Art Chadwick: Yes. So first of all, we consciously increased our inventory, as you mentioned $57.7 million at the end of last quarter. And the increase is all in wafer stock, so as we’ve talked about many times, we get our MEMS wafers from Bosch, it’s our process with their factory. And we get our CMOS wafers from TSMC. And we bought wafers from both Bosch and TSMC and we did it to provide a buffer stock. If there’s any type of geopolitical issues out there, if there’s any type of supply chain issues out there, we have wafer stock that can support a number of quarters worth of sales. And remember, wafers do not go bad, they do not go obsolete. These can sit on the shelf for years and years and years if needed. They’re not going to sit on the shelf for that long.
We will start to work it down over the next couple of quarters. So you would expect it to come down during the course of the year to a certain extent, but wafers do not go bad. And that gives us a lot of comfort. And quite honestly, this gives our customers a lot of comfort for the reasons that I just mentioned, if there are any type of supply chain issues out there with so many of our customers being single sourced with us, they cannot afford for us to not be able to ship something to them.
Rajesh Vashist: Right. So, yes, I wanted to underline some more on what Art said. I’m very comfortable with our inventory and we’ve done this somewhat deliberately for two, three reasons. One reason is, as we pointed out, none of our products have been obsoleted in the history of the company and wafers “don’t go bad.” that’s one. The second is 80% of our business is single source and as we head into the comms enterprise, automotive and aerospace defense markets, it’s important for us to reassure our customers that they are in safe pair of hands. The third is less defensive and more opportunistic or offensive. Nobody knows whether the back half of this year is a big — the curve, right? We definitely expect it to be more than first half, but there’s a case to be made for it to be made for that to be a big snapback to be a real snapback in demand in the second half.
I’m not saying that it will be. I’m just speculating that if it is, I think it gives SiTime a great position to be able to capitalize on that with our programmability with our value proposition, and we think that, that it makes sense for that reason as well.
Tore Svanberg: Very helpful. Thank you so much.
Art Chadwick: Thanks, Tore.
Operator: Thank you. Please standby for our next question. Our next question comes from the line of Doug O’Laughlin with Fabricated Knowledge. Your line is open.
Doug O’Laughlin: Hey, Art. Hey, Rajesh. I was just wondering for the full 2023, will you be shipping below the run rate demand. I mean we just don’t know what the second half looks like. Now I was wondering if there’s a possibility that the entirety of the year, you’ll be moving down the inventory? And then I have a follow-up.
Art Chadwick: Yes. So we will clearly be shipping below end demand, right, because our customers have to work through some of their inventory. So whatever we end up shipping the end demand will have been higher. So I don’t know if that’s your question or if it has to do with our inventory.
Doug O’Laughlin: Okay. So I was more just trying to get the trajectory of the second half, right? Like there really is no way to know right now, but like — for example, at some point in Q3, Q4, if your largest customer goes from essentially zero to some amount, I’m just trying to get a better shape. I was just essentially trying to ask what Q3 and Q4 could look like on the other side, but I understand that’s pretty hard to forecast. So could I ask another question
ArtChadwick: Let me provide some comment on that. Yes, we believe that sales to our largest customer will come back in the back half for two reasons. One, in the first half, they’re going to have to consume inventory. That disappear — that situation disappears in the back half. And the second piece of this is that our strongest business with this customer has always traditionally been in the second half of the year. If you go back and look at preceding years, that is — we ship a lot more to them in the back half of the year than the first half of the year. So I firmly believe that our sales to that customer will come back relatively strongly in the back half of the year.
Doug O’Laughlin: Okay. Perfect. And then on the design win side, you talked about 300 applications in the prepared remarks. Is there some kind of — do you guys track the application expansion? And is there a way to see how much that’s expanded over, say, €˜21 or 2020?
Rajesh Vashist: We don’t track it as a primary metric. It’s one of the secondary metrics. What we track our design wins in particular segments rather than in particular applications. But I think it’s safe to say that from the time that we went public, we’ve gone — we have about doubled the number of applications. So in other words, we’ve probably gone from sub-150 to 300 applications, and we continue to add applications every month, really.
Doug O’Laughlin: Okay. And going forward with these design wins, do you think you’ll be able to double that again? Like I’m just trying to get a kind of magnitude of the number of design wins like from the longer tail? Or is it going to be like a similar group of current applications that are just being sold into more and more, if that makes any sense?
Rajesh Vashist: Right. Like our funnel is very strong, right? Our funnel continues to grow very, very solidly year-on-year. every year that we’ve been here, it’s been growing a lot. And that’s no surprise given that we’ve been adding new products, and we’ve been marketing stronger and so on. as long as our funnel growth continues, particularly around single source, particularly around our focus markets, particularly around our higher differentiated products. I think that the design wins will follow quite naturally. But we think that they will grow, but I couldn’t say whether they double, and I couldn’t give you that level of precision.
ArtChadwick: So Doug, another way to think about it is we talk about our SAM a lot. And we calculate that SAM by looking at the different applications and how our products will apply to those different applications. Our SAM was $1 billion a year ago. Just recently, as Rajesh mentioned on the call, we think it’s about $2 billion now. And by the end of 2024, we think it goes to $4 billion. And a lot of that SAM expansion comes from new products that are essentially going into new applications.
Doug O’Laughlin: Alright, perfect. Thanks guys.
Operator: Thank you. I’m showing no further questions in the queue. I would now like to turn the call back over to management for closing remarks.
Rajesh Vashist: Yes. I’d like to just say that I feel very comfortable. Obviously, the decline in our largest customer’s revenue is not to our liking, but we understand the situation very well because, as I said, we helped get some clarification in it. So we have good insight into that. We are also on the second half of the year, as mentioned by Art quite confident in the growth of their business. Ex that business, the rest of our business continues to do well. We continue to believe that Q1 is, in fact, the bottom and that we start to get back in Q2 and Q3, Q4, the — it starts to ramp up. What the level of that ramp is? We’re watching carefully. We obviously have strong views on that, but we’re just watching for now, and we’ll let you know as it unfolds.
Clearly, though, what makes me feel very good about the place where we are is that in all of this, our ASPs continue to grow. Our single-source position continues to be at 80%. Our funnel continues to grow. Our products are right on time. And given the — even in spite of the complexity, we are able to bring them out and connect with our customers. So all in all, I think we’re in a great shape, and we’d love to give you more information as we go further in the quarter. Thank you very much.
Arthur Chadwick: Great. Thank you everybody.
Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.
