Nordic Semiconductor Earnings: High Inventory Levels Hit the Firm; We Decrease Fair Value to NOK 127

Nordic Semiconductor reported poor fourth-quarter results, missing guidance for the second time this year. Sales were $108 million compared with guidance of $110 million to $130 million, with negative EBITDA of $6.9 million. It is the first time Nordic reported negative EBITDA since the first quarter of 2019. The outlook for the next quarter also looks bleak, with management estimating $70 million to $80 million in sales, a 30% sequential decline and a 50% year-on-year decline at the midpoint of $75 million. According to management, there is still too much inventory at its main distribution clients, so new orders for Nordic’s chips are getting delayed. Avnet, a U.S. electronics distributor and one of Nordic’s main clients, reported on Jan. 31 that it has high inventory levels that it expects will go down through the year. Although we expect Nordic’s situation will improve once inventories at electronics distributors go back to more normal levels, we are reducing our fair value estimate to NOK 127 as we adjust our medium-term forecasts. We now assume high-single-digit revenue declines in 2024 with breakeven profitability, followed by a strong recovery in 2025 that will result in margin expansion. We also assume Nordic won’t reach $1 billion in sales until 2028.