% of our revenue on SG&A. We believe we're soon meeting the peak point there also, so that in absolute numbers, the cost level will, of course, grow. As we build or ramp the cellular business, the overall KPI will go down towards around 10%, which we believe is a reasonable level for a company like Nordic. Being a fabless semiconductor company, CapEx is limited. Our main investments relate to test equipment that we use in our production in Asia. We invest in lab facilities to support customers. We also spend quite a lot on software that we use in the design of our products. Finally, we buy some licenses for our soft IP for our products. We have been investing quite a lot in the new lab facilities in Trondheim and also in Asia. That's why you see that CapEx for 2020 will be around NOK 20 million, which represents about 7% of our revenue. Of course, this KPI of 7% is too high going forward. When volume ramps, we will see a decline in this KPI to around 5%. Still, in absolute terms, for 2020, you should see around the same CapEx levels. Few slides, final slides on cash position. When we did the capital raise in April 2018, we highlighted three items that we were going to use the NOK 100 million for. First was to support working capital for the growth. Secondly was to build the lab. Thirdly, our big new customers that we had sufficient funding to do R&D investment and deliver on the roadmap. If you look back to the amount of cash we had a year ago, we've spent NOK 200 million on debt repayment. We've bought treasury shares that we're going to use to the option program. That's for all employees in the company. We've also done the lab investment of around NOK 20 million. We've used the strong gross profits that we've had during the last 12 months, on R&D spending and of course, SG&A. Working capital, we've been able to keep pretty stable, meaning that the cash balance adjusted for the debt repayments and treasury shares is more or less the same as we had a year ago. The current cash position, and available credit line provides a good foundation heading into the next year, which is a large ramp year for cellular IoT, and we're continuing to invest in short range. We believe we have the ability to continue driving the technology roadmaps that we've set out on. However, if you see on the left side there, one of the KPIs we measure ourselves on, that is the R&D cash coverage that we have. The reason this is important is that our main customers are evaluating us when they do due diligence processes on procurement, on how much ability we have to fund the roadmap we've set forth on. We are at in 2019 at around one, meaning that we have cash available for one year's investment. When we look at comparable analog semiconductor companies, most of them are in the range of between 0.8 to 1.5. We believe this is a reasonable level. The growth we're outlining will require some working capital, which I mentioned, we haven't increased the cellular working capital yet, but so we will need more working capital and the medium-term outlook we're providing for the cost items imply that it will take some time before cash flow materializes. Therefore, we anticipate no dividend payments in 2020 and 2021. However, we see that with the expected volume ramp of our new products, we should see significant improvements in cash flows from 2022 and onwards. I think that's all I have on finance. I'll hand over to Svenn-Tore who has a few final comments before we open up for Q&A.

Speaker 9: Thanks, Pål. Back to our aspiration. Building a $1 billion company within five years. The growth of 20%, 30% of Bluetooth. Build up of a cellular business to similar size within five years. It's possible, don't you believe it after getting through this day? We are on a good way to reach it. We also have ambition for our EBITDA margin, and we have an ambition to reach around 20%. That's really the key goals that the company is working for today, and we're going to continue to be very open with our progress. I think we're going to have some exciting times ahead of us, and I would like my team to come up here, and we have some answers if you have some questions. Thanks. Yeah, come on, guys. Do we have a microphone so the webcast guys we have over here?

Speaker 1: Thank you. Christoffer from DNB Markets. I have a lot of questions, but I'll try to contain myself. Just first on the cellular business, you seem quite confident and it's also helpful to see obviously that there are independent analysts that are confident as well, and you list like 20 different kind of use cases. Could you give some more color on kind of what they're telling you in terms of timing and volume just to kind of understand where the most important source of volume will be, you say asset tracking and agriculture. What is kind of the tangible feedback at the moment?

Speaker 9: Would you do it, Geir?

Speaker 2: I think a lot of our customer cases are taking advantage of the GPS there in the solution. There's a lot of combines of tracking valuable items, even street lamps where you use GPS because you put the street lamps out and then you need to know where they are and basically rolling out the network. I'd say first and foremost is anything that involves GPS where you take more value of the complete solution.

Speaker 1: You're saying that there will be a significant ramp, or you said a significant ramp in free cash flow from 2022. Is that kind of based on then these applications, they're now having decided to use your product and they're kind of indicating to you already what kind of volumes they will need in that time frame, or? Is that more based on you're seeing a ramp in the numbers from third-party analysts?

Speaker 2: It's both. It's literally 2 decades of sales experience where you look at the metrics, you look at the project milestones, you look at the significant movers. It was mentioned that we had 200 customers that had taken parts for pilots and pre-production. You aggregate all the different variables, and then you make up an educated guess. At the end of the day, the networks have to be rolled out and the operators certified and all the firmware in place. It's a combination of analyst figures and our own intelligence.

Speaker 1: Great. Then just moving on to the R&D or product roadmap. You mentioned the nRF53 and that you're planning to kind of piggyback on the investments that you've made in the nRF91 project. Could you just elaborate a bit on that? Does that mean that we should expect that to continue to stay on the 55 nanometer process node and not move further down? Do you expect to include a similar MCU that is in the nRF91 with the trust zone and everything? Yeah, you can start, Kjetil.

Speaker 5: I think we will reveal much more of that when we actually launch the device. Right now, we are keeping a little bit tight seal on the inner workings of the nRF53, and don't want to allude to more than what we pointed to the slide decks. I think there are enough hints there for you to figure out a lot of the contents of the nRF53. You're a clever guy.

Speaker 1: Sure, okay. Two more and I'll try to come back later if there's time. Just more of a maintenance question on the proprietary business, which you didn't talk too much about. You say growth in the medium term for Bluetooth of 20%-30%. Can you just remind of what kind of growth you're expecting for proprietary when we think about how long, what kind of mix of that NOK 1 billion within five years. Yeah, we'll start with that one.

Speaker 9: Maybe I should do that. We don't have a wide spread of customers on proprietary, and it's hard to answer your question without exposing our customer. We rather don't want to comment on that, but it's not the fastest growing segment within Nordic, and it's going to have less significance on the impact of the company. I think that's the best answer I can give you.

Speaker 1: Sure, okay. The last one for me is more towards the guy from FedEx, if he's still here.

Speaker 9: I'm sorry, I don't think we should ask FedEx. It's a Nordic event. I told him that he's not going to get any questions from the audience.

Speaker 1: Okay, sure. I'll ask you. Can you just be a bit more specific on, because the presentation was including a lot of information that was already out there in the market? If you could elaborate on where you see yourself positioned in that value chain. Obviously, there is cellular and Bluetooth in there, doesn't mean that you are a natural fit for all the different products that they're planning to launch. Do you see yourself both in cellular and Bluetooth, and in what parts of their products do you envision yourself?

Speaker 9: We have not confirmed any designs with the customer you're talking about. Obviously, it's a typical target customer for Nordic, and it's important for us to work with tier 1 customers, as we've always done. When we started into the HID, human interface devices, we identified the largest providers of HID and worked hard towards these guys. We're not doing anything different this time with cellular.

Speaker 1: Sorry, very quickly, one last one. On Cirrus Logic, the partnership on audio there. Can you just give some more color on why you think this is such a powerful combination of your capabilities? There are really kind of huge significant players in this market like Qualcomm, I don't know, Chinese players licensing IP. Why should this go-to-market be so much different and why should you get a significant position in that market? Is it power consumption or Yeah.

Speaker 5: Yeah, that's what we're showing the customers that are under active evaluation right now, is putting some proof in front of combining the Cirrus technology and the Bluetooth Low Energy, benchmarking it with kind of state-of-the-art wireless audio solutions today. We're showing a promise. That being said, just some color on this. This is a prototype on Bluetooth Low Energy and audio experience. We don't know yet how fast or even if this will be adopted by major players and developed into something. At this stage, we're showing the capabilities and the promises of the technology and the combined solution from the companies. That's what we're showing our customers. Yeah.

Speaker 1: All right. Thank you.

Speaker 4: Hilde Johnson, Arctic. First, on your backlog, can you give any more color on how much of your backlog is from tier 1 customers or your top five customers, for instance?

Speaker 9: We could. Basically, what we see is that tier 1 customer have a much more production logistics in place. That put their orders in a little bit longer lead time. That means that over quarters, it will accumulate unless you ship more into this quarter than is expected for next quarter. Obviously, there was expectation of growth for next quarter since the backlog went up. And if you come to a ratio of how much new business there is in this NOK 114 million that's back, we can look at the backlog exiting Q3 last year was NOK 85, if I recall right.

Speaker 7: Yeah.

Speaker 9: A significant part with new business plus obviously some of the mid-size customers that were mainstream customers, but it's a significant amount.

Speaker 4: Yeah. Just a follow-up from Christoffer's question. Your cellular segment, approximately what is your aspiration for when you expect to break even for this segment? Is it 2021?

Speaker 9: If you look at what we've done lately, Nordic has just been guiding quarter by quarter, we will continue doing that going forward, we have not given any long-term guidance. If we should have done, we would have done it earlier today.

Speaker 4: Yeah. Just two short questions. The Q4 guidance on revenues, could you give any color on this based on BLE proprietary or cellular?

Speaker 9: Have you analyzed it, Pål?

Speaker 7: No.

Speaker 9: Basically, I would say it's close to 75%-80% is Bluetooth, for sure.

Speaker 4: Okay. One last from me. Healthcare was somewhat weak this quarter. Any comment on this? Also Juul cigarettes, is that reported in the consumer device segment, or will it be reported in the healthcare segment? Just for reporting.

Speaker 7: I can start. Yeah. The Q3 numbers is, as you know from history, we've had three customers driving the healthcare business for some years. These customers have product cycles. That's why it's a little bit lower in this quarter. For the other customer you talked about, that's not healthcare. We have some applications there already, and they're reported in consumer electronics.

Speaker 4: Okay. Thank you.

Speaker 10: Yes. Axel from ABG. I have a follow-up question on the audio over Bluetooth Low Energy. Can you say something about how long you have been working with the Cirrus Logic? Also, you're saying today that you are achieving industry-leading power consumption on this audio Bluetooth solution. Can you be more specific on what you are achieving with this new solution?

Speaker 5: The partnership with Cirrus Logic stretches a little bit back in time. I won't go into how long. For those of you who follow the industry, there has been talks of audio over Bluetooth Low Energy for some time, and during this period we have had active engagements with Cirrus Logic. When we say industry-leading performance, I don't want to give out any numbers, obviously, but we're measuring up against state-of-the-art equipment already available in the market today. Also benchmarking this about what we see out there from competitors' promises of their next generations. It's a merit of one aspect is the Bluetooth Low Energy in itself, the promise of Bluetooth Low Energy over classic Bluetooth. Then there's merit of the technology that Nordic brings to the table and that Cirrus Logic brings to the table that brings this even further down.

Speaker 9: Kind of that's how far I want to answer that question. Yes, that's a good answer.

Speaker 10: Following up on that, there has been discussion about the Bluetooth SIG coming out with a new standard. They have been working on that for audio solutions. Do you expect that to be ready sometime in 2020?

Speaker 5: I don't want to comment on that.

Speaker 9: We're not allowed to disclose roadmap from Bluetooth, thank you.

Speaker 10: Fair enough. Moving on to cellular. You have gotten the Verizon certification in place, and then you highlighted that you're working with nine other carriers. Can you say something about how far along you are in the process and when you expect to have these other nine certifications in place?

Speaker 8: All of these nine we're working with is actively sort of in lab right now. They are actively working with them right now. It's not only reading papers, but actually doing measurements and doing paperwork and measuring on all nine. When will they be done? It varies a little bit on the different carriers, but I think we'll see things in the end of Q4, maybe in Q1.

Speaker 10: Q4, Q1. Okay. You highlighted this new cash R&D coverage ratio, and you also mentioned that peers are at the 0.8 to 1.5. We know that you lately have gotten many new tier 1 customers with stricter demands. Do you have any sort of maintenance covenants on how much cash you must have at hand?

Speaker 9: You can do it.

Speaker 7: No. No covenants, I would say. I would also say that, Svenn-Tore, you have annual meeting with the C or the high-end purchasing departments of these companies, and they will set up their expectations and review, just like all other customer-supplier relationships. No written covenants, but more of expectations.

Speaker 9: We have active dialogue, Geir, myself.

Speaker 7: Yeah.

Speaker 9: We have active dialogue with these customers. We know what they need. We took action here in April last year, and we are fully covered under the compliance.

Speaker 10: Yeah. You're expected to continue to be sort of in compliance going forward with these? Yes. Yeah. Yes, just with regards to cellular, I know of course you're somewhat in the dark, but you now revoked this target for 2020 breakeven, which seems like was largely expected by analysts. Can you quantify somewhat when you expect to see an inflection point and see commercial deliveries of cellular solutions? Will that happen in Q4, Q1, Q2?

Speaker 9: Actually, we saw that in Q2 this year, we had NOK 200,000 revenue of samples. In Q3, we just reported NOK 500,000 of early production samples. We are not guiding outside next quarter. We come back to that as quarters progress.

Speaker 10: All right. Thank you.

Speaker 3: Hans Olav in Carnegie. Just a quick follow-up on the R&D question, and tie it in with your NOK 1 billion revenue aspiration. If you sort of plan not to be significantly under-invested compared to peers, it would maybe imply that you're going to have an R&D spend of sort of NOK 100 million-NOK 150 million. Could you give maybe an indication on how the, sort of, is it back-end loaded or front-end loaded, where you see it's almost doubling from the current level? Will the revenues come first or will they sort of come after?

Speaker 9: Maybe I should start-

Speaker 7: Yeah

Speaker 9: You can continue. I mean, the most important thing for a semiconductor company is that all investment and work happens ahead of revenue. We've been working four years, investing four years on cellular. Lot of the investment is taken. When it comes to Bluetooth, the same. We have been investing, as you see here, in the high 20s, 26 for this year. We have done great investment, and we were going to keep more maintenance now, and as our revenue is growing, obviously the percentage will turn down. Lot of things are done already. That's really the answer.

Speaker 7: Yeah. The 26% we are using today will of course, the intensity will go down compared to that level. In order to be a market leader and actually attracting 45%-50% or 48%-50% gross margins, you need to invest and have the best products out in the market.

Speaker 3: Thank you.

Speaker 9: Okay. Next.

Speaker 10: Question on that. Lately we have seen Apple, which seems to be coming to the market with a new tag using Ultra-wideband technology, and we also saw Amazon had an event where they announced that they planned to launch a tracker with a new proprietary low-power technology, seemed to be very similar to the LoRa technology. I would love to hear your thoughts on these global behemoths coming to market with, say, new, unestablished low-power wireless technologies, and what do you think about that?

Speaker 9: I think before you start, Kjetil, I would like to say it's not unestablished. Ultra-wideband been for a long time. We've been working with a company that have commercial available Ultra-wideband parts today, Decawave. We know this technology pretty well. You can answer.

Speaker 5: Yeah. Both of these companies like you mentioned, Amazon and Apple, they have very little actual facts out there. We are obviously monitoring this very closely, but speculation on speculation is not something we can do. For Ultra-wideband, I do think what Svein-Tore mentioned, the partnerships that we have with a company like Decawave, who's supplying Ultra-wideband, established BLE as a very complementary technology to Ultra-wideband at least. For Sidewalk, I don't have any further comments.

Speaker 10: All right.

Speaker 9: Okay. Christoffer.

Speaker 1: Thank you.

Speaker 9: Yes.

Speaker 1: Christoffer from DNB Markets again. Just two more questions. The first one is regarding the NOK 1 billion sales target. I'm kind of not surprised to see you announcing that target. One thing that I think was a bit surprising you didn't really have to do was to commit to that five-year timeframe. Why did you choose five years? What are the pillars that you're seeing that makes you so certain that that will happen within the five years and makes you say that instead of just saying we will reach it sometime?

Speaker 9: You are very good with models because that's what analysts do, using models. We also put things into models and what we see with what's happening around us, it seem to be within that time range. Based on new customer, based on standard growth in BLE, that was sort of a time frame that we thought was correct.

Speaker 1: Great. Back to the efforts within audio again. There was a slide early on in the presentation where you talked about all the different platform companies. I think it was in Geir's slide set, and then on top you had some examples of products that you're in. On the left-hand side, there was what seemed like true wireless type earbuds, which you now then announced that you're in. It was a bad picture. Can you just explain what kind of product that is and what vendor it's from? I don't have to spend hours trying to kind of

Speaker 2: Well, that's not the question I expected coming into this. It's just a few out of hundreds and thousands of products. Common to them all is that they would connect through platforms, now as opposed to the actual phone in the past. These are for illustrative purposes, only not necessarily actual candidates for deployment to any of the partners on the bottom. Just to be clear.

Speaker 1: Okay. Thank you.

Speaker 9: Good. There is no more questions, and we would like to thank you guys for coming and attending today. We also have some gifts to those who took almost all of your day to come here. Maybe, Pål, you can give out when people are leaving. We are happy to sort of talk to you individual later on, but unfortunately, we are all going on our own trip now, so it won't be much availability the next few weeks.