Release Date: October 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Silicom Ltd (SILC, Financial) made continuous progress towards its mid and long-term goals to generate shareholder value.
- The company anticipates improvement in sales through 2025, with full resolution of inventory issues expected by the end of that year.
- Silicom Ltd (SILC) maintains a strong balance sheet with $125 million in working capital and marketable securities, including $77 million in cash and no debt.
- The company has a broad and deep pipeline of opportunities, with potential for faster ramp-up than expected, which could accelerate progress towards financial goals.
- Silicom Ltd (SILC) has secured significant milestones, including a service provider customer selecting its edge products and a network equipment OEM choosing its high-speed 400 gig FPGA smart card.
Negative Points
- Silicom Ltd (SILC) reported a revenue decline to $14.8 million in Q3 2024 from $30.1 million in the same quarter last year.
- The company experienced a net loss of $1.7 million for the third quarter of 2024.
- Sales continue to be impacted by excess inventory built up by customers in prior years, affecting near-term performance.
- Gross margin decreased to 28.8% in Q3 2024 from 31.1% in the same quarter of 2023.
- Revenue growth is expected to be low single-digit in 2025 due to lingering inventory issues with customers.
Q & A Highlights
Q: Can you comment on the mix across different verticals in terms of your current revenue run rate? Is the service provider still the main vertical, or are you seeing traction in enterprise or other areas?
A: We don't see a huge difference from what we've seen in the past. It's a mix of OEMs and service providers. In OEMs, strong segments include cybersecurity, network monitoring, and the SD-WAN markets for our edge boxes. Cybersecurity and platforms/infrastructure each account for about 31% of revenue, network appliances 26%, and the rest is 5-7%.
Q: Regarding inventory at key customers, what drives your confidence in a rebound as we exit 2025? Is there any risk of obsolescence for your products on hand with customers?
A: We monitor this by speaking with customers who share their numbers with us. We see orders coming in, indicating they are consuming inventory. Some customers are selling slower than expected due to previous shortages, but they are still selling. We assume most inventory issues will be resolved in 2025.
Q: How should we think about your cash burn through late next year, and are current OpEx levels sufficient to sustain the business?
A: We expect OpEx to remain flat with a slight increase, as we believe we have the right team size to support future growth. Revenue is expected to see a slight increase, with GP remaining the same, so we have a clear expectation of where we will be.
Q: Are there any significant changes expected in your market segments or customer base?
A: We are seeing opportunities and actual revenue across all segments, including cybersecurity, network monitoring, and SD-WAN markets. We continue to engage with both new and existing customers, which supports our long-term growth strategy.
Q: What are the prospects for your design wins and revenue growth in 2026 and beyond?
A: We have significant milestones, such as a service provider selecting our edge products and a network equipment OEM choosing our high-speed 400 gig FPGA smart card. These developments affirm the potential for significant revenue growth in 2026 and beyond, with early deployments starting in 2025.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
