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Momentum Continues at Silicom

Ken Nagy, CFA

On April 23, 2012, Silicom Ltd (SILC)), the provider of high-performance server and appliances networking solutions, reported financial results for its fiscal 2012 first quarter, ended March 31, 2012.

The Company’s solid momentum continued with 29 quarters of unbroken profitability and revenues doubling and net profit tripling in two years.
Silicom’s first quarter revenues improved year over year by just over 10 percent to $10.101 million, which compares to revenues of $9.177 million for the three months ended March 31, 2011.

The strong results were primarily driven by strong demand from the Company’s 85 plus OEM customers that supply a variety of networking solutions.

Operating income for the first quarter increased year over year by over 12 percent to $1.906 million, mainly as a result of the improved revenues and lower total operating expenses as a percentage of revenues which were offset by lower gross margin.

Gross margin for the three months ended March 31, 2012, fell to 41.2 percent compared to 43.4 percent for the first quarter, ended March 31, 2011.

Although total operating expenses increased year over year by $46,000, they fell to 22.3 percent of revenues from 24.1 percent during the first quarter of 2011.

On a GAAP basis, the Company’s first quarter net income increased year over year by just over 12 percent or $212,000 to $1.977 million from net income of $1.765 million for the comparable quarter of 2011.

Here again, the increase in net income was a result of increased revenues and lower total operating expenses as a percentage of revenues which were offset by lower gross margin.

Based on a weighted average number of diluted shares of 7.022 million shares, diluted net income per share for the first quarter resulted in net income of $0.28 per diluted share during the first quarter of fiscal 2012.  This compared to a diluted net income per share of $0.25 on a weighted average number of diluted shares of 7.013 million shares during the three months ended March 31, 2011.

On a non-GAAP basis, which excludes non-cash share-based compensation, the Company reported first quarter net income of $2.075 million compared to non-GAAP net income of $1.882 million for the quarter ended March 31, 2011.

Silicom’s cash, cash equivalents, bank deposits and marketable securities totaled $51.3 million or $7.41 per outstanding share which is an improvement from the $49.2 million, or $7.10 per outstanding share as of December 31, 2011, and a year over year increase of $2.1 million.

The improvement of assets provides the Company with a substantial level of working capital and financial flexibility, placing Silicom in a position of strength and stability, enabling the Company to continue to invest in its business as well as take advantage of opportunities as they arise.   

It should be noted that during the first quarter, ended March 31, 2012, the Company announced a major new SETAC design win, with significant long-term potential and which was to a customer outside of Silicom’s primary target market.

The success of this new contract as well as other recent SETAC design wins demonstrates SETAC’s broad market appeal and its potential to become a powerful future revenue driver for the Company.

Silicom’s cost competitive SETAC (Server To Appliance Converter) product family, offers a distinctive growth opportunity that enables the Company to offer a full network appliance platform solution.  This new product line permits Silicom to address new market segments as well as obtain nearly unlimited potential with the its existing customer base.

Furthermore, the Company believes that industry fundamentals remain strong and continue to accelerate, driven by rising internet traffic, cloud computing and virtualization.

Likewise, Silicom expects significant growth in 2012 and beyond as it continues to see strong traction for its traditional products and growing interest in its new product lines, which it believes will contribute significantly to its future growth.

Similarly, the continued ramp up of need and demand for its product lines should bring steady growth in demand from existing and new customers.

To view a free copy of our most recent research report on SILC or subscribe to our daily morning email alert, visit Ken Nagy's coverage page at


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