Nordic Earnings: EBITDA Unexpectedly Pleasing; We Expect Improvement as Year Progresses

The market was very pleased with narrow-moat Nordic Semiconductor’s NOD second-quarter results, and shares are up by 14% at the time of the writing, trading in the NOK 135 range. Our NOK 165 fair value estimate remains unchanged.

Nordic met both its revenue and gross profit guidance for the quarter, with sales of $154.2 million (guidance of $140 million- $160 million) being down 23% year over year but up 6% quarter over quarter, which indicates the worst of the semiconductor cycle might lie behind. Management however remained cautious on its comments, highlighting the overall uncertainty and wide range of potential outcomes for the year. Electronics customers are still consuming their excess inventories and ordering less from companies like Nordic, but we expect the situation will improve as the year progresses, based on comments from Nordic’s management and from other semiconductor peers.

Gross margins stood at 53% in line with guidance. The surprise, however, came on the EBITDA front, as Nordic did $28.5 million in EBITDA (18.5% margin) during the second quarter, compared with consensus expectations of $15 million. A decline in payroll expenses ($33.5 million compared with $43.7 million last quarter) was the main driver of the EBITDA surprise due to lower bonus accruals paid to employees and a $2 million tailwind due to currency effects. Payroll expenses should however increase next quarter due to seasonal effects. We forecast a 14.5% EBITDA margin for the full year, compared with 10% and 18.5% in the first and second quarter.

For the next quarter, Nordic expects sales of $145 million-$165 million, in line with this quarter. This looks achievable to us given comments of a healthier chip inventory situation as the year progresses. Nordic has been allotted more capacity from TSMC compared with last year, so we do not expect any supply chain constraints for the remainder of the year.