Q2 2024 Earnings Summary
- SiTime's Communications, Enterprise, and Data Center (CED) segment is experiencing significant growth, with expectations of over 70% growth for the year, driven by AI-related demand. ,
- The company is launching many new products into mass production, particularly in AI markets, which are expected to drive future revenue growth and improve profitability over time. Over the longer term, SiTime expects gross margins to be above 60%, driven by these new products. , ,
- SiTime is a preferred supplier in many platforms within the AI and data center markets, working closely with leading semiconductor companies, with a strong value proposition recognized by customers, positioning the company for continued growth.
- Gross margins may be under pressure in the near term due to higher costs associated with ramping multiple new products simultaneously, including increased costs in both cost of goods sold and operating expenses. Beth Howe mentioned that while they expect gross margins to be above 60% over the longer term, they anticipate margins to be stable or only slightly improving in the next couple of quarters, trending towards 58% in Q3, as they support growth plans and ramp new products into mass production. This could impact profitability in the short term. ,
- Complexity of the design-in process in the data center market could present challenges and lengthen sales cycles, potentially impacting revenue growth. Rajesh Vashist highlighted that the design-in process involves multiple parties, including semiconductor suppliers, ODMs, contract manufacturers, and end consumers. This complexity requires significant effort to support throughout the supply chain, which could present challenges for SiTime. ,
- High dependence on AI-related demand in the Communications, Enterprise, and Data Center (CED) segment, which is expected to be the fastest-growing market for the company. Any slowdown in AI investments or demand could negatively affect SiTime's growth prospects. While AI demand is currently robust, Rajesh Vashist noted that demand isn't increasing uniformly across all areas, with some segments growing less. , ,
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Revenue Growth and AI Demand
Q: What's driving revenue growth, particularly in AI markets?
A: Demand is up significantly, especially in AI, optical markets, interconnects, and NIC card business. Inventory levels are down as predicted, and growth is occurring across all sectors, with AI-related products experiencing the highest demand. -
Gross Margin Outlook
Q: What's the outlook for gross margins going forward?
A: Gross margins are expected to remain above 60% over the long term. In the near term, margins may improve slightly but won't grow rapidly due to ramping new products into mass production, which will take a couple of quarters. Over time, yields will improve, and margins will increase as the new products scale. -
CED Segment Growth
Q: How is the Communication, Enterprise, and Data Center segment performing?
A: The CED segment is expected to grow 50% to 70% or more for the year. Growth is driven by data center demand fueled by AI, making it the fastest-growing segment in the next quarter. -
New Products Impact on Margins
Q: How will new products affect gross margins longer term?
A: Supporting growth plans and ramping new products will temporarily suppress margins. As yields improve over a couple of quarters, margins are expected to rise, returning to above 60% over the long term. -
Impact of Aura Acquisition
Q: How is the Aura acquisition contributing to growth and payments?
A: Aura products are integrating well, leading to new design wins in network synchronizers and buffers. Revenue from these products takes time to ramp, so acquisition payment terms remain unchanged. The next payment of $69 million is scheduled as expected. -
AI Design-In Process
Q: How does the design-in process work in AI/data center markets?
A: Design wins occur with semiconductor firms and directly with customers in accelerator cards and active cables. SiTime must support the entire supply chain, articulating its value proposition throughout. The company is accelerating product development to match customers' aggressive new product introductions. -
Content per Application in CED
Q: What's the timing content per application in the CED market?
A: Content varies by application: optical products are around $1, Ethernet switches range from $5 to $25, NIC cards are $5 to $10, and GPU/CPU boards are over $10. Higher ASPs in higher volumes are the sweet spot for growth. -
Gross Margin Trends and New Products
Q: What are the gross margin trends with new product ramps?
A: Ramping new analog die, MEMS die, and packaging temporarily impacts margins. SiTime is investing in equipment, leading to higher fixed costs, but expects yields to improve and margins to rise over time.