Today’s newsletter is an interview with Rajesh Vashist, CEO of SiTime. I’ve written a bit on SiTime, first an overview of the timing market and a piece on SiTime specifically. Today I got Rajesh to talk about SiTime’s history and opportunity. This interview is lightly edited for readability, but the audio file is above, and I’ll be publishing the interview on podcasting platforms and YouTube.
I’ll write some thoughts at the end regarding valuation. But first, I hope you enjoy this interview because I certainly did.
The Story of SiTime
Doug OLaughlin: Hey Rajesh, it’s good to have you on Fabricated Knowledge. I love the story that’s going on at SiTime, and more people should hear and know about it, so I’m happy to have you here to talk about it. So, what’s the SiTime story, what does SiTime do, and what are you trying to accomplish?
Rajesh Vashist: Hi, Doug. I’m happy to be here. SiTime is an amazing story of determination, focus, and technical prowess, but it’s also a great story of identifying a market and focusing on it. A little-known timing market which has been on a quest for more accurate timing under tough environmental conditions. This has been ongoing for several hundred years, starting with the invention of the chronometer in the 1700s.
SiTime takes that quest to a new semiconductor level and solves the world’s toughest timing problems with silicon. It’s an $8 billion market, and it’s been growing at 5% a year for the last 40-50 years. Ten years from now, it will be double that, so a $16-20 billion market, and SiTime has carved out a niche in the highest growth portion of the $8B market, with a cumulative growth rate of 30-50% a year, called precision timing.
Precision timing is a category that SiTime invented. Precision timing is high-end timing in tough environmental conditions like 5g, mobile, data center, cloud, automated driving, and personal healthcare. We know these are becoming more processor-oriented and more connected, often demanding smaller, lighter, and lower power form factors. SiTime hits all these requirements by leading timing solutions for those markets.
We went public in 2019. But we’ve been around since 2005. We are a public market cap company with a few billion in market cap, depending on analyst estimates, anywhere between $250 and $300 million in revenue. SiTime is highly profitable as well.
Doug: Before we continue, I would love to step back to the beginning.
SiTime was around in 2005, and important to this story is MEMS. In 2005, you were among the first MEMS startups, but you weren’t the only ones. Many competitors were trying to achieve the holy grail of MEMS timing. Why did SiTime win, and where are those competitors today?
Rajesh: You’re right. I think there were six startups, including SiTime. Even more interesting is there were three large semiconductor companies. Silicon Labs SLAB 0.00%↑ , IDT, and Maxim, now part of Analog Devices ADI 0.00%↑ . So six companies together spent $400-500 million over an 8-10 year period, and only SiTime was the winner. We are now the only scale MEMS timing company.
So let’s talk about MEMS technology before we go into why SiTime won.
What is MEMS? MEMS or micro-electronic mechanical systems are exactly what it sounds like. You and I are used to talking about circuits. In my past life, I used circuits in semiconductors. But I had never used moving parts in semiconductors. In other words, MEMS uses semiconductor processes to create moving parts. It’s already being done in gyroscopes, filters, and various sensors. The founders of SiTime, Aaron Partridge and Marcus Lutz used this technology to build vibrating resonators to replace a 50-year-old technology, quartz crystals. That was in 2005, before my time at SiTime.
Quartz crystals have been used in almost all electronic solutions before the advent of MEMS. By and large, most systems still use quartz crystals. The MEMS promise is that it is semiconductor-based, bringing scale, smaller size, lower power, manufacturing scale, and programmability. And, of course, it’s a semiconductor.
We know that whenever semiconductors go up against non-semiconductors, such as transistors versus vacuum tubes, spinning hard disk drives versus solid state drives. Semiconductors always win.
There’s never been a technology like that in the history of humans. Everyone knew that, but the tricky part was making it into a product, productizing it, building it, and making it work at scale at 3 billion units, not at 50-100k units. Making MEMS work with 95-98% yields at scale. So it turns out SiTime is the only company that did it.
And the speculative reason I think we did it is that most semiconductor companies did not understand that MEMS requires its own process technology. Most people go to fabs like TSMC or Global Foundries and use their processes. MEMS requires the development of its own process. SiTime developed and owns its process.
The second thing is that this is a mechanical system. It’s electrical, but it’s also mechanical. In other words, we are talking about material science, physics, and moving parts. Not a strength of a classical semiconductor company.
Finally, there is the design element and the design methodology. In semiconductors, if you want to design something, you buy tools from Synopsys, Cadence, Mentor, or someone else. Here you have to build your own tools. SiTime heavily invested in our own tools for design.
Putting it another way, we have three barriers to entry. We own our process, understand material science, and build our own tools. I don’t think the 8-10 companies that we competed with did all that or did it in a concentrated way. But SiTime did.
I arrived at the company in 2007, when it was pre-revenue with 30 people, and we were one of six startups and three other large companies. And the net result of all this was by 2013-2014, cumulatively, the 10 of us had spent $500 million, and only SiTime remained.
This happens often in MEMS. Generally, those in other MEMS technology, like filters, when they win, they are the only ones standing. Broadcom, old Avago, and old HP invented filters; they are the only ones standing 20 years later. Bosch invented gyroscopes and accelerometers, and they are the only ones standing 20 years later. TI invented DLP; they are the only ones standing 20 years later.
It’s no surprise that after this much time and money spent, most companies ceded the market to SiTime.
Doug: That’s the perfect explanation. I didn’t realize you had to make your own MEMS tools. That’s a big endeavor for almost any company, and that is why you guys are the last ones standing and the leader in MEMS resonators.
I want to now ask about MEMS vs. quartz. Near term it’s about replacing older technology, but in the longer term, there is an opportunity to create your categories because MEMS is a new technology. MEMS allows for new form factors and precision, and the roadmap is better because of its silicon.
So I would love to hear where you are making new categories and why some of your customers have intentionally gone all-in on MEMS very early. These companies could have used Quartz, but they chose MEMS, so why is that?
Rajesh: To size it for you again, it’s an $8 billion market, and it was a $4 billion market a decade ago. It will be ~$16 billion market in ten-ish years. SiTime is only a ~$300 million revenue company today, give or take. Even if we were to grow rapidly to get to a couple of billion in revenue by the end of the decade, we would be a small percentage of the market.
The point I’m making is that our goal is not to replace the legacy technology, but our goal is to recognize the needs of new markets like 5G, datacenter, automotive, healthcare, advanced military specifications, high-end industrial, and IoT. These market’s needs are not being fully addressed, so instead of returning to legacy use cases like PCs and Laptops, we are jumping ahead to new use cases.
We found over 300 new use cases for our chips at the last count. So when we go to new use cases, we are in a world of 80% single source, in spite of the fact that there are 30-40 crystal companies and some semiconductor companies that are doing clocking. SiTime becomes the single source 80% of the time, and this is because we have discernable benefits to the customer because no one wants to be forced into a single source component.
So if you look at the growth of timing, you can see what attracted me in 2007 to SiTime. I had a previous successful career building a company called Ikanos communications and exited in 2006 when it was half a billion in market cap and $150 million in revenue company. Ikanos also had a 95% market share against Broadcom, ST, and TI, but I left that business because the market was not scaling and was not big.
My thesis is that the way to establish large companies is to grow into a very large established market and bring a dramatically different solution. If you look at urban transportation, which has existed for 150 years, Uber entered with a dramatically different solution and disrupts it. If you look at advertising, along comes Google with significantly better technology, which disrupts it. Ditto with retail and Amazon.
The thesis is that if you have a large existing technology, you can pick the use cases to which you can bring value and expand from there. We are following the trends, and with that, you can build a great company. As I said before, my previous, Ikanos did not have that luxury. While we were a 95% market share, that was the whole market, and the market wasn’t growing. That’s why I exited from taking it public from 0.
Meanwhile, when I came to SiTime, that was the biggest benefit I saw apart from MEMS and the great team. It was our great strategy and opportunity.
Since then, it has taken us the first six years of existence (2007-2013) to move away from a me-too product against quartz and truly understand the market. Those were tough years. 2008 and 2009 were challenging for a company with no revenue. We were a company backed by NEC and Greylock, but we were on our own to raise money. Luckily I was able to raise ~$100 million through the life of the companies to 2013.
And 2013 was our first new category product launch. Before that, we were me-too; our generation 5/6 products, which still ship, were me-too products. But after 2013, every product has been a new category or dramatically better than the competition. At that point, it was a 32-kilohertz product, but a 32-kilohertz TCXO. Meaning it was 10x more accurate, had 90% less power, and was 1/20th the size.
It was an exceptionally differentiated product picked up by our largest customer today. It was a watch at that time, and the world had not seen a smartwatch, and I’m happy to say we have been in every subsequent watch since.
The lesson here is you can go into a large market, but you only win with dramatically differentiated products. Since then, we have a product called Elite, which is differentiated, and we have been able to win customers as diverse as Nokia, Google, SpaceX, Tesla, and so on. Since that 2013 time frame, we have introduced a dozen new products, out of which half have been category creators, and the others have been dramatically better than competitors.
Our central thesis is “it’s the product stupid.”
Get a product that is fantastically differentiated and that customers care about. Customers frankly cannot wait to get it from you; they don’t care if you’re a small company or not; they want that product. If you go back to 2013, we were a small VC-backed and money-losing product, and one of the world's largest companies adopted our product as a way to differentiate their first category-defining product. It’s been a real template for success, and we have tried to replicate it, and we have done tremendously since then.
Doug: Perfect! I want to break apart a few of those statements because, during that period, some interesting things happened at SiTime. The large customer was instrumental to your growth, but also, at this time, you were acquired by Megachips. Was that a platform for reinvestment in the business?
Because let’s say the eras of SiTime, 2007 to 2013, were scrapping by and trying to become better than just a me-too product. At the same time, Megachips was from 2014 to 2019, a completely different era of your journey where you began to take off. You had the 2013 watch product, and then you were acquired by Megachips. What was it like at Megachips?
Rajesh: In 2014, many of the large semiconductor companies started to recognize that SiTime had made the final breakthrough in MEMS technology. And we were still small, around 20 million in revenue, but most felt it would be a nice bite-sized acquisition. We got multiple offers that recognized the value of SiTime, and they were 10x revenue. That was an astonishingly high multiple of sales for a company that wasn’t making money, and it was too good to pass. We thought about our investors and our team, and we decided to sell.
Picking Megachips was, in retrospect, the best decision. When I met with the people there, I realized that they were real partners and they had their eye on the long-term future. Which sometimes in the United States doesn’t always happen. We chose them because we thought they would leave us alone. They would understand that we understood this market and technology and didn’t need help. I have seen many times large companies come into small companies and think they can do a better job, and instead of helping it, they make it worse, and everyone leaves. Megachips was brilliant in leaving us alone.
Because they left us alone, our team thrived. We had no one leave the company. There was no strategic help because they could not help us with technology, and our channels were different, but because we were part of a larger company, we were better funded for the first year or so. That was also when we got into a very popular phone, and our sales went from $20 million to $100 million in three years. Consqeuentaily Megachips benefited. Their stock went from $10 to $40 as a consequence, which had not happened in a long time.
We learned then the benefit of a highly differentiated product. We accelerated our move into differentiated categories and used the Megachips funding to accelerate the timeline. We also came to the conclusion that while the Megachips platform was a good one, it still wasn’t big enough to contain where we should grow. We felt that SiTime should be a public company, and we proposed that to the Megachips chairman, and to their deep credit, again, they showed wisdom and let us go.
Consequently, SiTime went public in 2019, and in the first two years, they took out $600 million on their $200 million investment, and they still own 25% of SiTime today (~$625 million). That’s a great investment. They took 200 million dollars to a little over a billion dollars.
And it’s been great for SiTime employees because we can attract the best of the best, and we have been able to retain our team. And our investment rate has quadrupled in our business. At this point, the amount of investment and R&D in markets and channels we have been able to make is several orders of magnitude more than anyone else solely focused on this market.
It’s been an amazing journey. We don’t know many companies that sell themselves, thrive as a subsidiary, and then get to go public. It’s kind of a fun journey for the company and me personally.
Doug: Very few companies get acquired, flourish, and go back out. I can’t think of another example when you put it that way.
During that time period, you got into a very popular phone, and there was a bit of a crisis at SiTime. To get technical, the way it’s packaged, it’s hermetically sealed, but small molecule gases can get inside. There was this whole “helium-gate” at your customer, which wasn’t easy to go through as a supplier. How did you mitigate that crisis, and did you adapt? Because that’s a hard problem, impacting the majority of your revenue.
Rajesh: That’s another wonderful story. A wonderful story now but it wasn’t a wonderful story then. Because it ended well, I can laugh and talk about it now. We were in a popular phone, and as you pointed out, our MEMS chip is encased in a perfect vacuum with one exception, the smallest molecule in the universe, helium.
We did not think to make it impervious to Helium, so when Helium ingresses, the gas pressure stops the MEMS device from vibrating from inertia and friction, and when Helium leaks out of the cavity it goes back to action. We did it for every other molecule and not Helium because Helium is not naturally found on earth.
Helium comes to the earth from the stars, it’s a planetary acquisition, it’s not a native gas and there’s very little of it on earth. We should have, but we didn’t. We asked our customer if it was important, and we didn’t do a good job of interpreting the answer, and it created a problem for our large phone customer down the road. We were not given the chance to fix it in a timely manner.
The tragedy is that we could have fixed it in a very quick time. It’s not a difficult problem to solve for SiTime, but we solved it too late for the generation of that phone. The reason that we get to laugh about it is that it helped us learn about depending on any one large customer, no matter how wonderful or desirable they are.
Since then we have branched out completely, and from 2018 when this happened, our revenue was ~$85 million and heavily dependent (70% of revenue) on this one customer. In 2019 we were exactly the same amount of revenue, but the large customer went from 70% to 35% of revenue. We learned painfully that we needed to depend on a broader customer base, and kudos to everyone at SiTime for executing it so quickly.
Today that large customer is a smaller part of our revenue. At the same time, our revenue has grown to $250-300 million (depending on which estimate); this large customer is less than 30% of revenue, despite all that growth. We are in a wonderful place, and our products are now helium insensitive, so it’s a good story all around.
Doug: I presume you won the phone back?
Rajesh: We did get one generation, one SKU, but we have so much of the business in networking and telecommunications that is our number one market; we are much more focused on that today.
Doug: I was going to ask about that. Now that we have told the story of how SiTime came to be, I am curious about the future of SiTime. There are so many interesting niches and products, and when I visited SiTime and talked to people who worked there, they gave many examples of how you’re differentiating.
But I would love to hear about what your biggest opportunity sets are. It sounds like one of the biggest problems is choosing. You have all these slivers of potential markets, but you must focus on each one at a time. What is your biggest opportunity set in the future, how do you make that market yours, and what are the challenges to get there?
Rajesh: Our servable addressable market that we serve when we went public in 2019 was about $700 million. Today is double that at $1.5 billion, and by the end of next year, 2024, it will be $4 billion.
By delivering new products faster, we can capture more of the served market than we can today. We expect that 10 years from now, that $4 billion SAM might be as high as $10 billion. In other words, the world is our oyster, and we can go after different portions of the market with different products and different value sets and grab those.
Out of the $4 billion to come, we have identified networking and telecommunications as the largest market. We think that will be ~$1.4 billion dollars by the end of 2024, as big as our current servable addressable market today.
That market is a wonderful place to be because we have new opportunities for 150 different kinds of chips. We are in long-haul, back-haul, front-haul, radio, RRU, the 5G base station, the small cell, the data center, and the server; we are in all of that.
And that’s sensitive to high performance. As you know, latency and high performance are erupting; that is where Microsoft and Amazon play. All of the cloud areas are critical. 5G is not only being used by telecommunication companies, but large enterprises are creating their own native 5G networks.
So this is the market for us because the average selling prices are high. Prices are between $3 to $30. The gross margins are high. Our corporate gross margin is ~65%, and in those markets, our gross margins are even higher. The business is very sticky, and lasts around for 2 to 4 years, unlike consumer or mobile which changes every year. And we bring exceptional differentiation to the market. So now we have a cluster of customers, anyone you could think of in this market, who are our customers.
We play in industrial, military, automotive, mobile, and consumer, but if I had to zero in on one market to win, telecommunications is our happy hunting ground. I would say our focus is on that market. And 80% of our new products are focused on this opportunity.
Doug: Well put. In this inventory cycle, there’s a bumpier ride than the last few quarters, or rather the next few quarters. But I am trying to take a bigger picture step back. How large are we talking about these markets could be for timing?
Within telecommunications, 5G is a smaller part of the whole but growing faster. And within timing, SiTime is a smaller part of that market, but growing faster. So is it reasonable to say you could sustain very high growth rates for a decade? Could you do north of 20-30% for a decade as you pursue this massive multi-billion opportunity?
When looking at SiTime, you can see the past growth, but you look at the future and reckon SiTime thing can grow for a long time. Do you think when you hit the $10 billion dollar SAM you’ll be a meaningful percent of that market?
If yes, this is billions of dollars of revenue, so I would love to hear how you get from $200-300 million dollars today to a billion or even the next billion.
Rajesh: Good question. When we went public in November 2019, we told the world we would grow at 20-25% annually. Then COVID hit, and the world grew upside, and we grew at 65% and 88% in 2020 and 2021. And even in 2022, a choppy year in the second half, we will likely grow at 30-35%.
What we have told the world and investors at large is that excluding the inventory correction, which will take 2-3 quarters, SiTime expects a 30% growth rate year on year for the next five years. This is doable and well within our reach.
Some people tell us we are being too modest. Perhaps we are. But we will know more when we get through the second half of this year. But at this point 30% growth rate seems like a very achievable rate for us.
One thing people always ask us is if you’re so differentiated, why are not 40%+ growth rates possible then? And the reason is I really value profitable growth along the way. When we went public we were at a 46% gross margin, today we are a ~65% gross margin business.
Our gross margin rocketed 20% higher, and when we went public, we were not profitable, but we have told the world we have a corporate view (longer-term) of 30% net income. So that makes us very profitable company.
As you know, today, we have $600 million in cash with no debt. I like that profitable almost analog-like model; I am not willing to trade profitability for growth. The world is a choppy place, and we have seen recently what happens to those companies that say growth at all costs. However, I can say that it’s possible when the SAM is $10 billion that, SiTime could be a couple billion in revenue.
Those are enormous numbers and enormous growth. And that’s why SiTime could be like a Texas Instruments or Analog devices story, a 50-year company from here on out. Because timing was first invented in 1720, which was 300 years ago, in that sense, this is an early story. And that’s what I love about SiTime, SiTime sings one beautiful song, and we sing it really well in various ways, and that song is timing. We specialize in timing and solving the world’s tough timing problems. We have no boundaries to this ambition.
We want to be in the future with timing. With atomic and quantum timing. Already our smallest chips are 1.5 x .8 millimeters, but we would love to be selling chips that are .5 x .5 millimeters. We would like to bring a $4000 atomic clock and bring down the price to 20-30 bucks. We would love to get into the software side of synchronous networks.
We think that timing is such a beautiful big gold mine that we have built barriers to entry around, that our job is not to go wandering outside of the goldmine but to keep digging because there’s a bunch of gold in this mine.
Doug: That’s a wonderful analogy. You have a huge opportunity to execute. Another question I want to ask about is the pricing aspect.
One of the big fears is because of the AKM fire and the price shocks in quartz that there was a one-time shift in MEMS that will come back when prices go back down. Yet you are 80% single-sourced. Do you think you could lose some of that business when pricing normalizes?
Rajesh: One of the innovations in our business models that we have focused more on in the last couple of years is that we tell our customers we are a premium-priced product.
We approach our customers telling them that we are selling them a BMW or a Porsche; we are not selling them a Kia. And Kias are perfectly fine cars, but you can go buy that if you’re not interested in a premium product.
Quartz is a perfectly good fine product for many things, and out of an $8 billion market, we are only selling $250-$300 million in revenue today. So by definition, most of the market is quartz, and what we sell is differentiated by a higher price and higher value. That’s why customers seek us out for a reason. Because we typically sit in their higher-value products which we can differentiate.
And when you have a very high-value product, like a satellite or a digital processing part, or a very high-value consumer or medical product, you need a high-value component like SiTime in there. We are comfortable being a premium single-source product, and this is not a market share gain story. Those who think about SiTime taking market share from quartz are not quite thinking about timing as we do. We are servicing the hard-to-do markets; sometimes, that’s taking market share, but sometimes that means creating a new product category.
Remember I told you about our twelve new products; how six of them didn’t exist as a category before. A TXCO that works like an OCXO didn’t exist, an oscillator that looks and feels like a resonator didn’t exist. A TXCO in 32 kilohertz did not exist. These are categories that we have created, and as you know, category creators get to harvest more value.
Doug: I’m going to ask a final question along the profitable growth premium product vein. Something so interesting about MEMS is that you worked to become better than a me-too product, but the MEMS roadmap still has a long way to go.
In theory, as the technology matures, do you think you could address lower price products that are not as profitable today and that will expand the SAM by addressing larger parts of the market more profitably because of the silicon roadmap?
That’s interesting to me because you can have your cake and be profitable today and, as you scale, still have high gross margin products as you address the rest of the market.
Rajesh: Exactly. First, we sell products at 10s of cents. It’s premium priced in its category. Using hypothetical prices, if there were products sold at 20 cents, we would sell at 25 cents. If it were sold at 25 cents, we would be at 40 cents. We are selling premium priced products.
But we see a day where we play in resonators, a market that sells for 10s of cents. That is a $3 billion odd market we don’t address today. SiTime can see a way of replacing the need for resonators that are better than quartz, smaller, more scalable, and more reliable, and we would again do it at a premium. So if 10 cents, we would sell for 20 cents.
But the good part of that story is in the volume story, about 40 billion units of resonators are being sold a year. And that number is even growing at 5 percent a year. There are still a lot of markets to address.
Another example is clocking chips, which until two years ago, we had no clocking chips. These are not oscillators or resonators; semiconductors companies make them. SiTime introduced our first product a year and a half ago, and at the end of last year (2022), we gained 200 customers in that market. Where ever we show up, we win. That is a $1.5 billion market, where we have multiple product introductions coming.
“Where ever we show up, we win.”
So yes, we see a lot of potential untapped markets like quantum timing and synchronous timing software. Or positioning and navigation precision timing. We see all of that as part of the market we are addressing.
We are in the very early innings of establishing a 50-year-plus-long company, and as someone who has been at SiTime for 15 years, it’s been gratifying to see the company's growth.
Not only the growth but our culture. From the time that I arrived in 2007, there were 30 people. Of those 30, 15 of those people are still at the company. A tenure of 10 years is very common at SiTime, which is shocking given the churn in the tech industry.
Doug: Well, I’m excited to see you execute that opportunity. There is a special energy when I went and visited SiTime. The story, the culture, and the opportunity are all special. I can’t wait to keep watching. Thank you, Rajesh.
Rajesh: Thanks. Take care.
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An Interview with Rajesh Vashist, CEO of SiTime