SiTime Corporation
Q4 2020 Earnings Call Transcript

Published: 3 Feb 2021

[Operator:]

Good afternoon, and welcome to SiTime’s Fourth Quarter 2020 Financial Results Conference Call. As a reminder, this conference call is being recorded today, Wednesday, February 3, 2020. I would now like to turn the call over to Leanne Sievers of Shelton Group Investor Relations. Leanne, please go ahead.

[Leanne Sievers:]

Good afternoon, and welcome to the SiTime’s fourth quarter and full year 2020 financial results conference call. On the call from SiTime are Rajesh Vashist, Chief Executive Officer; and Art Chadwick, Chief Financial Officer. Before we begin, I’d like to point out that during the course of this call, the company may make forward-looking statements regarding expected future results, including financial position, strategy and plans, future operations, the timing market and other areas of discussion. It is not possible for the company’s management to predict all risks nor can the company assess the impact of all factors on its business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. In light of these risks, uncertainties and assumptions, the forward-looking events discussed during this call may not occur, and actual results could differ materially and adversely from those anticipated or implied. Neither the company nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements.

[Rajesh Vashist:]

Thank you, Leanne. Good afternoon and thank you to all of those joining us in today’s call. SiTime continues to execute well. The last quarter Q4 2020 was another record with $40.3 million in revenue, which was above our updated guidance, which we provided on November 24. This revenue represents an increase of 23% sequentially and 43% year-over-year driven by the broad-based growth across all three of our end markets. For the full year 2020, the total revenue grew by 38% over 2019 driven by increasing value and our consistent execution. In 2020, we also completed another milestone. We surpassed 2 billion units shipped cumulatively. Art will discuss our fourth quarter financials and first quarter 2021 outlook later in the call. We continue to focus on the communications and enterprise infrastructure market, where timing performance is critical and our products solve difficult timing problems. We have one 30 new designs and a variety of applications such as ORAN, Remote Radio Head, servers, optical modules, switches and routers. Our ability to deliver superior environmental resilience and higher reliability was instrumental in winning these designs. More specifically, the rapid increase in bandwidth is driving data center, optical modules to move from 100G to 400G. Here, we are seeing many design wins with our recently announced 9501 – the SiT9501 product. We’ve also engaged with standards bodies and chip set vendors that are working on the next-generation of 800-gig optical modules.

[Art Chadwick:]

Great. Thanks, Rajesh and good afternoon everyone. During my review today, I’ll discuss fourth quarter 2020 financial results and provide some guidance for the first quarter 2021. I’ll focus my discussion on non-GAAP financial results and refer you to today’s press release for a detailed description of our GAAP results as well as a reconciliation of GAAP to non-GAAP results, which for us exclude stock-based compensation and related payroll tax expense. So to begin with the fourth quarter was a record quarter on multiple fronts. We had strong revenue growth, continued gross margin expansion and record non-GAAP net income. We increased revenue guidance mid quarter and actual results exceeded that mid quarter guidance. Revenue for the quarter was $40.3 million up 23% sequentially and up 43% over the same quarter last year. Revenue for the full year was $116.2 million, up 38% year-over-year.

[Operator:]

Thank you. Our first question comes from Tore Svanberg with Stifel. You may proceed with your question.

[Tore Svanberg:]

Thank you and congratulations on the very strong results. The first question is on communications and enterprise. Rajesh, you talked about 30 new designs. Is there any way you could talk a little bit about the timing and when those will start ramping into production?

[Rajesh Vashist:]

Yes. Tore, thank you. We are ramping up on these right now. It’s a slow ramp. It’s not an overnight ramp. And as we have discussed in past calls, they’re not all just pure play 5G, some of them are satellites, some of them are computing, some of them are in the networking area. And so as such the ramp is spread out over time. It’s not typically like communications that it takes 18 months for these to ramp up. So I would say that they’re ramping through 2021 into 2022.

[Tore Svanberg:]

Understood. And you talked a little bit about 400-gig optical modules and that being an opportunity based on our work that market’s going to start renting quite meaningfully in the second half of this year. Would that be sort of would you expect those design wins to start rapping?

[Rajesh Vashist:]

Probably middle of next year is my forecast because these – a lot of work that we’re doing with the future of standard bodies, I think they’re still in work. They’re still in flux. There’s still some details that are need to be ironed out. So I would say about a year from now, maybe slightly more, but around a year from now we should start to see some of the rollouts.

[Tore Svanberg:]

Great. Just one last question for Art. Art, your inventory days are at 60 days, pretty low, but I think all companies now have low levels. Could you walk us through a little bit, how you expect to increase your capacity – your inventory throughout the year?

[Art Chadwick:]

Sure. Our inventory, as I mentioned in my commentary actually went down during the quarter, even though sales went up, of course, those two are somewhat related. We will start to build inventory back up during the course of 2021. So you should expect it to increase in Q1 and beyond. We are ordering ahead on wafers, both MEMS and our CMOS wafers, so that we do have adequate supply to satisfy this pretty strong demand that we’re seeing certainly in the first half of this and hopefully for the entire year.

[Tore Svanberg:]

Sounds good. Congratulations again.

[Art Chadwick:]

Thanks.

[Operator:]

Thank you. Our next question comes from Quinn Bolton with Needham & Company. You may proceed with your question.

[Unidentified Analyst:]

Hi guys. This is Michelle on Quinn. Thanks for taking the question and congratulations on the nice results. So my first one in terms of the positive revision to the December quarter guidance, can you just walk us through what changed within the few weeks after you provided your guidance for the fourth quarter on your September earnings call? And just any color there on what drove the upside would be helpful?

[Art Chadwick:]

Are you talking to the upside from when we gave guidance in early November Q, later November or from later November until now?

[Unidentified Analyst:]

Yes, exactly. Just I guess, the overall, but both time periods would be helpful.

[Art Chadwick:]

Sure. So I’m actually going to walk us back to Q3 for a minute because it’s the same trend that we saw in Q3. Going into Q3, we provided guidance, we’ve had pretty substantial sequential revenue growth going from Q2 to Q3. So we felt good about that. We gave that guidance. Order rate just was extremely strong through the course of Q3 and we increased our guidance at the end of August because of that. And we ended up beating that number. Kind of the same scenario going into Q4. We raised our number going into Q4. Order rate has been extraordinarily strong. We had by far the largest record bookings in Q4 than we’d ever had by a large margin. And so we did raise guidance at the end of November and we beat that modestly by the time we finished the quarter. So I attributed to basically overall strength in our market. And again, order rates have been extraordinarily strong for us.

[Unidentified Analyst:]

Great. That’s helpful. Thank you. And for my follow-up with the supply chain issues that have taken place last year in the quartz industry. Is that leading your customers to change how they view and assess the diversity within their supply chain? Just kind of wondering if there’s any opportunities for you guys just based-off of customers trying to diversify more away from these quartz industry?

[Rajesh Vashist:]

Yes. So we had a very specific event that we talked about earlier, which was a constriction in the supply of quartz. That was of course a kind of a very short-term event, but it was very pronounced. But what it led to was many of the consumers of the quartz products did not, for example, know that they were – for example, they may have been getting products from five different vendors of quartz, but they did not know that the analog component was coming from one factory. So what looked like a diversification was really all coming to them. So I think it was a bit of a wake-up call for some people in the industry. And so there was a short-term impact and then there was a longer-term impact. And the long-term impact I think, is going to continue for awhile. If you overlay on top of that, a general tightness in the semiconductor industry then you have a situation where it’s a little bit of a perfect storm. And as Art has already indicated, we had a very, very good booking quarter in Q4. And we were a little bit cautious in making sure that there weren’t any double bookings going on. And we’re pretty satisfied that there were none or none that made it through to our system. But of course, you never really know. But in general, I think we’ve been very assiduous in making sure we have a very clean booking overall. The other thing I’d point – I’ll also make is that we are – we do solve tough timing problems. We are not a commodity supplier. So we do charge a premium. So as such those who use our products recognize the value of our product, whether it’s in performance or in supply chain or in quality. And so they tend not to move away once they adopt the SiTime solution.

[Unidentified Analyst:]

Yes. Okay. That’s really helpful. Thanks again, guys and congrats once again, on the next quarter results.

[Art Chadwick:]

Thank you, Michelle.

[Operator:]

Thank you. Our next question comes from Suji Desilva with ROTH Capital. You may proceed with your question.

[Suji Desilva:]

Hi, Rajesh. Hi, Art. My congrats to all the strong 2020 there. Following up on the last question about the ordering and visibility. Can you talk about – if I missed this already, the lead times you’re going to customers and whether you’ve been able to keep them under check by ordering wafers aggressively?

[Rajesh Vashist:]

Yes. I think one thing we have done is we’ve sort of played it wisely for the company both ways, while we have been very good at ordering and giving our supply chain a lot of transparency into our needs. I think we’ve done a very good job of that, whether we’re dealing on our MEMS wafers or a TSMC wafers, or indeed the backend. We’ve also gone the other way a little bit and make sure that we tell our customers and our distributors that lead times are in fact going up because I don’t think there’s any walking away from that fact that lead times have gone up because there is a tightness, a lot of our products come from TSMC, 180 nanometers, which is one of the biggest capacity that they have at TSMC. But it’s also one of those that is very popular. And so we have recognized that as a continuing trend through this year 2021 and maybe went into 2022 and perhaps even beyond that. So we have quoted longer lead times, but they are well within customers requirements and we do a good job of managing that.

[Suji Desilva:]

Okay. I appreciate you working through the same challenges the whole industry is. And then Art you talked about this already, the first quarter outlook. Can you talk about what that is by segment just to get some color around the guidance?

[Art Chadwick:]

So, I’m not going to refine my guidance that precisely for Q1, but what I will say is the decrease from Q4 to Q1 is all in the mobile IoT and consumer space. We’re expecting segment growth in industrial and comms and enterprise going from Q4 to Q1. And the decrease in mobile IoT and consumer that is just kind of our normal seasonality. And it’s even less seasonality than we’ve seen in past years.

[Suji Desilva:]

Okay. Last quick question perhaps for Rajesh. What you think the…

[Art Chadwick:]

I was just going to add one thing to that. Sorry, our largest customer, as I mentioned in my discussion was about 48% of our sales in Q4. Based on my current internal forecast that drops to probably about 35% of total sales in Q1 plus or minus. So you can see what’s decreasing from Q4 to Q1 kind of based on those numbers.

[Suji Desilva:]

No, that’s very helpful, Art. And then last quick question for Rajesh. In optical, it’s impressive you’re winning there. What are the factors that are helping you win design? Do you think versus the competition as that market starts to come online?

[Rajesh Vashist:]

Yes. I mean, it’s a very specifically, it’s the bandwidth, but it’s bandwidth with size and temperature. So I think those are very, very important pieces in there. And the fact that we have also performance factors like jitter and stability to go with it. I think it’s – I’m very gratified with that win – those design wins because the product was introduced relatively recently last year, I think around the Q3 timeframe and has done very well for us. And we’re very happy with it. It continues to do well.

[Suji Desilva:]

Great. Thanks.

[Art Chadwick:]

Great. Thanks Suji.

[Operator:]

Thank you. Our next question comes from Alex Vecchi with William Blair. You may proceed with your question.

[Unidentified Analyst:]

Hey, this is Jake on for Alex. Congrats on the great quarter. So you talked a lot about ordering add-on wafers and some other materials. Just curious if you have any view on the impact of the supply constraints on the gross margin trajectory in both the near and kind of longer-term?

[Rajesh Vashist:]

Well, we think there may be in future. We haven’t seen anything yet. But most of our gross margin is pretty – it’s not based on – our increase in gross margin is not based on either increasing prices because of shortages or a decrease in gross margins because of costs from our supply chain. But I think it’s possible that in future the increasing cost may happen, but we have no evidence of it. It’s just that we are careful that we’re a new territory here because I think this is not quarter or two quarter or one year shortage. I think this is sort of a secular shortage because people forget that semiconductors are desperately needed for all the ADAS, all the automotive, the 5G, the healthcare, the computing all of that. And I think this is a wonderful renaissance time, wonderful golden period for semiconductors in general. So we have our eye on supply chain. But as of now, unlike some people that we have heard anecdotally, we are not raising any prices.

[Art Chadwick:]

Yes. So Jake, I’ll add to that also. Just to make it clear, the gross margin expansion that we have had and that we expect to continue in 2021 is not coming from reduced wafer pricing at this point. The gross margin expansion is coming from new products, which generally have higher ASPs, higher gross margins and as that becomes a larger percentage of our sales, that increases gross margin. We’re starting to take more sales direct. So that bypasses the distributors, that improves gross margins, we get great leverage on our manufacturing overhead, as overall sales go up and we’ve got a number of other initiatives. Internally, we’ve got a list of 10 initiatives that we are working on that have expanded our gross margins and that we expect will continue to expand our gross margins.

[Unidentified Analyst:]

That sounds great. Thanks for the color. Congrats again, on the great quarter.

[Art Chadwick:]

Thanks, Jake.

[Operator:]

Thank you. And I’m not showing any further questions at this time. I would now like to turn the call back over to Art Chadwick, for any further remarks.

[Art Chadwick:]

Great. Well, if there are no further questions, we will conclude the call this afternoon. I want to thank everybody for joining us today. Have a great afternoon. Thank you.

[Rajesh Vashist:]

Thank you, guys.

[Operator:]

Thank you. Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.