Q4 2020 Silicom Ltd Earnings Call
The diluted.
[music].
Ladies and gentlemen, thank you for standing by welcome to the Silicon fourth quarter and full year 2020 results conference call. All participants are present in listen only mode. Following management's formal presentation instructions will be given for the question and answer session as of.
A reminder of this conference is being recorded.
Of all received by now the Companys press release, if you have not received it please contact silicon Investor Relations team at GK, Investor and public relations at 16466883559 or view it in the news section of the company's website.
W. W Dot silicon Dash USA Dot com I would now.
Now like the handover the call to Mr. Ehud Helft GK Investor Relations. Mr. Helft would you like to begin please thank.
Thank you operator, I would like to work on one of your the silicones fourth quarter and full year.
2000 on 'twenty results conference call before we start I'd like to draw your attention to the following safe Harbor statement.
This conference call contains projections or other forward looking statements regarding future events or the future performance of the company.
These statements are only predictions and may change as time passes so different does not assume any obligation to update that information actual of the actual results may differ materially from those projected including as a result of file increasing dependency for substantial revenue growth on a limited number of customers in the evolving cloud based SD Wan.
And if V and edge markets, the speed and the extent of which solutions are adopted by these markets. It actually of that we will rely on Christian you on customer of each of our solution, which provide solutions in the use of over the market.
Resulting in an increasing dependency on a smaller number of larger customers.
The difficulties in commercializing and marketing silicones products and services, maintaining and protecting brand integrations with.
The action of intellectual property.
Competition disruptions to our manufacturing and development and development along with general assumptions for the entire world economy relating to the spread of the novel Coronavirus COVID-19, and other factors Indentified in the document filed by the company with the SEC.
In addition, following the Companys disclosure of set of non-GAAP financial measures in today's earnings release, such non-GAAP financial measures will be discussed during this call.
Such non-GAAP measures are used by management to make strategic decisions focus future results and the value of the company's current performance.
Management believes the presentation of these non non-GAAP financial measures is useful to investor understanding of an assessment of the company's ongoing cooperation and prospects of the future.
Unless otherwise stated it should be assumed debt financial discussion of this conference call will be on the non-GAAP basis.
On a GAAP financial measure of disclosure I mentioned of providing additional information to investors in order to provide them with an alternative method for assessing our financial conditions and operating results.
Measure the these measures are not in accordance with a substitute for GAAP.
For the reconciliation of non-GAAP to GAAP financial measures is included in today's earnings release, which you can find on telecoms website.
With us today on the corner of the shaky all of US the Seo and we still on get out of the CFO.
Jackie I would agree with I mean with the overview of the results followed by Ron will provide the on US is of the finishes. We'll then turn all of the causes of the question and answer session.
And with debt I would now like to hand of the car to shake checking go ahead. Please.
Thank you Edward I would like to welcome all of you would do on a conference call to discuss our fourth quarter 2020 of results.
We are very pleased with the solid improvement in all the financial results in the fourth quarter.
We reported revenue of $33 $9 million ahead of our guidance expectations and 33% improvement over the fourth quarter of the past year and also a strong 19% improvement over the previous quarter the.
Despite what has been a very tough year 2020 still show revenue growth versus 2019.
Furthermore, we reported our 64th quarter of profitability with net income of $4 million. This represents a 29% increase over Q4 of last year and of 36% increase versus the prior quarter.
We ended the quarter with over $76 million, the net cash and for the quarter used our strong cash position to further progress on our share buyback with the goal of bringing increased value for shareholders.
Our results demonstrate that we have been able to move ahead with our strategy and more than maintain business continuity in a difficult environment.
This shows the resilience of our business and our ability to plan and overcome the work challenges that the ongoing pandemic continues to bring all of us.
During 2020, our strategy was made even more clear and more focused than ever before.
Throughout 2020, we price primarily ensured the dream of add up and fully capping into today's most important market trends the shift of the cloud as well as disaggregation and the Catholic.
This is where we directed our R&D investments as well as our sales and marketing efforts over the past few years with increased focus on additional strategy fine tuning in 2020.
We already see the fruits of our investments with successful customer penetration throughout the relevant product line that addressed all of those trends.
Today I want to spend time talking about the trends that we cater to that we see driving our business in the coming quarters.
Yes.
The first and obvious trend, which I would like to discuss is the shift to cloud provided services, both public and private.
They immediately of the outcome of the cloud shift is the move towards standardization, which is key for scalability standardization has led to two important trends, which are disaggregation of decoupling.
[noise] disaggregation means of replacing the proprietary interfaces between the various parts of the network with standard interfaces that has the benefit of the allowing the various spots to be procured separately from independent vendors.
Please heed the separation of the software layer from the underlying hardware, allowing again independent procurement efforts.
These aggregation on decoupling trench, which started in the cloud have created a process impacting all parts of the networking market. This process started with standard of service business. The part of the generic infrastructure by cloud players and then move the telcos operating in the SD Wan and if the market segments.
Which are increasingly procuring the hardware and the software separately and now the telcos are adopting all run open radio access networks, which allows such desegregation in the clot decoupling in their <unk> and <unk> infrastructure deployments.
I would like to discuss how these trends are impacting us.
Summarizing the impact while the more while at the most basic level the crop the cloud trends create the gradual decrease in demand for our silver adopters as our traditional appliance customers are increasing their software only offering which is what they sell to the cloud players.
Overall, both of the cloud SaaS and the disaggregation of decoupling trends haven't dramatically positive impact on us.
Let me elaborate standardization and the existence of standard of service into the cloud increases the demand for smart cards as such servers need of acceleration offloading the abilities to support the required performance. This obviously corresponds with our massive investments in smart.
Cards, including FPGA based cards and other types of Offloading and acceleration cards. Furthermore, standardization in the cloud created the disaggregation in decoupling trend, which has caused significant demand by the telcos for software independent Smart car smart platforms.
So use of CPE devices for SD Wan and if we we in turn are seeing the increasing demand for our CPE devices, which we developed over the past years due to that trend.
The potential for both Smartcards into cloud and CPE devices for SD Wan and NFC is huge.
These basic trends I know of further penetrating the mobile <unk> slash five G infrastructure market through the overrun standard. It is again, a huge opportunity for us within the mobile infrastructure or on creating opportunities for combinations of our brought up to an expertise.
Where we can take advantage of our unique and integrated capabilities, the networking acceleration FPGA and smart platforms. All of these are needed both in the front haul or edge and at the backhaul as all of these segments of the network are now operating via the overrun definitions.
Consequently in the broad hold we are now able to propose to our customers a unique integrated distributed unit, which includes the acceleration functionality weighted by a dedicated accelerators of through FPGA based solutions and time synchronization functionality both in much for such a deployment.
We are also proposing our acceleration in time synchronization solution separately for other do you distribute the units manufacturers, which by itself is a huge market and also in the backhaul. Our FPGA based offloading cards are generating interest for use of planned functionality offload moving towards the telco.
Cloud as well.
As you can see moving into 2021 and beyond silicon, which perfectly positioned the markets that we address are all performing strongly and are expected to continue with the significant growth in capex investments.
The trends within the within these markets support the areas that we have invested in over the past few years. They support our cloud penetration effort through smart cash our SD Wan and then if we related effort through smart box of smart platforms and now they also support our smart plus.
Forms and Smartcards together and separately for the huge Fuji slash <unk> over on based mobile infrastructure market. In fact, we have correlated our investments with the strengths and we have been able to achieve initial success across all of our product lines developed to address.
These trends our focus became very clear to us, allowing us to aboard efforts, which did not match our focused strategy.
However, even with all of the trends, which are converging in our favor I stress that the sales cycles in our current markets, especially with the telcos are longer than what we have traditionally seen on the other hand, many of such new potential telco design wins have much greater SKU.
Gaming potential than what we have traditionally experienced Furthermore, the H design win we have already achieved and continued to achieve represent an opportunity for sustained long term revenues once we establish a relationship with the customer.
And this result of why our recent success and wins are indeed, so important.
I would like to focus on those recent successes.
As you know we are selling one of our FPGA based cards to an important cloud vendor, which is using the cloud to accelerate the functionality of each network nodes.
And indeed, what we were planning with this customer is now actually happening.
One it is a growing gradually and of course.
Doing anything for another smart cart, which is offered for a different part of the customer's data center is now being discussed and we have also begun discussions about the next generation solution for the current smart cards.
All of this is just one example of the fact that once again with our new cloud and telco customers, who are building the same kind of long term multi year relationships. We have built in the past with our OEM customers.
The early in the fourth quarter, we announced three new telco UCB wins, these wins, which are expected to reach $10 million per year altogether demonstrate that indeed, the strategy of providing smart platforms to telco, while in the background continuing to work together with the.
With a sort of vendors exactly the purpose of the decoupling trend Indeed works for us contributing to our portfolio of customers as well as to our revenues.
Later in October we announced the debt do you want the mobile operator selected our overrun ready architecture for next generation distribution distributed unit for a field trials should of solution be selected for mass production the revenue potential could be tens of millions of dollars from this customer alone.
The architecture of selected by this customer for which will drive reflect all of the principal of our disaggregation on decoupling strategy. It is based on the architecture of smart platforms. The <unk> imported from our SD Wan and if the solutions. It is Oran compliant disaggregated and decoupled. It includes our smart.
For both the fact acceleration and time synchronization and the customer value with our capability of proposing a fully integrated solution of all of your components and decided to do it still drives with this architecture.
Furthermore, the selection was also enhanced but we're very close cooperation with Intel and of late and the leading <unk> software vendor I know debt such cooperation and relationship building is an important part of our strategy.
Yes.
About two weeks ago, we announced the one of the worlds largest telcos awarded us with the design win for all of rerun virtual radio access network <unk> accelerator cards for their new of Iga network distributed units.
The important of this win is far beyond the numbers our customer in this case is the beacon paving the way for many other customers each of which is it is a giant in their own right. We are already feeling the dynamics, which have been created created by the swing through continuous requests for.
Patients relationships created with other industry Giants and I'll go through additional variations of the solution that we provide.
Furthermore, as part of the deploy the vessel deployment process. We will work closely with two of the telcos key distributed unit suppliers, both of which of work well.
What leading server manufacturers. This will open the door for further significant sales of our fact accelerator cards. Two additional end users on top of the telcos, which are approaching the directly.
This win facilitated by the disaggregation of decoupling trend demonstrates the unique value that we bring in all of our product to this market value based on our deep five G system level understanding our high performance to close ratio our extremely close working relationship with Intel.
On the closing of intimate relationships, we have built with most of the clip of players in the <unk> space.
As you can see our investments as well as our recent success in the announcements are all in line with our strategy of aiming at addressing these market trends.
Yes.
I would like to spend a few moments discussing our guidance.
For the first quarter of 2021, we expect revenues at between $28 million and $29 million, which represents year over year revenue growth of 29% at the midpoint.
Given our very long and growing list of design wins generating ongoing orders, our solid base line of activities and strong market fundamentals with our focus on some of the latest of the fastest and latest growing markets in the networking space, we are exceptionally well positioned for 2000.
The one and beyond.
Thus, we feel comfortable with providing more color on our 2021 annual revenues and believe it will be in the range of $120 million and $130 million at the midpoint. It represents 17% year over year of growth.
Please note our expectations assume that the COVID-19 crisis will not worsen.
The assumes we will continue to be able to overcome the significant challenges presented by long lead times of critical components for many chip vendors.
Components lead times are increasing and scarcity.
The scarcity.
Is increasing pricing prices and in some cases, we see lead times of 12 months or even longer.
Why do we have done our best to ensure more than sufficient inventory the effect of longer lead times could have an impact when or if the mix of actually order product diaper significantly from the forecasted mix. It could also bring it could also impact the possible upside we would gain from additional potential.
In our pipeline or from faster than forecast of dropbox of existing design wins.
In summary, as I've shared with you the disaggregation of decoupling trends have had the impact of significantly increasing silicones potential of.
The long list of design wins, our partnership with leading software vendors and telcos, our extensive collaboration with Intel and our current long and deep pipeline provides us with much optimism going forward, which continues to grow.
Consequently, we expect that the coming few used for silicon will see performance well ahead of what we have achieved over the past few years and that we will continue to achieve ongoing revenue growth of double digit compound annual growth rate for several years ahead.
With that I will now hand over the call to Iran. For a detailed review of the quarter's results Iran. Please go ahead.
Thank you Shaker and Hello, everyone.
Revenues for the fourth quarter of 2020 were $33 $9 million.
This is of year over year increase of 33% compared with revenues of $25 $5 million as reported in the fourth quarter of last year.
And a sequential increase of 19% over the $28 $4 million reported in the prior quarter.
Our geographical revenue breakdown over the last 12 months were as follows North America, 61%.
Europe, and Israel, 33% far east and the rest of the world 6%.
During the last 12 months, our top 310% customers together accounted for about 35% of our revenues.
I will be presenting the rest of the financial results on a non-GAAP basis, which excludes the non cash.
Compensation expenses in respect of auctions in our of Skus granted to directors officers and employees acquisition related.
Adjustments lease liabilities financial expenses as well as impairment of intangible assets.
As Sean mentioned in 2020, we correlated our investments with the disaggregated and decoupling trends and following our initial success across all of our product lines addressing these trends we reported some airports, which did not match our folks.
Gross.
The strategy.
As a result, we took the one time one several billions of dollars impairment charge to our cost of sales.
For the full reconciliation from GAAP to non-GAAP numbers. Please refer to the press release, we issued earlier today.
Gross profit for the fourth quarter of 2020 was $11 4 million.
Representing a gross margin of <unk>.
33, 6% compared to the gross profit of $9 million or gross margin of 35.1.
Percentage in the fourth quarter of 2019, the variance in the gross margin is a function of the specific product mix sold in the quarter.
Operating expenses in the fourth quarter of 2020 were $7 $5 million compared with $6 1 million in the fourth quarter of 2019, all of the increase in R&D related and represents our.
The continued significant interest investment in developing new products IP and technologies.
Operating income for the fourth quarter of 2020 was $3 9 million, an increase of 37% compared to operating income of nine of $2 $9 million as reported in the fourth quarter of 2009.
<unk>.
Net income for the quarter was $4 million.
An increase of 90 of 29% compared to $3 $5 million in the fourth quarter of 2019.
Earnings per diluted share in the quarter were 56.
This is of year over year increase of 37% compared with EPS of <unk> 41.
As reported in the fourth quarter of last year, and a sequential increase of 37% over the fourth 41 reported in the prior quarter.
Now turning to the balance sheet as of December 31, 2020, the company's cash cash equivalents the tender.
Deposits and Mark to the securities totaled.
$76 $1 million with no debt or $11 two per outstanding share.
During the quarter, we further executed on our second $15 million.
Share buyback plan, which we started on may 4th 2020.
During the fourth quarter, we purchased approximately 111000 shares at the total cost of $4 2 million.
That ends my summary, and we would be happy to take any questions operator.
Later.
Thank you ladies and gentlemen at this time, we will begin the question and answer session. If you have a question. Please press star one if you wish to cancel your request. Please press star two.
You are using speaker equipment kind of lift the handset before pressing the numbers.
Questions will be polled in the order they are of seats. Please standby, while we poll for your questions.
The first question is from Alex Henderson of Needham and company. Please go ahead.
Thank you very much first off.
Congratulations on outstanding quarter.
Obviously your strategy is really paying off quite.
Quite impressive.
I did want to talk a little bit about the issues around the supply constraints 12 months of ore.
Longer lead times as well.
Really unusual.
I get I get it seems unusual period relative to COVID-19 and the like but.
How do you think that that gets resolved the what are the the suppliers telling you in terms of the flexibility how are you approaching it relative to giving up some margin twos to procure additional supplies.
If you need it to keep of your customers satisfied that it seems like.
That's in the unusually large constraints.
Well first of all yes, I mean this is an unusually large.
The issue of constrained this year this year is the.
2021, obviously is really going to be a challenging year from that perspective, and we are doing several things.
Things in order to mitigate that first of all I think we are and this is not something that has started right. Now we are preparing ourselves. We did have some indications that it's going to be a challenging year, we have approached our customers and we asked them to provide as accuray.
With a certain potential for upside.
The forecast as possible, we have had internal meetings estimating the forecast and we have placed orders for components ahead of time.
And that means that it's not assets. These challenges are impacting everything that we of play for just the other way around in fact, the impact would be or I wouldn't say the impact because we would try to mitigate the impact as well, but the challenges would be on <unk>.
The thing, which is not flat so everything which is a part of our plan. We took care of that we placed orders.
Even a while ago out of a certain while ago in order to be able to do that on time. So that's one part of that.
Yeah.
Another part of that.
Is the I would say.
Line pressure I mean, it may or may not be that nice, but at the bottom line and we do see that pressure helps so if they you would say that.
You would look at how I split my time for example, then due to these challenges.
Allocating more and more of my time to talk to the suppliers to the management to explain to them about our business potential and so on and so forth and I think that we're seeing some success in that area.
Because we invest more in getting the components that we need so we get more so that's the second part of debt.
The first part of that is making our customers of part of that process and when we have big customers. They are helping us with this process as well now on top of that because some of these components you could also buying the free market rather than from the authorized.
Rather from the I would say the manufacturers of.
The only ones confirming that from a quality perspective. This is okay, but in the free market. If you want to buy these components you need to pay more.
And we are talking to our customers to do to participate in that and to undertake for themselves at least when they come up with an upside already on forecasted demand. So they should take the the the expediting fees, which we called <unk> in order for us to be.
To deliver to them their goods and dish is also working for us now.
I would say that this is not always working and some times, we would need to pay somewhat more for components in order to need that to get them in time and some other some other thoughts we would not be able to achieve what we want to achieve but overall I still feel that are 2020.
The one that we are going to be successful there will be challenges.
This this is how we're trying to mitigate them, but the challenges are still there.
Couple of questions.
Thanks for the guidance on <unk>.
The one on top line.
Can you talk a little bit about what you think the impact of the exchange rates.
Obviously, the shekel has been with <unk>.
Wrong.
So on operating margins in which plans on a relative to invest in the R&D line.
Given the.
The magnitude of the opportunities in front of you.
And then finally.
Can you talk about what you think is going to happen with gross margins as you continue to shift to larger and larger deals.
These trends, obviously have an impact.
Yeah, well I would respond the Iran would later elaborate on the on the shekel versus the dollar I would say that first of all yes, we are investing in R&D.
Hey.
We are I would say, increasing our R&D efforts, but it's not going to be anything dramatic the overall.
Overall, but what helps us a lot I think is that our strategy.
During 2020, we have been able to clarify our strategy to the level that we haven't been able to do before and that's why I feel that our investments right now are much more focused and that's why even though that's why I can tell you that.
I feel as if we are increasing our investment in those areas, which we believe in it and even more than the increase in <unk>.
R&D expenses, because we were able to take away from our table take off the table and the other things that we consider to invest in which are not a part of the strategy right. Now. So overall I would say, yes, I mean, our R&D expenses in terms of men in labor hours because of.
Indeed, the shekel versus the dollar can change the picture of significantly just like it has this year, but in terms of how much we invest from the perspective of people and.
We are engaged in these efforts and sometimes sub contractors et cetera that would increase not dramatically, but that would increase the.
Two of certain level.
But it is much more focused.
And I feel much better with this investment because I really believe in our focus.
Roger can add a little bit more color to the shekel versus the dollar about the.
Change rate first of all.
The effect of the dollar compared to both the shekel and the Danish Crone, where the.
Obsidian or in the in Denmark.
So the effect in the quarter was actually very significant.
The negative effect on our operating expenses was approximately $400000.
And the negative effect on our financial expenses was also approximately $400000.
Yeah, I was really looking forward to.
Obviously the moves over the last couple of months.
On to new highs on the shekel.
I did not look at the crazy.
I will admit.
But the obvious move as we look forward can you just remind us what your hedging policy is and whether there was any hedging in there or whether we should be.
Our hedging.
The negative impact in the sport periods.
Our hedging policy is very simple, we do not hedge.
That's right, Okay, I Couldnt remember too many Israeli companies the coverage to remember.
Can you give us some tax free tax guidance for the year.
Oh, yes.
Couldnt see the.
The fixed expenses in the quarter was the.
Actually zero or close to zero. It is the result of a few one time.
The.
The positive effects.
And generally speaking I repeat the guy on the guideline that we say every quarter.
We anticipate we forecast of approximately a 15% effective tax rate.
For two hours a day at work 2000 of the.
'twenty one.
And then one more question on the day.
On the modeling so obviously, you've got tremendous cash generation.
Capabilities. So what are you doing relative to share buybacks or other.
Capital usage go on hold.
As I think we mentioned it on the call itself.
We progress as planned with the buyback plan and actually intend to meet the targets, which will set by the board buyback of $15 million within the one year.
And any of that exercise to at this point.
Any what.
Have you ever exercised any of that at this point.
Just the 2 million still outstanding.
Yes, actually during the fourth quarter, we purchased more than $4 million.
Which is even more of them.
Outstanding men.
Sorry.
So there was an 11 million still outstanding.
On the mobile that was 15 million that you've got $4 million and that's 11 million outstanding is that right.
Okay.
Yeah.
We still of the pipeline the approximately $45 million to invest.
So there's $4 million to $5 million left of the $15 million correct.
Okay. Okay. That's what I was looking for four five.
I'll cede the floor and get back on queue.
The next question is from Sergey Mascaro.
Please go ahead.
Hey, guys how are you kind.
You hear me weighted.
Yes.
Perfect. So first of all congratulations for the great quarter.
It seems that drive fight of the building some kind of momentum.
So that being said my first question is about the <unk>.
Line space.
The last quarter the west of here one is the one project that the wise not ramping up yet.
You receive all of the in Q4.
I think let me just clarify and make sure that I understood. The.
The question perfectly.
You're asking about.
The.
One SD Wan customer that we have that in the last.
Call. We said it was not ramping up yet and you're asking if its ramping up right now.
Yes.
Yes sure.
So I would say that I describe this question was related to two of telco wins that we had in the past out of which one we said last time that one of them was ramping up the other one did net drop off yet this situation has not changed right now even though there is.
The dynamics are well I'm, a little bit hesitant to say that it would ramp because each time that we saw that something is happening eventually refined out that's something different is happening. So we did not but on the other side I mean during the quarter, we have announced even during the last quarter, we have announced.
It's really design wins related to SD Wan.
Together with the mountain are expected to ramp up to around $10 million per year, and we did have some revenues from DS and I do hope the days will have.
You have a certain level of ramp ups.
During 2021.
Great perfect. Thank you.
The press release of all of these mode of any kind of relationship with the previous line, which was about the overriding field dry is weak.
I did not understand the question can you run that again by me. Please.
Yes sure.
The press release of all of these months.
Any kind of relationship with the previous press release, which was about the old bad in the field right.
No. The two press releases are separate entirely separate with two different.
The telcos.
Thank you every day.
These networks is working we intend for the fight the national deployments in the USA.
I believe these deployments are going to start in the second half of this year.
I am not wrong you had the.
The only then the partnering with interest for one product that these selected from Indian.
So could you maybe speak about these price it there is public information available.
Well I cannot speak about specific customers.
Right now we are working with Intel I would say across the board and Intel is indeed, helping us with the.
Variety of customers.
Intel is very significant in our engagements with all of these customers and the <unk>.
What I can tell you of the one thing that I can tell you is lack of specifically with the FTC debt acceleration call debt. We're doing we're currently debt.
Only I would say product in the market at this time of at least that it can.
Can support of non FPGA, and non softer which means the hardware accelerator, which is needed in the <unk> deployment and gets us based on Intel's Silicon Intel's ASIC, which is obviously why Intel is helping us in such an intensive way and that goes to actually.
All customers.
Okay perfect.
Belief that Asia is expected to a really fast in the fight the segment.
Tiger team, the China, and India markets.
And I would say, yes, we are targeting and the Asia market of.
Obviously, not only the Asia market, but we are targeting the Asia market as well.
Yes. Thank you did you sell any kinds of total war for U S. B.
And what does it mean instead of sort of gross margin.
Yeah.
You are saying if we saw the FPGA.
No I mean did you sell any kinds of sort of what with U S. P. Eight.
Oh, Okay, I see we definitely sell software with FPGA, but not at the stand alone mostly I mean in most cases, we sell it as a part of the product that we sell which is coupled with both software and Eh IP.
Which is.
The inside of the FPGA RTL or whichever way you on a colleague now this has an impact on the margins, which is why our margins on day sales are higher however that being said now that we're approaching the five G and the major cloud.
Players with FPGA proposals and the quantity is there going to be very very significant these huge player once they grow up in quantity. They may expect the margins to go down to a lever which is two of lateral which is closer to our I would say general type.
Of margins rather than to the higher level, which we are able to accomplish when the quantities on not yet that Todd.
Okay.
Could you maybe share with us which are your competitors in the older on space.
All of the fine certainly see in the segment and it is.
So really small companies.
Well first of all I should say that Orion is the big name, we are not covering the full space of Ora. For example is for example, they are quite of few.
The companies, which are developing radios, which will support ora and we're not there obviously.
So are we.
We are.
Within the overrun we operate well rather than giving you a number I would define where we are operating within or so first of all our major area of operation within the within overall is what is called the distributed units a day.
It is actually the unit there are different architectures. So please.
The I may not be 100% accurate here because my description may not be in accordance with all the architectures, but anyhow.
The distributed unit as the unit, which is actually interfacing with the radios, sometimes where the switch but typically in our way of our architecture. It interfaces with the radios on the one sales and with the central units of our compute unit on.
On the other side. So within this distributed units we are proposing to the market first of all of what goes inside of the distributed units, which are two types of cards. What is an accelerator. The other one of his time synchronization and the accelerator could be either a cloud which is based on debt.
Interest, Egypt, or an FPGA card and then the tragic organization costs. We are also as I said are importing from our SD Wan of television where infant importing the platform itself and we are able to all of you offer to your customers not only the cost which go into the plan.
Before but also of the platform itself.
Somewhat customized to address the distributed units.
The requirements and sub customers, they do see value and we understand why because it's a relatively complex product they do see value in buying the full unit. The distributed unit the platform the smart platform itself with the cars as a single use of it because this reduces.
The added quite a few elements of integration, which otherwise would have had to take care of by themselves. So this is one area within or in the that we support the other area.
Yeah.
With FPGA cards, which we are proposing to go into the central unit or the computed everything is still within the edge, but this one is closer to the core and do the telco cloud I would say so there we are proposing a I would say higher end FPGA solutions, which is offered.
In order to support Offloading of UBS, which is use of planned functionality. So this is our offering within orange or on includes not only that it include some other parts of that as I said, which we are not participating.
Yeah, Yeah, and maybe about the.
Youre of competitors in the old route in the state.
Yeah. So once again I mean, you mentioned.
The EBIT and EBITDA. It is really is in the small company and adversity.
The main area of externally is trying to compete with us in the UBS area not only but in the UBS. This is where they're operating.
The I believe that with <unk>.
The Intel's assistance and.
We would be able to do of.
<unk> most of our growth within this area.
That being said I would say that I think that we are really fast to the market with all of the solutions both.
<unk> acceleration divesting cauterization of let's let me say one thing about types of organizations.
And the UBS offloading.
There is of competing architecture I would say the competing in terms of way of time synchronization. The competing architecture is using an external switch where the dash in colonization is achieved and the switch.
This is a much more expensive.
Architecture and this is why many customers are interested in the architecture of the drill promoting whereby the types of cauterization sits inside the distribute the unit.
The interfacing directly with the radios because this is saving a lot of money. So I think that this architecture will be the weighted technology, but we indeed were I believe the first.
The first significant solution, which is proposed to the market, but the doesn't mean that we would stay are like these.
Think that additional competition both in terms of effect of acceleration and in terms of toxic organization will arrive what I'm, hoping is that because a lot of this business.
It requires qualification of these cards within the platforms, we would be able to achieve sufficient quite I would say partners, which would qualify our solutions.
And that would make it more difficult for the competitors to do a lot of themselves in once the already but there will be for sure of competition as well.
Perfect. Thank you.
I believe that you have.
Current buoyed the program is going to be completed by April kind of use.
Speak about your capital allocation of that.
All of our buyback program.
Yes, yes, yes, it is going to be completed by by a free I believe so could you maybe speak about your future plans are.
How about your capital allocation.
We will think about debt.
Once we get closer.
Through the end of this program and then we will decide on obviously modify our decision.
Okay went away book.
On my last question can you speak about your expectations on the <unk>, that's the one deployments of the year.
For this year.
Yeah, Yeah yeah.
The thing that I can tell you and I cannot provide details at this time.
Is that the.
We have a very thick of loan pipeline and we believe that we will be achieving additional design wins in both areas. Both in five Jeep and the SD Wan pretty soon.
Okay, Yes, that's perfect. Thank you. Thank you very much that income.
Congratulations for the the great quarter, great. Thank you. Thank you.
The next question is the follow up question from Alex Henderson. Please go ahead.
Thank you.
So I was hoping we could talk a little bit about the.
The lumpiness of the some of these contracts.
Versus the alternative of dynamic, which is the breadth of the number of contracts to true up.
It seems pretty clear of that.
When you had the IBM issue issue years ago the.
If it was because you had a huge singular contract.
Essentially.
It didn't work out.
Where we are now it sounds like you have a lot of snow.
Really solid signs of contracts.
And the number of them is diversifying the demand picture of enough debt.
It should be a smoother and more predictable wipes from here.
Is that a fair characterization of the environment.
Yes, I believe it is.
The contract that we had with IBM just like you said had at risks.
And the while everyone knows by now all of that.
IBM I don't think its important anymore, but even though we were not supposed to be at that type of thing.
Yeah. There were many unique parts of this contract and the definitely and what we're experiencing right now is more I would say smooth just like you said.
Okay.
So is there a.
Upsides.
In terms of the pipeline that the additional contracts you've come in nearing that the debt.
We will be constrained on the supply side debt.
Therefore.
It gives us visibility that this robustness of this demand will persist through 'twenty, one and into 'twenty. Two is the supply constraints start to ease up.
I can see.
Cleveland and Covid conditions does that.
In the the supply constraints might ease significantly in which case there would be additional upside is that some of the is.
The throat moving to think about the dynamics there.
Well once again in general I would say, yes, I would say that our first of all the and this is still more mostly related to your previous question.
And what we're seeing right now is that all of these are the design.
The design wins and partners that we work with including our pipeline as a matter of fact.
And this is why the sales cycle of so long they are taking a very cautious approach.
Before they are actually launching must see deployment.
This was not the case with the the IBM contract, where they took a huge risk and started to deploy before they have.
The resolve all day, our internal problems or issues or challenges.
In this case, what we're seeing from all of our customers is a different approach there are very carefully evaluating testing taking the time before they actually launched debt and now some of these.
Okay.
Obviously with different customers, we are in different time or different.
The phase within this process. So some of them are close on some of them, we may be able to announce the design win British soon and then hopefully experience the wrap up.
Really soon and others.
The it will take longer obviously when the of components challenges are.
Eliminated and disappearing then I think that we would be in a better situation because it does happen and it did happen to us in the past that was something was delayed eventually.
We lost this part of the business due to the delayed and customers decided to use their previous generation or whatever so overall once the challenges on components of disappearing.
Would the represents a higher ramp up I would take capacity.
And what we're experiencing right now so yes, I believe we would see continuous growth and that's why we're talking about double digit growth not only that's what we're planning for not only this year, but in the US kind of go ahead.
So.
I wanted to talk a little bit of won't be opex numbers. Historically your opex is sub 20% of revenues.
But in.
The most recent couple of years it spiked up to 22, 23%.
The 23 on average for the last two years.
Should we be anticipating the debt stays at the higher level or will that gradually trend back towards the 20 per cent.
Think of well first of all it's obviously a little bit difficult to speak about the opex because theyre so dramatically impact by the impacted by the by the dollar value, but I would say to give you just and some sort of all of the thought of that if the exchange rate is where it is right. Now then you could.
Specced in annual Opex of approximately $28 million.
Okay that helps.
It is at the expected longer term to be able to bring the percentage down again or is that book.
In.
No longer all per day on.
Really grow the percentage will go down again, because I do believe that in debt. Once our plan is working where you would be able to see again, the famous leverage and that's where the opex in percentage would be less.
Let's see okay. Okay.
If there are any additional questions. Please press star one if you wish to cancel your request. Please press star two please standby, while we poll for more questions.
There are no further questions at this time before I ask Mr. Orbach to go ahead with his concluding statement I would like to remind participants that a replay of this call will be available by tomorrow on silicon web.
Site Www dot silicon Dash USA Dot com, Mr. Orbach would you like to make your concluding statement.
Yes, Sir Thank you operator, thank you everybody for joining the call and we wish you all health and we look forward to hosting you on our next call in three months time good day.
Thank you. This concludes silicon <unk> fourth quarter and full year 2020 results conference call. Thank you for your participation you May go ahead and disconnect.
Okay.
Okay.
Moving.
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Yeah.
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