Earnings Insight: Nordic Semiconductor Anticipates Revenue Growth in Q3 2024

image

Earnings Insight: Nordic Semiconductor Anticipates Revenue Growth in Q3 2024

In the third quarter of 2024, Nordic Semiconductor, a leading provider of wireless communication technology (ticker: NOD), reported a revenue increase of 18% year-on-year, totaling $159 million. This growth was driven by strong consumer demand and seasonal trends. The company's gross margin remained solid just below 50%, with a positive EBITDA of $16 million. Despite an anticipated seasonal decline in the fourth quarter, with projected revenues between $130 million and $150 million, Nordic Semiconductor remains confident in its market position and long-term growth prospects, aiming for over 20% average annual revenue growth over the decade.

Key Highlights:

  • Nordic Semiconductor's Q3 2024 revenue increased 18% year-on-year to $159 million.
  • The gross margin remained just below 50%, with positive EBITDA of $16 million.
  • Fourth-quarter revenue is expected to range between $130 million to $150 million, reflecting seasonal trends.
  • The company maintains a 40% market share in recent product certifications, with 509 designs certified in the past year.
  • Nordic Semiconductor is considering acquiring Novelda and plans to launch the nRF54 Series at the Electronica Industry Fair.
  • Operating expenses increased by 7.6% year-on-year, with a target of a 25% EBITDA margin in five years.
  • Despite inventory levels rising to $181 million, cash flow was positive at $3 million.

Company Outlook:

  • Nordic Semiconductor outlines plans for profitable growth, expecting modest growth in short-range businesses for 2025 and an acceleration in 2026.
  • The company targets over 20% average annual revenue growth over the decade.
  • A 25% EBITDA margin is projected within five years.

Downturn Expectations:

  • Fourth-quarter revenue is expected to fall seasonally by 6% to 18% compared to Q3.
  • The company reduced its 2025 growth forecast below 17% due to supply chain management adjustments.
  • Inventory levels increased, requiring strategic sourcing adjustments to support future growth.

Upturn Expectations:

  • The healthcare segment continues to perform strongly with ongoing investments.
  • Increasing design activity in cellular products, particularly asset trackers and measurement devices, is observed.
  • The nRF54 series is expected to contribute to strong future growth with ongoing design wins.

Challenges:

  • There was an $8 million increase in working capital, mainly from higher inventories.
  • Total inventory rose by $11 million to $181 million, marking an $80 million year-on-year increase.

Q&A Highlights:

  • Management remains optimistic about the nRF54H product and its future revenue impact.
  • Prepayment figures do not fully reflect wafer purchasing plans as the company is in various stages of ramp-up with suppliers.
  • Nordic Semiconductor will hold follow-up Q&A sessions on October 25, 2023, for further discussion of the results.

Nordic Semiconductor's third-quarter results demonstrate resilience in a competitive market, achieving robust revenue growth and a strong gross margin. The company's strategic focus on product innovation, such as the nRF54 Series, and potential market expansion through acquisitions like Novelda, reflect its commitment to continue growing. Despite challenges like inventory management and revised growth outlook for 2025, its long-term objectives remain ambitious, with Nordic Semiconductor poised to leverage its market position for significant revenue growth in the coming years.

InvestingPro Insights: Nordic Semiconductor's recent financial performance aligns with several key metrics and insights from InvestingPro. The company's 18% year-on-year Q3 2024 revenue growth is particularly notable, as InvestingPro data showed a 17.58% revenue growth projection for the latest quarter, demonstrating consistency with reported figures and highlighting the company's ability to maintain growth momentum.

However, investors should be aware of potential challenges ahead. An InvestingPro Tip notes that analysts anticipate a reduction in sales this year, which may explain the company's lowered 2025 growth projection. Additionally, a tip indicating an expected decrease in net income this year aligns with the projected seasonal revenue decline in the fourth quarter.

On a positive note, Nordic Semiconductor's strong balance sheet, highlighted by an InvestingPro Tip, indicates the company holds more cash than debt. This financial stability could provide a buffer as the company navigates potential market challenges and continues to invest in growth initiatives like the nRF54 Series.

For investors seeking a more comprehensive analysis, InvestingPro offers an additional 7 tips that can provide further insights into Nordic Semiconductor's financial health and market position.