SiTime Corp (SITM): One of my high growth diversified holdings
As a former investor in semiconductor companies years ago , i.e., Intel (INTC), QUALCOMM (QCOM), Texas Instruments (TXN), Skyworks Solutions (SWKS) and Qorvo (QRVO) among others, back in August 2020, I decided to revisit this sector, looking for and conducting my usual deep dive due diligence on promising small cap growth companies with disruptive cutting edge technologies. I discovered flying under the radar a fabless semiconductor company SiTime Corporation (SITM) that had gone public in a 11/20/2019 IPO and realized explosive growth in market cap and stock price. In August 2020, I took a starting position with SiTime Corporation (SITM) at $65/share and, subsequently, added to this holding.
Back on 10/2/2020, I decided to make a heads up post here primarily about SITM’s disruptive cutting edge technologies with clients like Apple and collaborations with companies like Intel. This post provided financial performance up to Q2 2020.
But in accordance with requisite board requirements, Saul responded: Sorry guys, but the ANNUAL revenues have been:
2017: $101 million
2018: $85 million
2019: $84 million.
2020: $43 million (first 6 months)
This is a story stock, a micro-cap, with flat to falling revenue, 47% gross margins, and consistent losses. This is NOT a high-growth stock at present and DOESN’T BELONG ON OUR BOARD.
Again, I’m SORRY, BUT THIS JUST DOESN’T BELONG HERE! Wait until they start doing something.
Although I expressed disagreement with the story stock comment (Apple and Intel would never conduct nor contract business with any story stock), but respected the other board requirements, I (not Saul) had TMF remove my original post and my replies and decided to wait for SiTime’s highly qualitative technological advances and potential to manifest in high growth quantitative results. Subsequently, I continued to vigilantly follow and invest in SITM, based on the company’s ensuing qualitative and quantitative results.
SITIME HIGH GROWTH FINANCIAL RESULTS
After 6 consecutive quarters including the latest SITM Q4 and FY 2021 showing substantial high growth in quantitative financial results, I decided to give another heads up post here about this company. Rather than start with what I normally do, i.e., first describe what a company actually does, I decided this time to take a backassward approach and start with an overall summary of what this board primarily focuses on, SiTime’s high growth quantitative results as follows: [Note: to date, the SITM 10K annual report has not be released, and Not Available (NA) is shown for missing data.]
**SITM Q4’19 Q1’20 Q2’20 Q3’20 Q4’20 Q1’21 Q2’21 Q3’21 Q4’21** REVENUE GROWTH • YoY change 22.9% 46.7% 35.5% 29.0% 43.4% 63.5% 107.2% 92.9% 88.1% • QoQ change 10.9% -22.6% -1.2% 52.1% 23.3% -11.7% 25.2% 41.7% 20.2% NON-GAAP Diluted EPS $0.16 -$0.14 -$0.14 $0.23 $0.42 $0.19 $0.46 $1.03 1.32 NON-GAAP MARGINS • Gross Margin 48.0% 46.1% 46.8% 52.1% 53.5% 54.1% 61.3% 66.9% 69.4% • Operating Margin 3.7% -8.7% -8.7% 13.8% 20.8% 11.0% 21.7% 34.9% 39.0% • Profit Margin 7.2% -9.7% -10.3% 13.5% 20.6% 10.8% 21.6% 34.8% 38.6% FCF Margin 7.1% 2.9% 10.0% 5.3% 10.7% 5.2% -7.7% 21.4% NA ROIC -31.1% -4.3% 18.1% -28.8% 14.6% 81.3% NA WACC 6.5% 6.6% 6.9% 7.6% 7.4% 7.5% NA EVA -37.6% -10.9% 11.2% -36.4% 7.3% 73.8% NA Market Cap $0.382B $0.328B $0.793B $1.423B $1.920B $1.858B $2.413B $3.892B 6.013B • QoQ change -14.1% 141.8% 79.4% 34.9% -3.2% 29.9% 61.3% 53.0% SHARE PRICE $25.50 $21.77 $47.41 $84.03 $111.93 $98.60 $126.59 $204.17 $292.54 • QoQ change -14.6% 117.8% 77.2% 33.2% -11.9% 28.4% 61.3% 43.3% • YoY change 338.9% 352.9% 167.0% 143.0% 161.4% • Change since Q4’19 -14.6% 85.9% 229.5% 338.9% 286.7% 396.4% 700.7% 1,047.2% • Change since 11/21/19 IPO closing price$18.65 36.7% 16.7% 154.2% 350.6% 500.2% 428.7% 578.8% 994.7% 1,468.6%
Here are the NON-GAAP financial numbers and percentages. The dash-line identifies where my 10/2/2020 post ended its coverage at Q2 2020.
**NON-GAAP MARKET GROSS NET Diluted SHARE** **SITM CAP REVENUE YoY QoQ INCOME YoY INCOME EPS PRICE** **FY/QTR ($ B) ($ M) Change Change ($ M) Change ( $ M) ($) ($)** FY 2021 218.808 88.4% 141.230 149.2% 64.591 3.05 292.54 Q4 '21 6.013 B 75.741 88.1% 20.2% 52.585 143.8% 29.220 1.32 292.54 Q3 '21 3.892 B 63.029 92.9% 41.7% 42.138 147.4% 21.911 1.03 204.17 Q2 '21 2.413 B 44.496 107.2% 25.2% 27,288 171.4% 9.624 0.46 126.59 Q1 '21 1.858 B 35.542 63.5% (11.7%) 19.219 91.6% 3.835 0.19 98.60 FY 2020 116.156 38.2% 58.683 48.2% 8.366 0.46 111.93 Q4 '20 1.920 B 40.274 43.4% 23.3% 21.565 59.9% 8.169 0.42 111.93 Q3 '20 1.423 B 32.667 29.0% 52.1% 17.033 40.2% 4.400 0.23 84.03 --------------------------------------------------------------------------------------- Q2 ’20 0.793 B 21.473 35.5% (1.2%) 10.053 57.7% (2.208) (0.14) 47.41 Q1 ’20 0.328 B 21.742 46.7% (22.6%) 10.032 32.2% (2.119) (0.14) 21.77 FY 2019 84.074 (1.3%) 39.594 9.4% (5.228) (0.63) 25.50 Q4 ’19 0.382 B 28.089 22.9% 10.9% 13.484 (1.9%) 2.012 0.16 25.50 Q3 ‘19 25.325 16.7% 59.8% 12.147 13.9% 1.079 0.11 Q2 ‘19 15.843 6.3% 6.9% 6.374 (8.9%) (5.449) (0.54) Q1 ‘19 14.817 (42.5%) (35.1%) 7.589 58.2% (2.870) (0.29) FY 2018 85.214 (15.7%) 36.205 (24.4%) (9.342) (0.93) Q4 ‘18 22.851 13.751 1.650 0.17 Q3 ‘18 21.694 10.662 0.296 0.03 Q2 ’18 14.911 6.995 (4.319) (0.43) Q1 ‘18 25.758 4.797 (6.969) (0.70) FY 2017 101.065 47.918 4.723 0.47
These percentages speak for themselves. Kudos, SiTime management!
**MARGINS GROSS OPERATING PROFIT GROSS OPERATING PROFIT** **(non-GAAP) (non-GAAP) (non-GAAP) (GAAP) (GAAP) (GAAP)** Q4 '21 69.4% 39.0% 38.6% 68.8% 26.6% 26.6% Q3 '21 66.9% 34.9% 34.8% 66.2% 21.7% 21.6% Q2 '21 61.3% 21.7% 21.6% 60.3% 4.7% 4.6% Q1 '21 54.1% 11.0% 10.8% 52.9% (9.8%) (10.0%) Q4 '20 53.5% 20.5% 20.8% 52.3% 5.2% 4.9% Q3 '20 52.1% 13.8% 13.5% 51.7% (1.7%) (2.0%) Q2 ‘20 46.8% (8.7%) (10.3%) 46.5% (24.5%) (26.1%) Q1 ‘20 46.1% (8.7%) (9.7%) 45.9% (22.3%) (23.4%) Q4 ’19 48.0% 3.7% 7.2% 47.9% 3.7% 2.3% Q3 ’19 48.0% 5.9% 4.3% Q2 ’19 40.2% (31.4%) (34.4%) FY 2021 64.5% 29.8% 29.5% 63.7% 15.0% 14.7% FY 2020 50.5% 7.9% 7.2% 49.9% (7.4%) ( 8.1%) FY 2019 47.1% (5.8%) (6.3%) 47.1% (5.8%) (7.9%)
While there is no generally accepted upper limit for SBC/revenue ratio, I prefer 10% or less. Although the SBC/ Revenue ratio has been trending downward, it still demands investor vigilance.
**PERIOD SBC Revenue SBC/Revenue** **($ M) ($ M)** Q4’ 21 9.361 75.741 12.4% Q3 '21 7.951 63.029 12.6% Q2 '21 7.601 44.496 17.1% Q1 ’21 7.400 32.667 20.8% Q4 ’20 6.178 40.274 15.3% Q3 ’20 5.067 32.765 15.5% Q2 ‘20 3.395 21.473 15.8% Q1 ‘20 2.974 21.742 13.7% Q4 ‘19 1.379 28.089 4.9% FY '21 32.314 218.808 14.7% FY ’20 17.738 116.156 15.2% FY '19 1.379 84.074 1.6% FY '18 0.831 85.214 1.0%
FREE CASH FLOW
To date, the 10Q for Q4 2021 and 10K for FY 2021 has not been released.
**Period ($M)** Q4 ’21 NA Q3 ’21 13.50 Q2 ’21 (3.41) Q1 ‘21 1.84 Q4 ’20 4.32 Q3 ’20 1.72 Q2 ‘20 2.16 Q1 ‘20 0.62 Q4 ‘19 1.50 Q3 ‘19 (1.16) Q2 ‘19 (0.18) FY 2021 NA FY 2020 8.81 FY 2019 4.18 FY 2018 (6.06) FY 2017 (5.20)
Since the SITM 10K for FY 2021 is not yet available, the ROIC-WACC spreads for Q4 2021 and FY 20021 cannot be calculated. For Q3 2021, SITM created an incredible 73.8 cents of pure economic value (EVA) for every dollar invested.
ROIC WACC EVA Q4 ’21 Q3 ’21 81.29 7.47 73.8% Q2 ’21 14.61 7.36 7.3% Q1 ’21 -28.79 7.64 -36.4% Q4 ’20 18.11 6.87 11.2% Q3 ’20 -4.30 6.62 -10.9% Q2 ’20 -31.09 6.54 -37.6% FY 2021 NA NA FY 2020 -14.92 6.87 FY 2019 -7.21
CAPITAL STRUCTURE as of 12/31/2021
SITM has a rock solid capital structure with substantial cash, substantial working capital, a very high current ratio and ZERO debt.
Cash & equivalents (mrq) $ 559.461 M Working Capital $ 588.558 M Current Ratio (mrq) 16.74 Long-Term Debt (mrq) 0 Stockholders’ Equity (mrq) $632.497 M LT Debt/Equity (mrq) 0
Also, since my 10/2/2020 post, due to its rapid growth, SiTime announced that the company, a leader in MEMS timing, will be added to the S&P MidCap 400® Index, effective prior to the opening of trading on Tuesday, November 30, 2021.
Q1 2022 & BEYOND GUIDANCE
Now what about Q1 2022 and beyond?
Here’s the guidance given by Art Chadwick – SITM Chief Financial Officer in the Q4 20021 Earnings Call on 2/2/2022:
“We expect 2022 will be another great year for the company. Our customers continue to book orders well in advance, giving us excellent visibility into the year. Market trends that require precision timing are stronger than ever, including growth in 5G, data centers, networking, automotive, medical, aerospace and other markets we serve. Given our backlog visibility, strong market trends and new product ramps, we believe we can grow revenue in 2022 by at least 35%.
As we have experienced in past years, we will see some seasonality in Q1. Revenue will be less than Q4, but substantially higher than the year-ago quarter. We expect revenue in Q1 will be approximately $65 million, plus or minus, which at that midpoint would be up 83% over the same quarter last year.
[my comment: this is why I prefer to follow y-o-y quarterly changes for this type of company.]
We expect Q1 non-GAAP gross margins would trend to a more normalized 65%, plus or minus, since we do not expect a repeat of the short-term high-margin business we had in Q4.
As I mentioned on our last call, wafer and other manufacturing costs will increase this year. For example, TSMC is raising prices by 20% or more across the board on the nodes we use. These increased costs will negatively impact gross margins by 2 to 3 points beginning in Q2. I’d like to offer a few additional comments about gross margins.
Longer term, gross margins should expand as new products become a larger portion of our overall sales since our newer products are generally higher performance, higher ASP and higher gross margin. However, in the meantime, we are targeting gross margins to be in the 60% to 65% range. We could be more aggressive on pricing and drive margins higher, but there are trade-offs between higher gross margins and top-line growth. Our intention is to find that right balance that keeps gross margins in the low to mid-60s while maximizing top-line growth.
For Q1, we expect non-GAAP operating expenses will be between $24 million and $25 million, up sequentially due to increased head count and beginning of the year payroll taxes. Basic share count in Q1 will be approximately 21.0 million shares. The dilutive effect of employee RSUs will add an additional 2.0 million shares, taking the total diluted share count to approximately 23.0 million shares. Based on this guidance, we expect first quarter non-GAAP EPS will be between $0.65 and $0.85 per share.”
The Q&A session at this earning call had the following highly informative revelation and discussion about managing the company’s gross margins and growth (with my emphasis in bold):
Q: Barclays Analyst Tom O’Malley: The first question is out of all the outstanding things you saw in Q4, the margins really stand out. You talked about some short-term business that was higher margin. You talked about TSMC raising prices with the 200- to 300-bp impact. But you’re guiding them down a bit more than that. Do you think that there’s some sustainability in the higher margins that you’re giving yourself some cushion on? Or could you just walk through the puts and takes of why this shouldn’t end up somewhere in the middle versus down a bit more sequentially? That would be really helpful to start.
A: CFO Art Chadwick: Q4 was an exceptional quarter. We had some short-term, very high-margin business that I don’t expect to continue into Q1. So that kind of brings the margins back to the mid-60s. If we were not expecting increase in wafer and other manufacturing costs, I think that would be kind of what we’d be looking at through the course of the year, somewhere in the mid-60s. And as I mentioned, we could push margins higher by being more aggressive on pricing, but we think that’s not the right trade-off here. We’re in high-growth mode. We want to continue to be in high-growth mode. So we’re going to maintain the right balance there. So that being in the mid-60s with the cost increases, that drops margins by a few points. And I think, that’s the right way to think about it. Now as we walk through the year, it’s very possible that we will get more high-margin business and margins could be higher than that. And what I also think is important, and I mentioned this in my script, is that longer term, we do expect gross margin expansion. We’ve got a lot of new products that we’ve recently introduced. We’ve got a lot of products in the pipeline. All of these products are much higher performance, generally higher ASP and higher gross margins than our current products. So as those new products become a larger and larger percentage of our sales going forward. And I’m talking next year, the year after, the year after that, the year after that, I would expect a general expansion of our gross margins. So those are kind of the puts and the takes, and we’ll update folks as we walk through the year.
Q: Credit Suisse Analyst John Pitzer:I just want to go back to your comments about increasing cost hitting gross margins starting in the June quarter. TSMC is raising pricing kind of across the board. We’re hearing that with many of their customers. But the vast majority of them are just being able to pass those costs along. I’m kind of curious, given that you’ve exhibited perhaps stronger pricing power than a lot of other chip players in calendar year ’21. Why all of a sudden, this is an issue this year and why you just can’t pass those cost increases along?
A: CFO Art Chadwick:There’s a couple of pieces to the answer there. First of all, these wafer cost price increases began at the beginning of the year. And so, we did not have to worry about that last year. I can’t speak to 2023 because we don’t know what will happen there.
But in 2022, wafer prices are going up, and they went up at the beginning of the year. You don’t see in our P&L in Q1 because essentially, the finished goods that we are selling in Q1 is coming from wafer as we bought in Q4. So that’s why it doesn’t impact Q1, but it starts impacting in Q2. And that’s a real cost increase, it’s solid, it’s real. So your question is, why can’t we increase pricing? We have increased some pricing. As I mentioned, we can increase pricing even more, but there’s that trade-off between increasing pricing to our customers and growth, and we’re trying to find the right balance there. And the 2- to 3-point decrease that incorporates some increased pricing. If you look at our wafer cost and other manufacturing costs going up 20-plus percent, that’s more than just 2 or 3 points. So the 2 or 3 points is kind of net of price increases that we’re anticipating. And that all customers will accept price increases. If you just look at some of our large customers, you can imagine how they would say, we are really not interested in that. So I don’t know if that helps answer that, but I tried to add a little flavor to it.
CEO Rajesh Vashist: I’ll add to that, that you said all of a sudden, I don’t think this is all of a sudden, we’ve been saying this all through that the sweet spot of our gross margin is a few points lower than this because I think it’s a very appropriate trade-off between growth and margins at the position that SiTime is right now in our history. I think, growth is paramount at very nice, very solid gross margins, and we’d like to sort of do that. We are – remember that we are single-sourced with a vast majority of our customers. And I think, that a partnership-oriented price increase is better off for the longer term than just purely passing it on to our customer just because they’re single sourced with us.
CFO Art Chadwick: I’ll just add a little math to this to help folks. If, for example, our material cost was 30% of revenue, right? That would be 70% material margins. And if our costs did go up 20% across the board for all manufacturing costs, that would be 6 points of margin. So my 2 to 3 points is kind of halfway in between. So that says that about half of that cost increase we are able to pass on and about half we’ve – we’re not passing on either by choice on our side or by choice on our customer side. Yeah, and I think, longer term, what is important, and I’ll repeat what I said earlier, our newer products are going to be much higher margin than our legacy products. So longer term, we do expect further gross margin expansion a year from now, two years from now, three years from now. And I think, that’s quite relevant to our long-term strategy here.
CURRENT FINANCIAL SNAPSHOT vs. 10/01/2020 SNAPSHOT
**SITM SITM** **Date 02/22/2022 vs. 10/01/2020** GICS Sector Information Technology GICS Industry Semiconductors MARKET CAP $ 3.744 B $ 1.478 B Employees 143 52-WK HIGH 341.77 88.51 PRICE/SHARE 182.14 88.51 52-WK LOW 75.81 13.00 Price change since 11/21/19 876.6% 374.6% IPO closing price $18.65 EV/Revenue (ttm) 15.03 13.63 P/S (ttm) 17.32 14.70
During this current pullback, it’s no surprise that SITM market cap has dropped to $3.7 billion from the $6 billion on 12/31/2021, the closing date of the most successful quarter for SITM.
Here’s the SiTime price/share over the recent past 52-week period.
Here’s a Big Charts exhibit, showing SiTime (SITM) substantially outperforming Intel (INTC) , Micron (MU), Broadcom (AVGO), Texas Instruments (TXN) and S&P 500 during the recent past 52-week period.
And here’s a big eye opening Big Chart exhibit, showing SiTime (SITM) superbly outperforming big time the big guys INTC, MU, AVGO, TXN and S&P 500 over the recent past 3 year period.
Next, what does this company actually do?
SITIME CORPORATION BUSINESS
Source: SiTime Q3 2021 10-Q filing (To date, the 10K report for FY 2021 has not been released)
We are a leading provider of silicon timing solutions. Our timing solutions are the heartbeat of our customers’ electronic systems, solve complex timing problems and enable industry-leading products. We provide solutions that are differentiated by high performance and reliability, programmability, small size, and low power consumption. Our products have been designed into over 250 applications across our target markets, including communications and enterprise, automotive, industrial, aerospace, and mobile, IoT and consumer.
We commenced commercial shipments of our first oscillator products in 2006. Substantially all of our revenue to date has been derived from sales of oscillator systems across our target end markets. We intend to focus on clock IC and timing sync solutions in the future. We seek to aggressively expand our presence in these two markets.
We sell our products primarily through distributors and resellers, who in turn sell to our end customers. We also sell products directly to end customers who integrate our products into their applications. Based on sell-through information provided by these distributors, we believe the majority of our end customers are based in the U.S.
We operate a fabless business model, allowing us to focus on the design, sales, and marketing of our products, quickly scale production, and significantly reduce our capital expenditures. We leverage our global network of distributors and resellers to address the broad set of end markets we serve. For our largest accounts, dedicated sales personnel work with the end customer to ensure that our solutions fully address the end customer’s timing needs. Our smaller customers work directly with our distributors to select the optimum timing solution for their needs.
We were acquired by MegaChips in 2014 and were a wholly-owned subsidiary of MegaChips, a fabless semiconductor company based in Japan and traded on the Tokyo Stock Exchange, until November 25, 2019. On November 25, 2019, we completed the initial public offering of shares of our common stock. On June 16, 2020, we completed a follow-on public offering, in which we issued and sold 1,525,000 shares of our common stock and MegaChips sold 2,500,000 shares of our common stock held by them. On February 22, 2021, we completed an additional follow-on public offering, in which we issued and sold 1,500,000 shares of our common stock and MegaChips sold 1,500,000 shares of our common stock held by them. MegaChips continues to be our largest stockholder and held approximately 31.2% of our common stock as of September 30, 2021.
We are currently experiencing a growth in demand for some of our products, however, there are a number of industry-wide supply constraints affecting the supply of analog circuits manufactured by certain foundries, including Taiwan Semiconductor Manufacturing Company, and affecting outsourced semiconductor assembly and test providers, which may limit our ability to fully satisfy the increase in demand. If we cannot ship our products to our customers on time and in the quantity required as a result of this supply constraint our sales could decline and we could lose customers. We believe that the effects of the industry-wide supply constraints on other timing device suppliers has contributed in part to our revenue and gross margin growth in 2021, however we may not be able to sustain these revenue and gross margin increases. It is not clear how long the industry-wide supply constraints will continue, or what the resulting impact will be on our gross margin and revenue when the industry-wide supply constraints resolve. For additional discussion please see Part II, Item 1A Risk Factors of this report, especially the risk factor titled “Our revenue and operating results may fluctuate from period to period, which could cause our stock price to fluctuate.”
Impact of COVID-19 on our Business
The future impact of the ongoing COVID-19 pandemic on our business remains unknown. In an effort to protect the health and safety of our employees, we took proactive actions and adopted social distancing policies at our locations around the world, including requiring employees to work from home (“WFH”) in certain locations, reducing the number of people in certain of our sites at any one time, and limiting employee travel. In an effort to contain the COVID-19 pandemic or slow its spread, governments around the world have also enacted various measures, including orders to close all businesses not deemed “essential,” isolate residents in their homes or places of residence, and practice social distancing. In addition, the United States and other countries in which we operate have imposed measures such as quarantines and “shelter-in-place” orders that restrict business operations and travel and require individuals to WFH, which has impacted all aspects of our business, as well as those of the third-parties we rely upon for our manufacturing, assembly, testing, shipping and other operations. The current and future spread of COVID-19 variants may cause the reinstatement of one or more of these measures.
We anticipate the global health crisis caused by the COVID-19 pandemic will continue to impact business activity across the globe and will continue to impact our business, employees and operations for the foreseeable future. We believe that the COVID-19 pandemic could cause delay and disruption in the manufacture, shipment, and sales of, and overall demand for, our products. In addition, we believe the production capabilities of our suppliers has been, and may continue to be, impacted as a result of quarantines, closures of production facilities, lack of supplies, or delays caused by restrictions on travel or WFH orders. For example, in March 2020, the government of Malaysia announced measures to restrict movement in that country to suppress the number of COVID-19 cases, which were extended until October 2021. These restrictions could limit our suppliers’ ability to operate their manufacturing facilities in that country. Any delay or disruption in the manufacture, shipment and sales of, or overall demand for, our products in turn may negatively and materially impact our operating and financial results, including revenue, gross margins, operating margins, cash flows and other operating results. Further, the resumption of normal business operations after such disruptions may be delayed and a resurgence of COVID-19 could result in continued disruption to us, our suppliers, and/or our customers. To date, we have experienced minimal impact from any supplier disruption resulting from COVID-19. The duration and full magnitude of the COVID-19 pandemic’s impact on credit and financial markets is also unknown, which creates uncertainty as to the financial condition of our distributors or customers. In addition, the deterioration in credit markets could limit our ability to obtain external financing to fund our operations and capital expenditures. We may also experience losses on our holdings of cash and investments due to failures of financial institutions and other parties.
We currently have employees, third-party contractors, distributors, and customers in numerous countries throughout the world that have each been impacted by the COVID-19 pandemic. The COVID-19 pandemic has restricted and is expected to continue to restrict travel and use of our facilities and the facilities of our suppliers, customers, or other vendors in our supply chain, which could impact our business, interactions and relationships with our customers, third-party suppliers and contractors, and results of operations. We cannot predict with certainty what other impacts the COVID-19 pandemic may have on our business, employees, service providers, customers and results of operations.
There remains a high degree of uncertainty in the global business environment given the impact of the COVID-19 pandemic which creates challenges with visibility beyond the near term. We will continue to actively monitor the situation and may take further actions altering our business operations that we determine are in the best interests of our employees, customers, partners, suppliers, and stakeholders, or as required by federal, state, or local authorities. It is not clear what the potential effects any such alterations or modifications may have on our business, including the effects on our customers, employees, operations, and prospects, or on our financial results for remainder of fiscal 2021 or beyond.
For those who prefer a quick look, here’s an excellent SiTime Investor Overview Presentation – The Heartbeat of Electronics SiTime is Transforming the World of Timing February 7, 2022
Eric Cuka, who is not a SITM investor, provides a narrative for the above SITM overview presentation and comments regarding “Can This Small-Cap Semiconductor Stock Be the Next 10x in Your Portfolio?” at this website:
I need to point out an erroneous statement by Cuka that SiTime “a small cap stock that invented MEMS.” No. For those interested, here’s an informative History of MEMS Primary Knowledge Participant Guide at this website.
Also, ibuidthings provided this excellent post here, “For those non electrical engineer readers, I will try to say what the MEMS technology is and why we care”:
Next, what’s up with the semiconductor supply chain?
As a fabless company, SiTime operates an outsourced manufacturing business model that relies on third parties for all of their manufacturing operations, including wafer fabrication, assembly, packaging, and testing. These parties include the following:
• 3rd gen MEMS
• Materials science expertise
• Proprietary MEMS process
• SiTime simulation tools
Taiwan Semiconductor Manufacturing Company aka TSMC
• 4th generation circuits
• Revolutionary temp sensors
• Low power, high performance
• Superior precision
Advanced Semiconductor Engineering, Inc. (“ASE”), Carsem (M) Sdn. Bhd. (“Carsem”), and United Test and Assembly Center Ltd. (“UTAC”)
• Semi packaging & integration
• Thermoelectric optimization
• Superior performance
On 4/3/2021, I made the following post at the Macro Economic Trends and Risks board: “Wendy’s Chips post continued”
Since many semiconductor companies were mentioned in Wendy’s Chips post and thread here, I thought it might be helpful to show the ranking of leading companies by sales in the following two categories and proffer additional comments.
Here are the top 15 semiconductor leaders, including foundries, ranked by sales (in million U.S. dollars) for 2020 forecasted out to year end at the following website:
**2020** **Total Sales** **Rank Company Country Type in $M** 1 Intel U.S. $ 73,894 2 Samsung South Korea $ 60,482 3 TSMC Taiwan pure play foundry $ 45,420 4 SK Hynix South Korea $ 26,470 5 Micron U.S. $ 21,659 6 Qualcomm U.S. fabless $ 19,374 7 Broadcom U.S. fabless $ 17,066 8 Nvidia U.S. fabless $ 15,884 9 Texas Instruments U.S. $ 13,088 10 Infineon Europe (a) $ 11,069 11 Media Tek Taiwan fabless $ 10,781 12 Kioxia Japan $ 10,720 13 Apple U.S. fabless (b) $ 10,040 14 STMicroelectronics Europe $ 9,952 15 AMD U.S. fabless $ 9,519 Top 15 Total $355,418 Notes: (a) includes acquired company’s sales in 2019 and 2020 results (b) custom processors/devices for internal use
The top-15 companies semiconductor sales are broken out into IC and O-S-D (optoelectronic, sensor, and discrete) device categories for 2019 and 2020. The forecasted 2020 top-15 semiconductor supplier ranking includes eight suppliers, headquartered in the U.S., two each in South Korea, Taiwan, and Europe, and one in Japan.
The semiconductor industry has been one of the most resilient markets during this corona-virus plagued year. Although causing a deep global recession in 2020, the COVID-19 pandemic spurred an acceleration of the worldwide digital transformation resulting in remarkably robust semiconductor market growth. In total, the top-15 semiconductor companies’ sales are forecast to jump by 13% in 2020 compared to 2019, slightly more than twice the expected total worldwide semiconductor industry increase of 6%. In contrast, in 2019, the top-15 semiconductor suppliers registered a collective 15% decline in sales. All of the top-15 companies are forecast to have semiconductor sales of at least $9.5 billion in 2020.
Apple is an anomaly in the top-15 ranking with regards to major semiconductor suppliers. The company designs and uses its processors and other custom ICs only in its own products—there are no sales of the company’s IC devices to other system makers. IC Insights believes that Apple’s custom ICs will have an equivalent “sales value” of $10,040 million in 2020, which would place them in the 13th position in the top-15 ranking.
The top-15 ranking includes pure-play foundry TSMC, which is forecast to register a strong 31% 2020/2019 jump in revenue. Much of TSMC’s increase is due to a surge in sales of its 5nm and 7nm application processors to Apple and HiSilicon for their respective smartphones. If TSMC was excluded from the list, Sony, with $9,243 million in expected 2020 semiconductor sales, would be ranked 15th.
Here are the top 10 leading semiconductor foundries worldwide by revenue from 2019 to 2021, by quarter (in million U.S. dollars).
The following ranks these foundries by total revenue for the year 2020.
**2020 Percent** **Total Revenue of Total** **Rank Company Country (in $ M) %** 1 Taiwan Semiconductor Manufacturing Company Ltd aka TSMC Taiwan $ 44,315 52.3% 2 Samsung Electronics South Korea $ 14,718 17.4% 3 United Microelectronics Corp aka UMC Taiwan $ 5,893 7.0% 4 GlobalFoundaries U.S. $ 5,785 6.8% 5 Semiconductor Manufacturing International Corp aka SMIC China $ 3,757 4.4% 6 Tower Semiconductor (formerly Tower Jazz) Israel $ 1,270 1.5% 7 Vanguard International Semiconductor Corp aka VIS Taiwan $ 1,182 1.4% 8 Powerchip Technology Corp China $ 1,165 1.3% 9 Hua Hong Semi China $ 928 1.1% 10 DB Hi Tek South Korea $ 782 0.9% Subtotal $ 79,795 94.3% Other companies $ 4,857 5.7% Grand Total $ 84,652 100.0%
My comments: With ongoing ominous threats to invade Taiwan, China could gain an alarming gigantic share of worldwide semiconductor foundry production by seizing and capturing intact Taiwan’s huge 61% of the global total semiconductor foundries revenue as shown for year 2020. Unlike Hong Kong, Taiwan has a standing military force albeit tiny compared to China that, nevertheless and most likely, will fight to repel any military invasion that, in turn, win or lose could not only seriously damage or destroy Taiwan’s manufacturing and industrial assets and production among others, but also incur a disastrous worldwide disruption in the semiconductor supply chain…
Top 10 foundries expected to increase revenues by 20%
Demand in the global foundry market remains strong in 1Q21, according to TrendForce’s latest investigations. As various end-products continue to generate high demand for chips, clients of foundries in turn stepped up their procurement activities, which subsequently led to a persistent shortage of production capacities across the foundry industry.
TrendForce therefore expects foundries to continue posting strong financial performances in 1Q21, with a 20% YoY growth in the combined revenues of the top 10 foundries, while TSMC, Samsung, and UMC rank as the top three in terms of market share. However, the future reallocation of foundry capacities still remains to be seen, since the industry-wide effort to accelerate the production of automotive chips may indirectly impair the production and lead times of chips for consumer electronics and industrial applications.
GIGANTIC RESPONSE & ACTIONS BY THE SEMICONDUCTOR INDUSTRY
In response to global semiconductor shortages and geopolitical and economic instability and ominous military threats, the following construction projects for semiconductor plants/factories are underway in the U.S.;
On 5/14/2020, Governor Doug Ducey announced that following a national search, Taiwan Semiconductor Manufacturing Company (TSMC) has selected the Phoenix, Arizona area for its new U.S. advanced semiconductor factory. The project will create over 1,600 new high-tech jobs and generate thousands of additional jobs in the state for suppliers and other companies within the semiconductor industry. TSMC’s total spending on this project, including capital expenditure, will be approximately $12 billion from 2021 to 2029.
The facility will utilize TSMC’s 5-nanometer technology for semiconductor wafer fabrication and have the capacity to produce 20,000 wafers per month. Construction is planned to begin in 2021 with production targeted to start in 2024.
On 3/2/2021, the Phoenix Business Journal reported that the Taiwan Semiconductor Manufacturing Co. plant in north Phoenix could end up being much bigger than originally announced, and the first phase will total 3.8 million square feet of buildings. TSMC purchased 1,128 acres along the 43rd Avenue alignment.
On 6/1/2021, TSMC announced that construction has begun at its Arizona chip factory site
Here’s an interesting read: Inside TSMC, the Taiwanese chipmaking giant that’s building a new plant in Phoenix, OCT 16 2021
Also relevant is this 6/4/2021 article addressing “Why Intel and TSMC are building water-dependent chip factories in one of the driest U.S. states”
Another excellent read, Intel’s Water Restoration in Arizona. To support Intel’s commitment to achieve net positive water use, we have funded more than 15 water restoration projects benefiting Arizona. Once fully implemented, these projects will restore an estimated one billion gallons each year. This page provides a summary of Intel-funded projects supporting Arizona’s water resources.
INTEL, Chandler, Arizona
On 9/24/2021, Intel broke ground on two new leading-edge chip factories at the company’s Ocotillo campus in Chandler, Arizona. In a groundbreaking ceremony attended by senior government officials and community leaders, Intel CEO Pat Gelsinger celebrated the start of construction on the largest private investment in state history and reiterated the company’s commitment to investing in U.S. semiconductor leadership.
Pat Gelsinger, Intel CEO stated:
“Today’s celebration marks an important milestone as we work to boost capacity and meet the incredible demand for semiconductors: the foundational technology for the digitization of everything. We are ushering in a new era of innovation – for Intel, for Arizona and for the world. This $20 billion expansion will bring our total investment in Arizona to more than $50 billion since opening the site over 40 years ago. As the only U.S.-based leading-edge chipmaker, we are committed to building on this long-term investment and helping the United States regain semiconductor leadership.”
INTEL, Columbus, Ohio
On 1/21/2022, Intel announced plans for an initial investment of more than $20 billion in the construction of two new leading-edge chip factories in Ohio. The investment will help boost production to meet the surging demand for advanced semiconductors, powering a new generation of innovative products from Intel and serving the needs of foundry customers as part of the company’s IDM 2.0 strategy. To support the development of the new site, Intel pledged an additional $100 million toward partnerships with educational institutions to build a pipeline of talent and bolster research programs in the region.
xAs the largest single private-sector investment in Ohio history, the initial phase of the project is expected to create 3,000 Intel jobs and 7,000 construction jobs over the course of the build, and to support tens of thousands of additional local long-term jobs across a broad ecosystem of suppliers and partners. Spanning nearly 1,000 acres in Licking County, just outside of Columbus, the “mega-site” can accommodate a total of eight chip factories – also known as “fabs” – as well as support operations and ecosystem partners. At full buildout, the total investment in the site could grow to as much as $100 billion over the next decade, making it one of the largest semiconductor manufacturing sites in the world.
Planning for the first two factories will start immediately, with construction expected to begin late in 2022. Production is expected to come online in 2025, when the fab will deliver chips using the industry’s most advanced transistor technologies. Ohio will be home to Intel’s first new manufacturing site location in 40 years.
In addition to Intel’s presence in Ohio, the investment is expected to attract dozens of ecosystem partners and suppliers needed to provide local support for Intel’s operations – from semiconductor equipment and materials suppliers to a range of service providers. Investments made by these suppliers will not only benefit Ohio but will have a significant economic impact on the broader U.S. semiconductor ecosystem. As part of today’s announcement, Air Products, Applied Materials, LAM Research and Ultra Clean Technology have indicated plans to establish a physical presence in the region to support the buildout of the site, with more companies expected in the future.
SAMSUNG, Taylor, Texas
On 11/24/2021, Samsung Electronics, a world leader in advanced semiconductor technology, today announced that it would build a new semiconductor manufacturing facility in Taylor, Texas. The estimated $17 billion investment in the United States will help boost production of advanced logic semiconductor solutions that power next-generation innovations and technologies.
The new facility will manufacture products based on advanced process technologies for application in areas such as mobile, 5G, high-performance computing (HPC) and artificial intelligence (AI). Samsung remains committed to supporting customers globally by making advanced semiconductor fabrication more accessible and meeting surging demand for leading-edge products.
Groundbreaking will be in the first half of 2022 with the target of having the facility operational in the second half of 2024. The Taylor site will span more than 5 million square meters and is expected to serve as a key location for Samsung’s global semiconductor manufacturing capacity along with its latest new production line in Pyeongtaek, South Korea.
The total expected investment of $17 billion, including buildings, property improvements, machinery and equipment, will mark the largest-ever investment made by Samsung in the U.S. This will also bring Samsung’s total investment in the U.S. to more than $47 billion since beginning operations in the country in 1978, where the company now has over 20,000 employees across the country.
After reviewing multiple locations within the U.S. for a potential manufacturing site, the decision to invest in Taylor was based on multiple factors, including the local semiconductor ecosystem, infrastructure stability, local government support and community development opportunities. In particular, the proximity to Samsung’s current manufacturing site in Austin, about 25 kilometers southwest of Taylor, allows the two locations to share the necessary infrastructure and resources.
EMD ELECTRONICS, Chandler, Arizona
On 1/11/2022, EMD ELECTRONICS, the North American Electronics business of Merck KGaA, Darmstadt, Germany, today announced a new factory in Chandler to manufacture equipment for its Delivery Systems & Services (DS&S) business. As part of the Level Up program, the $28 million investment will enable DS&S to capture and grow its gas and chemical delivery systems business in the targeted regions of North America and Europe, with supplemental capacity to supply Asia. The factory will operate on a new property in Chandler and has been secured with a long-term lease. The company expects to start operations in the new factory by the end of 2022. At full ramp-up, staffing levels will grow to greater than 100 total employees.
Governor Doug Ducey commented:
“Arizona is excited to welcome EMD Electronics’ new factory,” EMD Electronics’ Delivery Systems and Services expansion is a valuable addition to our state’s thriving semiconductor ecosystem, increasing manufacturing and transportation capabilities critical to the semiconductor production process. We look forward to continuing to grow Arizona’s unrivaled semiconductor supply chain.”
Source: SiTime Q3 2021 10-Q filing (To date, the 10K report for FY 2021 has not been released)
We currently depend on one end customer for a large portion of our revenue. The loss of, or a significant reduction in orders from our customers, including this end customer, could significantly reduce our revenue and adversely impact our operating results.
We believe that our operating results for the foreseeable future will continue to depend to a significant extent on revenue attributable to Apple, our largest end customer. Sales attributable to this end customer have historically accounted for a large portion of our revenue and accounted for approximately 20%, 23%, 45% and 36% of our revenue for the three and nine months ended September 30, 2021 and 2020, respectively. Revenue attributable to this end customer decreased in absolute dollars and as a percentage of revenue from 2019 to 2020 and increased in absolute dollars but decreased as a percentage of revenue from three and nine months ended September 30, 2020 to 2021. We anticipate revenue attributable to this customer will fluctuate from period to period, although we expect to remain dependent on this end customer for a substantial portion of our revenue for the foreseeable future. Although we sell our products to this customer through distributors on a purchase order basis, including Pernas Electronics Co., Ltd. (“Pernas”), Arrow Electronics, Inc. (“Arrow”), and Quantek Technology Corporation (“Quantek”), we have a development and supply agreement, which provides a general framework for certain transactions with Apple. This agreement continues until either party terminates for material breach. Under this agreement, we have agreed to develop and deliver new products to this end customer at its request, provided it also meets our business purposes, and have agreed to indemnify it for intellectual property infringement or any injury or damages caused by our products. This end customer does not have any minimum or binding purchase obligations to us under this agreement and could elect to discontinue making purchases from us with little or no notice. If our end customers were to choose to work with other manufacturers or our relationships with our customers is disrupted for any reason, it could have a significant negative impact on our business. Any reduction in sales attributable to our larger customers, including our largest end customer, would have a significant and disproportionate impact on our business, financial condition, and results of operations.
Because most of our sales are made pursuant to standard purchase orders, orders may be cancelled, reduced, or rescheduled with little or no notice and without penalty. Cancellations of orders could result in the loss of anticipated sales without allowing us sufficient time to reduce our inventory and operating expenses. In addition, changes in forecasts or the timing of orders from our customers expose us to the risks of inventory shortages or excess inventory. This in turn could cause our operating results to fluctuate.
Our end customers, or the distributors through which we sell to these customers, may choose to use products in addition to ours, use a different product altogether, or develop an in-house solution. In addition, the inability of our customers or their contract manufacturers to obtain sufficient supplies of third- party components used with our products could result in a decline in the demand of our products and a loss of sales. Any of these events could significantly harm our business, financial condition, and results of operations. In addition, if our distributors’ relationships with our end customers, including our larger end customers, are disrupted for inability to deliver sufficient products or for any other reason, it could have a significant negative impact on our business, financial condition, and results of operations.
I’m looking forward to reviewing the Customer section in the soon to be released SITM 10K Annual Report for 2021. After this release, I plan to contact SiTime Investor Relations for a current listing of all clients and collaborations, an update on patents and answers for some questions.
So far, I like what I see in SiTime’s ongoing strong financial performance and results, i.e., an up and coming high growth company, now operating in the black over the last six recent quarters with strong y-o-y high growth in quarterly revenue, substantial positive growth in non-GAAP net income, substantial increases in quarterly diluted EPS, improving positive growth in non-GAAP gross margins, operating margins and profit margins, positive growth in free cash flow, and a rock solid capital structure with substantial cash, substantial working capital, a very high current ratio and ZERO debt.
SiTime Corporation is another diversified holding in my family’s current portfolios that is easy for me to follow and fully comprehend. I hope my long post has been an easy read for those who got this far.
As always, conduct your own due diligence and decision-making.