Nordic Semiconductor ASA (NOD) Earnings Call Transcript & Summary

[Audio Gap] Participants who joined the call. Members of the media and press are not authorized to be on this call. If you are from the media or the press, please disconnect from the call. The contents presented on this conference call are proprietary to and/or subject to the copyrights of Jefferies or third parties. Further as a matter of legal compliance, we remind you that you must not attempt to elicit from any speaker at this event any material nonpublic information or other confidential information. And accordingly, the speaker may decline to respond to any question in his or her sole discretion. You may not publish or otherwise publicly disclose the name of or otherwise identify the speakers unless Jefferies submits it in writing. By attending this event, you agree to all of these restrictions. This meeting is being recorded. If anyone has any issues with recording, he should drop off the call. Great. So I think we'll kick off. Thank you, everyone, for joining and morning to all of you being in the U.S. Thanks for joining the call with Nordic management today following their Capital Markets Day yesterday in Oslo. Thank you, especially to the Nordic team. So we have Vegard Wollan, CEO; Pal Elstad, CFO; Stale Ytterdal and Thomas Larsen from the Investor Relations team all along with us today. I know you've been doing lots of similar calls throughout today, Nordic guys. And obviously, you had the Capital Markets Day yesterday. So it's been a very busy couple of days. So hopefully, after this one last call, you can enjoy your weekend, but not after 1 last hour of questions from us. So I think in terms of how we'll run the next 60 minutes or so, we'll do it more as a fireside. So we'll go straight into Q&A. We've seen that everyone on the call is familiar with the press release and the narrative from yesterday's Capital Markets Day. I've got quite a few questions from my side, so I can kick off, and then maybe after 30, 40 minutes or so, we'll move to open the call. So if at that point, anyone does want to ask a question, please do raise your hand. If in the interim, you want to send me a question, please do, it's [email protected].

So I think we'll start with the near-term dynamics, and I know you've been asked a lot about this, specifically the 2025 outlook, and the wording you gave for modest growth in your short-term business next year. Can you just clarify exactly what it is that's causing the slowdown in 2025 versus expectations? Is it inventories? Or is it end demand? Is it -- or is it something more structural like share loss? Because I know a lot of those possible issues were mentioned yesterday. So maybe if we can just get a clear idea from you on how you're thinking about that weakness?

Yes. Thanks, Olivia. I think as we have said previously as well, while we do see our markets have recovered quite well and stabilized to some degree. There isn't such that all markets are green and all lights are green [indiscernible]. So we do see things in a mix situation and we do see some of our larger customers there is a slight positive projection in things on the larger customer base compared to our smaller customers. There are still issues and a very slow market in Europe and particularly in the industrial markets of Europe. And just overall, as you see, there are some uncertainty in that.

Sorry to interrupt, I'm getting some comments that we can't hear your audio very well. I don't know if we need to move the mic slightly closer.

Can you hear us?

I can hear you, okay, but a couple have said that they can't hear as well. All right. We'll carry on. And then if it continues, we'll revisit. Sorry about that.

As far as in relation to our relationship, I think it's fair to say -- we obviously, in relation to market share, we have -- we are building our near-term outlook with -- based on forecast and exchanges and expectations we do have with our customer base, which would be our key customers and our distribution partners. And we have no indication of any loss of designs with these customers that is not in the public domain.

And how relevant is the slight delay to the launch of the nRF54 to the weakness or the slight softness versus expectations for next year. If that had come out earlier and also, it would be great to sort of touch on those delays and the reasons behind it. But if the nRF54 had come out earlier, do you think would be in a different scenario looking into next year?

That is a good question. I think because that will clearly be a question then are people waiting with their launches, and is the 54 enabling new launches amongst our customer base? I think most people are continuing using our 52, 53 series until they are transferring. There are obviously certain programs awaiting us on 54 before they are launching and have an extremely solid and design win pipeline with customers on the 54 series. So to some degree, there is an element of slower growth for us in that as well. But I think the overall market situation is probably more impacting in the blend of the two.

Yes. That makes sense. Maybe just on that point then on the market situation. We talked quite a lot yesterday about the weakness still being there on the industrial side, particularly in Europe. Can you elaborate on that? And I guess, give some commentary around how long you expect that weakness of those specific customers to persist into next year?

Yes. That's -- I guess that's a tough one to look into that -- into the crystal ball. There -- we clearly see -- we do see some of the customers having an inventory on there and still lasting into 2025. But also on the other hand, we do see more and more customers coming clean from it. So Europe still slow overall. On the other hand, we do see quicker recovery as we talked about in Asia, U.S., generally. We do see growth in China, both from existing customers and new designs, which is positive. So it is a very mixed picture in the overall view.

At your Tier 1 customers, and I'm sort of assimilating that with consumer-driven customers. Would it be fair to assume that we have this big post-correction rebound at those players in the last couple of quarters. And now we've had that initial rebrand. We've got back to the genuine level of end demand and perhaps that end demand isn't growing as strongly as consensus would have expected it to. Have we been extrapolating the growth wrong, I suppose, is my question from the post-correction rebound, and projected that forward slightly too bullishly, based on maybe slightly lagging end demand from those customers?

I'm not sure we have done that.

I don't think so, not -- I think that's a very mixed bag, I would say, Olivia. It's good to say that in general terms. Some of the customers are doing pretty well and some are maybe as you said. So -- but sort of a mixed thing we've seen...

Okay. So then maybe before we go on to some of the product segments. I just want to delve down a little bit deeper into the market share debate. Because I think a lot of people based on the questions, yesterday at the Capital Markets Day, and based on feedback that we've heard from investors over the last few months really would suggest that there are concerns that Nordic is losing market share. How can you give us confidence that's not happening? And I guess to sort of close the question in a slightly different way, your main competitor, a U.S. player, consensus growth for them in 2025 is at 50% year-over-year in sales. And you've told us yesterday that you'll be growing less than -- lower than the 17% market growth outlook. So how can we think about the difference between your outlook and what consensus is modeling for them if it's not down to share loss?

I think let's clarify with the terms there, Olivia, which probably makes sense to do. So yesterday at the Capital Markets Day, we outlined an ambition for the rest of the decade for Nordic Semiconductor, which we believe is an ambitious plan where we are going to grow about 20% annually for the group, for the rest of the decade. And while doing that, we also use industry analyst data. And in the short-range business, the industry analyst data burdened a CAGR over 17% annual growth in the same time frame, so '24 to 2030. And that is obviously just a very flat and straight assumption, which we use as industry analyst estimates for the overall market in the short-range business. That doesn't mean that necessarily the market is 17% next year. And the only reason that we are discussing and commenting on 2025 is that while we give this outline ambition for the longer-term plan. We do see that our current near-term expectation is somewhat lower in growth in 2025, then we believe it's prudent to keep that as a signal. Then of course, the question is because our forecasts are then built [indiscernible] based on discussions and forecasts we have with our key customers and our distribution partners, as I mentioned. And then, of course, the question is, what will 2025 be? There is some uncertainty into that. And at the moment, we see that our forecasts are somewhat lower than this figure. If someone else in the same market is forecasting 50%, that's very strong in the current market. And -- so I think that remains to be seen. But we don't know what the market data will be for 2025. The only thing which is probably 100% certain is that our projections also will adjust for 2025. But generally, we only guide for the current quarter and we guide -- kind of guide for our ambition for the next 6 years, which we are absolutely standing fully behind, but since we see this near-term situation, that's why we are giving that signal.

Okay. That makes sense. Maybe just to press you on -- and I know you don't comment on competitors necessarily and I appreciate that. But 1 thing we have heard is that during sort of the 2021, 2022 period of extreme shortage that you were seeing on 55-nanometer wafer the TSMC, some of your customers were forced to go to competitors to try and satisfy their own demand. And this one competitor has attributed that as a reason for why they may have won share from Nordic. And specifically, they've spoken about one customer in the health care segment for glucose tracking sensor, about glucose sensor. So I appreciate you aren't as explicit as they are about these types of things, but is there any type of commentary -- comment you can give us on that?

Yes. So I think that is what we relate as public information in this manner. So I think, we have seen that customer you're thinking of, I think, Olivia. And some customers perhaps in the healthcare segment and medical segment, specifically because of their type of products and their -- and the market situation they experienced during the chip shortage, not that we clearly didn't support that segment very well. But still with that, I think we just need to respect that some people in that segment may be looking at multiple sources just for supply security. That is public. That also means that there are potentially other opportunities there that we are working, and as much as that is a threat for us. That's also an opportunity for us, which we are working. So it is also clearly a very high -- it's a lot of growth in that segment. There is a lot of additional potential sensing applications in that segment. And we are exchanging and participating and investing in that segment very clearly at the moment.

So that would be, to clarify, not with just existing customers, but with new ones as well?

Yes.

Okay. And then the final 1 on sort of market share and competition, and I know I asked this question yesterday, but I'd like to ask it again. So one of the things that you talk about with the 54 is the big step-up in security versus the 52. And we now live in a world where with Edge AI much more data is being processed on the device, and that, therefore, the security requirements of customer -- your customers are, I assume, much higher than they used to be. How does your security compare to your peers? And would it be too skeptical to suppose that perhaps the 52 didn't have sufficient security versus what customers are requiring today. Maybe it was fine sort of 2, 3 years ago, but is that something that may have been an issue for some of your customers?

There might be some special cases that I think you may allude to, Olivia, but I don't think there has been a big challenge for us, but it might perhaps have been going forward. But I think 54 is clearly coming with exceptionally strong security systems, where I'm actually thinking we are not catching up. We are going ahead again, and it's also opening up for some additional capabilities and features in that space, which we haven't launched publicly yet and are talking about. So we're extremely happy with that on our products coming.

And in regard with the 52, we can do all the security that's needed. The problem is that it would take up too much space. So there's not enough room for the rest of the software you need on the 52. So as of today, you can have all the security, but you might need to buy an additional library and everything. When you get to 54L, for example, with the exact same price point you get much more room -- space that you get with all the latest security features, et cetera.

Okay. That makes great sense. So maybe moving on to the 54 now, the nRF54. Can you maybe give some color on the future products that you'll be launching here? Obviously, we have the 54H and the L coming up. And I know you said yesterday that you're actually starting to see shipments going out the door maybe today or this week. What's the road map for future products in this family?

Yes. So the initial 54L and H product families are being launched now in Q4, and we also expected to see some revenue for both of them in Q4 for some of the customers. The readiness is the absolutely highest and they are going very quickly to production. Then we are -- with this platform, the 22-nanometer platforms, we now have developed which are extremely powerful development platforms for ultra-low power SoCs in this space with the radio technologies we are developing. We obviously are at -- that's a new era for us in the sense that broadening up and delivering more products on the same platform is completely different investment compared to having brought the first products to the market. So we are -- as we talked about yesterday, expecting to launch 3 to 4 new main families per year in the coming time, which means that throughout all of 2025, there are more main families being launched in the 54 series coming after the L and H. And also with L and H, there are multiple products already in what we launched this year in each of them. So it's a quite broad product family, which is being rolled out over the next 12 to 18 months.

And can you give any idea of the difference in price point or maybe the lower amongst that family to the higher end?

Yes, we're not too specific on that. But what we do say and what is absolutely clear is that we are moving quite a bit up in performance, feature sets, capabilities with our highest part of the product range. So that means moving up in ASP from our current max point and reach, so to speak. And we are also moving quite a bit down from where we are today. So we are making a wider -- we are addressing a wider part of the market than we currently are. I think it's fair to say that with the 52 and 53, we are addressing the, let's say, the mid part and the higher part of the market. We are opening that up in both upwards and downwards with the overall 54 series when we had rolled it out.

Okay. And then maybe in light of that, to what extent you are you expecting the 54 series to cannibalize revenues on the 52 and the 53? And maybe a question for Pal on -- relating to that, what sort of impact could that have on revenues and margins based on what Vegard was just talking about?

Again, just let me start answering that question, Olivia, because I think overall, we obviously have -- we have the view of a lot of our key customers and their high run rate and how they will be working with us in the interim. And what is the case, obviously, is that on a like-for-like basis, moving from the 52 or 53 to the 54 with the 22-nanometer, you get a more cost-efficient product. But what we also see is that it's probably more customers upgrading and adding functionality and integrating more as they move on with us. So from that point of view, there isn't a -- we are not concerned there about an ASP impact in -- at least not in a negative way for us as we do this.

On average, we believe, at least will maintain the same level. And on the gross margin side, it's -- although it shows that like-for-like, it's going to be at least the same or better today. Then since we have more variation, we can actually sell the exact type of chip to the customer. So we don't have to give more power because they need more power, et cetera. They pay -- they get what they pay for.

Okay. That makes sense. Can you give any color on where you're seeing the strongest engagement? Is it -- I assume it's more on the L -- yes, the L given that it's maybe a slightly more attractive price point. But would that be the right conclusion to make?

It's probably right volume wise, at least over time. I mean over time volume wise is probably right. And it's probably also number of total products, a higher number of total products there. But we have very exciting wins on the 54H and compute parts as well. So it's an interesting time forward for us.

We see -- and I say we see many, for example, where both the smart ring was sold yesterday, where we can replace microcontroller, right, by selling the 54H. Also in -- if you need in gaming, you need fast speed sort of low, very low latency, it's -- 54H is perfect. It's not, of course, going to go into the broad market of keyboard and mouse, but in high-end gaming, it's a perfect solution.

Yes, I actually wanted to clarify on that. So the Samsung Galaxy Ring that you talked about in the presentation yesterday, is that a 54H that's being used in that, but it's being used as a microcontroller rather than a Bluetooth chip?

It's the nRF5340 that's a current product. I think to Pal's point on that, with a type of 54H products where you have core CPUs. You have the core CPU systems. You still have a very compact footprint and extremely low power. And I think we showed you all relative comparisons on that yesterday. You can -- these rings obviously typically have multiple sensors, your sensor, your measuring app and they also have the connectivity part of it, the application part of it. So you have for CPU, you can divide and have them treat individual sensors, individual parts of your applications and do that in a very powerful and efficient way. As -- for instance, these wearables are also becoming much, much more complex as we move on.

Well, 54H, for example, that type of product increased battery life significantly.

Increased a lot what you can send and compute and do at the same time, has a very power-efficient footprint.

Okay. That's great color. There's a question from Brad Stephens that's been written in the chart. How much of the Bluetooth low energy market is moving to integrated Bluetooth low energy/Wi-Fi combo parts? How much of the market shifts against a registered design. To what extent are they losing business on price in the general market, especially against the nearly 20 Riviera wave CEVA shipping customers?

Can we get that -- check that?

No.

So the first one, I guess we can start with is easy. How much of the BLE market is moving to integrated BLE/Wi-Fi combo parts? And I guess, this is the question I was going to ask you later is what's the outlook for Nordics combo chips between BLE and Wi-Fi and how big could the opportunity be for you?

Yes. So I think we clearly see more and more applications where we also are developing for and winning with BLE, Wi-Fi combos, that is an interesting and very important direction for us to take as well. I don't think we have a specific number on the market side there. I don't think we have that. And to what extent are we losing business on price in the general market? I think...

I can answer that. That's a long tail. And you also have the [indiscernible] licenses. And you can -- if you look at the chart where we saw our competitors or the Bluetooth certifications, which has a long, long tail with any customers or suppliers having 1, 2, 3 designs a year. That's these 20 customers or these buyers there in addition to the Chinese. So I think that's -- of course, we are -- if -- when all of these 20 would add 20 more designs or 50 more designs, but it's still all part of the market because I think we sell so much more a package, the whole user experience, the tech support, the software. These buyers only have the radio, the rest -- you have to do the rest yourself.

Okay. That's great. Maybe going on to the cellular business. Can you -- we talked yesterday about the outlook for 2028 revenues, a revenue base of $100 million. Can you maybe talk about the shape of growth between now and then and specifically 2025. What's the outlook there? How should we think about that trajectory?

Yes, that's a good question. I think as we outlined yesterday, we do realize that we are winning the share of the cellular market. We are currently winning. It's for those customers who really appreciate ultra-low power and really require ultra-low power. We believe that our TAM is expanding substantially if we are offering lower cost solutions to the market and 9151 is an extremely important launch for us, which we adjusted in August and is a first step to expand that serviceable market because it's a lower-cost product. It's U.S. tariff-free product. So -- and also comes with additional performances and features like satellite communication. But further the first 92 series part, which is -- which we have in the pipeline within -- with our 22-nanometer development platforms is taking that a significant step beyond that again. It's going to be something which is expanding throughout the phase between now and 2028, and beyond that in our current plans.

You talked a lot about the price point coming down as we go from one product to the next. Can you be a little bit more explicit about the cost reduction. Maybe if you don't want to comment on the 92 all the cost differential between the 60 and the 51?

Yes, we are -- it is becoming very substantial. And yes, in the -- particularly if you combine it with the tariffs as well, which is -- which are also a potentially changing picture. It is becoming very substantial and multiple tens of percentage point digits reductions, which are meaningful for our customer base also on the nRF9151.

That's great. Can we maybe talk about the customers that you're engaging with for cellular? You talked a bit yesterday about working with start-up businesses. But maybe just some color on what type of businesses you're engaging with here where you're seeing the strongest engagement?

Yes. The -- in the cellular space, we have said that we are sharpening also our focus in our target markets. We are extremely strong in short range on tracking and tags. We also have quite a few customers at the moment in tracking and asset tracking on the cellular side because these products require ultra-low power. So the asset tracking market is something we believe in, and we do believe that with lower cost and better total solution costs in that segment, that is a market that is going to grow substantially in the coming years. We are also seeing positive traction in the different type market, which is more on the industrial side and metering side, where there are larger players that are let's say, more -- historically larger players in their respective markets that we are engaging with in both spaces at the moment, which is a bit of a change from the previous customer base that has initially been exchanging with Nordic on the cellular side.

There's another comment on the chat on cellular. Why was the 9160 exposed to U.S. tariffs? And then another related one, how much of the $100 million in cellular for 2028 is targeted to come from the 9151?

Yes, on the last question, we don't split that out at the moment. And the -- and I guess since we -- yes, since we talk about non-U.S. tariffs, the 9160 has had some element of assembly in China.

We've talked about that many times before. It's [indiscernible] origin. Only for countries of origin, yes, that's simple.

Yes. No, you have mentioned that before. Okay. Moving maybe onto the Wi-Fi and PMIC. Can we just get a little bit more outlook on the trajectory here as well, sort of shape of growth and how we should think about that trajectory between now and 2028, where, as you said, it's going to be a very significant increase in the revenue base, up from less than $5 million between the 2 areas today and up to $50 in each?

Yes. I think that's 1 of the areas where we are also at the moment pleased with the uptick in our pipeline. I think Wi-Fi is an important synergetic technology that we do see that we are expanding also within our current customer base at the moment. PMIC is as we talked about yesterday, a lot of our customers are using power management circuitry already. And we've tailored power management circuitry from Nordic. That is great combination to expand the power management such as battery lifetimes are becoming even better. Our portfolio in PMIC is still relatively limited, but something we are clearly expanding now on a regular basis, already this second half and going into '25, we're expanding that quite well. So it's a basis of that. It's a basis of designs, which are [indiscernible] and design wins in the pipeline and plans for how we are going to also further develop the product road maps of those product lines.

Okay. I'm getting quite a few questions coming on the chat now. So it might be that we sort of jump around that, but I'm just going to go through them one by one. So first is when will TSMC be ready to make the same 54 parts made at GF, the 53 was previously positioned as [ 2-bit die ]. What happened to this part? Is it material to revenues? How much of the 52 family can the 54L replace at comparable pricing? Lots of different questions, sorry.

I will try to run them quickly. So at the moment, we don't plan to do the exact same part with our 2 foundry partners.

It's 2 different...

I wouldn't call the 53 [indiscernible]. It's among other products. It's in the Galaxy Ring. So we do have business on that. It did became a fairly limited family and offering. I think that's fair. That's limiting also a bit how big it has become within Nordic. And that's why we are talking much more about 52 and 54, I think. How much of the 52 family, can the 54L replace at comparable pricing? So I think the 54L family is going to be a very broad and complete family. That's completely renewing a lot of what we do in the, let's say, the space as we do with 52/53 today. And is there any compatibility? There are other design means and design mechanisms that are obviously supporting customers to move over, I think, because of technology reasons. I don't think there is incompatibility. I think that's covered those.

Maybe the next 1 going back to the 2025 outlook. So along with your comments on modest growth for 2025. You've suggested that growth accelerates in 2026. How much of that is predicated on the nRF54 ramping pricing, new wins, moving past the final stages of inventory digestion and/or end market growth improving?

Yes, that's a good question. The -- I think it's fair to say that a lot of our confidence in the longer term is related. It's a combination of the traction we have with our customer base with the 54 series, which I would say is great and we have very strong designs there. So -- and of course, with the competitiveness, we believe we will have with the 54 series. That's also part of that and our expectation for that in the broader market. I think we will, of course, be influenced by overall macro and market situations as we are such a large player in the overall market for short-range wireless technology in particular, that will influence it and impact it as well, obviously. And yes, I guess that's covering it mostly...

Yes. Okay. Just reading down the list. So on the 9151, can you provide more details on the end-to-end components/support? What networks will you be supporting?

Yes, I think this is a bit in the prelaunching and it's also an area we are maybe a bit wary on our competitiveness because we -- so I'm not sure we are ready to share that specifically in the public yet, but we are working with both customers and providers, and we'll get back to that relatively soon.

Okay. And then the next one, how -- sort of covering this already, but how do you see the nRF52 and the nRF53 comparing with products from peers like Silicon Labs and Telink, should we assume that you're engaged in a slow product transition period between nRF54 ramps in volume in 2026?

I think as you see on the design win registrations, which we are sharing with you on our earnings call, or at least have been doing and hopefully, we'll be able to continue to be doing to some degree. I think what we do see is that 54 and 53 is keeping up very well -- yes, 52 and 53 are keeping up very well on the market share and the design competitiveness. So I don't think we see specific issues on that, and...

Some of these competitors are, of course, on 40-nanometer and we're now going to 22. So it's -- it's the -- 40-nanometer is in some instances, better than 55-nanometer because it's more into the same line. Going to the 54 both L and [ H ] or just L is a great step from that because from 55 to 40 is [ obsolete ] while going to 22 is the greatest.

And I think to the question if it's a slow product transition. I don't think it's slow in any sense other than it is a normal transition, I would say, to the extent that most of our end customers would require some time to finish their designs, qualify, ramp, prototype, ramp and go into production before we see the effects in our figures on that. And in most cases, these are very planned transitions and there is urgency, but there isn't any drama in that as far as I see that.

Maybe one from my side, going back to the Wi-Fi offering specifically. How are you planning to be competitive in that Wi-Fi market because it's a very crowded space. And there are lots of competitors doing Wi-Fi connectivity already. So how -- what is your edge going to be? How do you think you're going to take share?

Yes. Our edge there -- going to be a bit careful not to talk too early about what we do. We do see traction on current Wi-Fi, by the way, because it one of our edge is our design ecosystem and the combination with our current products, et cetera. That's obviously there, which you do get with Nordic. The other thing you get with Nordic, which you should expect this to get the absolute lowest power consumption. And there are more and more products in that space also requiring ultra-low power.

Okay. And what type of customers are you going after in that segment?

It means we are not going to be in the routers and in some -- in certain parts of that market where power isn't an edge, but there are, as I said, more and more applications as well in that space that is required and appreciate as low power as possible.

Can you give any examples?

Wearables -- wearable and [indiscernible].

Okay. Great. Maybe a couple of financial questions for you, Pal. So you kept the gross margin target, the same as of yesterday, above 50% is what you're guiding to. But you've done above 52% gross margin between 2020 and 2023. So what's the reason for you not being as bullish on that gross margin target versus history or recent history?

So when we did 52%, 50% or higher, the dynamics in purchasing, pricing were a little bit different. We see that pricing from our suppliers hasn't really followed down compared to what they historically did. So I think we're working hard on getting this balance back. And we don't want to talk too much about wafer pricing because that's very competitive information, but that is -- the dynamics aren't really where they were before.

Okay. And you've said that the cost base is going to be flat next year. Can you talk about the different moving parts within that, so R&D and SG&A?

Yes. So like say, in total we -- the total OpEx should be pretty flat. And we can say that because we have -- if you go to the SG&A part, we have sold NOK 777 million with less people. So we clearly have the supply chain [indiscernible], all that supports the field application engineers to sell for NOK 770 million. So we don't see the need to add a lot of -- of course, there would be some more people selling Wi-Fi, selling PMIC et cetera. But in general, we should -- we have the team to sell much higher than today we have on SG&A. If you look at R&D, it's a little bit the same thing. We've gone through a period now and we have really high investments in the 54L and H, the nRF92. There are significant investments. Now we're going into a more different markets . We need to work on the software, there is development tools, different kind of work. It's not the huge take-outs, it's different. So we are -- and then we also mentioned we are reshuffling a little bit between -- to make sure that the team now is working more on the software things and the hardcore IT development. I think we've done most of the IT development that's needed for some time. So that's why we believe that with the current R&D, we should be able to deliver on the plans we have. I think there obviously is some inflation, we can't avoid inflation, then, of course, we need to adjust cost base and number of people, et cetera, to avoid, having increased OpEx due to inflation.

Another also, I should say, we've got sort of 8 minutes left. If anyone does want to ask another question, please either raise your hand or write it on the chat. I'm just going to read another one off now. So why is there a $100 million target believable for cellular? How can you demonstrate to investors that you have a hot design, value -- the prior high price for high-function 9160 did poorly. So yes, I suppose it's around how can we gain confidence that these new products are going to be market -- are going to enable you to take share?

Yes. I think it's related to what we just discussed in the space. We -- the 9160 has done -- has taken us so far in this market, and given us a good starting point. There is a lot of learning. There's a lot of ecosystem build up. There is a lot of partnerships. It's still an excellent low power product. On the other hand, I think, what we see is that to open our serviceable market substantially, we do need lower cost products in that space to be able to capture a much more significant market share. And of course, we are working here, in quite close engagement with a range of customers. And that's what's giving us the confidence that we should be able to do this. We can obviously not talk about that externally. And I think what we did yesterday was also to talk about that we will, with accountability and our monitoring and measures, driving these businesses towards these targets over the next 4 years.

Maybe a follow-on from that. And I know this was sort of asked, I think, yesterday. I think a lot of investors, a lot of the market, were maybe hoping for some divestments when it came to the cellular business just because it's taken a long time for the growth to come through, and we know that it's been delayed. So I don't want to say how committed are you to this segment because I know that you are, but is there a scenario in which if this continues to not see traction, you would -- you would close down these types of projects on the cellular side?

Yes. I'm not going to give you specific words on what we're going to do and not do, Olivia, and we're not committing the time lines of that either. But we will, for sure, take -- monitor these businesses closely. I do think we have a very different setup now and a very different team and approach driving these forward as we speak. But on the other hand, we are going to be -- we are going to be really, really thoroughly monitoring and making sure that we are following our playbook to drive these businesses towards these targets that we are establishing with what we communicated yesterday.

Okay. That's fair. Another question from the chat. Do you see any specific opportunities in China for the coming years. I know that was an area that you lost share in and you chose to move away from in the last couple of years?

Yes. I think that's a great question because that was a decision taken during the chip shortage and the pandemic and the market -- the broader market was supported to some degree, absolutely supported, but it was tough to support everything. Yes, I think China is still a very positive opportunity. We obviously have our China strategy in many directions. And just coming from there, I have to say there is a lot of energy in our team at the ground. We are -- we have consistently throughout this year seen some growth in the business, both from existing Nordic customers. We are winning new designs in China. So we do absolutely see opportunities for us in China also in the coming years. And I think to the question about that, Olivia, that's probably not something we answer to, but I guess we do have an opinion of it. Obviously, we are a relatively small player at the moment.

Which question, sorry?

The cellular market.

Okay. Sorry, yes. So I don't know if everyone can see this, but the question is how much of the cellular market do Nordic think goes through module makers such as Quectel, Telit and U-blox?

So we are -- yes, I'm not -- I don't think we should comment on that. But we, at the moment, compared to the total market share, our market share is relatively small. That's for sure. I do think -- and that's where we do see clear growth opportunity. They are module makers. We also make our SIP -- so system-in-package module from Nordic, which is substantially smaller and substantially lower power than some of the modules from other people.

Okay. Great. Maybe one more question from my side, and then I'll let you go. And this one is for Pal, when can we start? I know that inventories came down in Q2. How should we think about the trajectory there going forward? I know there's a lot of different parts within new inventories and you have been building them up more strategically since the pandemic because you were caught so short on the supply side. So what should we expect for the trend in inventory levels, I guess, through H2 and into next year?

So this year is slight decrease, that is -- but then our goal is to get net working capital down to 25%. And that means reduction in inventories. So we need to get that current inventory down because going forward, we're going to start ramping 54H and L, we need to have some leverage to start building that inventory. So the current 55-nanometer inventory, of course, needs to go down. And we've done a strategic investment in it because our supplier there is still not easy to work with. And I've heard other peers saying that, too, that they're still claiming that automotive is going to take off next year. So hopefully, we don't think that's going to happen. So we -- we plan to get inventories down. I think that's what we're going to do. And with support from merchandise, we're managing.

I am sorry, you said for H2, we should expect it to be flat versus current levels?

Yes. It's not down. Flat [indiscernible] but not a big variation, depending on when we get the last deliveries if that's just over...

It's also -- just a side comment to that, Olivia, I think, as mentioned that we also have quite a few additional SKUs we are supporting in the coming time as we are preparing for the 54 series. So that's part of that reason why it's flatter.

Okay. That makes sense. Right. We're at the top of the hour. We've got 1 minute over. Thank you so much again for the time that you've taken with us today. Hopefully, investors on the call found it useful. And a fantastic weekend ahead to everyone.

Thank you very much.

Thank you, bye.