SILC

[David Randolph]

SILC was one of the few gainers in the Main Portfolio today. 1st quarter results will be out next Wednesday. I expect revenues of about $6.5 M and EPS of $0.27.

This should be enough to take the stock towards $30 in Q2 2007.

I'll keep holding SILC.

[David Randolph]

We've already discussed most of SILC's fundamentals, what to expect for the next three years and how the next quarter can confirm my view of the future for this $119 M market cap company.

I searched for articles about the WAN optimization market and found the following one, for example:

WAN optimization market speeds up

The article doesn't mention SILC. But it mentions the market leader, Packeteer (PKTR) and Riverbed (RVBD), for example.

Let's make a few quick comments on these two companies. PKTR seems to be rapidly losing market share, since its revenues in Q1 2007 declined 19% sequentially, even as the market is growing a lot:

«"After reviewing the most recent quarter, we believe that the revenue shortfall resulted mostly from longer product evaluations and proof of concept trials performed by various customers," said Dave Cote, president and CEO of Packeteer. We believe this resulted from an increasingly competitive marketplace, and our inability to deliver several product enhancements to our acceleration product lines by quarter end.»

As for RVBD, its valuation is nothing less from lunatic, since the company is worth $1.95 B and had revenues of just $90 M in 2006 (and lost $15 M, or ($0.59), in the year). As for comparison, SILC is a $119 M market cap company with $16.1 M in revenues in 2006 and positive EPS of $0.49.

If you want to be involved in the WAN optimization market in a company where growth matters (of course, this is an incipient market for Juniper or Cisco, they're too big), clearly SILC seems to be the best one.

Let's check SILC's products and website again: http://www.silicom.co.il/pgx.php

My valuation model says SILC still has a long way to climb before it becomes correctly valued by the market, given its long term fundamental trends. I'll keep holding SILC through all the ups and downs, because fundamentals say the "ups" will be more and bigger than the "downs".

[David Randolph]

Tomorrow is the last day to sell SILC before Q1 2007 results are known, but of course I'm not going to sell, since SILC is, according to my estimates, the most attractive stock in the Main Portfolio. I expect the stock to return more than 100% a year going forward, as we can see on the valuation model:



The more the Networking & Communication Devices industry group rises the more my optimal selling price for SILC rises, because my EPS multiple estimate is based on the industry average EPS multiple. As of today, the Networking & Communication Devices industry average earnings multiple is 36.58.

Technically SILC closed at a new all time high today (even if it was for just 1 cent), I'll continue holding SILC.

[la-onda]

SILC: Short Interest UP 49.8% to 250.2K in Apr 2007
Tuesday , April 24, 2007 16:21ET

According to new short interest data from NASDAQ, short interest for Silicom Ltd (NasdaqSC: SILC) INCREASED 49.8% to 250,161 shares for the month ended mid-April, 2007.

SYMBOL       MARCH           APRIL          CHANGE       %CHANGE  DAYS/COVER
--------   -------------   -------------   -------------  ------------  ----------
SILC             167,029         250,161         +83,132       +49.77%           3

Based on SILC's 20-day average daily share volume of 95,923, it would require approximately 3 day(s) of buying to cover this short interest.

[David Randolph]

I'm still waiting for SILC's Q1 2007 results that should be out any minute to make its update. I expect revenue of about $6.5 M and EPS of $0.27.

[nicknite20]

Reported Rev of 6m & EPS of 0.22

Good numbers & growth, but below your expectations..were you're expectations too high? Or the co. is not doing as well as you thought?
Nick

[Se7en]

Silicom's Momentum Continues: Q1 Sales up 84% to $6.0M with Net Income of $1.2M
Wednesday April 25, 8:13 am ET  
- Compared to Q4 2006, Q1 Sales Up 21%, Operating Income Up 27% -


KFAR SAVA, Israel--(BUSINESS WIRE)--Silicom Ltd. (NASDAQ and TASE: SILC) today reported record revenues, operating income and net income for the first quarter ended March 31, 2007.
Revenues for the first quarter of 2006 were $6.0 million, an increase of 84% compared with $3.3 million in the first quarter of 2005 and 21% compared to the fourth quarter of 2006. These are the Company's highest revenues on record and its 13th consecutive quarter of rising sales.




Operating income for the quarter reached a record of $1.2 million. This represented an increase of 145% compared to the first quarter of 2006 and 27% compared to the fourth quarter of 2006. Net income for the first quarter was $1.2, or $0.22 per diluted share ($0.23 per basic share), an increase of 127% compared to $548,000, or $0.11 per share (basic and diluted) for the first quarter of 2006.

Commenting on the results, Shaike Orbach, President and CEO, said, "The momentum of our business accelerated again during the first quarter, enabling us to achieve another record quarter in terms of revenues, operating profit, net profit and cash. This strong performance demonstrates the cumulative benefit of our growing Design Win platform, together with the ramp-up of demand for our BYPASS adapters. Our business is being driven by the exciting growth of several target markets, especially the WAN Optimization market, which is still in the early growth phase. We are working to take advantage of our favorable positioning to address this and other high-potential markets, and are optimistic regarding our ability to deliver strong growth over the long term."

http://biz.yahoo.com/bw/070425/20070425005539.html?.v=1

[buddjas1]

It's only 2 cents better than Q4. 
http://biz.yahoo.com/ap/070129/earns_silicom.html?.v=1

I'm not sure that the earnings can support the current price.  It'll be interesting to see what happens. 

[David Randolph]

Thanks for posting the results Se7en.

Analyzing the results in light of the 4 working variables of the model I get the following:

1) The share count on a fully diluted basis in Q4 2006 was 5,404,000. It is 5,653,000 now, so, it increased 4.61%, which is a lot. This will make me raise my dilution factor from 1.02 to 1.10

2) Revenue growth was 84% from the year ago levels. I was expecting 100%. This will make me lower my revenue CAGR estimate from 2 to 1.84

3) Net profit margin was 20.58% already with taxes in play. My long term estimate was calling for 25% net profit margin. I'll lower my long term estimate to 20%

4) I'll leave the EPS multiple estimate at the same level which equals the industry average of 36.54

The valuation model now looks like this:



Jesus, there was a huge hair cut on my long term expectations for this stock. With current estimates the expected share price CAGR is 60.88% and the optimal selling price declined from $131 to $65.78.

SILC still is one of the top 3 holdings of the Main Portfolio, so I'll keep holding it on the 3 Stocks on Fire Portfolio too, but it went down from the 1st to the 3rd place, with a % to exit estimate of 167%.

I see the stock opening higher and if I were a short term trader I would certainly take profits. This is one of those cases where there's about 90% probability of the stock going down after today's gap up.

I feel the pressure to take profits, but since probably I would be recommending buying the stock again $2 or $3 below current levels, I'll keep on holding SILC.

[buddjas1]

Thanks for the pick David.  I sold at 25.25, in order to protect the profit.

[David Randolph]

Thanks for the pick David.  I sold at 25.25, in order to protect the profit.

You're welcome buddjas1

Don't forget to buy it back lower sometime before Q2.

[buddjas1]

Absolutely.  From the Yahoo board, the dilution was due to the exercise of 200k warrants and 200k such warrants remain outstanding.  So, your dilution factor may be a little high now. 

And, remember all the recent design wins that were not reflected in Q1.

[David Randolph]

Absolutely.  From the Yahoo board, the dilution was due to the exercise of 200k warrants and 200k such warrants remain outstanding.  So, your dilution factor may be a little high now. 

And, remember all the recent design wins that were not reflected in Q1.

Good points buddjas1, no doubt SILC remains a great long term pick, but it surely needed some profit taking after the huge run it had, on "not so spectacular" numbers.

I could have taken a 100% plus profit here too, to buy a good $3 - $5 lower maybe, but I believe that would reduce the quality of this service and probably the long term returns of the Main Portfolio, because if today I was right in saying the stock would go down after the open, tomorrow I can be wrong on my short term outlook.

Good luck buddjas1

[berloga]

If you sell now, knowing you'll buy back later at a lower price, you'd still have to follow the money manegement rule. The profit on SILC would be divided by 15 and added to the original investment on SILC. Therefore, by the time SILC reaches the price you've sold at, your capital value in SILC will be lower than it is now. This means that if SILC is to grow to $65, your end profit will be smaller. Add a prospect of you manipulating SILC a couple more times before it gets to the target and you'll end up having a lot less profit than you potentially could.

[buddjas1]

If you sell now, knowing you'll buy back later at a lower price, you'd still have to follow the money manegement rule. The profit on SILC would be divided by 15 and added to the original investment on SILC. Therefore, by the time SILC reaches the price you've sold at, your capital value in SILC will be lower than it is now. This means that if SILC is to grow to $65, your end profit will be smaller. Add a prospect of you manipulating SILC a couple more times before it gets to the target and you'll end up having a lot less profit than you potentially could.

If everyone knew that SILC would reach 65, nobody would sell.  There are no guarantees in the market and we all have to take the data we have and make a decision.  I saw a good but not great quarter and felt that the results could not support the current valuation.