SITIME Corp (SITM) September 2026 Conference Transcript

Okay. Good afternoon, everybody. Welcome to the Goldman Sachs Community and Technology Conference. My name is Jim Schneider. I am the semiconductor analyst here at Goldman Sachs. It's my pleasure to welcome SciTime CEO Ajesh Fashist and CFO Beth Howe to the stage today. Welcome to you both.

Thank you.

Before we get started, companies ask me to remind you that today's discussion includes forward-looking statements that involve risk, uncertainties, and assumptions, which are further described during SciTime's SEC filings, including SciTime's most recent Form 10Q and the actual results could vary materially and adversely from those anticipated or implied. SciTime assumes no obligation and does not intend to update any such forward-looking statements. For more information, please visit SciTime's Investor Relations website at investor.scitime.com. That was quick. Okay, so let's start off on big picture strategy question. Rajesh, Beth, maybe start off with a kind of brief view on the company but specifically explain the role of precision timing specifically MEMS-based timing in advanced applications and what's been driving this shift away from courts-based timing?

Yeah, so to take a little bit of credit, about 20 years ago, we saw and believed that there was an increase in throughput, decrease in latency, decrease in phase noise, tougher environment, and we felt that timing had to be a solution presented to customers. So that was a bet we made, and that bet has proven true when we went public in 2019, but it's become even more true in the last few years as the pace of innovation along those axes has increased so dramatically. So precision timing is essentially the heartbeat. It's the rising, it's literally a square wave, which shows up so that a CPU, a GPU, a TPU, a Wi-Fi, a wireless, a modem, or whatever other ASA knows when to be on and when to not be on. And given the throughputs, given the rates, it becomes really important, really critical. So our most expensive chip, not in military applications, sells for about $50. Our lowest-priced chip sells for around $0.35, $0.40.

Okay, so now the CED segment that includes data center represents the majority of your revenue now, I think 64% last quarter. Can you run through us the increasing importance of precision timing, specifically in data centers? What's the key driver for side time in terms of content and your outlook for that segment?

In general, we grow in about four different ways. In general, we grow because the end customer units grow easy. We grow because ASP grows because functionality grows. We grow because the number of chips per unit of – we also grow, of course, when we get new opportunities, new applications. And so the great thing about the data center AI business is that they're firing on all cylinders. And they're firing on all cylinders at a very high rate of innovation speed. And so we are in the GPU, the TPU, the CPU. We are, along with the switches, we're sitting next to the NIC cards. We're in the smart cables. We're in the pluggable optical modules. The new generations of these products are moving fast. And with our acquisition of the clocking business, as well as our own roadmap, the revenue opportunities are growing dramatically in that segment. When we went public, we were probably in that space. There was no data center AI space, but there was a data center business, which was around $800 million in SAM. Today, that would be probably close to opportunity. So it's an amazing opportunity, but half our business is not in this space, as you indicated. It's outside that.

You recently completed the acquisition of the Renesys IC clock business. Can you maybe articulate the strategy behind why you decided to make that acquisition and how that kind of bolsters or augments your position in the market?

Yeah, so we always knew we wanted a clocking business because it's a complement to the oscillator business we have. The oscillator business is generating the frequency. The clocking business is disseminating or spreading the frequency. And in that business, we know that the most best brand name, the best technology, the best team was in Renaissance, which used to be IDT, which used to be ICS. So it's a 25 to 30-year history. So that was the best business to buy, and we were fortunate that we were able to get that. So it was the golden property, if you will.

Now, longer term, how do you think about competition in the overall MEMS timing market? Because this is a category, as you mentioned, you created in many ways, but it's no longer small. I mean, this is a target now. So how realistic is potential for new competitors to enter the market in a much more meaningful way?

So while we have to give a lot of credit to our MEMS technology, our MEMS technology is really just a way of enabling precision timing. At the highest level, we are thinking of timing, precision timing, as a system solution, solving system problems for about 500 different applications. So MEMS unlocks that, but we also have advances in digital design, analog design, packaging, testing, building an infrastructure. And I see our 500, 600 engineers involved in all aspects of that. And that makes us the biggest team. That makes us the most focused team. And the best part is we're focused on the most innovative parts, the most differentiated parts of this business. So we're not interested in a me-too part of this business. We want only the best parts, which has allowed us to go from 45% gross margins at IPO to 67% last quarter.

Good place to kind of move to the end markets, I think. So I want to touch on a few of those, starting with CED and specifically data centers I touched on earlier. You discussed the data center and market and the critical role the precision timing plays on the 800 gig to 1.6 T transition. Can you qualitatively or quantitatively kind of describe the incremental opportunity that drives for Sightime?

Overall, the optical module business in a couple years is probably half a billion dollars for us. So it's big. It's very large. We expected we joined this business in 400, where we were about 40% of the market share. In 1.6, we probably doubled that, close to double that. the ASPs have gone from around $1, 40%, 50% growth. This market has become more and more important. Eventually, the 3.2, which is already in design win, will probably get to be even more in market share as it gets to higher frequencies, lower jitter, greater resilience to temperature. So I think that's a perfect market for what we're doing.

Got it. Now, talk a little bit about your customer mix in the data center. How should investors sort of think about penetration levels alongside different numbers of the chip providers in AI servers among the different hyperscale customers? And sort of talk through that if you can.

Sure, maybe I'll talk a little bit about that. So one of the beauties of Sidetime is the diversity of our applications, the diversity of our customer rates. So if I think about CED and the data center, we have a broad range of customers, the optical and transceivers across the wide range of providers, but also the hyperscalers, the neoclouds, the sovereigns. So really we think about all of those as our customers, and in addition, selling into the other semiconductor providers as well as the OEMs that are providing different kinds of solutions, SOCs as well as systems to those hyperscalers and other AI and data center customers.

Yeah, and then can you say anything about sort of like, you know, position in GPUs versus ASICs versus other kind of chips?

So we have design wins across all of those. If I think about GPUs and CPUs, you have timing and clocking on the trays there, Nick cards, the timing associated with those switches. You have multiple chips with, you know, typically maybe $20, $25 worth of content in the typical switch. So our ASPs range from, you know, $1 to $2 at the low end to $4 to $7 up to $10 for certain higher-end oscillators. The clock ASPs run in the typically $4, $6 kind of range. And so different solutions will have different combinations of buffers, clocks, XOs, as well as TCXOs and OCXOs, depending on the configuration. And then as you build those up into racks, you can see multiple hundreds of dollars worth of content in racks and sometimes up to over $1,000 of timing content in certain rack configurations.

And then lastly, related to CED, you previously talked about beginning to move from sort of discrete components to chiplets, advanced substrates, modules, things that get you to a higher performance and compute density. So how large of an incremental opportunity do these kind of systems solutions represent, and when could we see the first ones launched?

That can be rather large. We think it could be anything from a billion to a billion and a half more of SAM. The reason for all of this, of course, is because timing needs to get closer, timing needs to get more clean, the signal needs to be less attenuated, and just like in power, you have VPD, vertical delivery, we think there's a concept called VTD, which is getting closer and closer to the chip, either below, embedded in the substrate, or above. and I think that this could start as early as 28 maybe 29 but I think this said long-term trend that continues in the market and I think only side time has the technology to make this happen at the way that we are making it happening and would that be completely incremental or is that more sort of like partially cannibalistic relative to your I think it's mostly incremental simply because that becomes something that gets used at the very high end. But one of the things that Beth was also saying was that there are new opportunities, whether it's in sovereign data centers or enterprise data centers. In our case, we're not very well penetrated, for example, in Chinese data centers. There are opportunities in those areas as well. So I think there's a lot of incremental business for us. And that is why, when you think of timing TAM, we see a doubling almost between now, 12 billion, 11 billion, by the end of the decade, which is faster than we would expect it. We would normally expect it to do that in 7, 8, 10 years, but we think it's going to happen in the next 4, 5 years.

So 25 billion by 2030?

Give or take, could be a little bit less, maybe 22 or so, but significantly higher. because you see the semiconductor business itself is going from $700 billion, as you know, to pick your number, $1.6 to $2 trillion. And if that's true, then timing needs to scale along with it.

I understand. Okay, so I want to turn to the mobile IoT and consumer market. You've been a beneficiary of your largest customer transition to internal modems. We've got some new products today, I think. Clearly, you're seeing the benefit of that product transition in your Q2 with 80% sequential growth in that segment. So if you think within that market, how are you thinking about the revenue trajectory through the back half of this year as your customer continues to ramp that internal modem in those devices? And then is it still reasonable to expect traditional seasonality in that business in the first quarter of 2017?

Starting with the last one, yes. We do expect a little bit of a slowdown, as you rightly point out, in the consumer market in Q1. But at the same time, growth continues in Q3 and Q4. And then the size of the business next year, even though the seasonality down in Q1 is much bigger because it's the first full year of, in my opinion, 100% internal modem business next year. It could be a little bit less than that, but I think it's 100% internal modem next year. So I think it's a very good business, very solid business. We, in addition, continue to get design wins in other areas. We also think that the number of opportunities will grow under the new management because I think we're expecting for more hardware innovation and centric around the product innovation piece coming up. so yeah we expect lots of new good products yeah and then but to clarify you know once you get to that kind of elevated full run rate of you know fully penetrated it doesn't grow after that yeah you grow with units then yeah okay fine that's right okay moving to auto and industrial I think we've mostly heard constructive commentary from the broad base the analog suppliers maybe speak to how that segment is performing for you and sort of what you expect in the near term there yeah actually in a sense, it's almost the heartbeat of the company because it personifies the diversity between automotive, industrial, military, aerospace, defense. It personifies the importance of timing, and that business grew last quarter at more than 50% growth rate. So in a sense, it embodies that ASPs grow, business grows, units grow, and we think that the military aerospace business alone could be $100 million shortly, followed quickly by the auto business, and then the industrial market is doing very well indeed. For example, in new markets like recently, we started to push into smart grids and we see incremental SAM of a couple hundred million coming from smart grids alone.

Do you, in the medium term, expect that aerospace and defense would grow above the rate of... I just want to know.

Absolutely. Probably about doubling.

Double the growth or doubling?

Doubling for a couple years to come.

Oh, I see. Okay. Very good. Okay, and then on physical and AI and robotics, you said in the past, I think, there could be up to $20 in precision timing per humanoid robot. Can you maybe elaborate on how that changes as a function of dexterity, and how should you think about, investors think about the overall SAM for humanoids going out, let's say, 10 years or so?

Yeah, well, that's a super exciting business. I've seen reports of 1.5 trillion market for humanoid robotics in 10 years, exactly, 2035. We haven't seen a single working robot in production yet, so there is that skepticism. On the other hand, we know that these things are coming, just generally. In general, timing Anywhere there's an actuator motor Anywhere there's a sensing element Anywhere there's movement Anywhere there is For a 130-pound humanoid Or a 100-pound humanoid robot That becomes super critical, super important So right now, we are at a pretty basic level Of precision timing inside those I think that's going to expand very much, and I think it is going to be slow before we get to the hockey stake. So I think looking at 28 for a good year for that would be my goal.

I want to circle back to Renes, which we touched on earlier. That close earlier this summer on your last earnings call, you guided the $85 million in revenue contribution from that business just for Q3. that's way above what you talked about in terms of the $300 million annualized run rate you talked about at the time of the acquisition not so long ago. So help us understand how we should think about sort of the near and longer-term growth trajectory for that clock IC business.

Yeah, so it's had a tremendous clock growth, and that growth, I think, continues. In fact, in some ways, if we could get more product in the supply chain, That's one place where we are constrained working through Renaissance and the TSAs. We could probably be significantly higher than that number. I think it's also fair to say that next year is probably very similar to that growth rate of well above 50%, maybe in the 60, 70, even 80% range for that TPD business. That is, by the way, without that much help from Cytan. And then we suspect that with a sales force of the size we have, about 100 people exiting this year, I think it gets even faster for next year and even more so continues into 2029.

And so to that point, what changes have you made? What progress are you seeing in terms of the sales force to enable that cross-filling?

First of all, we have a sales force that is, astonishingly for them, completely focused on timing. So they haven't had that opportunity. Second, we are opening up the roadmap. So instead of being constricted to one or two products coming out a year, we are going to three, four, five products coming out. And then finally, we are bringing in that systems thinking, which has not been there because they've been a clocking company. They've been doing clocking into it. As a consequence, we found opportunities where they have dragged us into very large organizations where we didn't have much penetration in the hyperscalers, one of the large hyperscalers, and there's been opportunities for Sightime to take them in into some chip companies where they haven't penetrated very well. We feel very good about the integration. All the people who were in the group came across to Sightime, and we feel that they're pretty satisfied. Obviously, there's some challenges in getting the systems to work, the IT systems, the quoting systems, and so on. Nothing unusual there. We just have to work our way through it.

And then, you know, given that you kind of talked about your plans to build a segment around that business, what are your plans around the OPEX ramp required to support all that?

So we talked about on our call in August, the OPEX for Q3 guidance was $80 to $85 million, and that incorporates both the addition of the TPD business as well as our own kind of organic growth that we want to sustain. And so as we think about integrating TPD into our overall timing business and basically growing all of that, so adding salespeople to sell not only the Renaissance TPD but also our own timing products, adding R&D to continue to kind of the flywheel of innovation that we have across all of our businesses now, having the infrastructure in place. So as I think about growing OPEX to support this growing business, but still having a lot of operating leverage in the model and growing revenue faster than that so that you still see that flow through to the bottom line.

Got it. Okay, then maybe continue on the financial theme for a moment. In the context of those long-term financial targets, you laid out previously 25% to 30% annual revenue growth at 60% to 65% gross margin, over 30% margin. you've already well exceeded these with gross margins in the high 60s now, margins in the mid-30s. So do you believe you can kind of sustain the long-term growth rates you previously laid out, even off of this elevated base of performance?

So as we think about those growth rates, we set up those as long-term targets across cycles. Clearly, at certain points in the cycles, we're going to well exceed that as we are now. And as Rajesh has talked about, we expect that we will be growing above those levels for some time now from a revenue perspective. And we want to continue to take advantage of all, not only AI, but also what's going on in aero and defense and industrial and consumer as well to continue to grow the business rapidly. From a gross margin perspective, we do expect to keep at least 65% gross margins, and Q2 was 67%. The outlook I gave on the August call was for 68% for Q3. So in that kind of range, we do think that we have sustainable gross margins and then operating leverage in the model to flow that through to the bottom line, as you said, 34% in Q2 and expect to be at that or better in the next, you know, looking forward.

Not too shabby. So, I mean, you mentioned supply chain, Rajesh. That's an area, I think, of increasing investor focus and concern around semis, broadly speaking. And I think there's some level of question around MEMS in particular, given your exposure to Bosch as a supplier. So maybe help us understand that part of the supply chain, the MEMS part of the supply chain. I think a lot of people are not so familiar with that. The level of confidence that you can actually get enough supply in the event you continue to perform at this level.

Yeah. So I feel very, very comfortable about that. As I was telling somebody, it's not my top 20 things to worry about. But Bosch has been a partner of SciTime since 2007, actually a little bit even earlier than that, but certainly since 2007, we are the only MEMS non-Bosch company there. In other words, they're a captive fab. They're not supposed to be merchant fab. They're doing some other business. So it's a very good business for them. It's a fantastic place for us to develop our technology. I fully expect that as our 20, 27, 10-year deal with them sort of comes off, there will be another one that will extend the time. So very confident with them, great partners, great technology. Yeah, very happy with that.

Not in the top 20. That's a relief. Okay. Okay. So in conjunction with the Renesas acquisition, you also issued some debt. Maybe walk us through the elements of that recent convert bond issuance. What drove the decision to pursue the convert market, and how does it tie in with your overall capital structure strategy?

So we issued our inaugural debt here in conjunction with the acquisition of the Renesas timing business. It was a five-year zero-coupon note, $1.35 billion, 50% premium, and then 150% capped call. So really feel good about the capital structure we have in place, preserving the liquidity, being able to complete the acquisition. And with the revenue growth and cash flow that we'll be generating, expect to bring the net debt position back down under 2X within 24 months, if not before.

Okay. Not bad. So then building on that, maybe talk a little bit more, expand on capital allocation for a second. How would you sort of weigh the opportunity to sort of prepay some of the 2031 notes against returning capital shareholders in the form of buybacks, et cetera, or maybe thinking about even other options for M&A or just organic reinvestment in the business? I mean, it's kind of a broad spectrum of options, but sort of over the next, say, three to four years, how do you think about that?

So as we think about our capital allocation and using the cash flow that we're going to be generating from the business, first and foremost, we want to be investing back in the business, and so investing in R&D, investing in our own business to grow and continue that flywheel of innovation that we are on. We may look at M&A from time to time. I think that we are just now completing our second acquisition. I want to make sure we get that integrated. And if we see an opportunity, we want to be ready to take advantage of that. And those are really the primary focuses for us. I think, you know, where we are as a business, probably less in the share buybacks at this point in time and really about growth and innovation and reinvesting in the business.

Okay. Maybe just kind of a final question. You know, you covered a lot of ground here today, But let's say we're back on stage here in five years. What do you think is going to be the thing that investors are most surprised about looking back in time in terms of where you stand with respect to the story?

I don't think that, well, taking the heat of investors and putting myself under it for a little bit, when we went public, I would not have said that we would be a $20 billion market cap company in six years. giving the investors a little bit of cover. I don't think the investors understand the growth opportunities ahead of us, perhaps because it's a very diverse story. People are used to vertical companies or they're used to horizontal companies. They're used to be able to connect the dots. And it's a challenge for them to understand And what is timing, and why is it so broad, and why can't I build my model with precision? Well, that's a feature and a bug. It's a bug because they can't do it. It's a feature because it's going to give so many opportunities that this time around we're not going to undershoot. were going to be several billion dollars of revenue, and that will be at the kind of gross margins and net profit that we're talking about, which I think could potentially produce another NPS or even at a bigger scale. That's the part that is relatively underappreciated.

Very interesting. Well, here's hoping we see that growth trajectory materialized. So thank you both for being here. We really appreciate it. Thank you very much.