Silicom provides specialized network components to most of the networking OEM’s around the world. They have developed these products that most of the high-end networking OEM’s have adopted over the last year. This adoption rate is very important to understand as it provides the foundation for Silicom’s future growth. In OEM market place it takes 2-3 years to get full adoption for a new technology and in this case I am talking about SETAC. In 2012 a number of networking OEM’s started qualifying SETAC as a potential replacement for their expensive non-standard appliances. OEM’s start this process by first qualifying the technology, then working with their largest customers to have them qualify it and then start with a small production, typically in Q4 for Q1 shipment. During the first year of adoption they will usually be shipping both new and older technology as the complete switch over will take place in year 2.
So where does this bring to today?
SETAC is at an inflection point as we are about to hit the buying and new product announcement point for 2014. OEM’s buy what they need for Q1 in Q4, which is why the Q4 number is always the best quarter and Q1 is 10% less.
Silicom has another technology coming on that like above, usually takes a lot longer to qualify but has an immediate need; this is their Time Stamp solution. This is a big unknown as far what it will immediately add to earnings and revenue, and there is only upside here.
Silicom’s growth in the last 3 years has been outstanding; 2010=48%, 2011=30% and 2012=35%. This year we are running at a 50% increase over 2012 but will probably see level off at about a 35% increase over last year, as Q4 last year was huge.