Nordic Semiconductor ASA

OSE:NOD

Earnings Call Transcript 2019-Q1

[Ståle Ytterdal, Director of Investor Relation]

I got the honor of opening up the presentation for the quarter representation for Q1. I'm going to do a small introduction on myself. I'm the new Director, Investor Relation in Nordic Semiconductor. I'm new in this position, but I've been working in Nordic for 18 years, been responsible for sales in Asia Pacific. The last 15 years since 2004, I've been stationed in Hong Kong and been working from there. My job has been to build up the sales channel. I had to find new distributors or find distributors, sign them up, figure out which market segments we should sell in which country. I needed to find out where should we set up new offices in Asia, which countries should we have them in. And today, we have more than 23 distributors. Every day, there are several hundred people out selling Nordic in Asia Pacific. And we have 7 offices in Asia where we have 42 people.We had to figure out should we have only salespeople. Do we need engineers to do support to customers? What type of support do they need? That's another thing. Do they actually need support in China? Do they need support in Japan? That's what we have been figuring out, setting in the right person in the right spot.So today, with these 42 people in Asia, 7 offices, we are handling -- I will say, handling 80% of the revenue in Nordic. It's not because all the design is done in Asia, it's also, of course, design done in U.S., in Europe. But production comes to Asia, in Greater China. Greater China is being China and Taiwan.And now I'm phasing in on IR. I'm going to work very closely with Larsen, the CEO, Pål and Tina. Really looking forward to that. I will work closely and have good contact with the existing investors. New investors, we are going to focus on that also, and, of course, the analysts. So I will not do any more presentation. I will be here on the Q&A. If you have questions, please ask questions for me.I will introduce Svenn-Tore Larsen, the CEO. Please, take the stage.

[Svenn-Tore Larsen]

Thank you, Ståle. So as usual, I do the business update and Pål do the financials. And I come back when we see forward on how things looks for Nordic in the near and a little longer future.Q1 highlight. We are continuing to build a very strong position in Bluetooth low energy. Come back to that when I go through the analysts (sic) [ analysis ] of the numbers. But our design certification grew by 33%. It was actually 102 new designs in Q1 2018. Now it was 136 last quarter. We continue to be close to the 40% market share of total reported design wins. We are going to keep that position going forward. That's why we are spending a lot of money in developing -- continue developing Bluetooth beside the LTE products.We had a record high backlog. It was driven by Tier 1 customers. It's not our traditional backlog with medium-sized, small customers in Asia, this is along with Tier 1 customers that are contributing to this backlog. Finally, we see some result of all the work we've been doing on Tier 1 customers. And we are continuing focusing on gross margins and keep them above 50%. This quarter, it was actually 51%.We are getting certification in all target markets for our cellular LTE. CE approval is received. FCC approval is also received. And we still see that the semiconductor industry are impacted by channel inventory adjustment. But also, if you look around us in the industry, there are some voices that said that it seems to be maybe correcting a bit. And let's hope that's correct, and we are going to see the impact of that in the second half.Our total revenue was very much in line with guidance. We ended up at $52.6 million. As I said, earlier, gross margin of 51% is -- was a decrease of 12.6%. Important thing is that Bluetooth didn't decrease. That decline -- that margin was 2.7% year-on-year, and the revenue is impacted by channel rebalancing. Importantly for us is that we maintain our market share. And a lot of you, we have all discovered that proprietary was quite a bit down. But also, if you'll recall, from Q4 in 2018, it was surprisingly up. So I think this is basic, the adjustment between quarters.And we shipped sample of cellular IoT, about $100,000. $129,000 actually. And that is samples to customers. Our backlog at USD 89 million is 10% up year-on-year. It's a record backlog.Comparing the margins to last year, it's up 2.1 points. And if you'll recall what we've been saying before, we expect that the 52 series will raise the margin, and this is what we see result of today.[ EBITDA ] at minus USD 0.7 million is not what we are striving at, but we have the conditions around us as it is. And it's really linked only to lack of revenue. When revenue will be back where we guide for Q2, things will look totally different.We go very quickly to market. Consumer Electronics, down 10.6 year-on-year. Wearables, traditional Chinese low-cost wearables, down 25.1%. Building/Retail, if you'll recall that we have a huge design in Building/Retail segment this time last year, and this is reflected in the number. Healthcare, down 9.2%. Others is up 15.6% year-on-year. Huge contribution to third-party modules. Our third-party module makers are now starting to get design wins around the world on the modules, which are contributing to growth in Others segment.So now I hand over to Pål and we'll go through the numbers.

[Pål Elstad, Chief Financial Officer]

Thank you, Svenn-Tore. I will start going through the operating model performance for Q1 2019. Just a reminder, this is the reported numbers, so we have not adjusted for capitalized development expenses. And also, the implementation of IFRS 16 that has a positive effect of $1 million in Q1, which will be our ongoing rate for every quarter going forward. More details on IFRS 16 in the financial report for Q1.With the exception of gross margin due to the 12.6 percentage points reduction in revenue, all our KPIs have a negative trend year-over-year. You all know that our -- we are investing to capture future growth opportunities and our cost base is more or less fixed. So in a quarter where revenue goes down as much as in Q1, it will have a impact on our KPIs. However, looking at the underlying numbers, you will see that the rate increase in OpEx is less than what you've seen previously. So we've been able to keep down the spending in a tough quarter for the company.As Svenn-Tore mentioned, gross margin's at 51%, a 2.1 percentage points increase. Last year, we sort of fixed most of the yield issues [ on the 52 ], so this improvement comes mainly as a result of cost improvements and the customer product mix that we discussed last quarter.Overall, we spent 34.1% on R&D this quarter compared to 26.3% a year ago. Included in the numbers is $2.5 million of capitalization, down from 3.3% (sic) [ $3.3 million ] a year ago. Also, cellular IoT is reducing the amount of capitalization, so we've only capitalized $1.8 million related to that business. The reason it's going down is that we're now moving from finalizing the hardware to working more on software and certifications, which is not a capitalizable amount.Total short-range investment at $12.7 million, up from $11.1 million last year. We are continuing to invest in short range especially to capture a lot of the Tier 1 designs that Svenn-Tore just mentioned. So we'll see effect of that here.R&D cellular IoT, $5.2 million, up from $4.7 million last quarter. A lot of the spending is now related to software and certifications and less [ tape-out ] related expenses.SG&A, $9.6 million, up from $9.2 million a year ago, which is an increase of 4.3%. Most of the IFRS 18 -- 16, sorry, adjustments of $1 million is included in SG&A as it relates to the buildings and other fixed assets. So adjusted for IFRS 16, SG&A is up 15%.EBITDA, as Svenn-Tore mentioned, is impacted by lower revenue. So minus 1.4%. However, if we adjust for the cellular IoT business, the EBITDA margin is 8.5% in the quarter.Gross margins. We've in Q1 seen continuous gross margin expansion compared to last year, expansion of 2.1 percentage points. And Nordic has communicated that we have a long-term target for the short-range business of a gross margin of 50%. When we start seeing more material revenue on cellular IoT, then the impact of the module production will, of course, go into the average corporate gross margin. So please remember that.During the last 3 quarters, we've been able to maintain this gross margin above 50%. This comes, as I mentioned, as a result of improved yield on established products, actually a few new products being introduced right now, and cost savings on our raw material purchases.Compared to last quarter, we're at the same level as in Q4. We're happy with that because the lower revenue will normally result in less gross margin because an adjustment to inventory, et cetera, will have a higher negative impact, but we've been able to keep up gross margins. The reason for this is more continued efforts on cost savings but also a change in product mix in this quarter. Remember also that in Q4, we had positive impacts of volume bonuses. Quarter-to-quarter fluctuations will be expected going forward, but we are still doing a lot of hard work on improvements to our margin.Cash operating expenses. This time, we've adjusted for capitalization and share-based compensation. We are able to keep the cost discipline during the quarter. This is obvious because we have reduced cash operating expenses by 6.3% quarter-over-quarter. If we adjust for IFRS 16 effect, the reduction is 3.2 percentage points.We had slightly more employees in Q1 compared to last quarter. However, we do have a positive effect of FX. And in general, Q1 has less activity than in Q4. Compared to last year, OpEx is up 6.5%. Or adjusted for IFRS 16, 8.6%. This increase was driven by new product releases and the headcount growth of 13.5% to just below 700 employees at the end of the quarter. We are continuing to invest to capture future growth, as we mentioned before.Finally, despite negative results, we are maintaining a strong financial position. We had a cash outflow of $6 million in the quarter. Operationally, it's actually positive by $1.6 million. Normally, in Q1, you will see a positive operational cash flow because accounts receivable do go down in Q1 versus Q4, which also is the effect this quarter where AR balances was reduced by $3.4 million.In addition, we are focusing a lot on reducing our net working capital. Main focus is, of course, on accounts receivable and on inventory. We are having a very tight inventory management, which is actually a very good achievement because we are building inventory related to the cellular business. So the short-range business has a very good [ process ] on reducing inventory. So net working capital is record low at 21.9% versus last 12 months. Revenue, this is down from 22.6% a year ago.CapEx in Q4 -- Q1, sorry, was $4.2 million, a little bit below the $78 million we guided for. The reason for this variance is that we did defer some of the CapEx to Q2 and Q3. It's not that we've canceled it, it's just been moved to the next quarter, which you will see more on when we talk about guiding for Q2.We do have a continued disciplined cash strategy, and we are working very tightly to reduce and keep track of working capital.Okay, Svenn-Tore.

[Svenn-Tore Larsen]

Thanks. So let's look a bit ahead. Allow to show this slide this quarter. So here is the example of something we've been discussing and also anticipated to see. And start at the right corner. Intellinium is what I call smart add-ons. But the important thing here is you see a combination of short and long range. The only company -- semiconductor company globally that has a solution for short and long range is Nordic. And here, we have the first proof that some customer are going to use that combination.This is a device you can [ move on to hunting ]. Here it shows a shoe, but if you're out in the woods or, worse, if you're out in the mountains and you, unfortunately, fell, this LTE chip will -- could send your position to anyone you trusted. That's good.If you go then to the left, helmet sensor here. It's basically Specialized, which is a leading company in biking accessories. They make a smart helmet. Again, if you're out there and someone, for example, hit you and you get thrown out a ditch, again you can call up someone that you trust. Automatically, as soon as you get any behavior that's not normal, it will call and send messages. Nice design. We also see -- this is public. We can see that some of the Tier 1 customer in China, Xiaomi, has used our [ a ] 52 for the door lock.And then we come to where will our main investments be going in the last couple of years long range. And in Finland, there is a company called Anicare that made a small sensor which you can use on livestock. There's quite a few of reindeer in Finland, but there's even more sheep in New Zealand. These are products that can have a huge market.In the middle, you see what we call a smart alarm. It's a company called Minut. Basically, if there is any disturbance unexpected in your home, it will call up your neighbor or maybe somebody else that you have close by that can just run by your house if you send a message to your phone. These are application that we are -- I think, are cool, and they have some volume behind them.But the most cool thing, as said here, is that you have a product that using both technologies and that we can show 2 announced designs with the LTE products.We have had a leading and broad position in Bluetooth for quite some time. It's always difficult to maintain such a position. We've been able to do so despite that there is quite a bit of small Asian companies that eats into the lower end of the market. But it proves that the strategy of having advanced parts, offering things like security is important. Nordic does have these features in our products. We grew 33% in design registration from the same quarter last year.You haven't seen this slide. We haven't discussed lighting before. But this is a new segment that Bluetooth has been focusing on for a long time. You heard me talking about Nordic proprietary mesh. Nordic was first out offering mesh solution to Bluetooth customers. Why do we do it? Because we got early engagement into the lighting segment. If you go to this page, bluetooth.org, and look, you must find a page there, some page where they discuss lighting. Look at those customers and try to get some background on these customers, and you will be relatively happy. Light control is getting smart. It's easy to calculate savings if you have square meters of warehouses, square meters of offices, and the light is behaving according to the users. You simplify installations, and you can get other functions like beaconing to know where people are.And Bluetooth 1, as we discussed last time, has position for asset tracking, has position finding. Horticultural lighting, you heard about this? We heard a lot about it the last year. It's how to optimize light to get plants to grow, vary color temperature. Reconfigure -- you reconfigure it during the different seasons. And last but not the least, you save energy and installation cost. Having electricians making all the wires is expensive. Here, basically, you just hook them up. Pairing with Nordic is Easy Pair because we have NFC. So Easy Pair, no wires, save installation cost on top of energy.So bluetooth.org expect to be around 10 billion to 15 billion products per year and expect that there'll be 2% to 5% of this light sources will be connected. Connected mean connected with Bluetooth mesh in 2020. So that's an opportunity which is important for Nordic. And we need to add these new segments to continue to grow to meet our goals. We've been investing in this early. Unfortunately, things take some time, but now we see that it starts. So go to bluetooth.org and have a look at lighting section.So our strategy when we do this is to find which segments do we believe will grow in years to come. What we have been seeing is that if you do integrate early, you obviously need a good connectivity, you need to have the security because a lot of application you put Bluetooth in is transferring value information. Whether it's information about your health or money transactions, it's information you want to keep secure. Security is important. And it has to have embedded processing because you do get a lot of information that you calculate and send on to the cloud.And by doing this, Nordic has been making a platform where we can incorporate different protocol. Remember, our 52840 support Bluetooth, Thread, Zigbee and proprietary. Basically, we here have 5 different protocols supported in one platform. If we should build 5 different products, they'd be with 5 different R&D rams. And obviously, we see that such a platform is not ideal for all applications, but this give us the maximum footprint in the beginning when we release a product.What we'll do later is that we do see some customer want even more memory, want even more security, want even more MCU capacity. Obviously, if this segment is large enough, the customer is large enough, we do that. Or we see that the customer don't need all the features, and then we basically make a solution that is more optimized for that scenario. It means basically we have scalability across the series. We make the platform first and then scale according to the market. It's a strategy that we can prove has worked. If you look at our design-win ratio, a lot of this is on the 52 family.So why shouldn't we do the same on the LTE? Obviously, there was no good argument for not doing the same. So we did exactly the same. Connectivity is important. Reliable connectivity is maybe the most important thing. It should work in all conditions. Security, again, you're going to send the same kind of sensitive data over LTE. You need to process a lot of data, so you have to have embedded processing. What this does tell you over here is basically, a lot in common on these platforms. And that's [ you're ] so good for Nordic at a position now where we have 2 different products we're making. We can still share very much off the same platform. We don't need -- we can share the cost on 2 platforms.So we did worldwide cellular band coverage. The first product, we have substantial amount of own memory to gain low-power operation and enable mass-scale adoption by integrating and certifying functionality needed for most applications. We don't want to lose out on an application. So we are focused, obviously, on system cost. I mean -- but remember, we are making the IC only. The rest is outsourced to our partner, Qorvo, which are doing the module.So importantly for us going forward is basically how are we going to meet the total market because high end, low end. And we have shown this production status previously. We have had a launch in December. We said there'll be public sampling: hardware and LTE and software. Important thing here is that the hardware is basically the same, but it's the software that configure the product.And the 9160 is what we call the full-blown LTE chip. It has LTE-M, narrowband IoT and GPS. Basically, we see some of our early customers have used competitors where they have LTE. They have to have one product with LTE-M for a certain region, and they have to make another product with LTE, Narrowband IoT for a second area because U.S. is basically doing LTE-M and Asia is basically narrowband IoT. And then if they also want to have and grab the position, they need to have an external GPS component. We put all into one product. This one product will basically be in production in June. We've been sampling since December, but now it's going to be in full production in June.The 9160, which we call SIBA, is LTE-M only. And basically, now in May, we do have production of hardware and sampling product and will be basically in full production going forward. The SIAA is a narrowband IoT, is publicly sampling and will be in production in June. So basically, we are shipping variance, samples to all customers. But June, we basically can do production shipment. It's maybe 28 days behind our original schedule, but it's on schedule if you think that we've been doing this for 4 years.So we have any interest from customers on this product? Yes. Q4, we have obviously some few customers calls because -- or support calls because we had pre-sampled quite a bit of customers. But in Q1, 12% of the engagement from our support team means assisting on design wins or spend on LTE customers. 12%. If you go back to 2010, '11 when we went out with the BLE product for the first time, it would have been unheard of, 12%, after a quarter of release. We had much less customer calls and support. So this is far ahead of any introduction we've seen.And we also spend a lot of efforts to train local support in the different markets. And today, we have an organization that can support customer globally on LTE products. A lot of -- so we need to have that because cellular IoT is Nordic's next growth driver. And I showed this slide last quarter, but still it's an important slide. This market is growing. Analysts around the globe believe so. We see so. So you keep in mind this is our next growth driver. This is the guidance for Q2. We expect the revenue to be in the range from USD 69 million to USD 74 million. There is continued uncertainty related to trade tensions, and it results in reduced growth rates a quarter ahead of us [ or we're in ]. But important thing here is that we have a solid backlog, and the backlog is basically very heavily impacted by Tier 1 new customers.We are -- continue to optimize production and expect to keep the 50% gross margin target. And as Pål said, we've been delaying some of the new equipment to build up our labs, but they will come in next quarter. So we expect a CapEx of around USD 5 million to USD 6 million in Q2. But the cool thing now is that our FA, failure analyst lab up in Trondheim is very soon running. The test equipment, we have made -- bought in Oulu is working and functional, and we are in a much better stage now to support our customers and go to certifications because of all the equipment they bought.So that ends the presentation. Any questions? Here, we have one. And Ståle and Pål, could you please come up?

[Christoffer Wang Bjørnsen, Analyst]

Christoffer here on DNB Markets. Just starting on the gross margin target, you had said it's obviously the gross margin target for the short-range business, but it will be great if you could also just remind us of your gross margin target for the cellular IoT business as well. It's supposed to be a bit lower, but how much lower are you expecting that to be?

[Svenn-Tore Larsen]

We expect it to be lower, that's correct, because it's a module where we have third-party components onto the module. So obviously, there is a stacked margin challenge. So the important thing for us is that the mixed margin will be targeted around 50% and it will be below 50% on the LTE market.

[Christoffer Wang Bjørnsen, Analyst]

They will still be above 40%?

[Svenn-Tore Larsen]

Absolutely. It depends from application to application, from customer to customer.

[Christoffer Wang Bjørnsen, Analyst]

Yes. Great. And then continuing on LTE. There are obviously a lot of different price points out there in the market and in some simpler applications in the LTE space. If it was up to China, you could get chips for -- or modules for $3. So if you could just extrapolate -- or sorry, elaborate on the pricing on your NB-IoT-only offering and the LTE-M-only offering.

[Svenn-Tore Larsen]

Consider a car. If you're going to make a Volvo run as fast as a Porsche, you need to make modification. And this is exactly the same with modules. It's the bill of material, the total cost of the PCB that counts for our customers. So if you want to make a huge PCB, a lot of efforts. You can go for a low-cost module and make all the surrounding support electronics yourself or actually spend hours in the garage with a Volvo or you can go straight into the Porsche and drive fast. So we make development time shorter and we make the product more reliable. It adds value. And obviously, with value, it comes some cost [ other ] because we have to use this cost to get able to bring this value to customer.

[Christoffer Wang Bjørnsen, Analyst]

Again, appreciate the strategy. But to be more direct, can you just elaborate on how much lower is -- you will be on these LTE-M and NB-IoT-only products if -- on top almost $15, how much lower is...

[Svenn-Tore Larsen]

No. We are not doing -- first of all, we never do price negotiation, price information unless we have a project. So important thing is this is up to the customer's volume, up to the customer application and what could the customer actually carry [ of cost ] to be successful. So this evaluation we do with customers. But obviously, it will be a lower cost on the simplest modules.

[Christoffer Wang Bjørnsen, Analyst]

Okay. Only 2 more for me. So on -- you guide on Q2, but for the remainder [ corpus ] of the year, is there anything that's suggesting we should not expect just regular seasonality sequentially going forward?

[Svenn-Tore Larsen]

No. I think that's the correct estimation.

[Christoffer Wang Bjørnsen, Analyst]

Great. And finally, on LTE-M. You previously stated that in your current sampling program with lead customers, you have multiple customers. Now if they choose your product, they will single-handedly take the business to breakeven. Can you give an update on those customers? Are they still in the mix? Have some of them decided to use your product? Anything there to give some confidence to shareholders?

[Svenn-Tore Larsen]

We like to give us much confidence and share it as much as possible. And yes, beside those we sampled before Q1, we did sample total value of USD 129,000 in Q1, and these are mix of new and existing customers. And yes, some of our customers were even in the shop here today. But basically, just they're a [ sample ] customer last quarter.

[Andreas Bertheussen, Equity Research Analyst]

Andreas Bertheussen from Kepler Cheuvreux. Just a quick follow-up from me. So we are seeing Huawei in China among the leaders on the NB-IoT. I think there you said that they're targeting 100 million modules shipped in 2019 versus 15 million this year and, obviously, at a Volvo price tag versus the Porsche. But do you expect there to be significantly large markets for the high end? Are you expecting to sort of do the long tail high-end segments effort?

[Svenn-Tore Larsen]

I understand your question, but I'm going to answer a little different. I think the important thing here is that we are optimizing the development cost and the bill of material by offering a complete module. So if you go to those customers that basically think they get a lower-cost product with a lower-cost module, it's our job to educate them on time to market, ease of design and total bill of material. When you do this exercise -- and remember, most of our customers are really intelligent, smart people that can do these calculations. And we are bringing a value, we're not adding cost to the solution. When it comes to -- you mentioned Huawei. Huawei is an operator. The customers that is our target customer is Huawei's customer that have a product that hook up to their base stations, and that's where you're going to see the volume. It's not really with the operators even though the operators today are sort of announcing different modules on their web page, that's not where the high volume will come. It will come from customers that are going to use a different operator's network.

[Andreas Bertheussen, Equity Research Analyst]

A final question for me. How worried are you about the second-, third-generation competitors from Sequans, Qualcomm?

[Svenn-Tore Larsen]

I'm always worried about competition. That's what makes Nordic good. You should always expect a better product from our competitor next quarter. That's my view also: Do even better in our next generation. And there will be a race. Maybe someone have seen the value of what we're doing and might come up with a product. But we are not sitting still. We are developing our next generation of products.

[Henriette Trondsen, Research Analyst]

Henriette Trondsen, Arctic. On competitors. Dialog recently announced a more advanced Bluetooth Smart chip with a stronger processor than your Bluetooth Smart chip, M33, as you're using in your cellular nRF91. Do you see a change from Dialog here? Or do you expect this to have an impact?

[Svenn-Tore Larsen]

I think Dialog like all other competitors in this market have understood what we've been talking here about, having advanced feature because that's what the market require: more computer power, more security, more support. And the same applies to BLE. We also make new BLE parts. So it will always be a window where you might not have the -- all the technical specification on the top end. But the total solution from Nordic is still undoubtable the ultimate solution.

[Henriette Trondsen, Research Analyst]

Yes. But Dialog's new chip has even a stronger processor than yours, nRF52.

[Svenn-Tore Larsen]

That -- it all comes to the total solution with software support, with other features that we do have. And yes, for a moment, it might be, but it's not on the market. And when we come to the market, maybe we can show something, but it's even a leap ahead of what they have. And that's a race you'll see in all semiconductor companies in the different segments.

[Henriette Trondsen, Research Analyst]

And on your Q2 guiding, can you give any more color on the split, what you expect the split between proprietary or Bluetooth Smart going into next quarter?

[Svenn-Tore Larsen]

We saw a relatively large drop in proprietary in Q1, and that was really due to the high shipment in Q4. I think this come to equal out, and we're going to see a normalized relationship between BLE and proprietary.

[Eirik Rafdal, Research Analyst]

Eirik from SEB. Just a quick question on the CapEx and that you knew that. Are you further away then on cellular than you were at the Q4 presentation since the reason was that you want to invest in lab equipment, et cetera?

[Pål Elstad, Chief Financial Officer]

No. The lab equipment we're investing on is more long term. Svenn-Tore mentioned that the reliability lab is up and running and the test facilities in Finland are up and running. So this CapEx is more long term, onetime impact on this period.

[Eirik Rafdal, Research Analyst]

Okay. Great. And just another quick one. We touched a bit upon it, and I understand that you probably want some more milage out of the 52 chip. But how far are you guys away from a new type of flagship chip? Is that something that we could expect within the near or medium term?

[Svenn-Tore Larsen]

We have not announced that we are going to do more flagship I see out of the 52 family. If we're going to keep your wording, flagship will be a different family.

[Pål Elstad, Chief Financial Officer]

But we haven't come out with any time line for that.

[Aksel Øverland Engebakken, Lead Analyst]

Yes. Aksel from ABG. So firstly, I just want to follow up on Henriette's question regarding the Q2 guidance. So Svenn-Tore, you said that you expect proprietary to normalize in Q2, and that means that Bluetooth then should be fairly flattish than the year-over-year basis in Q2 as well. And that again implies that you don't expect to see any meaningful improvement in Bluetooth in Q2 versus Q1 now on a year-over-year basis. And given that you have easier comparables with the design win -- in the design wins in ridesharing in Q3, that seems a little bit conservative.

[Svenn-Tore Larsen]

We have stated in the last sentence in the presentation that we still believe there could be impact from the trade tensions, and we are not taking any bets either on what direction it takes. So we have to use existing, I will say, situation and judge from that. Thing can change, but that's not what we should put in our guidance.

[Aksel Øverland Engebakken, Lead Analyst]

Yes. But given that you have lower revenue contribution from the ridesharing designs in Q3, shouldn't we expect to see a little bit improvement in the Bluetooth growth in -- now in Q2?

[Svenn-Tore Larsen]

It very much depends, as I said, here, first, this backlog is reflecting new Tier 1 customers' orders to Nordic. And if it does that, it also reflect that the old sort of the previous customers are not still placing orders according to what they did last year.

[Aksel Øverland Engebakken, Lead Analyst]

Okay. And to the customer engagements slides. You said 12% of the engagements is from cellular. I assume that this will stay absolute basis. But if we were to convert that dollar base slide, would it then be higher than 12% or lower? I know that's difficult to answer, but...

[Svenn-Tore Larsen]

That's one of the measurement we are not currently working on in Nordic to see what support rate is converting into dollars. But obviously, as this part is around 10x for BLE, you will -- we assume that it will increase potential revenue from each support case.

[Aksel Øverland Engebakken, Lead Analyst]

Yes. Okay. And finally, so you said production in June. You mentioned that in production volume -- in volumes in June. Does that equal to production shipments in Q3 in volume?

[Svenn-Tore Larsen]

Basically, we are able to do volume shipments in Q2. [indiscernible] customers, and we have earlier said that we expect to see some pickup of LTE end of this year. It doesn't change. It's just that we are ready to ship end of this year.

[Aksel Øverland Engebakken, Lead Analyst]

In Q2?

[Pål Elstad, Chief Financial Officer]

In Q2.

[Svenn-Tore Larsen]

Yes. Yes. One more.

[Christoffer Wang Bjørnsen, Analyst]

Just 2 quick, well, follow-ups. So the first one is on customer concentration. Could you share some color on what was the customer concentration, for example your top 5 customers in the quarter? How much is the biggest customer at this point in time? And also, in the backlog, how much of that record backlog is among kind of 1 or 2 top Tier 1 customers?

[Svenn-Tore Larsen]

Shall we?

[Pål Elstad, Chief Financial Officer]

Yes. Go on.

[Svenn-Tore Larsen]

Actually, some of the ones in the backlog are not on the top 5 customers this quarter.

[Christoffer Wang Bjørnsen, Analyst]

But what is your biggest customer in terms of share of revenues at the moment in total?

[Pål Elstad, Chief Financial Officer]

So in proprietary, if we can focus on Bluetooth, it's -- the -- I don't think the top 10 -- we don't come up with that number we saw very often from the top 10 lists that we gave the previous quarters. So it wasn't 30%, 40% in total.

[Svenn-Tore Larsen]

It's much less delta between the top customers now than ever been. Before, we used to have some significant higher than 2. And obviously, that we have a concentration more or less on the same, I will say, range of 4 to 5 customers.

[Christoffer Wang Bjørnsen, Analyst]

Okay. And then last one is more a maintenance question is -- I guess like difficult to say anything about revenues for the full year. But in terms of OpEx for the full year, that's in your control. So how much do you expect OpEx for the full year? How many more employees do you expect to be going out of 2019 compared to last year, for example?

[Pål Elstad, Chief Financial Officer]

So we haven't guided on that exact number. But if you just look at a quarter-over-quarter, of course we added quite a few people last year. So when you look into 2019 versus 2018, you need to take account more people towards the end of 2018. As I also mentioned, we are closely monitoring revenue and OpEx spend so that we are within the KPIs that we've always talked about.

[Svenn-Tore Larsen]

And we also need to have another view on the situation. As we are moving into a Tier 1 customer base, then it might require even more from Nordic, and opportunities is also higher. So this is something we have to evaluate from opportunity to opportunity. It would be very wrong of us to stick to our guidance and not grab onto opportunities that take us to the next level. We are more focused on getting to the next level than focusing on OpEx expenses.Okay. We hope we answered all your questions. You guys have a good day, and we continue with our assembly.

[Pål Elstad, Chief Financial Officer]

Thank you.

[Svenn-Tore Larsen]

Thank you all.