An Update with Rajesh Vashist of SiTime

This week, Rajesh Vashist of SiTime came to talk about SiTime’s new product launch, Epoch. Rajesh has been on the newsletter/podcast before, and I loved our last interview. I hope you enjoy this interview as well.

Doug O’Laughlin: Hey, Rajesh.  It's nice to have you back on the newsletter. It's been a bit since we last talked, but I thought we might rehash the story for people new to SiTime. So, tell me about yourself. Tell me about SiTime. Tell me what you guys are focused on.

Rajesh Vashist: So good to talk to you again, Doug; it's been a while. SiTime is still the least understood story in semiconductors because timing is one of the least understood products or applications in semiconductors. Timing chips. They are the heartbeat of any system in any communications, processing, computing, or all of the above.

Timing is necessary, and SiTime makes timing chips. Our name is Timing. Si-Time. And we have decided to focus only on this $8-10 billion market. We're the only company focused exclusively on timing, and we're the only company focused exclusively on all aspects of timing.

That means that with the advent of more AI, more automated driving, the Internet of Things, 5G communications, and healthcare. Timing becomes increasingly important, and the market for our products is precision timing, which is, of course, very high-performance timing across many parameters. But the kicker is under tough environmental conditions, under conditions of heat, under conditions of airflow, under conditions of small size, low power, shock, and vibration. Performance with tough environmental conditions is where SiTime makes its mark, and we're the only company that is going for it. We invented precision timing.

DO: Let’s talk about precision timing and the difference between you and some of your competitors. I think people new to this story might not appreciate the big difference between what you do and what the market does. It’s distinct because you guys are the only player in MEMS, and everyone else is using legacy quartz. So, maybe let’s talk about MEMS and the benefits of MEMS. And why you guys are so well positioned in that space?

RV: Right. So, we have several differentiations. You alluded to one major one: quartz technology or the quartz crystal. We've heard those terms interchangeably for the last 70 years. Quartz crystal has been around for 70 years. Most of the $10 billion market is serviced by quartz. Quartz is the dominant solution. Quartz has put a man on the moon. It’s a good technology.

SiTime focuses on semiconductors, not quartz. That's the main point. Whenever semiconductors enter an application that is not using semiconductors, semiconductors do a superlative job in quality, reliability, performance, size, and manufacturing.

In other words, when you compare hard disk drives to flash drives, when you compare LEDs to incandescent light., semiconductors win. MEMS technology is solving hard timing problems. It's not necessarily taking market share away from quartz but going for applications that aren’t serviced well enough.

So think that the world I mentioned, AI and 5G and beyond, all of these will need SiTime's products. There's a very distinct difference between the two technologies. There’s also a distinct difference: quartz only goes for one portion of the market, the resonator oscillator. There's another portion of the market called clocking, which is a semiconductor technology. SiTime does all three of them, and that's again another distinction.

DO: That's a pretty good overview of the story. Maybe we can take a second here to talk about what's new. First, we can talk about market conditions, and then about your recent new product launch.

Since I last talked to you, it was the first quarter of inventory guide downs in this pretty drastic semiconductor correction. You finally have guided to the first sequential revenue quarter growth next quarter. So it looks like the worst is over. How do you guys see the demand on the other side? The lack of visibility into steady state revenue growth is where investors are probably most anxious and worried about the SiTime story.

RV: Right. So, I won't comment on Q3 because it's in our quiet period. But let me talk about the broader growth of SiTime. Our thesis is very simple. Our thesis is that if you believe in AI, ADAS, IoT, and 5G, then you've got to believe in precision timing and SiTime.

That’s all fine, but people want to know where’s the evidence. The evidence is our pole position. Four factors show our pole position. One is that our ASPs are average selling prices. Despite this big revenue decline, we continue to hold or grow our share.

The second is unlike the quartz-based solutions, with 40 players and providers of quartz solutions. These players from Japan, Taiwan, Korea, and China are all interchangeable; therefore, they're not single-sourced as a customer. SiTime has been an 80% single-source supplier for several years. In other words, it's a demonstration that our customers choose to use us even though we’re a single source to them, which is a great testament to the company's value proposition.

The third is that our design wins, which are the heartbeat of any semiconductor company. As you know, our design wins indicate our future potential, and our design wins continue to grow. Generally speaking, our quote activity, our quote/quotation activity, is growing. Our SAM, which is a served market, has been growing. We went public in 2019 with a billion dollars of SAM. This year, we'll exit with 2.51 billion of SAM. And by the end of 2024, we'll have $4 billion of SAM.

That's an astonishing position, A) of growth of SAM in four years, and B) of the fact that we have this much-served market that we can even access. That is an amazing statement. These four points, Doug, really point to the company's strength despite the slowdown. Despite the increased inventory at our customers primarily last year, we shipped more than they needed. This year, China is having some economic constraints. Meanwhile, networking, telecommunications, and data centers have been slow. So demand is somewhat down. So that's a 1-2 punch. The low from high inventory buildup and the lower demand. However, all that said, we expect that we get into positive territory in 2024.

DO: Perfect. Remind people how long it takes for these design wins to flow from orders to revenue and how long these design wins can be. For example, some of your first-generation products are still being sold despite being probably inferior to what you’re selling today. I think that might be helpful for investors to appreciate the longevity of design wins and the certainty of these design wins leading to SiTime’s revenue trajectory.

RV: So that's a good point. Another way of looking at the duration of design wins is the age of our products. SiTime, from the day it first introduced a product in 2008, has never end-of-lifed product. We've never had an end-of-life because we know there's always a use case for a product. It is inferior in performance, though it may be.

So we have design wins that go in the consumer business, which typically take about a year to a year and a half to go from when the engineers start looking at our product to when they start shipping. On the other hand, the longest ones are in military aerospace defense, where it might be two and a half years for design wins and another two years for production. Conversely, in the consumer business, new models come every year, so the model for this year will ship next year. And that will be it.

On the other hand, in the military, aerospace defense, the missile or the munitions or the space unit probably goes for ten years and keeps on shipping for ten years, and it's a point of stickiness. So, SiTime has a portfolio strategy because of the diverse nature of our business. We are diverse across applications, and we're diverse across use cases. So we can build a portfolio with both spurts of growth through the consumer piece and longevity of growth through the longer design win cycle and the longer life of the end product that we ship into.

DO: Perfect. Now, I want to shift to the opportunities ahead. The last time we talked, you discussed how networking is the biggest opportunity. Especially given the explosion of AI and 5G and all these new markets. Do you still see networking as the biggest opportunity? How long is the networking Design cycle for design wins and then maybe last? Let's touch on your new product launch because you guys are very excited about that.

RV: That's right. Networking telecommunications, enterprise, data centers, we lump that all in; we sometimes call it communication. Sometimes, we call it a networking business. Unfortunately, we don't quite have a great handle on what to call this. Still, it's essentially 5G, backhaul, long haul, mid haul, satellite communications, Microwave communications, and, of course, the Hyperscalers and AI.

So out of all the markets we have, this is the biggest market by far. By the end of 2024, I said earlier that this would be a four billion dollar-sized market for SiTime. The networking, telecommunications, and enterprise data center market is $1.2 billion. The other great part is that the prices or ASPs are high. The gross margins are high. The stickiness or the longevity of the design win is high, and it's an architectural move by companies like Ciena, Cisco, and Ericsson or on the hyperscaler side like AWS, Google, or Meta.

The fact is that we have resonators, oscillators, and clocks, and they come together in a solution for the customer, uniquely different solution from anybody else. Many others are in the pipeline, like our product Cascade, which goes with our elite product line. Or our Elite X line and the recently launched Epoch product line. This is a 1 + 1 = 3. A full system play into the market and gives us much customer traction. Because, again, the timing solutions are getting increasingly difficult, and SiTime loves to solve tough timing problems.

DO: So let's talk a little about Epoch, because I think it's interesting how different it is from your single-timing solution like Cascade. In the press release, you talk a lot about holdovers and smaller sizes. I'm curious about holdover because, to my understanding, it is how long a frequency without another reference frequency can hold. And then, on size, SiTime has already been the leader in shrink. Is this a new, smaller form factor compared to other products that you've had? And then I'll probably have even more questions about Epoch.

RV: I'm going to get a little geeky in using terminology very specific to timing. The lowest level of performance measured by the stability or holding a particular frequency at a particular frequency fidelity is called an XO.

X stands for crystal, and O stands for oscillator, so it is a crystal oscillator. The second higher one is TCXO. In other words, it's still an XO crystal oscillator, but temperature compensated. The 3rd and final one is called an OCXO, which is also still a crystal oscillator, but now it's an oven control and more on that in a second.

Now, this is SiTime’s second big foray into the OCXO. We've had a product we call Emerald in the past. We call it OCXO, but we are not crystal. We didn't want to change the terminology even though we're not crystal; we just adopted it. So, this is our first OCXO solution engineered from the ground up. It's been several years in the making. And we've given it an apt name. Epoch, it's the dawning of a new age. It's a dawning of a new product class in the OCXO timeframe.

So, the O in OCXO refers to the oven creating a constant temperature. In the constant temperature, the oscillator gets to keep its particular frequency. So because of that, if you look at the size of the current OCXO, which is not from SiTime, they're quite huge. SiTime has always been in the business of trying to make it smaller. Because A) we're highly integrated semiconductors and B) we don't need much of the technology that has gone for the last 50 years into OCXO.

So, we are dramatically smaller than the current OCXO. It's a new form factor in the OCXO product line. It's about a ninth smaller size, and we are dramatically smaller.

The holdover concept is one in which a typical OCXO depends on a GPS source, which is an atomic clock source for connecting time to time and getting the most accurate time from the GPS signal. The point is that power that fuels the box is never 100% reliable, so there is no GPS signal in the absence of power. There is no outside reference, and therefore the system then relies upon the time that the OCXO keeps.

At this time, the fidelity of that time is measured in hours; about two, maybe four hours is the state of the art. This area has a lot of hyperbole, but it's no more than two to four hours. SiTime is coming out within eight hours and, in some conditions, a twelve-hour hold-over period. So, it's a real change in the reliability of the end system if it can go twice as long or three times as long without power.

The other part of this is that the OCXO supply chain is very messy. It's a very long supply chain. It's not meant for predictably producing products, you know in, in, in millions or hundreds of thousands year after year. Our solution? Given that's a 100% semiconductor solution, we simplify the supply using our innovative MEMs technology. So, these three things are absolutely important to the market. We'll keep talking about this product for a long time because it has many aspects in many different markets.

DO: I have the I have the dimensions here. It looks like it's 9 millimeters by 7 millimeters by 3.73 millimeters. And just for context, you know, you look at OCXOs, we're talking products that cost hundreds of dollars, 20 millimeters in size. It's a much larger timer. This seems to be extremely competitive.

Listeners might not appreciate it in semiconductor packaging; what we want to do is shrink it, to move all the parts closer together and with lower energy.

RV: We are a sort of low-key company. We let the product talk, but in this case, it is unique.

DO: So could you give some examples of how you've enabled customer success like people, you know, like lowering the time to market or being flexible in redesigns? The tangible results of how you enable customers often help make the story much better.

RV: Doug, this theme runs through all SiTime’s products and back to the 80% sole source. You can imagine that customers have been buying from 40 vendors of crystal technology. You have to ask yourself why it is that in a 70-year-old business, there are still 40 players. There are 40 players because they're unable to satisfy the demands because they either cannot manufacture enough, or they manufacture different sizes, or their supply chains are not generally reliable.

For SiTime to have 80% of its business come from a single source, it's a testament to the integrity of the supply chain. We have two different chips, and Epoch consists of these two different chips. One is, of course, our classic analog chips, made in 180 nanometers at TSMC, which is our sole foundry for these. The other is Bosch, a leader in different kinds of MEMS, in accelerometers and gyros. For the last 15 years, we have had an extremely close relationship with them in Germany, where they manufacture these parts solely for us using our proprietary technology.

So SiTime’s proprietary technology in MEMS allows us to bring 100,000 die per one wafer, which is an enormous amount of die. Typically, chips have 5,000, 2,000, 10,000, and some of the AI chips had two, two, or three times per wafer. With 100,000, you can imagine, die per wafer, and we can do a billion units of MEMs-based products with only 10,000 wafers.

That's a tremendous amount of scale. And on the TSMC side, on the analog side, it's a well-known story for analog companies that they can go and scale very quickly. So SiTime uses multiple chips in this product, analog and MEMS, and we have architected a better solution across eight different parameters. It's better in seven parameters.

So, there are seven parameters that it's better at, not just with one competitor but with the entire industry. So, different companies are better at some of these things, like aging or startup time or size or height. But SiTime is bigger than the whole as if we took the best of everybody and compared ourselves to the best of every product. We came out seven out of eight better, and on one, the eighth one, we were equal in the stability over temperature.

So, we're talking about holdover, footprint, height, low power, aging, warm-up time, and air flow-based stability. We're not better by 5% or 10%, but we are multiples better than our competitors. That is why we call this product Epoch.

DO: That makes that makes sense. This has been multiple years in the making for SiTime, right?? But at the same time, there are also new products in the pipeline. There’s a big difference between the mature quartz ecosystem and SiTime. At the same time, Quartz has had 70 years to reach technological maturity.

We know that the road map for MEMS is even longer. That's pretty compelling if you ask me. What other parts of the story do you think people following your story should focus on?

RV: Some things we do are very much translatable into non-timing markets. SiTime is a signal integrity company, and signal integrity is used in many ways. It's used in Serdes. It's used in retimers. But many of those markets are ahead of us, maybe in four or five years.

We think today we have a unique opportunity to focus on this one market where we're unique because nobody else is focused exclusively on timing. Even Quartz players, for example, Epson or Kyocera, do other things.

SiTime is the only company to do clocking and frequency products, such as resonators and oscillators. And so that gives us a unique ability to be a full-line systems provider to our customers and solve their tough timing problems. And timing has gotten more difficult since the time we started doing this. It's become way more difficult with the advent of these use cases.

I think it's a real service we provide our customers, which we didn’t use until 20 years ago. If you talk to a large company, they have a half dozen timing experts.

In the case of 1 particular company that shall go unnamed but the name you'll recognize in the networking communication space, one of our experts talked to 10 people in their team for five hours over one metric called jitter. Because jitter alone is so complex. SiTime gets to help our customers educate our customers and then serve our customers to take this timing headache away from them and deliver them the best solution.

DO: Part of this is because some customers don't have a historical semiconductor background, right? The big tech companies become much more vertical; for example, Tesla called out MEMS resonators for their Dojo chip. One of the frequencies of the cores was interfering with one of the frequencies of the timing solution. And so they had to redesign it.

The benefit of MEMS is that you can press a button and change the frequency. That's very compelling, especially on the networking side, because networking is getting harder as we go from 800G to 1.6T. The precision is really important.

RV: And it's moving everywhere. The other day, we came across an application with an air conditioning unit with 600 gigahertz radar to tell when the room was empty. SiTime’s solution is used there and can make it better at judging the occupancy, which would contribute to ameliorating the effects of global warming.

DO: I think we should talk about power efficiency because when I first started learning about quartz versus MEMs, I wasn't completely sure if it was a power performance difference. Is there?

RV: I think there are two examples. One is what you put your finger on, which is lower consumption by our chip versus another quartz-based chip. And there, for example in this example of Epoch, we're three times lower power. So that's the sheer consumption of our power.

But you know that is in terms of milliwatts, right? Milliwatts are important, but Watts is even more important. So, let's talk about another use case where we are important in lower power consumption because our products can withstand heat, be placed anywhere on a board, and still have high-integrity clocks.

Because of that, the larger chip we are next to could be a modem chip. It could be a power management IC, or an FPGA; that chip can go to sleep and save its power because it depends upon our clock; it depends upon our chip to wake it up and make and allow it to go to sleep more importantly when it's not being used. So, this is a bigger saving. Sometimes, it can be measured in watts and sometimes in battery power.

So there are two benefits of this, and both of them are generally combined; we know that power consumption for anything, whether it's a watch that sits on your wrist or even a satellite that's going around in space, is very important. It's very important because the more heat that's generated inside the system. Many of these systems do not, cannot afford to have fans. They cannot afford to have an exhaustion system. Sometimes, next to the chip, the temperature can get up to 120 degrees C, even 150 for a fraction of a second. Quartz crystal will have a greater movement of frequency than SiTime. We have some examples of that on our website where we showcase that.

DO: Perfect. That's a perfect explanation. It was focusing on the package's macro instead of the chip's micro. It makes the designing a lot easier. That's very helpful. Rajesh, I think this is wrapping it up. Thank you for introducing your new products. Anything else you want to say before we hit the road?

RV: No, thank you so much. I think it's great that the story of SiTime is coming out. As I said at the beginning, some people look at it and ask, how could such a great story be? Where is the fly in the ointment? And my only answer is that people don't know yet about us. We're still a young company. We're comparing ourselves to a 70-year-old technology. It takes us a little while to get the message out. So, thank you for helping us and getting the message out because, in the end, it helps our customers.

DO: Thanks for for coming on, Rajesh. I'll probably talk to you sometime in the next year. I'm looking forward to all the updates.

RV: Thank you. Take care. Bye bye.

DO: Take care. Bye!

That’s it for this week. I’ll have a more detailed update when earnings come out. SiTime looks expensive, but its continued execution and design wins should support the company in the coming years. Until next time! If you enjoyed this, consider subscribing to the newsletter!

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