Silicom Ltd (SILC) 2012 Q1 法說會逐字稿

Welcome to Silicom's first-quarter 2012 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 a reminder, this conference is being recorded April 23, 2012.

I would like to remind everyone that forward-looking statements for the respected Company's business, financial condition and results of its operations are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated.

Such forward-looking statements include, but are not limited to, product demand, pricing, market acceptance, changing economic conditions, risks and product and technology development, and the effect of the Company's accounting policies as well as certain other risk factors, which are detailed from time to time in the Company's filings with the various securities authorities.

If you have not received a copy of today's press release and would like to do so, please call us CCG Investor Relations at 1-646-201-2946 or view it in the news section of the Company's website, www.silicom.co.il.

I would now like to hand over the call to Mr. Ehud Helft of CCG Investor Relations. Mr. Helft, would like to begin, please?

Thank you, Operator. I would like to welcome all of you to Silicom's first-quarter 2012 results conference call. Before we start, I would like to draw your attention that following the Company's disclosure of certain 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 evaluate the Company's current performance.

Management believes that the presentation of these non-GAAP financial measures is useful to investor understanding and assessment of the Company's ongoing cooperation and prospects for the future. Unless otherwise stated, it should be assumed that financial discussions in this conference call will be on a non-GAAP basis.

Non-GAAP financial measures disclosed by management are provided as additional information to investors in order to provide them with [an alternative] methods for assessing our financial condition and operating results. These measures are not in accordance with or a substitute for GAAP. A full reconciliation of non-GAAP to GAAP financial measures is included in today's earnings release, which you can find on Silicom's website.

Now with us on the call today are Mr. Shaike Orbach, the CEO; and Mr. Eran Gilad, the CFO. As usual, Shaike will begin with an overview of the results, followed by Eran who will provide the analysis of the financials. We will then turn over the call to the question-and-answer session.

And with that, I would like now to hand over the call to Shaike. Shaike, please?

Thank you, Ehud. Good morning, everyone, and welcome to our first-quarter 2012 results conference call. We are pleased to present a good start to 2012, demonstrating solid topline and bottom-line growth.

We reported revenues in excess of $10 million, growing by 10% over last year. We also increased our net profit by 10%, with net margins of over 20%. This indicates to us that the year has started well and we are on course for another record year in 2012. Our balance sheet continues to strengthen and we ended the first quarter with net cash in excess of $51 million, which provides us with a substantial level of working capital and financial flexibility. It demonstrates our long-term stability to both existing and potential customers while supporting the continued investment in our business and market leadership. It also allows us to take advantage of any opportunities that may arise.

Our continuous growth is a consummation of the value proposition we continue to provide our customers and the success of our ongoing efforts to increase our total addressable market. Our business, in turn, is supported by an industry with long-term strong and growing fundamentals. Underpinning our growth is the rapidly accelerating demand for Internet bandwidth, driven mostly by cloud computing and virtualization trends on the one hand, and proliferation of on the on-the-go connectivity and bandwidth-hungry apps for mobile offices, smart phones, and tablets on the other.

This, in turn, is driving a growing demand for increased capacity, both mobile and fixed. In fact, analyst expectations are that by 2015 Internet traffic will be four times what it was in 2010, and this may prove to be a conservative estimate. The required network infrastructure buildouts and investments are therefore significant and accelerating. And these trends are continuously expanding our end markets, as they are directly related to all our traditional and new market segments.

Beyond this, we continue with our strategy. That is, we develop new products, achieve design wins for these products, and then grow the scope of these design wins, increasing both the foothold in our traditional markets and our relevance in new addressable markets.

Our design wins now stand in excess of 85; however, we have not just increased in quantity. Many of our new design wins have the potential to become significant growth contributors, just as we've been able to do in the past. I would like to bring two examples which demonstrate the cycle of a design win. The first has to do with our BYPASS cards. Our first BYPASS card design win was for a security company within the IPS or intrusion prevention space. Since then, our BYPASS cards have become almost a market standard with the security market, WAN optimization market, and several other segments in the networking appliances market; and, currently, amount to around half of our sales.

The second example has to do with our intelligent external BYPASS switches. Once again, it began with a design win with one of our application delivery customers, from which it evolved towards the traffic management market and other market segments. It is now another significant growth engine for the Company.

Likewise, we believe that our new product lines will gain similar traction. We see the same trends recurring with our intelligent cards of all types, now including both the new redirector cards, networking processor-based cards, performance-enhancing drivers, and time-stamping solutions. As we work with these cards with our customers, every step that we make proves itself to become of wider value to a broader class of customers, allowing us to both provide more solutions to our current markets and, indeed, increase our total addressable markets to include telecommunications, network monitoring and testing, and other types of server-based systems.

In particular, we're seeing traction and growing interest for all such newer product lines now as the industry moves to a Sandy Bridge architecture, with PCI Express 3.0. We expect this to lead to increased demand for higher performance solutions, which we believe will contribute significantly to our growth.

Most significant, though, is SETAC, another product in which we identified a strong general market need for its solution enabling the use of the latest branded service to be customizable with front-end connectivity and other flexible features that are normally found on network appliances. This product line has been demonstrating exceptional acceptance by a variety of customers. And, as we have repeated many times in the past, we consider SETAC to be a significant growth opportunity for the Company.

We now have 10 design wins for SETAC, with a further 15 in the pipeline. During the quarter, we reported a new design win for a SETAC used in a server-based carrier grade network appliance platform, adding another potential $1 million-plus customer to our roster. This customer will use SETAC to enhance the flexibility and serviceability of its carrier grade server, primarily by giving it modularity as well as front-loadable ports. This customer is from outside of our primary target market and demonstrates the traction our product is having well beyond our initial plan. This strategic win demonstrates the potential of the telecom infrastructure market to become a whole new revenue driver for sales of our SETAC and other products.

With today's proliferation of virtual and cloud computing and network applications, demand is building for a specific network appliances for markets that have never used them before. As such, it is becoming increasingly clear that SETAC's addressable market is significant.

While the SETAC has performed very strongly, and while we remain committed to the development of new products designed for both our current markets and new market segments, it is important to emphasize that we continue to see strong traction for our traditional product lines, all which grow and continue to sell well.

Our constantly broadening product offering, including that which is within the traditional product portfolio, provides us with increasingly diversified growth across our entire range of products, all of which contribute to our consistently increasing design wins roster.

Looking ahead, our message remains the same as it has been over the past few quarters. Our strong and stable customer base of over 85 OEMs, many of whom are global leaders in their industries, as well as the yet-to-be-penetrated customers in our ever-expanding total addressable market, remains a source of [yet] untapped potential for us. With continued strong demand for all of our product lines, exciting strategic wins with some of the industry's most important players, and an extensive and growing pipeline of potential sales, we are well-positioned for continued growth in 2012, which we believe will be ahead of our end markets.

With that, I will now hand over the call to Eran Gilad, our CFO, for a more detailed review of the quarter's results, after which we will open the floor for questions. Eran?

Thank you, Shaike, and hello, everyone. Revenues for the first quarter of 2012 were $10.1 million, a growth of 10% compared with revenues of $9.2 million in the first quarter of 2011. Our geographical revenue breakdown from the first quarter of 2011 was as follows -- North America, 66%; Far East and Asia-Pacific, 19%; and Europe and Israel, 15%. Our revenue split between BYPASS and non-BYPASS for the first quarter of 2011 was BYPASS 45% and non-BYPASS 55%.

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 options granted to employees and directors. For the full reconciliation from GAAP to non-GAAP numbers, please refer to the press release we issued earlier today.

Gross profit for the first quarter of 2012 was $4.2 million, representing a gross margin of 41.3%. This is compared with $4 million, or 43.4% of revenue in the first quarter of last year. The gross margin does vary between quarters, mainly as a result of the specific mix of products sold during the quarter. Operating expenses in the first quarter were $2.2 million, or 21.4% of revenues, compared with $2.1 million or 22.9% of revenues in the first quarter of last year.

Operating income for the first quarter of 2012 was $2.2 million, or 19.8% of revenues. This is a 6% increase over operating income of $1.9 million as reported in the first quarter of 2011, or 20.6% of revenues.

First-quarter 2012 net income was $2.1 million, or 20.5% of revenues. This is a 10% increase compared with a net income of $1.9 million, or 20.5% of revenues in the first quarter of last year. Earnings per diluted share were $0.30 in the quarter, compared with $0.27 in the first quarter of last year.

Now, turning to the balance sheet, as of March 31, 2012, the Company's cash, cash equivalents, bank deposits and marketable securities totaled $51.3 million, or $7.41 per outstanding share, up $2.1 million compared with the end of 2011.

That ends my summary, and we would be happy to take any questions. Operator?

(Operator Instructions) Don McKiernan, Landolt Securities.

Congratulations on a great quarter. I wanted to know the percent of the revenue in the current quarter from SETAC.

Eran?

The percentage of SETAC in this quarter was 10%.

And is that up from prior-quarter trends?

In 2011, the percentage for the entire year was 9%.

Okay. Can you give us an idea of the revenue potential of the 10 SETAC design wins so far?

Of what?

You have 10 design wins so far in SETAC. What is the revenue potential within that group of 10?

Well, we believe that within this group we will achieve more sales of SETAC in 2012 compared to what we had achieved in 2011. Yet, as you could tell, we have announced only a few of these design wins. And that means that we have, I think, about four of them which are significant, and others which are at least starting as small accounts but may develop into becoming something which is bigger than that.

So, overall, I think that would give us more than what we had in 2012 by these design wins themselves. And, obviously, we will have more design wins set up throughout 2012. So, overall, I believe that we would be growing more than what we had last year, on top of what we -- on top of the data that Eran just gave you.

Okay. And then, did Sandy Bridge cause any delays in revenues this quarter that may be picked up in later quarters? Maybe some of your customers putting off decision-making on the Sandy Bridge aspect?

I don't think that Sandy Bridge made delays from a specific quarter to another quarter. But obviously, overall, the fact that Sandy Bridge was delayed postponed many, I would say, new releases. And that had an impact both over SETAC and, in some other cases, on some of our other cards where we were hoping to get some new products into some new releases.

So, overall, the fact that Sandy Bridge is now here is helping us to start in getting more design wins while everyone was waiting for Sandy Bridge to come forward.

And one other aspect of that -- which is something that I mentioned in my call -- in addition to the mere fact that now that Sandy Bridge is now here, this is a different platform and that's the right time to release new platforms and new cards.

In addition to that, Sandy Bridge facilitates very high performance with respect to the I/Os. And that is why we believe it will have a very positive impact on some of our, I would say, new solutions, which are higher performance solutions. Because now with Sandy Bridge, and only with Sandy Bridge, it would be possible to take advantage of these additional performance.

Okay, thank you.

Edward Balinsky, Segmark International.

I have two questions. The first is, was there any effect on earnings with regard to exchange rates?

The effect of the dollar in this quarter was quite negligible.

I see. And the second is, when did you apply for the patents for SETAC? I wonder when you expect that the final -- the patent will be issued?

The process usually takes about three years, and sometimes more than three years. We filed the patent about 1.5 year ago, which means that we are still in the middle of the process.

I see, fine. Thank you.

Jeffrey Myers, Cobia Capital.

If you could -- Eran, maybe if you could break out how much revenue this quarter was 10-gig external BYPASS and encryption?

Yes. 10-gig this quarter was 34%, which is much more compared to 2011. Redirector was about 6%; security was about 6%; and external boxes or external BYPASS, also about 6%.

Okay, good. So Shaike, for you -- so, I guess there is one question. The gross margin, given that 10-gig was such a big percentage, was that -- I guess what was offsetting that? Because usually that is fiber and probably higher-margin, right?

Well, first of all, a general comment about gross margin. Gross margin is always a result of the mix, of the kind of mix of products which is being sold. So that is a general response to your question. But let me a elaborate a little bit more. With a 10-gigabit, it is true that 10-gigabit currently sells -- almost exclusively, almost -- in fiber.

But with 10-gigabit fiber, it is not the regular equation. Because while in 1-gigabit, and before 1-gigabit, copper was the standard and fiber was the nonstandard, which caused the prices for fiber to be much more expensive than the prices for copper. In 10-gigabit, at least right now, fiber is the standard and there are practically no copper.

Now, when 10-gigabit steel will take over -- and it seems that it will, but it still will take some time -- then this trend may reverse. But right now, fiber is the standard for 10-gigabit, practically. And that is why prices of 10-gigabit solutions for fiber are becoming lower and lower these days.

Got it. Okay. And then, Shaike, if you could talk a little bit about the pipeline for the external BYPASS; and then the intelligent cards, what you are seeing these days.

Okay. So for the external BYPASS -- well, first of all, we do have significant pipeline for both of these product lines. With the external BYPASS, there are several specific accounts that we are dealing with. And at least with one of them, we are hoping to get a design win pretty soon. I think that I've said that in the past -- pretty soon is pretty soon, and we believe it is going to be pretty soon. But unless we have it, we don't have it. So it may take one more quarter, and sometimes two more quarters. But we are quite confident that we will have these design wins.

With respect to the redirect and the other intelligent cards, it is, I would say, kind of a different story. Because I think that it even took us some time to understand what would be the right way in order to push these cards to market, and what are the things that we need to do in order to get more success with these cards? And I think we're achieving that right now.

So I would say that, not only the pipeline is bigger right now for these cards, but I think that it's -- I would say thicker. I mean it's not only longer, but it is thicker. I think that we start to get into the right discussions about these intelligent cards and that eventually they would become significant. That being said, I would like to mention that with these cards being intelligent and more sophisticated, the sales cycles are longer compared to the regular cards that we are selling.

Got it. Okay, thanks guys.

Amit Dayal, Rodman & Renshaw.

Thank you. Just one question on the margins side -- it seems the first quarter is coming a little bit lower compared to the trend we saw in 2011. What should we be expecting -- other opportunities to improve on this? Or should we be looking through within the trends --

Which margins are you referring to?

Gross margin.

You are referring to gross margin.

Gross margin, yes.

If you're referring to gross margin -- so it is just like I've said before. It is very much dependent on the mix of products. And it is very difficult to predict what exactly it is going to be in the next quarter or even in the next quarters. We know at the area that we are in -- which has been, in the last quarters, always above 40% -- and that is what I can say, I think, going forward. Maybe a little more, a little better, a little less; because that is very much dependent on the actual mix of products.

In terms of any visibility from a revenue perspective, is there any -- at least for the second quarter, can you give us some color on what your expectations are?

Well, as you know, we don't give guidance on a quarterly basis. But what I can say about that is that once again, we are going ahead with all of the design wins that we're currently having. We did not lose any design wins, nor was there any significant configuration changes made by any of our major customers just now in this quarter.

So I would say that, just like we're saying over the year, our belief is that we would do better than what the market is doing. We are very much dependent on the market, of course, because our customers represent actually what the market is doing. And in each quarter, we're adding something to that. We -- as you know, as I have said -- we do not provide guidance for the specific figures that we're going to exercise in the next quarter.

And just lastly on the cash position -- you keep adding cash. Is anything on the table that might come into play for 2012 in relation to that cash?

Well, the only thing that I can say is that we are looking and we are seriously looking. We are seriously looking into what can be done with the cash. We're specifically looking at potential opportunities. But just like -- again, just like I said several times in the past -- we wouldn't do, say, for example, and M&A just for the sake to be able to say we've done an M&A. We're looking for the right thing to do. And what I would like to make sure that I'm not just saying that; make sure that everyone understands we're not just saying that. We really are looking, actively looking, into opportunities.

Had been engaged anyone to help you in this process?

We, let's say we -- there is a process in place which includes this possibility.

Okay, perfect.

Marcel Herbst, Herbst Capital Management.

Good morning and thanks for taking the call. In the press release, you spoke of accelerating growth in reference to your 85 OEM customers. Are you seeing recent strengthening and revenue growth rates across the board with most of the customers? Or what did you mean with that?

Well, I mean -- I think that what we mean by that is more, I would say, general. It is obvious that, overall, the industry is growing. This is driven by what I mentioned in my conference call. I mean, Internet traffic is growing, is exploding. And that has an impact. This has been caused by the cloud computing, by virtualization, by mobile applications, et cetera. Now that drives everything else. This part is accelerating. What exactly is translated into each and every industry, and what exactly and when exactly this is happening to us is not 100% clear.

But an overall trend is obviously that one. That the demand for, I would say, capacity, is accelerating and growing, especially now that video applications are so much in the picture. So this demand is growing. And that would go downwards into all of these markets that we are serving. So that is what I meant when I say everything is accelerating. Once again, how exactly and when it is translating at any specific point to the growth in sales is difficult to say. But the overall trend is very obvious.

Okay. And speaking of your end markets, what is your estimate of growth in 2012 for your end markets?

That's, again, a difficult question to answer. And especially -- not all of these markets are -- experience the same growth. So, I mean I guess -- I don't want to be such an expert about these markets in terms of percentage of their growth. I think that as you can kind of average the expectations of the main markets that we are serving and the main players in these markets.

So you could look -- for WAN optimization, you could look at Riverbed. And then you could look at Check Point for security. And you could look at -- as you know, several other companies that we're serving, they are serving the same markets that we are, each of which provides their expectations about their growth throughout the year. And the average of these is actually some sort of an indication as to what they planned for the markets to be. So we're not that high in the food chain to be, I would say, to have enough expertise as if to say, this market will grow by this percentage. What we know is actually what we see from our customers, which are operating in these markets.

Okay, excellent. Thank you.

Walter Ramsley, Walrus Partners.

Thank you. Congratulations on another good quarter. And a couple of follow-ups -- the unit volume in the quarter, was that up about 10%? Or could you talk about the average selling price?

The unit volume this quarter was about 25,000 units. Actually, the precise number is 25,600 units, which is about 10% more compared to quarter one 2011.

Okay, thank you. And with respect to the 85 -- or I guess more than 85 -- OEMs, does that refer to the number of deals the Company has? Design wins? Or is that the number of companies?

That's the number of companies.

Okay, thank you. And could you take a minute and just go back to the original -- however many you want to talk about -- one, two, three SETAC design wins that the Company landed a few years ago? And just kind of explain to us what has been happening with those deals? How they either developed or kind of reached a plateau? Or what has happened with your original SETAC deals?

I think -- let me refer, I believe, to the four deals that we have announced with respect to SETAC. I think that the first one, a European customer, that one is actually developing very nicely. And, actually, it is growing beyond what we expected it to be, even. So that was the first deal that we had.

Then there was another one, which I think sort of reached a plateau, another European one. Then we had announced another major set of deal which is indeed the biggest one we have to date. And that one -- I believe that in the press release that we have advised about that one. We have said that when it ramps up it could get up to -- I believe it was $3 million. And I think we are approximately there. Last year, at least, that approximately what had happened with this customer.

The fourth one -- I believe we've announced only this year, that one which used to set-up kits. I think this is still in the ramping-up. As you know, it takes time. And I think that a potential with this one is quite significant. And just like I said before, even in the other six design wins that we are having -- some of which are not that big and, therefore, we did not announce them -- but some of these definitely represent a potential to become significant.

So as far as those original SETAC customers are concerned, have you gotten any feedback to change the design at all? Or any improvements that they've suggested? Or did you kind of hit it perfectly right off the bat?

No. We did have some problems when we started. We did have some problems when we started. I would say that we didn't have real problems with the first two customers. Maybe it was because they were less demanding. With the major customer that we announced then, we did have some problems. But I think we resolved all of them only to be able now to provide a setup which is now, I would say, qualified by this customer, which is an evidence and a demonstration as to the highest quality, which is in the market for the SETAC solution.

Okay. And then just one last thing. As far as the newer SETAC customers go, do you expect the design cycle to be faster, the whole process to go more quickly?

We don't think that the whole process will go more quickly. But some of these which are in the pipeline, I may have not provided you in the past with the figures; 10 potential customers in the pipeline, et cetera. But this is not as if last quarter we didn't have anyone in the pipeline and right now we have 10; simply did not discuss the numbers last time. So some of them were having the discussions with them for quite some time now, right now. So we do hope -- not a hope -- we do believe that throughout the year we will have more design wins.

So the sales cycle, I think, is relatively similar to what it used to be in the past. Maybe a little faster, because SETAC is now -- everyone accepts it as a legitimate solution. But still, it even if it is a legitimate solution, you still need to look at it, to test it, to evaluate it, to qualify it. And then you need to get to the point of a new release in order to get it as a part of your system. So, this part of the process did not change. But we're in the middle of this process with some of these guys which are within the 15 companies that we mentioned.

Great. Okay, I appreciate the update. That was very helpful. Thanks a lot.

(Operator Instructions) Liron Rochman, Oscar Gruss.

Hi guys. We saw Riverbed last week talking about some weakness. And I wonder if it's something you see in other WAN optimization companies, or it's something specific to them? And if you can talk about the end markets -- where do you see the strength and weakness right now?

First of all, I would like to say that I cannot speak about any specific customer, not Riverbed and not anyone -- almost anyone else. Because, as you know, we're not advertising the names of our customers. So I cannot refer specifically to Riverbed or to anyone else.

But what I should tell you is two things. One is, we are not that high in the food chain. And whatever we experience cannot be directly related to whatever is happening in the market. Because what we see from our customers is many times a result of their, I would say, not strategic but rather technical decisions, as to the level of stock and inventories and things like that -- not representing anything which has to do in the market. That's one thing.

Second comment is, you should note that -- I believe you know, but most of the companies right now, or many of the companies to which we sell WAN optimization, to which we sell our cards within the WAN optimization market, are not active only in the WAN optimization market. So it's little bit difficult to tell.

So, these are, I would say, the main comments that I have to add, which means actually that I don't have a good answer for you. We cannot see or not see what is happening with the WAN optimization market.

Okay. Regarding the BYPASS number for this quarter, it looks a bit weak. Is there any specific reason for that? Or is it just seasonality?

Right now, I don't think it is a trend. I would not say it is a seasonality, because not necessarily will it happen every first quarter of the year that BYPASS would be less than non-BYPASS. But I would say that this is dependent on the mix of products that we are selling. And sometimes it's a little bit more in the BYPASS card; sometimes it is a little bit more in the non-BYPASS cards.

So this quarter, we sold more -- as you could tell, we sold more in the Asia-Pacific geographical region. In this region, most of our sales are non-BYPASS card. So this has to do with a mix of products that we're selling. At this moment, I cannot say that this is a trend.

Okay. Last question, regarding your remark about Sandy Bridge, is there a particular strength that you expect inside your product line from this trend, from this cycle in the Sandy Bridge?

I'm not sure that I understood the question. But what I pointed out was that Sandy Bridge, for us, represented two types of opportunities. One, which would have been an opportunity no matter what a new release by Intel would be. Each time that there is a new release, it is an opportunity for us to penetrate or add more into our customers. Because, typically, we're able to come in with either new customers, or even add products to existing customers when they go with a new release. So when there is a new release by Intel, this is an opportunity for us.

So this has nothing to do, specifically, with Sandy Bridge but rather any new Intel release. But on top of that, the architecture of Sandy Bridge is such that it facilitates the use of I/Os much more efficiently than before. So if -- before Sandy Bridge, one could say that, well, okay, you could get three cards in a certain architecture. And more than that, you wouldn't be able to really add performance to the system because of an architecture restriction of some sort. This is no longer the case with Sandy Bridge. Sandy Bridge allows to take advantage of more I/Os than previous architectures allowed for.

And that is why it is another opportunity for us. Because people may use more I/O, which means more cards, more modules, now with the Sandy Bridge configuration compared to what they were using before.

Okay, that's very helpful. But what I meant is, if it will help more in the 10-gig or encryption card or something like that, or it's a general -- it will help the whole product.

No, it will help more in the 10-gig, not necessarily in the encryption. But it will help more in the 10-gig, in the redirector, in the XLP products, in these or the processor-based products -- in these products which require the high performance of the bus, of the PCI Express bus, which is used on the Sandy Bridge architecture. So the high-end products will gain more from the Sandy Bridge configuration.

Okay, perfect. That's what I wanted. Thank you very much, and good luck.

[George Murena].

Hey, good morning guys; good quarter. I had a couple of different questions. I want to sort of explore a little bit -- well, I'll start with SETAC again. In your SETAC pipeline, are there any large, Tier 1 strategic deals in the pipeline? And secondly, if there are, does the new Romley architecture help to enhance the focus of these deals?

The answer to both of these questions is yes. And Romley, by the way, is what I referred to before as Sandy Bridge; dual-socket Sandy Bridge, at least. So, indeed, this helps us with SETAC as well.

Okay. In your other R&D efforts, you have this software DNA. And you're also you have had -- this Ntop PF_RING collaborations. Can you give us any update on these items?

Yes, I mean, indeed this is a collaboration which actually allows us to improve the performance of Intel chips whenever they are used in our cards. And we use this technology, or these enhanced, I would say, drivers, both in our standard cards, in our redirector cards; and, actually, in each of our cards which would use an Intel chip. Some of which cards are still being designed right now. And we believe that this will be very helpful.

Now, specifically, as we are addressing with both current designs and other designs in the network monitoring industry. So whatever we do with these drivers is significantly improving the performance within this industry. And we believe that it would help us to get some wins which could be very important within this industry.

Okay, one other thing. I was impressed this quarter that you had a telecom customer to come and seek you that materialized on your doorstep with the SETAC deal. Are there any other telecom folks out there that you are in discussions with?

Yes.

And are people starting to come to you on SETAC? Or is it still a process of mostly you coming to them to draw the attention?

Both are happening.

Excellent. Very good, thank you.

There are no further questions at this time. Before I ask Mr. Orbach to go ahead with his closing statement, I would like to remind participants that a replay of this call will be available by tomorrow on Silicom's website, www.silicom-usa.com.

Mr. Orbach, would you like to make your concluding statement?

Yes. Thank you, Operator. Thank you, everybody, for joining the call. I would like to conclude by saying that we will continue to work hard with the aim of bringing you continued positive results, with the continued ultimate goal of increasing value for our shareholders over the long-term. We look forward to hosting you on our next call in three months' time. Good day.

Thank you. This concludes Silicom's first-quarter 2012 results conference call. Thank you for your participation. You may go ahead and disconnect.