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