Silicom Ltd. Q4 FY2025 earnings call

• 2025 was a strong year with better than projected growth, Q4 revenues grew 17% y/y to $16.9 million. - Achieved 8 major new design wins in 2025 across edge systems, SmartNICs, and FPGA solutions. - Identified three tectonic shifts in infrastructure: AI inference, post-quantum cryptography, and white-label switching as growth engines. - AI inference represents a large opportunity with expected market to approach $80 billion by end of decade. - Post-quantum cryptography is a mandatory global security upgrade with Silicom having production-ready hardware-based solution. - White-label switching is expected to reach over $6 billion by 2030 with Silicom already supplying to Tier one customers.

In 2025, Silicom's revenues were $16.9 million, which is a 17% increase from the $14.5 million in the fourth quarter of 2024. The geographical revenue breakdown over the last twelve months was: North America 74%, Europe and Israel 17%, Far East and rest of the world 9%. Gross profit for 2025 was $5.1 million, representing a gross margin of 30.2% compared to a gross margin of 29.1% in 2024. At year-end, working capital and marketable securities totaled $111 million, including $74 million in cash deposits and highly rated bonds with no debt.

• Projected 2026 revenues to range between $16.5 million to $17.5 million, representing 18% growth year over year at the midpoint. - Target between 7 and 9 design wins in 2026 spanning all product lines.

• Increasing dependence on substantial revenue growth on a limited number of customers. - Speed and extent of adoption of Silicom solutions. - Difficulties in commercializing and marketing products and services. - Maintaining and protecting brand recognition. - Protection of intellectual property. - Disruptions to manufacturing and sales and marketing. - Impact of rising inflation, changing interest rates, volatile exchange rates. - Effects from pandemics and global economic uncertainty impacting customer demand.

Q: Hi. This is Jeff Hopson on for Ryan Koontz. Thanks for the question and congrats on the quarter. Just for the new three opportunities, the timeline seems like maybe AI inference is the most near term with the two customer discussions and orders? Is that kind of how you think about it? Or maybe could you compare the timing between the three opportunities?

A: So all three opportunities, all of them I would say are in the initial stages right now. So from a quarter perspective, they have almost no meaningful revenue for this quarter, obviously. And even for 2026 as a whole, I think we are not expecting to be still huge. There is an opportunity for that. But we definitely are expecting our core business to be very, very strong in 2026 and keep growing. And each of those opportunities could boom at any point in time. But right now we are still in the early stages. But we feel that we are very strong in the early stages and that we feel very strong traction on each of those.

Q: Got it. Makes sense. I guess a follow-up on that. Are you expecting similar sales cycles or design processes, the timeline to be similar to your historic business?

A: So in some of those projects, we are, as we said, leveraging existing IP and existing know-how. So it's not like we are starting from scratch. So for some of those opportunities, it's actually taking some of our existing products, making some changes on them. We can react very, very fast and it can actually be a quick road to revenue here and a quick road to design wins. But we already started with that. On some of the others, we do need to do some development. So we are deep into the development of some of those. So we think overall, we are expecting it to be faster than what we've seen in the past.

Q: Perfect. And maybe just one more from me. Are there any changes to kind of your sales process or any additional investments on that side to go after some of these new opportunities?

A: We think we have the right team and the right size of the team and the right know-how and expertise. And everything I said is not only true for one team. It's not only R&D. It's the R&D, it's the operation, it's the sales. The entire team is really well structured to support this growth. And the existing relationship that we have with customers that we are building on and capitalizing on, we expect to continue with that. So right now we think we are structured with the right team and the right size and right investments and we plan to keep doing that.

Q: Good day. Thanks for the opportunity here. Just following up on this AI inference opportunity. You mentioned about connectivity bottlenecks. Can you get more specific in terms of what's the use case? Is this to connect various nodes in an AI cluster? Or say external memory. And when I see talk of UA link or ultra Ethernet, is that kind of where you'd be playing?

A: So in general, yes. When we are talking about the challenges of networking, when we are talking about our focus is mainly on the inference side as I said and not on the training side. So the inference happens everywhere. And when we say everywhere it could be at the edge of the network, it could be a local data center, it could be a telco data center, it could be even in the enterprise. And there are so many different installation types and deployment types and types of different networking they need to support. Different cards, different companies developing different inference chips, not all of them able to provide all the different layers that they need to cope with. So they will only focus on the inference chip, but they need someone to complement it on the networking side. If you want to do, as you said, scale out to multiple servers, multiple ports, how do you do it efficiently? How are you making sure that the network is not the bottleneck and that you actually get the most you can out of the inference chip? That I think is the key. And it's very fragmented and very different from deployment type to another. That's where opportunity is created.

Q: Okay. Appreciate the color there. And kind of to follow-up on the question about sales, you said your sales team is in place. How about R&D in terms of supporting some of these new opportunities? Do we foresee more spending there?

A: Right now, we don't think that we need because as I said, we are really building on the IP and the know-how and team that we have that is running for so many years together and it's an expert team. If we will need, obviously, we have, as I said, we have the fortress we need to do it here in terms of cash and everything we need in order to do that if we will feel. Right now, we don't feel that we need to do it. But definitely, we have the capabilities to do it. In any case, we don't expect it to be significant.