(SILC) Silicom Poised for New Growth

Silicom Ltd. Primed to Enter New Growth Phase

Silicom (SILC) engages in the design, manufacture, marketing and support of connectivity solutions for a range of servers and server-based systems. The firm has several growth engines including Information Technology’s return to growth, the march to 10GB per second technology, large and growing base of OEM customers includes most of the market-leading players, staged launch of new products, and a strong OEM business model which limits operating expenses.

SETAC, the firms new Server to Appliance Converter, which combines the best of standard servers with hardware appliances, should allow the firm to push its revenues to the 100 million run rate level in coming years.

SILC seems primed to enter a new growth phase. The growth engine in the short term is three-fold. The first is the growth of Server Adapters in security markets and optimization, the next growth engine is new customers as well as new product lines every quarter. The strength of the OEM business model is evident in that SILC can roll out new business and keep operating expenses in check.

Lastly, the evolution of 10GB server adapters should provide growth in the short term. SETAC, which enables branded high technology servers to be configured as hardware appliances, should push Silicom’s revenues to a $100 million per year run rate.

We see value in the shares of Silicom and value the firm using our combination of PE Ratio analysis and two stage growth model to arrive at a price per share of $20.00.

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