At Silicom New Products Contribute Sooner than Expected

Zacks Small Cap Research

By Ken Nagy, CFA

On April 22, 2013, Silicom Ltd (SILC), the provider of high-performance server and appliances networking solutions, reported financial results for its first quarter, ended March 31, 2013.

The Company’s solid momentum continued with revenues for the first quarter jumping year over year by $4.929 million or nearly 49 percent to $15.030 million, which compares to revenues of $10.101 million for the three months ended March 31, 2012. Sequentially revenues fell from record revenues of $16.693 million from the fourth quarter of 2012.

The solid results demonstrate the continued growth driving power of the Company’s 90 plus top tier customers, its expanding portfolio of unique, need driven products and its focus on some of the industry’s strongest markets.

Operating income for the quarter increased year over year by over 74 percent to a record $3.322 million, which compares to $1.906 million for the comparable quarter of 2012. Sequentially, operating income improved from $3.189 million for the quarter ended December 31, 2012.

Although total operating expenses increased year over year by $450,000, they fell to 18.0 percent of revenues from 22.3 percent of revenues during the first quarter of 2012. Likewise, operating expenses as a percent of revenues improved sequentially from 18.6 percent of revenues for the quarter ended December 31, 2012.

Operating expenses are growing at a much lower rate than revenues demonstrates the inner and operating leverage and ongoing strength of Silicom’s business model.

However, gross margin for the three months ended March 31, 2013, fell to 40.1 percent compared to 41.2 percent for the first quarter, ended March 31, 2012. Sequentially, gross margin improved from the 37.7 percent for the three months ended December 31, 2012.

Still, gross margin varies between quarters mainly as a result of the specific mix of products sold during the quarter.

On a GAAP basis, the Company’s first quarter net income increased year over year by nearly 57 percent or $1.126 million to a record $3.103 million from net income of $1.977 million for the comparable quarter of 2012. Sequentially, GAAP net income improved by $72,000 from $3.031 million for the quarter ended December 31, 2012.

Based on a weighted average number of diluted shares of 7.166 million shares, diluted net income per share resulted in net income of $0.43 during the first quarter of fiscal 2013.  This compared to a diluted net income per share of $0.28 on a weighted average number of diluted shares of 7.022 million shares during the three months ended March 31, 2012.

On a non-GAAP basis, the company reported first quarter net income of $3.268 million or $0.46 per diluted share. This compares to non-GAAP net income of $3.420 million or $0.49 per diluted share for the quarter ended December 31, 2012 and $2.075 million or $0.30 per diluted share for the quarter ended March 31, 2012.

For the period ended March 31, 2013, Silicom’s cash, cash equivalents, bank deposits and marketable securities totaled $56.4 million or $7.93 per outstanding share, which compares to $56.9 million, or $8.12 per outstanding share as of December 31, 2012.

Furthermore, as a demonstration of management’s confidence, and in light of the Company’s significant cash reserves, Silicom recently announced and paid out a dividend to further enhance the value of its shares for its shareholders.

The strong cash level demonstrates to both its existing customers as well as new potential customers that the Company can meet all their needs and provide them with support over the long term.

Furthermore, the 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.

Along the same lines, Silicom intends to internally leveraging its cash position for continued investment in research and development and market leadership to build future growth potential.

Management believes its accelerated growth will continue to compound in the future. This is anticipated through continued success and expansion of existing business and through new growth engines.

Likewise, the Company recently launched a brand new product family expanding its addressable markets. The new product line which introduces unique intelligent capturing cards supporting Nano-Second Time-Stamping is very much a breakthrough enabler of next generation network monitoring for big data environments and market sector with significant future growth potential.

Management is excited to have launched its first product within this new Intelligent Nano Time Stamping NIC product, in which sales are expected to ramp up to $15 to $20 million within just a few years.

Similarly, Silicom reported that one of the world’s largest networking companies has become a customer of the Company’s SETAC modules, which is expected to gradually boost the customer’s orders by several million dollars per year.

Management expects that their use of the Company’s solutions will continue to increase in the years to come as they launch more next generation products built on SETAC and that sales to them will represent a reliable and continuously growing revenue stream.

Silicom’s ongoing success is happening on all fronts and growth is coming from its existing customers, its increasingly diversified product line and its expanding customer base across all target markets.

With strong demand for all of the Company’s product line, exciting strategic wins with some of the industry’s most important players and an extensive pipeline of potential sales, management believes that Silicom is well positioned and remains very optimistic with regard to the Company’s future potential.

A copy of the latest research report can be downloaded here >> Silicom Report 

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