Q2 2026 Nordic Semiconductor ASA Earnings Call - Post-Earnings Q&A
Speaker #2: Good afternoon, everyone. Thanks for joining the call today. We'll just give it one more minute for a few more people to get in, then we can get started.
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Speaker #2: And with that, we can get started. And firstly, we're delighted to have Vegard Wollan, CEO, Pal Elstad, CFO, and Steel and Christoph from the strategy and IR team from Nordic on the call today.
Speaker #2: In terms of the format of the call, I'll hand it over to Vegard for some opening remarks, and then we can jump straight into Q&A.
Speaker #2: As a reminder, if you'd like to ask a question, we want to make this as interactive as possible. So please feel free to use the raise a hand function, and then we can take the questions in the order that they come in.
Speaker #2: With that, I'll hand it over to Vegard.
Speaker #3: Yeah. Thanks, Owen. Thanks, Owen. Hello, everybody. Thanks for joining. And good morning to you. Overview, we delivered record revenue 219 million for the second quarter, up 33% year on year.
Speaker #3: Which we are pleased with on the basis of this also showing growth and strength in the broad market, continuing growth also with key customers, but particularly strong in the broad market.
Speaker #3: And also reflecting increasing demand from existing customers and inflow of new customers. And also, I would like to say we are pleased about the fact that we are seeing this firing on the expected cylinders for us, such that we have multiple product lines.
Speaker #3: Multiple GOs, multiple segments that are growing. So that's something we are pleased about. Profitability expansion important for us. And gross margin came in at 53.1%, which is 2.4% points up from a year ago.
Speaker #3: Helped by better product mix and more sales to the broad market. And additional contribution from our cloud services. A bit delay at 16.6% adjusted EBITDA at 16.6%.
Speaker #3: And keeping operationally relatively flat. I think, yeah, looking ahead, our Q3 forecasts is revenue is for revenues of between 220 million to 240 million dollars.
Speaker #3: Which and with gross margins staying about 50%. So in summary, I think we're pleased to see we are progressing to plan, progressing as we as I think we are communicating, which is important for us.
Speaker #3: Financially, operationally, and strategically. And with that, I'll hand over for questions. So great.
Speaker #2: Thank you, Vegard. Maybe I'll kick it off with the first question, and then whilst that's happening, if you raise your hand, we can then go in the order that they come through.
Speaker #2: So I guess one thing that's been super interesting over the past couple of quarters is you've talked about positioning the business as a complete solutions provider, and the acquisitions you've done last year with Menfault and Newton have sort of strengthened that sort of strategy to become a complete solutions provider.
Speaker #2: So I know it's early days, and you've mentioned a few design wins with the also e-bike, a few quarters ago. But how can we think about potentially the dollar content increase if a customer was purely BLE, and then they decided that they were to go and design in not just BLE, but then to take Wi-Fi, PMIC, cellular solutions, and then also your software services?
Speaker #2: And also, how should we think potentially about the ramp of design wins from a BLE customer existing to maybe a complete solutions customer over the medium term?
Speaker #3: Oh, that's a great question, Owen. And obviously, this is something we are focusing extremely intensively on internally, and driving a lot. And it's good to see that we actually we get feedback, and the momentum is growing in the market for this at the moment.
Speaker #3: But it is also clear that, as you said, we are starting from a relatively small basis, for instance, on the cloud services revenues. The key thing for us is that we are pushing multi-tech, pushing multi-chip solutions, and for the—
Speaker #3: End nodes or customer end nodes. To increase in value, both from a software content point of view, adding cloud lifecycle services, adding our new AI technologies, for the edge node, but also our new recently launched AI-assisted development tools.
Speaker #3: So all of that for us to provide value add to every single end node that we are participating. And of course, that's our opportunity to then be monetizing this and seeing that we are growing the end dollar value for each end product we are participating in.
Speaker #3: We're not communicating our progress in this area. The only thing I can currently do is to assure you that this is happening. The cloud services revenue is currently being monetized in the long-range team, which is more of a technicality because we have the management of that in that team, and we also had the legacy, the historical NRF cloud operation in that team.
Speaker #3: But we are expanding that, such as it is now applicable for short-range products, Wi-Fi products coming. And also connecting to our battery health monitoring on PMICs as we launched in last quarter.
Speaker #3: So this overall holistic story is something we are seeing happening. And certainly, a very important KPI we are driving internally and also with our Salesforce to be driving multi-tech design wins and multi-solution design wins.
Speaker #3: It is a bit of a competitive picture, making us keeping the details of this a bit secretive. But I think overall, we are very pleased about the progress.
Speaker #3: On the cloud services, we have multiple solutions, which you will see if you approach us also on the internet there. And the self-service broad market part of it is growing very nicely.
Speaker #3: And we have solid progress with the larger key accounts on the same area.
Speaker #2: Great. Thank you. I can see Lucas got his hand up. So feel free to unmute your line.
Speaker #3: Super. Thank you very much. Can you guys hear me okay?
Speaker #4: Yeah.
Speaker #3: Yeah. Thank you.
Speaker #2: Yes, you can.
Speaker #3: Super. Hey guys, the time. I wanted to talk a bit more about just like capacity available to you, because obviously, capacity is getting harder and harder to get by.
Speaker #3: I mean, you don't need to necessarily mention sources. I mean, we know that TSMC is like is an important partner here. They're obviously their capacity is progressively getting overbooked at various notes.
Speaker #3: So would you mind just kind of telling me how like roughly, do you have like a sense of how much of like your next year's need is roughly already pre-booked and kind of what's your plan is if in the current environment, are you actively have you actively found like other foundries just kind of what's the plan there?
Speaker #3: Thank you very much. Yeah. Thanks, Luca. That's a great question. Obviously, for obvious reasons, we cannot comment to specifically on this area. I do think our key foundry partners so Nordic pretty much has four wafer foundry partners.
Speaker #3: Two largest being TSMC and Global Foundries. And since we are a 100% fabless company, we obviously work extremely closely with them, partner with them.
Speaker #3: I think we are seeing strong support from them in return for our loyalty and partnerships being strong from our side. Having said that, it's also very clear, as you say, Luca, the all nodes and all processes in the South Africa market is tight at the moment in addition back in assembly test everything.
Speaker #3: So we are working closely with all partners in this space to secure capacity. And it's tight, but I think we are managing it well at the moment.
Speaker #3: And at the same time, we are also working diversification and additional partners. We are adding OSAT, so back-end test assembly partners at the moment.
Speaker #3: We are now actually in the wraps with two new ones we already have multiple which we are currently using and now ramping with two new ones.
Speaker #3: And it is a constant picture which we're working at all points in time. And both diversifying it, but also securing with our key partners in this space.
Speaker #3: And I do think we are reasonably well situated as it currently looks.
Speaker #1: Awesome. Thank you.
Speaker #3: Thanks, Luca.
Speaker #2: Thanks. Michael, I can see you've got your hand up. Feel free to unmute.
Speaker #1: Great. Thanks. Thanks very much for your time. My first question is on Silicon Labs have been in a source of some competitive retention for you.
Speaker #1: They've been quite public in, for example, healthcare wins that when they were standalone company. Now that they're merging with Texas, how do you expect them to change as a competitor?
Speaker #1: Are there any kind of engineering synergies device-level integrations that they might do that will make them harder to compete with?
Speaker #3: That's yeah. Yeah. Appreciate the question, Michael. I don't think we have seen signs of that, which is there at least in the present. There might, of course, be and I think they have been fairly public about expected synergies.
Speaker #3: On their end, I think that's I think what I can say and relate to in this space is that I do think we are ahead of both of them with our very modern recent 22-nanometer technologies, both from TSMC and Global Foundries, also based on the Nordic memory and ultra-low power technologies, which we have developed and combined for those two process nodes.
Speaker #3: So I think competitively, we are both against them vis-à-vis others seeing ourselves in a very strong technically competitive position at the moment. Of course, that can change and they will develop.
Speaker #3: So let's see. But I don't think we see things that we are fearing in that space at the moment. And I think particularly, as you mentioned in I think you mentioned the healthcare segment where we also have both some very large customers which are working with us for current manufacturing and we are obviously working new products for that space with exactly those new 54 series.
Speaker #3: So, like the 54LV10, 22-nanometer technology is really tailored, most modern for that space, which we haven't seen others coming with products like that at the moment.
Speaker #3: So we are quite confident in our position there. And obviously, we are investing and growing in the industrial healthcare space. And I have quite a few customers coming up there, both within CGM, but also other related healthcare and medical space products.
Speaker #1: Clear. Thank you. Maybe if I can sneak one. Kind of product generation-related question. You had a kind of a transition sort of period with 53, which maybe not lived up to your expectations.
Speaker #1: And 54 is up to a good start. I think you've shared some numbers around the certification share of 20% on the 54 series. Can I help me understand maybe how that compares to how the 52 ramped in the good old days?
Speaker #1: Or what is the nature of the certifications? Are you winning sort of tier one customers who just replace 52 with 54 like-for-like?
Speaker #1: As investors, our challenge has been to understand how much of your legacy 52 leadership will naturally accrue to you when you move to 54, given the market has become sort of more competitive and Chinese players have progressed a lot since then.
Speaker #3: Right. Yeah. We haven't shared that comparison. No. Yeah. I haven't done that. But it might we can just start with that. When we launched the 52 in the old days, back in 2015, we were more like a broad market we had broad market customers.
Speaker #3: The large platform customers, the leading customers in platforms that we won was in '19. We already had the 52. Of course, they had been evaluating 52 for a long, long time.
Speaker #3: Now they know about the performance and the support, and they also knew about the 54 features and performance when we launched them. So it's difficult for us to compare, but we are also not sharing that type of rollout.
Speaker #3: Yeah. So I think we are. And I think what we have said is that more or less all of our key customers are developing with the 54 series.
Speaker #3: That I think we have said. And we are very pleased with the design. Win pipeline. We have with the 54 series. And that is a combination of new designs and transferring designs and new customers and existing customers.
Speaker #3: We have all kinds of permutations in that space. We are yeah. Generally very pleased about the competitiveness of the 54 series, particularly now as we have got to expand the family so broadly to cover multiple variants in half a megabyte up to the 3, 2 megabyte versions.
Speaker #3: And. Expanding.
Speaker #1: Clear. Thank you. Thank you. I'll jump back in the queue.
Speaker #3: Michael.
Speaker #2: Ryan, feel free to unmute.
Speaker #4: Good afternoon, everyone. Thanks again. The opportunity to talk today. I'd be curious. When you talk about these holistic opportunities beyond just Bluetooth, I'd be curious.
Speaker #4: I know you have to be ambiguous about customers, but I just love if you could give some color on what is this OEMs? Is this partners that are developing solutions?
Speaker #4: They're selling to OEMs. I'm just trying to understand where you think this is the biggest opportunity for the company.
Speaker #3: Yeah. I guess we have some public example, but for instance, in a smart ring, the company where we are both shipping connectivity SOCs, BMIC, and RF cloud solutions, that's really becoming a holistic type solution for such a company.
Speaker #3: Ryan, where they where these solutions are seamlessly benefiting from utilizing each other and the software is cooperating and seamlessly working holistically on the solution.
Speaker #3: I'm not sure if that's answering your questions. I'm going to pause there to let you ask me.
Speaker #4: Thanks for getting beyond Bluetooth into some of the longer-range solutions. Where this fits into this holistic.
Speaker #3: Oh, so in the long range. Yeah. So in the long-range space, there is, for instance, a lot of our solutions which are related to positioning.
Speaker #3: So you typically have positioning information or messaging information. And you would typically combine that with cloud solutions some way. And we obviously have our positioning solution as a centric part of our cloud services.
Speaker #3: So that's one of the fastest growing parts of our cloud services. Which is the positioning data feed solution from the long-range products. Overall, I would say the long-range products are also to a greater degree a lot greater degree utilizing our BMICs and additional potentially additionally connectivity solutions aside them as well.
Speaker #3: That's how those opportunities are growing, both with the socket opportunities and with the multi-technology opportunities for us.
Speaker #4: Okay. Great. Thank you. One more question. I hope this sounds intelligent because I'm going to mumble through it. It's interesting to me that you're hitting record revenue levels yet NRF is still really, really early.
Speaker #4: And the broad markets haven't I want to use I was going to say they're not firing all cylinders. The top 10 has done so well that broad base still hasn't expanded to where you'd like it to.
Speaker #4: Just really surprised to be able to hit record revenues with still a lot of firepower yet to come. I'd be curious. What are the milestones we can watch over the next 6 or 12 months on NRF and then the broad-based markets to let you know you're having the success that's still early on?
Speaker #4: Whether you're still early before you get that success.
Speaker #3: Yeah, it's a great question. I think, with a lot of the new products we have, there are obviously a lot of products in design and in the pipeline, and it might be a bit surprising to some of you that our customers are actually spending quite some time developing their products.
Speaker #3: And the more complex the products are, the more time they spend. So typically a long-range solution, sometimes takes a bit even longer. But also the more complex SOCs and high-quality electronics manufacturers of the world and device and product developers are spending time before they launch their products.
Speaker #3: So I think we haven't seen much yet of publicly released products, for instance, with the 54 series. I think we are saying there is quite a lot in the pipeline happening.
Speaker #3: Similarly, on the long-range side, there are new products coming. With our more recent, more modern function SOCs in that space. So if you look back from the lows of the beginning of '24, I think our key customer are and have been let's say more even, more smooth in their performance.
Speaker #3: So the decline was lower and they came back sooner. Change in the broad market was steeper and there was more probably more inventory to get depleted.
Speaker #3: And at the moment, we are still not yet back to the peak levels. And what we are also doing is to monitor that our distribution inventories are on the healthy and lean side, such that we don't want to push products into the broad market.
Speaker #3: So we believe we are taking all the right steps to be only shipping to real demand. Something you cannot never be 100% assured about.
Speaker #3: But we believe there is more space for additional growth in the broad market as well as potentially there are new product launches to come with some of our key customers.
Speaker #4: Awesome. Thank you and congrats again on the record results.
Speaker #3: Thanks, Ryan.
Speaker #2: Thanks, Ryan.
Speaker #1: Maybe I'll come back for another question. So, going back to the 54 series, when it was launched back in November '24, I remember there were some comments around how it typically takes around 12 to 18 months to design in the 54 series with your new customers.
Speaker #1: So now that we're sort of halfway through 2026, are you starting to see that customers have designed this in and are we at a point yet where the 54 series is making sort of a certain percentage of revenues that you could disclose of that BLE short range?
Speaker #1: And how do you think that 54 series revenue develops over the next 6 to 12 months?
Speaker #3: You said that you're right. We said that we do not see meaningful revenue in '25 because of the sign-in time. And we will start to see revenue in '26 and going forward.
Speaker #3: And in Q1, we said we are on track and we started to see the orders coming. But that will come gradually. But we also see the design activity been going on through the '25 and of course continuing.
Speaker #3: So we have a good feeling on the 54 family. And then you see the and we are showing on the presentation today, I mean, we tried to show all the products we have.
Speaker #3: And more is coming. And the breadth of the portfolio is huge. And I think that's also why the broad market customers really start to come back.
Speaker #3: They see the features, the performance, they also need it.
Speaker #2: But we're still pretty impressed by the stickiness of the 52.
Speaker #3: Oh, yeah.
Speaker #2: So, stickiness of the 52, and then all the design activity on the 54. What's the L and H, and even the more advanced chips?
Speaker #2: It's lots of memory. It's good for us.
Speaker #3: But it is clearly also the fact a point on I think it is we have said that it's starting to be somewhat more meaningful for us now on the 54 series.
Speaker #3: So that's obviously in the change. Throughout 2026. And we have said it's going to accelerate through the year. And I think that's happening according to plan.
Speaker #3: We're not splitting that out.
Speaker #1: Got it. That's super helpful. So I guess is the right way to think about it that a lot of the broad market recovery year to date has been driven by the 52 series and that being quite sticky at your customers.
Speaker #1: And we're yet to see that revenue inflection from all the design wind that you're getting with the 52 that's gone up in the design share.
Speaker #1: So is it fair then to assume that those 54 revenues that you're designing in will come within the next 6 to 12 months?
Speaker #3: I think very broadly, you're absolutely right there on. On the other hand, there are some early birds and fast movers that are already in production.
Speaker #3: So it's very hard to answer that question.
Speaker #1: Yeah.
Speaker #3: Everything there. From, let's say, 6 months to a 3-year is really the range. On the design-in time.
Speaker #1: That's super helpful. Again, I can see Mikhail, you've got your hand up.
Speaker #5: Great. Just a quick follow-up. When you talked about the synergies between different product families, and the kind of cross-sell of solutions, you made a point that cloud has a really nice attach rate to device sale.
Speaker #5: But do you see people seeing any benefit from getting long-range and short-range from you in one relationship? Or is it more of a kind of customer trust, kind of broader, kind of sales go-to-market type synergy?
Speaker #5: It feels like there's a very different use cases very different types of products. Might be commissioned very separately. Is that the case?
Speaker #3: Obviously, yes and no. There are applications where you do require both and you want multiple connectivity standards. There are. Those that require cellular long-range short-range and Wi-Fi.
Speaker #3: So you have kind of all permutations and that is a I would say that that is a something which we see continuing growing. And of course, then having a single cloud provider to that is also making a lot of sense for some people.
Speaker #3: So I think that's fitting well together. But there are also obviously a lot of use cases where you do want a single connectivity standard for your connectivity.
Speaker #3: And you may use only that and cloud, for instance, as an appealing for power management aside it. So you have all kinds of permutations there which are applicable, Mikhail.
Speaker #5: And do you see cloud long-term as a kind of lucrative standalone revenue stream? Or is it more of an enabler kind of friction eliminator?
Speaker #5: Do you risk for the semiconductor sale?
Speaker #3: You mean the cloud part of it? Okay. Yeah. No, it's I think we are using it both ways. So currently, we are cautious about the fact that we want to monetize on this.
Speaker #3: And provide this as a value add which we are monetizing. But it should be a true value add where also the customer is getting value.
Speaker #3: And support out of it in such a way that they can level up whatever they focus at. But of course, we are to some degree both selling these at separate systems and.
Speaker #3: Bundling them all together—the more opportunities we have to make these bundles, the more flexibility you add to your offering.
Speaker #5: Great. And at the kind of tricky part in the cycle, maybe a year ago, do you remembering our conversations? I think there was a period where maybe I misinterpreted it, but you were almost wondering what do long-range and Wi-Fi propositions need to show to demonstrate that they're a lasting part of your portfolio?
Speaker #5: They're obviously much smaller business. You arguably are much less of a sort of dominant leader. Differentiated supplier in those. How are you thinking about those categories now?
Speaker #5: Have they proven their worth? Is there any doubt in your mind in the long run that this is part of your portfolio?
Speaker #3: Yeah. I think we do appreciate particularly for long-range that that has taken investments. It has taken a long time. We have said we believe in this.
Speaker #3: We have seen the pipeline. I think maybe this quarter is for the first time now that we can really see that you can see the numbers starting to support that.
Speaker #3: And we are not bragging about that. This is just according to plan. And it needs to continue. I think we are confident that that will happen in long-range.
Speaker #3: We have also said we particularly with the tailwind we know have seen with the MTN satellite communication which is added to the long-range as an optionality.
Speaker #3: As well as the trade conflict part of trade tensions, creating a bit more of a positive climate for us as a Western supplier. I think there is no doubt in our heads that long-range will be turned profitable and successful for us.
Speaker #3: And that's something we are driving. Wi-Fi on the other hand is early days. We have a great product in the pipeline which is a 71 series.
Speaker #3: It's also somewhat smaller investments we are making. But we believe it's an important technology. And it's going to be a very important product which is actually a multi a dual radio product which Wi-Fi Bluetooth low energy in one and the same product.
Speaker #3: And the engagement we have with customers prior to having that product is very promising as well. So we believe that long-term that is an important part of our strategy as well.
Speaker #3: But we do also realize that these are drags currently on our cost side.
Speaker #2: And with respect to commercial development, I think it's fair to say that we did mention last quarter, and also this quarter earlier today, that we believe we'll see customers come to market with products using MTN in the second half of this year already.
Speaker #5: Clear. Thank you.
Speaker #3: Thank you.
Speaker #1: Sinis, feel free to meet me on.
Speaker #5: Hi all. I wanted to ask about you guys talk a lot about the increasing lifecycle value per end product opportunity. As I think about kind of the portfolio of offerings that you have to drive greater lifecycle value, kind of over the next two, three years, if I think about the biggest opportunity for you to increase lifecycle value, will it come from products and solutions you already have out today?
Speaker #5: And it's more about getting customers to adopt it and see the value of it? Or do you think the biggest opportunity with that is in things yet to come in development, that will be launched for customers?
Speaker #5: I guess it's both: A, how are you thinking about development? And B, the timeline of having something available to actual adoption of these solutions?
Speaker #3: Yeah. That's a great question. Samir, I think we have so many customers. And our in so many systems and applications and collaborating with so many customers.
Speaker #3: So I'm actually seeing this being adopted and used by relationships we already have to a fairly large degree. And we believe that CRA coming up, and the additional requirements and regulations coming up, are going to be a tailwind for our solutions there.
Speaker #3: And you're going to see us in the second half tailoring CRA even more closely to our cloud and overall solutions offering such that if you use that and if you go with Nordic as your solutions partner, you're also becoming CRA compliant in a very seamless way.
Speaker #3: So as I'm expecting that we actually have and see these customers at the moment, their adoption though will vary and the timelines and how fast it takes, how quickly that goes.
Speaker #3: In the current space, it's clear that we currently see the adoption which we already have got started is predominantly with the current engagement. But then on the other hand, we also see non-Nordic customers on the NRF cloud side and we actually add non-Nordic hardware customers at the moment.
Speaker #3: As new cloud customers as well. Which is creating a opposite cross-selling opportunity for them beyond that again. So there is interesting mechanisms happening here.
Speaker #3: Which is similar to the PMIC space. There is actually a percentage there as well of products which are not which were winning today which is not connected to Nordic connectivity silicon.
Speaker #3: Which is interesting. And it's a big win for that team. That they see that they are actually competing on.
Speaker #5: Independently.
Speaker #3: Yeah. Independently as well. So yeah.
Speaker #2: And just to add sort of in terms of service that we're offering versus new services to come, I think that Vegard mentioned the over-the-air firmware updates linked to CRA.
Speaker #2: Obviously, as one of the core offerings already available. I mean, in the quarter we announced that we have released battery health, fuel cage capabilities.
Speaker #2: So obviously showing already this quarter that we're adding to the service stack as related to sorry. NRF cloud. And one of the things that we probably would like to just discuss more as we move forward and gain more experience on it is the development side in terms of using the cloud services as a live feedback loop for developers in terms of really sort of understanding how does fleets of products communicate back real-time in terms of optimizing code looking at, for example, battery life dependent on what kind of run times are in that application called scaling it up or scaling it down.
Speaker #2: So I think there's a lot of new services that we can offer developers over time which we can add into the cloud stack.
Speaker #5: No, that's great. And that actually leads me well into my second question of if I think about you guys talked for some time about the opportunity to reduce the development time of customers from kind of choosing you to launch on that front.
Speaker #5: I guess, do you think that you have the biggest opportunity to make a substantive impact on the development time more on the high-end kind of complex customers where it can take year, two years, two and a half years, what have you, where it's highly complex, save a lot of resources, but perhaps there's other things that are keeping them back like MCU development, other parts of their software stack that you don't have an impact or perhaps on the smaller end customers where it's less complex, but they have less resources and you can solve something quickly.
Speaker #5: I guess, who do you who is it abundantly obvious that you can have a bigger impact on development time too relative to what their needs are?
Speaker #5: And how does that evolve over time?
Speaker #3: Great question. I think it's fair to say, Samir, it's early days for us. We are also learning here. But I think we're going to see both.
Speaker #3: And I'll let you talk for a minute about the AI assisted development tools, Christopher, on that one.
Speaker #2: Yeah. Yeah. Well, I think that's one example in terms of explicitly trying to speed things up in a way that where we directly help some of the pain points that we real developers experience and what their feedback to us.
Speaker #2: So obviously, having frontier models assist in terms of coding is nothing new. But I think within the guardrails in terms of what the embedded platform requires in terms of constraints is important.
Speaker #2: To sort of avoid the sloppiness of code to be able to optimize the code within that resource constraint so that the embedded footprint requires.
Speaker #2: And I think that's really what we try to achieve by launching the AI assisted development tools that we did this quarter. Ensuring that everything is linked to our technical documentation stack, but also code examples or even sort of real-life experiences from the dev zone and the tech talks that we have available.
Speaker #2: So we're offering up a complete set of the Nordic ground truth to be able to show that to be able to make sure that developers really have this at hand and are able to automate on best practice processes and also ensure that all the guardrails are in place with respect to the code that they start to write from step one to ensure that the experience with respect to developing is available.
Speaker #2: And I think that hopefully, and this is something that we should be able to relay back over time, is something that not only linearly increases the development speed on our platform, but in some places binary changes how developers are able to develop and what they're able to develop.
Speaker #2: So it's sort of changes the premise in terms of what kind of applications and solutions they are able to develop for, where some earlier they might not have been able to do at all, but with the assistance of our tools now, they're able to sort of break through those more challenging aspects of code development as well.
Speaker #5: Fair enough. Thank you.
Speaker #3: Thanks, Samir.
Speaker #4: Hey, I'll jump back in. In terms of your AS, when we think about sort of the medium-term growth opportunities that being sort of edge AI or physical AI, I know in the past we've had sort of we've seen press releases around being designed in on the Samsung ring on the NRF 53.
Speaker #4: And so based on the momentum that you're seeing year to date, have there been more have there been sort of new edge AI launches, and how do you see the portfolio being positioned for the, I guess, a physical AI inflection?
Speaker #4: Could there be adoption of BLE within robotics or drone applications? And are you in any discussions with customers that might be looking to do these sorts of applications on BLE?
Speaker #3: Yeah. I think overall at least, if we say a short range, long range, Wi-Fi, we are certainly in discussions on we do see more and more people utilizing our various offering on edge AI and physical AI.
Speaker #3: Either it's the modeling tools, based on our Newton acquisition and that platform, or utilizing the internal NPUs. And even in a third case, we don't see how and what they are utilizing.
Speaker #3: So there is a mixed scheme there, but we clearly see more and more people utilizing that and also for advanced systems, advanced products like the ones you mentioned though.
Speaker #2: And just if I may add, to those on the call that might not sort of be fully up to speed with respect to all the products that we have or the whole product stack, I mean, the NPU offering that we offer on the LM20 on the short range—we also have said that, in announced products that are coming on long range, the 92 series, there is an embedded NPU; the same on the Wi-Fi side on the 71 series.
Speaker #2: So that means that, within a relatively short time frame, we will have products available with NPUs across the connectivity platforms that we offer on.
Speaker #4: Great. Thanks. That's super helpful. And I mean, on those growth vectors that we just discussed, do those customers are they large enough that they would come directly to you, or is the visibility that they tend to just because they're at the moment very small scale, they go to your distributors like DigiKey and Mouser.
Speaker #4: And that's how you get that visibility. How should we think about the visibility front?
Speaker #3: I would say that's clearly both. It’s both launch, kind of direct customers, and smaller distribution-type partner customers. Yeah, absolutely.
Speaker #4: Great. Thanks. Maybe moving away from the growth opportunity to capital allocation, last year we saw that you did a few acquisitions on the software side.
Speaker #4: So when you think about your adjacency portfolio, is there anything that's potentially missing there, or do you think that you could potentially bolster on over the next 12 to 18 months in terms of building out that complete solution package, or do you think you're happy with where it's at right now?
Speaker #2: I'm always looking at opportunities. I think that's a fair comment. So we have nothing more specific to relay on that.
Speaker #4: Great. I can see Mikhail's got his hand up.
Speaker #5: Maybe just one more financial question while we're at it. Can you update us on how you think about the operating leverage in the business?
Speaker #5: You're obviously still kind of under-earning relative to where we are in the cycle. Apologies if you've talked about this in previous occasions in detail, but whether it's contribution margins or target operating margins, whatever it might be, just help me understand how the profitability should look like at scale.
Speaker #3: So let's start on gross margins. We presented 63 and this quarter. And with a good increase versus last quarters. And it's a good mix of different products, different customers, but also the cloud services is really improving there.
Speaker #3: And I think we're on, with sort of the leverage in the model, keeping track on specs, we're on track to reach our long-term ambition.
Speaker #3: To deliver the growth of 20% and then having ABC margins of around 25% in the model. So this quarter we were at just a 16.6.
Speaker #3: So, 4%—that's points increase from a year ago. So I'm not saying we're there yet, but we're moving in the right direction. And then, with the record revenue this quarter, we see average in the model.
Speaker #5: And long-term means three, five years away? Is that a reasonable summary?
Speaker #3: We said that in capital markets day and so it's toward the end of the decade.
Speaker #5: Okay. Thank you.
Speaker #4: Maybe just carrying on from that on margins. So, from what I can remember, in Q3 that tends to be the point at which you potentially have salary increases in the year. And so, as we move into Q3 in your outlook, how should we think about the R&D development into the next quarter?
Speaker #3: So, I commented on this last quarter or the quarter before, but there is an effect of salary increases in Q3, so slightly up there. The big variability this year has really been the US dollar and its weakening.
Speaker #3: It cost us $3 million this quarter versus last year. It was a little bit stronger in the beginning of Q3, but let's see how it goes. But more or less, it's flat.
Speaker #4: Got it. That's helpful. And then I can see Mikhail, feel free to unmute.
Speaker #5: Sorry, I'll just make one more. In terms of market share, what proportion of the market in your categories is Chinese suppliers? And have you seen any customer behavior change with regards to kind of security of supplier, geopolitical risks in terms of their willingness to procure from those suppliers?
Speaker #3: Yeah, I think we don't have very specific market share data. I think in the short range and Bluetooth segment, COVID had first. I think we are quite a lot larger than a couple of the Chinese players.
Speaker #3: We I think we are also competing relatively well with them in China. That's something we do take as a measure of our technical capabilities because they are good suppliers.
Speaker #3: Maybe a bit handicapped selling to North America and Europe at the moment. But benchmarking us against them is an important thing. But I think that's the short-range picture.
Speaker #3: I think in the long-range picture, we have maybe a flipped situation where we have large suppliers large module suppliers with Chinese origin. And to some degree, I think it's fair to say we see that we get some tailwind as a Western supplier.
Speaker #3: In North America and Europe at the moment, in addition to our NTN and satellite capabilities. And finally, also, there are some other suppliers in the long-range space that have given up and are no longer participating in that space.
Speaker #3: So it's varying quite a lot between those two main categories which we currently have our main businesses in.
Speaker #5: Okay. So we shouldn't dare say hope that there'll be a meaningful market share change in your favor just in short ranges because the Chinese supplier gets deprioritized by the Western customers.
Speaker #5: You already benefiting from that fully.
Speaker #3: Oh, not fully, no. I don't think it's fair to say that we are fully benefiting from that in short range. We're probably more so seeing the sign-in effects at the moment than we are benefiting from it in long range.
Speaker #3: So, long range typically means more complex products, industrial infrastructure, etc., where these things matter more than in some of the lower cost consumer-type applications, where short range is sufficient.
Speaker #3: But we do see this becoming, to some degree, more and more of an issue also in these, let's say, lower complexity products. It's hard to say.
Speaker #3: But I think clearly we are seeing the tailwind there in long range, but mostly so on the design pipeline side at the moment.
Speaker #5: Clear. Thank you.
Speaker #3: Thank you.
Speaker #4: Maybe if we go back to your adjacency revenues. If, let's say, over the next three to five years that was to become very successful and you were able to attach that onto the 54 Series, and those became a meaningful part of your revenues, would you say that the end goal is that you could have a software and services revenue disclosure, which could be a certain meaningful percentage of revenues, and then you have the long range, which is another part, and then BLE?
Speaker #4: So could we end up in a situation where, I guess, software and services could be its own sort of standalone? Or do you sort of view that as being more sort of to support BLE?
Speaker #4: How should we think about the success in software?
Speaker #3: Yeah, I think absolutely that's a very possible vision and ambition to have. We are not there yet, so it's still early days. But I think that's clearly what we would envision seeing happening over the, as you say, next years in that space.
Speaker #3: And nothing would be more pleasing to us than the ability to have that as a separate view. But that's definitely something we'll come back to, right?
Speaker #3: So for now, let's focus on actually ensuring that we continue to add and you for you to monitor that we continue to add value-add services that continue to have traction with the developers and our clients at large.
Speaker #3: I think it should be quite visible what we're launching and when we launch it. So let's continue this discussion over the next few quarters.
Speaker #4: That's great, thanks. Maybe I'll just do a quick one, and then since we're coming up to the end, I'll ask if we've got any last questions.
Speaker #4: But on competition, we've seen increasingly large-cap analog players such as TI, Infineon Acquire, Connectivity Assets. And so when you sort of think about sort of the medium term as to how they position that within their portfolio, and how they might potentially compete with you, how do you see that evolving and where do you think that as a standalone you win and where do they potentially have the advantage over sort of a standalone business such as Nordic?
Speaker #3: Yeah, I don't think we've seen that picture changing much recently. So, and of course, we are used to heavy competition, so that's the climate we are living within.
Speaker #3: Our products have to be winning on their technical capabilities. We have to be competitive price-wise, and that's really what we are used to believing in all the time.
Speaker #3: And we haven't seen bigger changes in that space in the recent quarters.
Speaker #2: And especially after we launched the 54 with the 22-nanometer, with those features, low power, and now starting to add the Cloud Light Cycle services.
Speaker #2: I mean, you can see that we are doing much more than what we see the competitors have done.
Speaker #4: That's great. Are there any final questions before we wrap up on the call? (Pause for a second.) Okay, if there are no final questions, I just want to say thank you to everyone for joining the call, and thank you to Vegard, Pal, Stale, and Krista for your time today on the call.
Speaker #3: Thank you for listening to us. Thanks a lot, everyone. Bye.
Speaker #2: Bye.
Speaker #4: Thank you.
Speaker #5: Thank you. Thank you.
