Nordic Semi-sjef Vegard Wollan: - Vi synes det var litt frustrende

Yes, I am the one who has covered technology for the most part in the financial editorial department in recent years. I've written quite a bit about Nordic Semiconductor and have always been interested in that company. It's a fun company to follow.

Hello and welcome to a new episode of Aksjepån. My name is Krister Teigen. Today we are going to talk about Nordic Semiconductor, and I think we have never been four people in the studio before, but we are today. We have with us the CEO of Nordic Semiconductor, Vegard Wollan. Welcome.

And we also have investor and Nordic Semiconductor shareholder Joakim Sverre. Welcome.

Thank you very much.

Also my journalist colleague Benedikte Storm Bami. Welcome. So you are the one who primarily covers Nordic Semiconductor and other tech stocks for us here at Finansavisen, correct?

Mhm.

And I thought before we start discussing and try to figure out whether the stock is worth it, I think it's really cool that we have such a large technology company on the Oslo Stock Exchange that is competing with the big players in the world. That's quite rare, right? Here we have a lot of oil and gas, and you have also become much larger than you were a few years ago. It really exploded around 2019, 2020 when the pandemic came and we had that huge growth in orders from semiconductor manufacturers. And then the stock price went from 50 kroner to over 300 kroner. And then there has been an epic bubble burst if you just look at the stock price, falling from over 300 kroner down to 100 kroner. And during that challenging period, you came in as CEO from January, correct?

So how has it been to take over as CEO of this company?

Mhm, yes, because there will be growth. Let me bring you into the conversation right away, Joakim Sverre. You are an investor that we haven't really mentioned in Finansavisen before, but I personally hadn't heard of you. You are an investor who is also part of the same investor community as Åsne Feit Reid, Peter Hermanrud, Ole Petter Skjerk, and Jan Johannessen, right? And through Alkania Capital, you are exposed to Nordic. It is your largest investment, correct?

Yes, that's correct. Can I say why I am invested, when I came in, and why I am invested? I have a long, long history with Nordic from when I previously worked at a Swedish-Norwegian fund manager called Norda, where we were invested in Nordic from 2017 until I left in 2022. Those years from 2016 to 2020 were a roller coaster for Nordic—it doubled three times and halved twice, so it was a volatile ride, but it ended very happily with what happened at the end of 2019 and into 2020. We like to say that history trumps everything. Here you have a company with a fantastic history over the last 10, 15, 20 years with profitable growth. For our part, it's about identifying trends—long macro trends that you want to be invested in. For Nordic, things are becoming more and more connected, and we believe they will continue to become more connected. If you go home and walk around your house or office, you see that microphone, that headset is connected, your remote control is connected, your Bluetooth speaker is connected, your watch is connected. So there are many chips in your home without you realizing it. There are different types of connectivity: some can take a lot of power, and some must take little power because the battery is a limiting factor. When I look at the things around me, I think many things require low power consumption. And then we have a company in Norway that is world-leading in low-power connectivity. So that's part of the macro backdrop for why we want to be invested.

Mhm. And after that, it becomes a question of how this is priced and what the next two years look like. When you look at the semiconductor industry, there are many layers, so it is very cyclical. You have TSMC, Nordic, distributors, maybe EMS companies, Apple, and then Elkjøp at the end. So there are many layers, which creates a lot of cyclicality even though demand is steadily rising. There are big swings around the trend. I don't know the industry that well, but when I checked the Semiconductor Industry Association website, I saw a graph showing that global demand fell a lot last year and has come back up to an all-time high. But that's probably not your type of industry because of AI and so on. It's Taiwan Semiconductor and the like. There has been a separation between the two or three big AI players and the rest who haven't been affected by the slower market that the average semiconductor company has experienced in 2024 compared to NVIDIA, AMD, etc. So when you look at total growth, it is probably quite influenced by those two.

Mhm, but also back to pricing and the stock. Have you gone back into the stock or have you been in it the whole time? For my own part, I have held shares to a greater or lesser extent since I started where I am now. Now I have more than I have ever had.

So you bought through this year? Yes, bought and sold. Mhm. But are you quite active in trading since it's a cyclical industry? You see the stock rise three times and then fall three times in four years. How is it to sit as an investor when it's so cyclical?

The basic stance is that this will grow much more than GDP over the next 2-5 years. And you have to have a view on how it is priced relative to those assumptions. You have to see if analysts have moved a lot on estimates or little, and if there is consistency between what analysts say and what Vegard says. Investors tend to flock when things are good, and when things are bad, suddenly very few want it. And things can be bad much longer than you think, so that downtrend and strategy is smart, but sometimes it can be good to go a little against the grain. So even though we have had a basic position all along, we have managed to minimize some of the loss we otherwise would have had by trading around such investor sentiment and pricing.

Yes, but it is interesting because you didn't sell any shares this fall, did you? I sold shares before, but far too few. Yes, because we had an article that Åsne Feit sold a third of his shares, and Hermanrud, who sits next to you, sold everything. He said... Well, maybe we should inform the listeners a bit. Was it at the end of September when you had the Capital Markets Day? Yes, September 26. And that day the stock fell 24%. There was a lot of talk about how much growth there would be next year. Herman said he sold shares before and after the Capital Markets Day. He said, 'I became very confused, but I interpret it as the company guiding under 17% growth from 2024 to 2025 and I put myself at 12%.' Then I checked the Bloomberg terminal today to see what analysts have actually put in for growth going forward. They have consensus estimates of $500 million in 2025? No, 2024, and then $600 million in 2025, which would be 20% revenue growth. But can you say something about how you experienced that day? Because you received some criticism from analysts and investors regarding communication. What can you say about that, Vegard?

What did you think, Joakim, when you saw what happened and Hermanrud sitting next to you selling shares? What were you thinking then and what do you think now? What do you think the growth will be?

It was a message that had to come out, because what happens is that people become too optimistic and that is reflected in analysts' numbers, and then the company has to somehow get their message out. When people like me and others are sitting in the spin cycle when the stock is falling, but if that was what they meant (and it was), then it had to come out. The question is how to do it. But you were there at the Capital Markets Day, and it's important to note that when the Capital Markets Day started, the stock had already begun to fall, but there was even more confusion after the Capital Markets Day ended. So there was some criticism regarding the communication during the Capital Markets Day.

It seems that you may have cleaned up a bit now in the third quarter when you had the presentation there. Because I think many were also concerned about market share—have shares been lost? How is it with these top-tier customers that we have followed over the past few years? We have had some analysts who have even crushed Apple pens and Apple products. But can we get a clear answer now: how is the market share of Nordic Semiconductor doing over the past year, and have you managed to hold on to these large customers that people have been worried about in recent years?

I don't know exactly, but Nordic Semiconductor has been around for many years on the Oslo Stock Exchange. What is the average annual growth? Is it around 10-20%? But you envision that there could be an escalated growth based on the new products, that we are in a vacuum now and the new products come. What we showed at our Capital Markets Day in the long-term plan, if you look at a five-year plan, our addressable markets have unit growth of 17-20% depending on the segments, and our ambition is to grow faster than the market in all segments we participate in, so we should be above 20% growth in that period. That's an ambitious ambition.

You had an ambition of $1 billion in revenue in 2023, but that didn't happen. It was half of that. But that was because of the supply-demand situation. So you had a double effect, and then a lot of orders came into Nordic. Is that why it's bad now? Is that why you are on track to lose money this year? Because those who ordered semiconductors now realize it wasn't that big after all, so they don't need them anymore. They have over-ordered, so to speak.

Yes, it's quite extraordinary. I looked back at the accounts to see when was the last time you lost money, and it was in 2003. And regarding pricing, if you look at how much it earned in 2022 (the record year), it was priced at 86.6 times EBITDA. But it's not worth looking at that for this year or next year. When the stock was at its peak, it was priced at 6.4 times EBITDA, and now it's priced at about 30 times EBITDA for next year, but estimates are very low. But how can you explain why you own Nordic Semiconductor shares? I assume you think the pricing is attractive. Can you give me the sales pitch on the pricing?

I think what's important there is that you are right. If you just look at headlines and price multiples, it looks expensive. But the model we use (or I use) is multiple. You can use a sum-of-the-parts model because they have invested heavily in cellular/long-range and WiFi, which burden the income statement with $40-50 million per year and don't generate revenue today (long-range generates a little). You can strip that out and see what you are left with in terms of profit or EBITDA on the Bluetooth (short-range) part. If you look at a year like next year, Nordic will look quite cheap, and in 2026, very cheap. An alternative is to look at EV/Sales. I think in the phase we are in now, with heavy investments that will eventually materialize, EV/Sales is a more appropriate multiple. Even on low 2025 numbers, it's priced at 2.5-2.7 times EV/Sales, historically it has been priced at 3.5 times sales. So I think it's priced well under, about 30% below historical EV/Sales multiple. And I also think sales will escalate in 2026. Let's say they deliver somewhere between 20-30% growth in 2026, then you will catch up to the historical multiple, and on top of that, sales will have grown by 25-30%. If we are in a situation in 18 months where they have actually grown 25% or 30% in Q1 or Q2 2026, the market will say, 'Wow, that growth rate is picking up significantly.' I don't find many companies that will grow 20-30% in the coming years, so maybe we should have a higher multiple than we have had. Then you get a scenario where it becomes a very good investment. It's a long way there, but those are some considerations I make.

Mhm. And we also think about this: it's a large industry with many big players. What is comforting is that I think many could need the Nordic position in their organization, with larger players, and I think there are a lot of synergies to be realized there.

But now that we are into the numbers, I also have to ask: what was it you said, Krister, that if we look at the estimates from Bloomberg, it is estimated that it could be around minus... was it revenue growth next year or was it the result this year?

No, the result this year. I haven't looked at it, but they have looked at the reports. For the first three quarters of the year, the result before tax was minus 35 million euros, or is it dollars? Sorry, what is it? Yes, dollars. Yes.

But then I was also wondering, because there have been some cost measures at Nordic in recent years, and the last thing we witnessed was that we had to cut the workforce by 8% globally as part of that measure. That was probably no more than 100-110 people, wasn't it? But are you looking at doing more cost-saving measures going forward, or are you beginning to approach the end of that cleanup?

So the EBIT margin, I have noted that the EBIT margin went from about 20% to 34% from 2019 to 2022, right? 2022 was the record year, and now it's down to 10 or 11 or something. But have you guided on anything like that? Do you have an ambition for a long-term EBIT margin?

Yes, that would be between the two, between 2019 and 2022, right? Or at least better than 2019, which was the last normal. That is definitely something that has been done before. Yes, can we... if we check our archive of recent articles we have written about Nordic Semiconductor, there was a company called Novelda. Don't you have a question about that? Because it was interesting, we had just written about Novelda in Finansavisen, and then maybe 5-6 days later, Nordic Semiconductor announced that they were looking at it, there was a letter of intent with this company, and then it was broken off after a round of due diligence. Why did you look at Novelda? Is this part of... you also said you will have several new initiatives at Nordic Semiconductor and more segments. Is this part of the long-range initiative at Nordic? Was that the intention behind the possible acquisition?

But are you dependent on potential acquisitions to accelerate this long-range initiative?

Then I'm just wondering if you could tell a little about the products in long range, because most of us have gotten a lot of what is short range, like products on Garmin for example. What is the idea when you go to long range?

But how is the interest from your customers for these new products? It seems like you have quite big ambitions both for short range and long range.

Yes, you have... I briefly mentioned that with AI, the semiconductor industry has different segments. But with generative AI, how important will it be for Nordic Semiconductor in the future?

Can I follow up a bit? Now it's a bit of jumping around, but on the long range part, we have invested quite a lot over a long time. And on short range, you have customers that stably buy for 10, 15, 20 million dollars per quarter. Do you see the contours of these customers also coming to long range, if you lift your gaze a bit?

But I feel we also need to talk about something we touched on: products. One of the things that has been a bit of a challenge in recent years is that consumers' purchasing power has fallen a bit as interest rates have been at peak for a while, both in Norway and the US. But now many are starting to look at rates going down, waiting for Norges Bank here at home. How much do you follow that, and how much have you been affected by the increases in recent years?

But have you... we had, for example, Kristian Falnes, it wasn't long ago we had a podcast with Kristoffer Falnes, and he is the type who has an opinion on what a stock is worth. I don't know, almost everyone does. But do you have a picture in your head of what Nordic's stock is worth, based on your expectations for results?

Looking at the estimates on Bloomberg, there are quite a few analysts who have put in, you can see the number is around 15 estimates. And then you see that by 2027, revenues are about... this year will be around $500 million, and it was over $777 million at the peak in 2022. It should pass that in 2027 according to consensus, then revenue should be $885 million. And then 20% growth from there again, so eventually the earlier target of $1 billion in 2028 probably, if everything goes as it should. Don't you get scared when you hear those numbers, Vegard?

But I would like to hear what you think about next year. If you look at 2025, what could potentially be a challenge for Nordic, or do you see that the problems in the semiconductor market might be starting to ease? Because it's not just you, there are many subcontractors to the whole semiconductor industry. There has been a lot of talk about this for a long time. What are the challenges now, and how could this play out over the next year?

Then I also have to quote our dear stock commentator Karl Johan Molnes: this is a cyclical industry. People have been waiting quite a long time for it to turn up again. What do you think, Vegard? Are we on the way up now? Has the bottom been reached, or do we have a bit more to go?

Were you satisfied with that answer? I think it's very difficult to predict the future when there are so many factors involved: US vs China, internal issues in China, problems in Europe. I read the Q3 report as soon as it came out, and I think it said we are beginning to see an improvement after a challenging period. Or was it? The third quarter for Nordic was the fifth best quarter ever, at least on the top line, in revenue. Back to Joakim.

But speaking of you, Joakim, when the stock was at its peak around 300 kroner, it was almost only institutional investors at the top of the list. And after it started falling sharply in 2022, the stock price peaked in 2021 but results were record in 2022. In 2022, the stock price fell sharply to 200 and through 200, and then suddenly DNB Technology came in as a large shareholder. What do you think about getting DNB Technology, which is Norway's most famous and among the most successful funds, as a shareholder?

Was that your first shares, or did you have shares before?

Could you just ask a question? When you are here, you look at the car side and the phone technology. Generally, China is coming very fast. When you look at the competitive landscape going forward, over the next 10 years, who are you most afraid of, or who is best? Or is there so much geopolitics in China that that type of competitor is not the biggest threat over the next 3-5 years?

But then I think we have come to the end of this podcast. I say thank you very much to all of you. Thank you, thank you. Thank you from us.