Doug O’Laughlin, founder of fabricated knowledge, discusses his thesis on SiTime (SITM). They cover the market size and growth of MEMS versus Quartz, SITM's MEMS market share, Apple's concentration risk, and the potential of MEMS in taking share from Quartz. They also explore SITM's valuation, capital allocation, and customer behavior in the semiconductor industry.
SiTime's revenue concentration with Apple has decreased but they still have a chance to be a significant supplier to Apple in the future.
SiTime's strong technological advantage with their MEMS resonators and Epic Seal package technology makes it challenging for Apple to switch to a competitor.
SiTime has a dominant position in the growing MEMS timer market, with around 90% market share and potential for further growth in industries like IoT devices.
Deep dives
Customer Concentration and Apple's Relationship
Apple was a significant customer of Sidem but their revenue concentration has decreased over time. In 2018, revenue dropped and Apple's share of sales went from 40% to 15%. This drop was related to an issue with helium leakage causing iPhones to break, which resulted in Sidem being designed out of the iPhone. However, they have fixed this issue and going forward, they are still expected to be a supplier to Apple. Additionally, if Sidem is designed into Apple's modems, it could be a significant boost to their revenue.
Difficulties in Switching Suppliers
Switching from Sidem to a competitor would not be easy for Apple due to several factors. Sidem has a strong technological advantage with their MEMS resonators and their Epic Seal package technology. The small size and programmability of Sidem's MEMS make them ideal for devices like AirPods. The custom packaging for these devices would make it challenging for Apple to switch to another supplier. Additionally, the qualification process and testing required for semiconductor devices can create obstacles for switching suppliers, especially in industries like automotive.
Market Growth and Potential Expansion
The market for MEMS timers is growing, and Sidem is well-positioned to benefit from this growth. Their market share is currently around 90%, and they are expected to continue taking market share from quartz timers. The potential expansion into other industries and applications, such as IoT devices, presents further opportunities for growth. The advantages of MEMS technology, including miniaturization, programmability, and improving performance, make it a compelling choice for various electronic devices. Sidem's focus on incremental improvement and cost reductions over time can lead to further competitiveness and long-term success.
Competitive Landscape and Entry Barriers
Sidem has a dominant position in the MEMS timer market, with no significant competitors at the moment. The likelihood of new entrants is low due to the small market size and the substantial investment required to catch up. Other players in the market, like Bosch and Megachips, have not posed a significant threat. Furthermore, Sidem's strong partnership with Bosch, the leading MEMS fab partner, adds to their competitive advantage. The combination of these factors creates a moat for Sidem and makes it challenging for competitors to enter and disrupt their market position.
Benefits of Using Side Time's Semiconductor Devices
Side Time's semiconductor devices offer a significant advantage to automotive companies by simplifying the qualification process. Instead of having to qualify multiple devices for different frequencies, companies can qualify one device with Side Time and then choose different frequencies as needed. This saves time and resources. Additionally, Side Time's devices offer inventory availability and program ability, allowing for swift frequency changes without the need for lengthy lead times. This flexibility is particularly crucial in cases where different frequencies may interfere with each other, causing electromagnetic interference or resonance issues.
Advantages of MEMS over Quartz in Semiconductor Design
Although MEMS poses tough competition to courts, there are still some areas where courts offer better performance. In particular, certain low-end products that prioritize price over performance tend to favor courts. Additionally, high-frequency and low-noise applications, such as networking and communications, often require courts due to their superior performance and stability. However, MEMS is making significant strides to improve in these areas and remains a strong contender. Tesla and Apple's adoption of MEMS for their products further solidifies its potential to gain market share over time. The long-term outlook for MEMS adoption and performance improvement is promising.
Doug's first pod appearance: https://yetanothervalueblog.substack.com/p/doug-from-fabricated-knowledge-on
Chapters 0:00 Intro 2:45 SITM overview 7:50 What is the market missing at SITM? 12:45 Near term numbers and does management have a handle on the business? 18:05 MEMS versus Quartz market size and growth 24:20 SITM's MEMS market share 27:00 Risk of insourcing MEMS 31:45 How did SITM "win" MEMS? 35:20 Apple and customer concentration 41:00 More on MEMS versus Quartz 43:40 Apple's "all-in" on MEMS 52:45 Why isn't MEMS taking share faster from Quartz? 1:00:30 SITM valuation 1:08:30 Capital allocation and insider buy
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