Nordic Semiconductor ASA

OSE:NOD

Earnings Call Analysis

Nordic Semiconductor's Q3 2024 Performance

In the third quarter of 2024, Nordic Semiconductor reported a revenue of $159 million, marking an impressive 18% increase year-over-year, driven chiefly by strong performance in the consumer segment, where revenue surged by 35%. This quarter also saw a sequential growth of 24% compared to the previous quarter, showcasing the seasonally strong nature of Q3. Despite a slight decline in gross margin to just under 50%, the company reported a positive EBITDA of $16 million, reflecting a solid recovery from previous quarters.

Segment Performance Insights

The consumer market continues to dominate Nordic's revenue, representing 69% of total sales, while industrial revenue climbed 8% year-over-year, albeit with a slight 3% dip from the previous quarter. Healthcare revenue showed resilience, generating $21 million, although it was down 21% year-over-year from extraordinary heights in 2023. This indicates a potential growth opportunity for Nordic, especially as they leverage relationships with key customers to stabilize revenue streams.

Looking Ahead: Q4 Guidance

For the fourth quarter of 2024, Nordic projects revenue between $130 million and $150 million, anticipating typical seasonal declines post-Q3. This guidance represents a year-over-year growth of 20% to 39%. Gross margin is expected to stabilize around 50%. These forecasts reflect a traditional slowdown as shipments decelerate heading into the year-end.

Strategic Product Developments

A key focus for the company is the upcoming launch of the nRF54 Series products, anticipated to be significant growth drivers. Nordic aims to enhance its position in the market with this new series, with early shipments expected to commence in Q4. The production ramp-up will take time, but the strong design activity with existing customers signals a promising future.

Cost Management and Operational Efficiency

Nordic's management emphasizes the need for stringent cost controls alongside revenue growth to achieve their long-term EBITDA margin target of 25% by 2029. Operating expenses (OpEx) are currently targeted to remain flat, following a slight rise attributed to increases in payroll costs due to salary adjustments. The company spent 26% of revenue on R&D, exceeding their targeted range of 15% to 20%, necessitating efficient allocation strategies moving forward.

Inventory Management

While revenue has improved, inventory levels remain high at $181 million, rising significantly from the previous year. The company has indicated that it strategically sources materials to position itself for future growth, despite acknowledging that current inventory is above pre-pandemic levels. This proactive strategy aims to align with anticipated demand for new product launches.

Long-Term Outlook and Future Prospects

Nordic has set ambitious goals for the upcoming years, aiming for average annual revenue growth exceeding 20% and a pathway toward improved margins. The management expressed confidence in their long-term strategy despite the modestgrowth outlook for 2025 in core markets, suggesting a gradual recovery with expectations of stronger growth resuming in 2026 and beyond. Continued investment in technology and R&D will be crucial as they navigate the competitive landscape and align with evolving market demands.

Earnings Call Transcript 2024-Q3

[Operator]

Welcome to Nordic Semiconductor Q3 2024 Financial Presentation. [Operator Instructions]

I will now hand it over to Steel. Please begin.

[Ståle Ytterdal, executive]

Thank you, Keld, and good morning, everyone. This presentation is being recorded and will be available on our Nordic website in the Investor Relations section. You can also find our earnings press release, quarterly report and presentation on the IR web page.

Joining me today are our CEO, Vegard Wollan; and CFO, Pal Elstad. They will be discussing our latest financial results and providing insight into recent business developments.

After the presentation, we will begin the Q&A session. During this time, we will accept live questions via the Q&A dial-in function. For dial-in details, please refer to the earnings call invitation available on our IR site under Stock Exchange Notice. Please note the dial-in information is only necessary if you will ask questions.

As always, the presentation contains forward-looking statements, which involve inherent risk and uncertainties. Actual outcomes may differ materially from those statements, expressed and implied. We strongly encourage you to review our detailed Q3 quarterly report and the '23 annual report for more throughout understanding of the risk and uncertainties that could affect our operation.

Without further delay, I now turn the floor over to our CEO, Vegard Wollan.

[Vegard Wollan, executive]

Thank you, Steel. My name is Vegard Wollan and I'm the CEO of Nordic. And with me, I have our CFO, Pal Elstad. Let's get right into the main takeaways of the third quarter. Revenue amounted to $159 million in the third quarter, which was close to the midpoint of the guiding range and an increase of 18% from the same quarter last year. The year-on-year improvement reflects generally increased demand in the Consumer segment, whereas the increase from previous quarter was supported by normal seasonal effects.

Gross margin came in just below 50% and we report a positive EBITDA of $16 million. Looking ahead, we are guiding for revenue between $130 million and $150 million for the fourth quarter, reflecting a typical seasonal pattern with lower shipments in fourth quarter than the third. Gross margin is expected to remain around 50%.

The revenue split between the top 10 customers and the broad market has stabilized. While we are maintaining very strong relationship and positions with our key customers, we have also made it a high priority for Nordic to regain traction in the broad market.

Turning to design launches. We remain the clear market leader with about 40% market share in terms of end product certifications and 5x as many designs as #2. Over the past year, a total of 509 designs with Nordic inside have been certified, [ better ] this time. As always, our overview of customer product launches show a wide selection of products, this time ranging from monitoring of coolers and freezers, Wi-Fi modules to smart locks, audio television streaming and to human location and fall tracking.

It's good to see examples of customers buying multiple products from us like the Matter over Wi-Fi, SoC and Wi-Fi smart lock, which deploys both a 5340 Bluetooth SoC and a 7002 Wi-Fi module or the Saluswear tracker using both a 9160 cellular SiP and an nPM30 power management IC together with our nRF Cloud software solutions.

Looking ahead, we are now fast approaching commercial launch of the nRF54 Series with the first products being launched at the Electronica Industry Fair in Munich in November. Most of our key customers and many broad market customers are already developing products with the 54 series. While the ramp will take some time, we see solid proof points of a strong and very competitive position for these products. We are beginning to ship both the 54L and the 54H products in first volumes now in Q4. And to repeat, the 54H is a high-end quad CPU SoC for high-performance IoT products and it's manufactured on GlobalFoundries' 22-nanometer process technology. The 54L series is a high-performance dual CPU SoC based on TSMC's 22-nanometer technology and is a logical successor to the nRF52 Series.

Both families are delivering complete system-on-a-chip integrations of MCU control and compute systems, integrated memories and security and with best-in-class power consumption and, of course, radio performance as well as being supported in Nordic's world-class development ecosystems for software and design tools. These products are going to become great growth drivers for us in the years to come and we are really looking forward to these launches.

Finally, before I leave the microphone to Pal to take you through the numbers, I just want to mention the possible acquisition of Novelda that we are currently evaluating.

Novelda has built an interesting technology position in ultra-wideband, which could complement our leading offering within Bluetooth -- multiprotocol Bluetooth. This has interesting applications within presence and precision sensing as well as ranging. We have started the due diligence process, which we plan to complete by the end of November. And until then, we are not going to go into more details about this potential possible transaction.

[Pål Elstad, executive]

Thank you, Vegard. I'll now go through the financials for Q3 2024. In Q3, our revenue was the highest we have had since the peaks during 2022 and we're finally back to both year-over-year and quarter-over-quarter growth. Looking at our revenue for the third quarter, we overall see an 18% year-on-year increase from $135 million in Q3 2023 to $159 million in Q3 '24.

As communicated at our Q2 presentation, the improvement comes as a result of increased underlying demand driven by strong key customer numbers as well as the effects of the continued high design win ratio that we have had during the last years.

In addition, Q3 is also the seasonally strongest quarter and revenue increased by 24% sequentially from $128 million last quarter. The year-on-year increase mainly reflects higher Bluetooth revenue, which increased by 19% to $143 million. Proprietary grew 18% to $12 million, which is the highest level since Q4 [ 2022 ], driven by strong PC accessory and gaming markets. Nordic sees increased design activity and traction in cellular IoT, especially within industrial asset trackers and smart metering as discussed at the Capital Markets Day. However, there was a reduction in distributor inventories in Q3 and reported long-range revenue was low at $2.5 million. The underlying revenue is on par with previous reporters reported.

Turning to the end user markets. We see the strongest growth in the consumer with 35% increase versus last year and 31% versus last quarter. Consumer is by far the largest end-user market, accounting for 69% of our total. This is up from 65% last quarter. The solid numbers reflect improvements across most of the consumer customer base, but especially with some of our key customers in this market. Revenue from industrial market was relatively stable with an 8% increase from last year and a slight decrease of 3% versus last quarter.

Industrial is the market where the inventory levels have taken the longest to normalize. While demand from the industrial sector is picking up somewhat in the U.S. and in Asia, it still remains slow in, amongst others, Europe. Healthcare is showing strong revenue of $21 million in Q3. And although we saw a decline of 21% from the extraordinary high levels in 2023, it was 41% above the previous quarter.

As commented earlier this year, we expected higher levels in Q3 compared to earlier in 2024. This market represents a key growth opportunity for Nordic going forward. But as we stated in the report, this segment is dependent on a relatively small number of customers and hence prone to wide quarterly variations.

Coming to -- turning to gross margin. There's not much to say about this in the quarter. The gross margin was roughly in line with the guidance, although it slipped slightly below 50% in the quarter. And as always, the variations mainly reflect changes in customer and product mix. We, however, maintain our long-term ambition to keep gross margins above 50%.

Now turning to the operating model performance in Q3. As communicated on our Capital Markets Day, our operating model is set up with an ambition to move towards an EBITDA margin of around 25% over the next 5 years. However, our organization and operating model is obviously geared towards a significantly higher revenue level than what we've seen during the last year. Despite improving revenue, we are still spending more than 26% of revenue on R&D compared to our operating model target of 15% to 20% and 13% on SG&A compared to a model target of less than 10%.

Nevertheless, the EBITDA margin in Q3 is a significant improvement compared to the previous couple of quarters. But bear in mind that Q3 is still our seasonally strongest quarter.

To achieve our longer-term EBITDA margin targets, we're working along 3 axes. First, we need to definitely grow our revenue; secondly, we need to support our gross margins; and third, -- and contain costs to benefit from operational leverage as our revenue grows. We are going to deliver on all of these accounts over the years to come.

Now turning to cash cost development. Looking at costs from a cash perspective, we saw a year-over-year increase of 7.6% in the third quarter, an increase of 5% compared to the previous quarter. Payroll increased 13% year-over-year despite the 10% reduction in the number of employees over the past year to 1,383 at the end of Q3. This is down from 1,550 at the end of Q3 2023.

The increase in salary is explained partly by high salary increase in 2024 after a salary freeze in 2023, indicating a relatively normal development over the past 2 years. The 2024 figures also include higher accrual for variable pay compared to 2023. And also a reminder that in 2023, we actually had a reversal of the accrual for variable pay, resulting in a double impact versus this year.

Other costs are relatively stable, reflecting that we have managed cost savings in an inflationary environment. We will continue to focus on adjusting our spending level to support margins also going forward. As communicated at the CMD, we target flat OpEx also in 2025.

The underlying CapEx remains low. We saw a continued low spending level also in the third quarter of 2024 with $3 million in CapEx or only 2% of revenue. This was up from $2 million a year ago and compared to $2.5 million last quarter. The low CapEx reflects that we are still utilizing the high investments in test capacity made in 2022 when we were geared for significantly higher revenue levels. Current CapEx is therefore mainly IT equipment and smaller R&D investments in lab, et cetera.

Finally, I'll turn to our cash flow. You can see that we generated a total cash flow of approximately $3 million in Q3. That's total cash flow. The operating cash flow was $14 million during the quarter, which compares to an outflow of $14 million in the same quarter last year. The operating cash flow was generated despite the continued increase in working capital of $8 million, mainly as a result of higher inventories.

Inventories increased $11 million in the quarter to $181 million, which is up $80 million versus last year. We commented earlier that we expected a decline in inventories during the year. However, we continue to strategically source materials to have capacity for future growth.

The value of inventory at quarter end will fluctuate some due to lagging timeline of arrival of wafers and customer shipments. However, we still believe that the inventory levels will reduce going forward, but remain above pre-pandemic levels.

Net working capital compared to revenue remains high at 45%, but we are moving towards the 25% level when we reach higher revenue.

With that, I'll leave the mic back to Vegard for his closing remarks.

[Vegard Wollan, executive]

Thank you, Pal. At Nordic's Capital Markets Day in September, we presented our plan for driving profitable growth throughout the decade. I want to repeat some of the key messages here.

In the established short-range business, we are a clear market leader, and our goal is to outpace the growth of our serviceable market, which is supported by the upcoming launches of our groundbreaking 54 Series technology and a very strong design activity with our key customers and our efforts to regain traction in the broad market. When we presented that ambitious long-term outlook, it was important for us at the same time to signal that we currently see modest growth in the short-range business in 2025 and accelerating growth from 2026 onward. That expression, modest growth in 2025 was used in the context of our long-term growth ambitions for the short-range business.

Firstly, the 54 Series will be a key growth driver, but it also takes some time for 54 products to be designed into our customer products and ramped up in production. Secondly, the markets have stabilized, and we see a gradual recovery, but some segments are still slow and need more time to fully recover. Our figures show today that industrial is lagging consumer, and we also see Europe lagging the U.S. and Asia.

We'll have to see how the market develops going forward, but we have no indications that we are losing market share. What we do know is that our design activity with our key customers is very solid and our Bluetooth SIG certification rate is stable at 40%.

Our growth ambitions in the scale-up and early-stage businesses are even higher and -- with upcoming product launches and increasing design activity with our customers.

So summing up, this forms the basis of our long-term ambition to deliver average annual growth -- revenue growth above 20% on the group level through the decade and to move towards an EBITDA margin of 25% within 5 years. We are very confident in our long-term strategy and our targets, and we are looking forward to deliver on these over the years to come.

Finally, our guiding principles remain clear. We provide guidance on revenue and gross margin for the upcoming quarter and we are not going to provide any more specific details for 2025. For the fourth quarter 2024, we expect revenue between $130 million to $150 million with gross margin around 50%. That corresponds with a revenue growth of between 20% and 39% year-on-year in the fourth quarter.

As we said on the Q2 results, we expect seasonally slower sale in the fourth quarter than in the third and our guidance corresponds with a decline of between 6% and 18% from Q3 to Q4.

With that, I believe it's time to open the floor for questions and over to you Steel.

[Ståle Ytterdal, executive]

Thank you, Vegard. We are now accepting questions via the Q&A dial-in function. For dial-in details, please refer to the earnings call invitation available on our Investor Relations site under Stock Exchange Notice.

To maximize the number of inquiries we can address before market opens, we kindly ask that each participant limit themselves to one question and one follow-up question. I will now hand it over to our operator to begin the Q&A session.

[Operator]

[Operator Instructions] The first question we have is from Sebastien Sztabowicz from Kepler Cheuvreux.

[Sébastien Sztabowicz, analyst]

[Audio Gap] elaborate a bit on -- yes, can you hear me?

[Vegard Wollan, executive]

We can hear you. Hello?

[Sébastien Sztabowicz, analyst]

Yes. On the inventory, just to have a little bit of indication on where you are standing at your distributor, on the end customers, both on, I would say, the short-range product and also on the cellular IoT because you have been affected by a kind of inventory correction in the third quarter. So where you are standing now versus historical levels.

The second one is linked to the competitive landscape on Bluetooth Low Energy. You have this product transition ongoing. We look at ramp only on the nRF54 SoCs. How are you positioned to fight with your competitors over the next few quarters with limited volume from the nRF54 and maybe slowing traction from the nRF52?

[Pål Elstad, executive]

Okay. Let's start on the inventory. Maybe you want to start with customer inventories and then we'll do distribution and Nordic inventories after that.

[Vegard Wollan, executive]

That's fine. Yes. Thank you. Thank you, Pal. So yes, customer inventories, I think that, to some degree, is a mixed bag. But I think as you can see in our largest customers and in the consumer space -- we believe that the situation have normalized, but it's still a mixed bag. We still have Europe being slower clearly and industrial being clearly. And we do see individual customers having inventories as well.

I think generally, we see that inventories in our distribution partners are normalized on a general level.

[Pål Elstad, executive]

Yes. And we had a comment that we, in the quarter, reduced inventories for the cellular products. But this is still very small in the total picture. As Vegard said, the total distribution inventory is now on what we consider normal levels.

In relation to the Nordic inventory on our notebooks, I commented that it was on the high side at $181 million, also including the write-down of the cellular inventory. So in the cellular, inventory hasn't really moved a lot since Q2 as revenue this quarter only was $2.5 million. The rest of the inventory relates mainly to the Bluetooth products and are valid and normal products that we're selling every day. And the value of the inventory at quarter-end will fluctuate some due to lag timeline of arrival and selling to customers.

Then was the question on the competition.

[Vegard Wollan, executive]

Yes. And on the product competitiveness, I think we feel we are in a very good position. We are confident. So if you look at -- if you look at the 52 and 53 Series type products, those are kind of reflected in the Bluetooth SIG certification. And you see that we are very stable at the 40% level with our certification rate there and we have designs being recertified and reused, so to speak, with these type of products to a high degree still, I would have to say.

54 Series is a very significant uplift in performance on multiple aspects, lower power, higher radio performance. These are completely integrated products with Nordic's unique memory technologies on board. So we are extremely confident on the 54 Series moving forward and really looking forward to be starting the official and public launches with that in November.

And it's going to be a phase where we are launching sublaunches and major launches for a multitude of subfamilies on the 54 Series in the coming time.

[Operator]

The next question is from Christoffer Bjornsen from DNB Markets.

[Christoffer Bjørnsen, analyst]

Christoffer from DNB Markets. So first of all, on the seasonality. So you're kind of now back to more just call it normal seasonality for Q4. But into next year, do you kind of see any reasons in terms of customer losses or anything like that that would be there to kind of imply that Q1 should be more than type of the 10% sequentially down in Q1 than what has been normal historically?

[Vegard Wollan, executive]

Yes. I think it's -- thank you. Thank you Christoffer. Great question. I think it's clear that we see the important part of Nordic's market is stabilizing and we see gradual market recovery. And as I commented on, it's still a bit of a mixed picture, but we do see consumer back to a much more stable and solid situation for us where we have a very large part, about 2/3 of our business is in that segment. And that's also the main reason to drive the seasonality for us because you have certain aspects of buying patterns throughout the year in the Consumer segment and as well as the way our customers typically launch their products.

So we are not commenting any further on 2025 specifically other than saying that we are still expecting in the current situation that we are going to see a seasonal pattern as has been the situation pre-COVID for Nordic Semiconductor.

[Christoffer Bjørnsen, analyst]

That's helpful. It's just that I kind of feel like your medical or health care space was holding up quite well, doing decently in Q3 and we know that there will come some headwinds from dual sourcing there in not-too-distant future. So like into Q1, you're saying basically that you're only seeing normal seasonal dynamics and not really any significant customer losses or socket losses from Q1.

[Vegard Wollan, executive]

Yes. Sorry, it was definitely not my purpose, Christoffer, to forget that part of the questions. We are very confident and work closely with all of our key customers. We don't see any significant change in that picture. We don't see any losses as far as we see it, which is different. So we expect that segment to be continuing strong for us and it's a segment which is important and we are continuing to invest in the Healthcare segment, clearly.

[Operator]

Next up, we have Harry Blaiklock from UBS.

[Harry Blaiklock, analyst]

Can you hear me?

[Pål Elstad, executive]

Yes.

[Vegard Wollan, executive]

Yes, we can hear you.

[Harry Blaiklock, analyst]

So the first is on foundry pricing and specifically what level of price increases you're expecting from TSMC next year and whether you're confident in being able to pass that on to your customers?

[Vegard Wollan, executive]

Yes, we appreciate the question and it's an understandable question. We have clearly taken the position that our interactions and engagements with our key supply chain partners, including TSMC in this case, is not something we are sharing publicly. So we will not be going into any details on that side.

What I think we can say, however, is as we have been stating that we are confident in our gross margin targets of 50% or above.

[Harry Blaiklock, analyst]

Got it. That's useful. And then my second is just on the design activity that you're seeing in cellular for asset trackers and metering and just when you're expecting that to start translating to meaningful revenues.

[Vegard Wollan, executive]

Right, right. Yes, it's a great question. We do see increased and improved design activity overall for our cellular products, which is good. And we also see a bit of a shift, as we have said, into more, let's say, industrial type company customers engaging with us. These are extremely complex products with all the software, all the system solutions you have around these products with -- many times, they include multiple wireless standards like the cellular, Wi-Fi, BLE, et cetera. So as you can imagine, there is a bit of a design time to get these products designed in.

It does vary from customer to customer. And I would say about 18 months is something I think we have been using for industrial type products. And we are talking up in that space, maybe even a few months longer in some cases for our customers to design on their side and their end.

We do see increased design activity and traction and especially with our new nRF51 launch, which we did in -- did release to production now in the third quarter. That's something which is really exciting for us in the market at the moment.

[Operator]

The next question is from Oliver Pisani from Carnegie.

[Oliver Schüler Pisani, analyst]

So my first question was on the OpEx side. Do you consider the current OpEx that we've seen in this quarter a run rate that we can annualize? Or were there any, call it, temporary effects? I saw this comment about, for example, high R&D investments ahead of Q4 product launches.

[Pål Elstad, executive]

Yes. So I think it's correct. It's -- Q3 is pretty normalized. The effects comparing to last year with variable pay and salary increase is sort of out. So if you take Q3, I don't foresee a lot of changes going into Q4. So that's correct. Everything should be included in Q4 versus Q3. So correct.

[Oliver Schüler Pisani, analyst]

All right. And then perhaps the second question. I mean, you say that you see this inventory buildup and you continue to source strategic inventory to drive growth. At the same time, you just basically downgraded the guidance, just expecting modest growth for 2025, below 17%. How do you square those 2, sort of, actions?

[Pål Elstad, executive]

Yes. Thanks, Oliver. It's a great question and we can help each other out on that a bit. So I think it falls a bit in the category, Oliver, of supply chain management and our interactions with our key suppliers. And the timeline of that may be a bit different from the exact, let's say, output throughput from the company.

And there might be reasons for that and that's -- these are sometimes reasons we don't want to be sharing. It could be customer related, could be supply chain related. So I would say, in general, we don't want to share more information in our supply chain interactions.

We do have very solid relationships and interactions with our key suppliers there and are extremely happy with the picture which we now have going forward with products from the 2 key leading foundry partners of the world.

[Operator]

And the next question is from Rob Sanders from Deutsche Bank.

[Robert Sanders, analyst]

I guess the question -- first question is for Pal. Just given your kind of budget for next year, do you expect to break even whether at the EBIT or net profit level? And I have a follow-up.

[Pål Elstad, executive]

We're not going to guide for next year, Rob, you know that. But as Vegard has said several times, of course, profitability is our key metrics going forward. He's going to turn the company to be profitable. I think that's what we're going to say on that point.

[Robert Sanders, analyst]

But are you intensifying cost reduction efforts? Or are you just working through the existing plan?

[Pål Elstad, executive]

We're currently working on the current plan to drive profitability in the company.

[Vegard Wollan, executive]

I think on that item, Rob, it's also fair to say that we are saying that we expect OpEx to be reasonably flat in the coming time.

[Pål Elstad, executive]

Yes.

[Robert Sanders, analyst]

Okay. And then just a follow-up on China. You flagged a pickup in the third quarter in China at the last set of results. Has that pickup sustained itself into the fourth quarter? Just interested in any commentary that you can give, whether it's on the channel or the demand side.

[Vegard Wollan, executive]

Right. Yes. I think we have seen new design wins, new design activity coming for Nordic in China throughout 2024 after a bit of a flat development in 2023 and we do see that that's continuing, Rob.

[Pål Elstad, executive]

Yes. So the improvement we commented on in Q2 versus what we saw in 2023 is absolutely still valid. That's correct. But still not back to historical levels, but a significant improvement versus '23.

[Operator]

The next question is from Oystein Lodgaard from ABG.

[Øystein Lodgaard, analyst]

I was wondering, you -- with the comments of a modest growth in '25 and then you still expect to have over 20% growth for the next few years, you would need some sort of pickup in '26, '27. Can you say -- do you already have now at this point, some concrete design wins on the 54 that are meaningful that gives you some sort of visibility about this pickup in growth in '26, '27? Or is that still too early at this point?

[Vegard Wollan, executive]

Yes, that's a great question. Thank you. We are -- the design activity at our customer base and the innovation happening in the interaction between Nordic and our customer base is, as I said, very strong and very high at the moment. And these are for products I would say, typically actually launching in the time frame of between 1 to 3 years out in time. So we are working on design lines for certain programs, which are fairly long in the design interaction with our customer base.

So we do see strong activity for 54 Series products, which are going to be launching throughout next year. And as we have said, accelerating into '26 and onwards.

[Øystein Lodgaard, analyst]

And can you give some flavor on are there any typical end markets or segments that you're seeing a lot of design-in activity on the 54? Or is that too early to comment?

[Vegard Wollan, executive]

That's probably a bit too early to comment on for us specifically, but it's a wide range of applications. It's a wide range of customers working the 54 Series with us. And as I've also said, a lot of our current key customers as well as broad market customers are engaging with us on the 54 series.

[Operator]

The next one we have is [ Oliver Lon ] from Bank of America.

[Unknown Analyst]

So earlier you talked about normal seasonality for Q1, Q2, Q3 and Q4. I was just wondering if you could give a little more color on that, a little more detail on what you mean.

[Vegard Wollan, executive]

Yes. I don't think we will -- it will -- giving more detail on that, [ Oliver ], would mean for us to start talking ahead of ourselves and ahead of the current quarter. So that won't be appropriate for us to be doing at the moment. And I think what we do say is that we expect to see that seasonal pattern which is coming from the consumer market footprint to be still valid for us in the time to come.

[Operator]

[Operator Instructions] We have a follow-up question from Christoffer from DNB Markets.

[Christoffer Bjørnsen, analyst]

Yes. Just saw that there was a sequential decline in the non-current part of the prepayments to GlobalFoundries. Are we correct in our understanding that this means you're kind of more bullish on the outlook for 54H now than you were like after Q2?

[Pål Elstad, executive]

Yes. So Christoffer, as you've seen and you know in accounts, there's this line related to expected utilization of the prepayments over the next 12 months. Well, we all understand that you all like to have this to indicate the amount of wafers we plan to purchase from Global the next 12 months. And as you see, this line has been unchanged.

What we say we don't really believe this line is a leading indicator because, first of all, the prepayment can be used for other purchases from the supplier. We talked about tape-outs and other NRE we do.

Secondly, we are in a ramp phase. So orders from the suppliers and deliveries from the suppliers during a ramp phase is not done on a regular basis. So the amount does not necessarily change quarterly.

When it comes to the ramp of the nRF54 and the expectations we have to this product, I think it's more important to listen what Vegard is telling about the design wins we have and the traction we have from key customers on this groundbreaking product. So I think that's all we want to say on the prepayment today.

[Operator]

Next up we have Sandy Deshpande from JPMorgan.

[Sandeep Deshpande, analyst]

Can you hear me?

[Pål Elstad, executive]

Yes.

[Vegard Wollan, executive]

Yes.

[Sandeep Deshpande, analyst]

My first question is on inventory. I mean, I think you did highlight that your inventory is high. But can you explain why your inventory has increased from the prior quarters given that your revenue continues to improve now or at least has improved in the third quarter?

And my follow-up question is on your costs. How do you see your OpEx trending into the following quarter, into the fourth quarter and into the following year, if you are going to give any indication on the following year?

[Pål Elstad, executive]

Yes. So I think on the inventory, Vegard just answered that this is based on a very good relationship with our key suppliers in the value chain, and this will change from quarter-to-quarter. But we do still have a target to reduce and improve the working capital KPIs going forward. So I think that's all we say there.

On OpEx, I commented that we think Q3 is a good level for the run rate going forward and we have a target to keep the OpEx flat going into next year.

[Operator]

As there are no further questions on the conference call at this point, I will hand it back to Steel and closing remarks. Please go ahead.

[Ståle Ytterdal, executive]

Thank you, operator. Before we conclude the session today, I would like to inform you that Nordic will host 3 post Q3 results Q&A group calls with analysts and investors tomorrow on Friday, 25th of October. These calls will feature our CEO and CFO and will be moderated by the covering analysts from each respective brokerage. For sign-up details, please visit the IR calendar on our website. We kindly ask participants to sign up for one group call only based on your geographical location.

With that, I will now conclude our Q&A session for today and hand over to Vegard for the closing remarks.

[Vegard Wollan, executive]

Thank you, everyone. Thanks a lot for joining us. This concludes today's call. Thank you.

[Pål Elstad, executive]

Thank you.