Silicom Ltd. (Nasdaq:SILC; TASE:SILC) is taking 2013 by storm, after achieving a modest yield of 2.3% in 2012. The company's share price has risen 59% in heavy trading since the beginning of the year, reaching $28.29 at Nasdaq's close yesterday, an all-time high, beating the previous high point reached in September 2007, before the economic crisis.
"I have no doubt that today's Silicom is worth far more than at the share price's previous peak. Not only are sales higher, but so is the future potential," Silicom president and CEO Shaike Orbach told "Globes" in an interview.
Silicom, a provider of network connectivity solutions, has a market cap of $195 million. The latest jump in the share price was ignited by record results for 2012, and the launch of a new product, which the market has welcomed with open arms.
Silicom posted $49 million revenue in 2012, 23% more than in 2011, and its net profit passed the $10 million threshold. The company expects growth to continue in 2013, but it offers no guidance.
"This may be due to conservatism," admits Orbach when asked about this. "We wouldn’t want to say something that we might have to retract. It's very hard to give forecasts at the quarterly level. It can be easier at the annual level, because we know there is no reason for us not to grow, but the visibility could be greater, and there is always some uncertainty."
Reinventing the wheel
A few weeks ago, Silicom launched its new network adaptor, NICS, which can navigate the web in a big data environment and integrates Intel technology. Immediately following the launch, Silicom announced a design win, which the company estimates will boost its annual revenue by $15-20 million.
"Every time the prevailing network speed increases, you have to reinvent the wheel," says Orbach. "We took something that exists, invented something new to work together to provide the same performance with higher reliability and flexibility at a lower price and rapid update capability."
The new solution may boost Silicom's average contract size. "This is a unique solution, technologically, and on top of that, the market is very clear to us," says Orbach. "In contrast to other solutions, the way forward in the market is clear. Sometimes, you develop technology, everyone is enthusiastic, but then you can't sell. Here, from the moment of launch, we signed a design win, and obtained proof of concept."
"Globes": Is this the reason for Silicom's current optimism?
Orbach: "It's one of the reasons for the optimism. When looking at our financial reports, it's hard not to be optimistic in view of the results, and we have indications that they will continue."
30 months ago, Orbach told "Globes" that even if the market did not grow, Silicom would. "Our strategy, set by chairman Avi Eisenman a decade ago, still works,"Orbach says now. "Even in the current conditions, I believe that we'll continue to grow faster than the market. That's not easy to say, because the market has changed and we operate in several different markets."
Orbach says that the base servers market is growing slowly, the WAN and security markets are growing at an average rate, and the big data and virtualization markets are growing rapidly. "We have about 100 customers, and this number of customers represents what is going on in the market. If we're close to them, we'll sell a higher rate than the market," he says.
"Customers love us and stay with us. We've never lost a customer to a competitor. Every new product or addition that we sell them, and every new customer we add will boost growth above the market performance. I believe that that will be the case."
Growth through acquisitions
Despite Silicom's growth expectations, it has begun considering achieving growth through acquisitions. Silicom recognized a $165,000 expense in the fourth quarter for costs related to an acquisition which was ultimately not made. Orbach is sparing in details, saying, "It didn’t help, and in retrospect I'm glad about it, but we're still seeking acquisitions."
What kind of companies do you want to acquire?
"Companies which will fit with our strategy, and will provide us with technologies and products for the same markets. For example, encryption solutions and software for improving apps' performances. Our ideal isn't necessarily a profitable company, but sales, which proves that the market accepts its products and it's not simply a case of wishful thinking."
Could Silicom become an acquisition target?
"There's been talk here and there, but nothing serious."
While Silicom looks for a company to buy, it has found a use for its cash. With $57 million in cash at the end of 2012, it announced its first dividend of up to 50% of profits. Zohar Zisapel is Silicom's largest shareholder, with a 21.6% stake.
"The company is profitable, and not just on paper. This translates into cash," says Orbach. "Until now, we've kept the cash to demonstrate financial soundness and to exploit any acquisition opportunities that might come up, but we can now do both, and let investors benefit."
Investors may have rediscovered Silicom, but investors aren’t lining up to cover the share.
"I'm no expert to say why, maybe because Silicom's performance is high compared with a dream. We're not the kind of company which says, 'We'll have $1 billion in sales.' We have innovation, but success depends on performance and by reinventing the wheel."
Published by Globes [online], Israel business news - www.globes-online.com - on March 12, 2013
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