Nordic Credit Rating (NCR) said today that it had assigned a 'BBB' long-term issuer rating on Norway-based Nordic Semiconductor ASA. The outlook is stable. At the same time NCR assigned an 'N3' short-term rating. NCR also expects to assign 'BBB' issue ratings to the company's long-term senior unsecured instruments.
Rationale
The long-term issuer rating reflects the company's strong balance sheet and low financial leverage. The rating also reflects the company's strong position in growing niche markets within wireless communication technology and the Internet of Things (IoT) in particular, including products that help monitor various kinds of environmental impact. Nordic Semiconductor has strong customer relationships with world-leading technology companies.
The rating is constrained by the semiconductor sector's historical earnings volatility. Although demand is currently strong, the semiconductor industry faces supply constraints of its main raw material (silicon wafers). This has resulted in Nordic Semiconductor's main supplier capping wafer allocation to the company, restricting growth. The rating is also constrained by the need to invest heavily in research and development (R&D) to maintain market share and customer relationships. We adjust our stand-alone credit assessment downwards by one notch to reflect the company's small size relative to the major semiconductor companies, which could affect its ability to develop new technologies in an R&D intensive sector.
Stable outlook
The stable outlook reflects our view that Nordic Semiconductor's financial leverage will remain low and that its niche markets will continue to grow rapidly, resulting in less cyclicality than the broader semiconductor market. Moreover, we believe that Nordic Semiconductor is working actively to reduce the risk of long-term undersupply of wafers. We therefore consider it likely that the company will meet its USD 1bn revenue target in 2023 while maintaining an EBITDA margin above 20%. We could raise the rating if secular growth of target markets leads to reassessment of the operating environment, or if increased economies of scale lead to EBITDA margins above 30%. We could lower the rating to reflect stronger competition from major semi-conductor companies in target markets, supply chain issues resulting in an EBITDA margin below 10%, or major acquisitions or other investments leading to net debt/EBITDA above 1.5x.
| Rating list | Rating |
|---|---|
| Long-term issuer credit rating: | BBB |
| Outlook: | Stable |
| Short-term issuer credit rating: | N3 |
| Senior unsecured issue rating: | BBB |
Contacts:
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@nordiccreditrating.com
Gustav Nilsson, analyst, +46735420446, gustav.nilsson@nordiccreditrating.com
The methodology documents used for this rating are NCR's Corporate Rating Methodology published on 18 Feb. 2022, NCR's Group and Government Support Rating Methodology published on 18 Feb. 2022 and NCR's Rating Principles published on 24 May 2022. For the full regulatory disclaimer please see the rating report.