SITM - Introducing SiTime

All,

I have been on the board since Jan 2021 - what a journey and great learning experience. I am down by quite a bit from my ATH as well as from my initial investment.

I would like to bring a new company to board - SiTime (SITM). Let me start with some numbers before I describe the company.

Revenue


          Q1      Q2      Q3     Q4     Annual
2021	35542	44496	63029	75741	218808
2020	21742	21473	32667	40274	116156
2019	14817	15843	25325	28089	 84074
2018	25758	14911	21694	22851	 85214

YoY Growth


          Q1      Q2     Q3      Q4     Annual
2021	 63%	107%	93%	88%	88%
2020	 47%	 36%	29%	43%	38%
2019	-42%	  6%	17%	23%	-1%

Seq Growth


          Q1      Q2     Q3      Q4     
2021	-11.7%	 25.2%	41.7%	20.2%
2020	-22.6%	 -1.2%	52.1%	23.3%
2019	-35.2%	  6.9%	59.8%	10.9%
2018		-42.1%	45.5%	 5.3%

Okay, so far so good. Something went really wrong in Q2 2018, but they were not a public company then, so we do not know what it was. Some seasonality in Q1, but apart very strong growth

What about margin?

Gross Margin


	Q1	Q2	Q3	Q4
2021	54.07%	61.33%	66.85%	69.43%
2020	46.14%	46.82%	52.14%	52.32%
2019	51.22%	40.23%	47.96%	47.88%
2018	18.62%	46.91%	49.15%	60.18%

Okay, it is no MNDY - but pretty reasonable gross margin. Wait, how much are they burning in operations?

Net Income (non-GAAP)


	 Q1	 Q2	 Q3	Q4	Annual
2021	 3835	9624	21911	29220	64590
2020	-2119	-2208	 4400	 8293	8366
2019	-2870	-5449	-1079	 2012	-7386
2018	-6969	-4319	 296	 1650	-9342

Wait, what?
Net Profit Margin (non-GAAP)


	  Q1	   Q2	  Q3	 Q4	 Annual
2021	 10.79%	 21.63%	34.76%	38.58%	 29.52%
2020	-09.75%	-10.28%	13.47%	20.59%	  7.20%
2019	-19.37%	-34.39%	-4.26%	 7.16%	 -8.79%
2018	-27.06%	-28.97%	 1.36%	 7.22%	-10.96%

Okay, hopefully, I have your attention now for the big reveal.
It is not a SaaS company, this is a semiconductor company - SiTime stands for Silicon Timing.

Background Story
A very high-level intro of technology - every electronic component has a clock inside. The vast majority of the clock market is dominated by Quartz crystal based solutions. Quartz crystal technology has existed for over 70 years and dominated the clocking market.

MEMS is the technology that has disrupted audio market - virtually every microphone in electronics these days uses MEMS based sensors (look up Knowles).
MEMS is the predominant technology today for motion sensors which your phone uses to calculate how many steps you walked on one end, and satellites use on the other end.
MEMS is also used extensively in radio-frequency applications (look up Qorvo).

In 2005, SiTime was started as a MEMS timing company to disrupt the quartz crystal monopoly. At the same time, several other startups and large semiconductor companies (ADI, Silicon Labs) started building products for this market).
SiTime’s claim to fame was that no other MEMS timing companies survived. Fast forward 9 years, in 2014 SiTime was doubling their revenue every year and was acquired by Megachips - a Japanese semiconductor conglomerate for $200M (10x Revenue). In Nov 2019, Megachips decided to spinoff with an IPO.

Technology
MEMS stands for micro-electromechanical system. For MEMS based timing devices, you need to think about tuning forks made over a size of less than 0.5mm2 >> that is small

Over the years, SiTime has introduced a few innovations which set them apart:

  • MEMS sensors which did not vary with temperature (huge concern for quartz)
  • Increasing performance to beat quartz crystal performance by 10x, 100x or even 1000x in some cases.

In the beginning they went after replacing Quartz crystal based timing devices. However, over time they have aggressively abandoned low-margin high-volume markets and moved towards high-performance and creating new markets. This along with monopoly in MEMS timing market has given them very high pricing power and led to the impressive gross margins

Leadership
The founders are still around, but the company has been led by a non-founder CEO - Rajesh Vashist - since 2007. He has previously taken a wireless semiconductor company through the 2000 bubble and to a successful IPO.

I found him to be a very impressive leader, and even though he is not a founder - he is the largest individual shareholder.

https://www.innovatorsontap.com/podcast/the-philosophy-of-in…
https://www.youtube.com/watch?v=Nw0Tw-5WXT0
https://www.nasdaq.com/videos/tradetalks%3A-delivering-on-th…

Market opportunity
As per SiTime, this is a 8Billion TAM and they are currently only 2% of this TAM, so there is a huge market open. The investor presentation has been broken down well by a Seeking Alpha contributor, so I will not go there.

Investor presentation:
https://investor.sitime.com/static-files/a915b385-a26d-40c8-…
Analysis of investor presentation:
https://seekingalpha.com/article/4501042-sitime-sitm-terrifi…

Valuation
Market Cap $3.6Billion
P/S LTM 16
P/E LTM 55
Expected growth rate - SiTime is guiding for a growth of 35% YoY in FY 2022. This is hugely sandbagged and my simplistic modelling suggests that their YoY growth should be 90-95%.
Considering that their net margin is close to 40% in the past quarter - this makes the valuation very reasonable in my opinion.

Risks
The main risk I see is primarily on execution. But, I believe the culture in the company is very strong and the focus of management to go for high-value markets helps to differentiate.

SiTime is reporting tomorrow after hours. I have recently taken up a position ~10% of my portfolio.
Hopefully, this was useful - I look forward to feedback of others on the forum.

Thanks,
Gaurav

36 Likes

Thanks Gaurav! Great post. I haven’t dug up recent statistics, but one risk SiTime has is that Apple accounts for a large percentage of business (about 35% - 40%) as of July last year per the article below. So, the stock price can collapse if Apple decides to switch the supplier. Of course, this might be unlikely to ever happen. But you might want to keep this non-trivial concentration risk in mind.

https://seekingalpha.com/article/4453459-sitime-corporation-…

4 Likes

It has been pointed out to me offboard that SITIME has been brought to the board with some excellent posts by imuafool.

https://discussion.fool.com/sitime-my-high-growth-diversified-ho…

And an older thread where imuafool asked to delete his original post because SiTime did not yet experience the hypergrowth stage of 2020-21:
https://discussion.fool.com/sitime-on-a-tear-since-its-nov19-ipo…

imuafool goes much deeper into numbers to show the strong cash position of SiTime. So, please see their post if you are interested.

It is true that Apple accounts for a large percentage of the business. But, they have shown significant diversity. (https://investor.sitime.com/node/8536/html)

2021 22%
2020 40%
2019 35%

Quoting the CEO from Q4 2020 conference call:
We believe that in diversity there is strength and we believe SiTime is the most diverse semiconductor company to go public in the past decade. An example of that is that we have more than 300 applications across six segments. Looking back at incoming opportunities in '21, the industrial segment led in the number of new opportunities.

While the [Indiscernible] enterprise segment had the highest annual dollar value, which is more than double the next segment. Another aspect about the diversity of our business is that a unit price ranges from less than a dollar to hundreds of dollars in volume, depending on the application in use case. Our diverse pipeline consists of design wins that will go into production this year, next year, and as far out as 2024. In the longer term, there are several unique high-volume mainstream applications in the future, such as smart clothing, health monitoring, precision time and navigation, also called P&T, and Internet of Things or IoT. There are common themes in all these applications. Each of them requires higher precision, smaller sizes, reliable operations, again, in very tough or environmentally harsh conditions.

Admittedly not all the future applications will realistically materialize, but working in electronics industry - it is clear to me that their value proposition is solid, competition is virtually non-existent.

Pricing Power
If you were to look up MEMS - there are tons of different companies and use-cases of MEMS from motion sensors, RF filters and so on. However, in my research, it is clear that nobody combines MEMS based clocks with processing on a single chip as SiTime does. This combination of unique MEMS designing and processing gives them an incredible MOAT and the ability to go after the high-value market and pricing power.

To paraphrase the CEO:
There was a three year period when the revenues were flat, and they were the most miserable years for me. I couldn’t figure out why we were not doing better until it dawned on me that our value proposition was not strong enough. And when that became clear - we have gone after these high value markets

Clearly this is no SaaS - and I make no attempts for myself to equate yearly upgrade cycles of electronics hardware to recurring revenue. But, I found their growth rates to be good, their gross margins to be great, profit margins to be incredible . This was enough for me to take a position.

I hope this is helpful for some. If you have questions/feedback - please reach out to me off the board.

Thanks,
Gaurav

7 Likes

SiTime just announced brilliant quarterly results!

https://investor.sitime.com/news-releases/news-release-detai…

Revenue = $70.3M (up 97.7% YoY)
GM = 65% (up from 51% Q1 2021)
Net Income = $21.3M (up 455%)
Profit Margin = 30% (up from 10.79%)

QoQ Revenue growth:
Revenue is down 7% from Q4 2021, but there is a big seasonality in their Q1 performance

	  Q1	   Q2	  Q3	 Q4
2022	 -7.2%			
2021	-11.7%	 25.2%	 41.7%	 20.2%
2020	-22.6%	 -1.2%	 52.1%	 23.3%
2019	-35.2%	  6.9%	 59.8%	 10.9%

Profit Margin
Their profit margin of 30.3% in Q1 is amazing given the seasonality in their profit margin for Q1. This bodes very well for the rest of the year.


	  Q1	      Q2	  Q3	  Q4	Annual
2022	 30.30%				
2021	 10.79%	    21.63%    34.76%	38.58%	  29.52%
2020	 -9.75%	   -10.28%    13.47%	20.59%	   7.20%
2019	-19.37%	   -34.39%    -4.26%	 7.16%	  -8.79%

They do not provide guidance numbers in press release, so I will wait for the conference call. But, given the Q1 results - I expect guidance for full-year to be materially upgraded

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