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spk00: Ladies and gentlemen, thank you for standing by. Welcome to the Sillicom third quarter 2021 results conference call. All participants are present in a 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. You should have all received by now the company's press release. If you have not received it, please contact Sillicom's investor relations team at GK Investor and Public Relations at 1-212-3800. or view it in the news section of the company's website, www.silicom-usa.com. I would now like to hand over the call to Mr. Kenny Green of GK Investor Relations. Mr. Green, would you like to begin, please?
spk02: Thank you, Operator. I would like to welcome all of you to Silicom's third quarter 2021 results conference call. Before we start, I would like to draw your attention to the following Safe Harbor statements. 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. Silicon does not assume any obligation to update that information. Actual events or results may differ materially from those projected, including as a result of our increasing dependence of substantial revenue growth on a limited number of customers in the evolving cloud-based SD-WAN, NFV, and edge markets, the speed and extent to which solutions are adopted by these markets, the likelihood that we will rely increasingly on customers which provide solutions in these evolving markets, resulting in an increasing dependence on a small number of larger customers, difficulty in commercializing and marketing Silicon's products and services, maintaining protecting brand recognition, protection of intellectual property, competition, disruptions to manufacturing and development, along with general disruptions, to the entire world economy related to the spread of the novel coronavirus and other factors identified in the documents filed by the company with the SEC. In addition, 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, forecast future results, and evaluate the company's current performance. Management believes that the presentation of these non-GAAP financial measures are useful to investors' understanding and assessment of the company's ongoing corporations and prospects for the future. Unless otherwise stated, it should be assumed that financials discussed 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 method 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 measures are included in today's earnings release, which you can find on Silicon's website. So with us on the line today, we have Mr. Shaika Orbach, CEO, and Mr. Eran Gilad, CFO. Shaika will begin with an overview of the results, followed by Eran, who will provide an analysis of the financials. We will then turn the call over for the question and answer session. And with that, I would now like to hand the call over to Shayka. Shayka, please go ahead. Thank you, Kenny.
spk03: I would like to welcome all of you to our conference call to discuss our third quarter 2021 results. We are very pleased with our solid results, which demonstrate ongoing growth in line with our targets. We reported a 9% sequential growth and year-over-year growth of 16% in revenues to $32.9 million in the quarter. We are all the more pleased with this performance because despite the serious component shortage and supply challenges that everyone in our industry is experiencing, 2021 remains on track for us. This means that we are addressing the challenge as well, and overall, we've been successful. In fact, Demand for our products and services is actually ahead of what we can currently physically deliver. I will discuss the component shortage crisis in more detail in a few moments. We reported our 67th quarter of continued profitability with net income of $3.6 million, up 23% year-over-year, and earning per share was at 52 cents, an increase of 27% year-over-year. In fact, in the past nine months, while revenue grew 25% year over year, our operating profit has increased by 61%. This demonstrates the strong operating leverage inherent in our business model, in that we can grow revenue strongly while expanding our expenses at a significantly lower pace. The pent-up market demand for our products and services, as well as the operating leverage, positions us exceptionally well to enjoy additional profitable growth as the supply shortages are resolved. In terms of shareholder value creation, our strong balance sheet, our ongoing profit and cash generation allowed us to continue our current $15 million share buyback program, and we purchased $3.2 million in silicon shares in the quarter. I note that that since we started our share buyback programs in May 2019, we have purchased $35.5 million in silicon shares. At the end of the quarter, we had over $66 million in net cash on the balance sheet. Our business growth strategy, focusing on some of today's fastest growing networking market segments, continues to progress. Our ongoing investment in R&D over the many years has enabled us to provide the right products and solutions at the right time as our customers today now demand them. During the third quarter, we saw growing demand from both SD-WAN and 5G, 4G over-end players. An example was the recent key win with one of the world's largest networking equipment providers, which we expect to become one of Silicon's largest ever customers. This customer selected a version of our platform, which was customized for their branded SD-WAN solution. They choose our solution due to the degree to which we demonstrated increased flexibility, control, and networking power to their end users' disaggregated networks. This key win confirms the added value our products and platforms bring to SD-WAN networks of all architectures, both traditional as well as decoupled and disaggregated. Our growth in the SD-WAN space, which began with branded solutions and then moved to the decoupled and disaggregated market, has now come full circle with our demonstrated leadership in that space, and has led to this top networking company selecting our solutions for its branded networks. We have already received significant initial purchase orders with clear plans to ramp quantities. The leadership that we have established in the SD1 space, in both branded and disaggregated markets, continues to bring us a steady stream of design wins. Beyond this key design win, And with the continuous market growth, there were other new customers and design wins that we did not announce. Broadly, we continue to see a good conversion rate of our long, deep, and healthy pipeline into new design wins in the SD-WAN market segment, and the accumulation of such wins is fueling our growth. In parallel to our success in the SD-WAN space, while at an earlier stage of development, we're seeing the positive developments in the O-RAN market track a similar path. The markets share the technological trends of shifting towards disaggregation and decoupling, and they also share a similar type of customer. For example, telcos and service providers that we already have strong relationships with, and in many cases, existing SD-WAN design wins with. The ORAN concept enables telco and mobile operators to decouple key network components, including radio units, distribution units, and central units, enabling best-of-breed and standardized components from diverse vendors, which can be combined into networks for superior performance. This approach is driving innovation and importantly reducing network costs significantly for operators. Because of the benefits, operators are increasingly adopting O-RAN standards in their new 4G and 5G infrastructure deployments. We believe O-RAN is only at the beginning of its growth cycle and is quickly gaining momentum. Our early pace in winning design wins in O-RAN has been at a higher level than it was in the early days of SD-WAN. This makes us very optimistic about achieving our goal in the O-RAN market. Similar to the success we have already experienced in SD-1, we aim to replicate and hopefully supersede that in Oran. While we have already gained initial Oran revenues, most of the significant potential is still ahead of us when mass deployments start. With our already achieved wins in this space, and with the traction that we see for all our products in this market, we believe that our solutions will become significant enablers for Oran use, and consequently will generate significant revenues as we move forward. Our belief is that Oran, as well as SD-WAN, will be significant growth contributors to silicon over the coming years. As I did last quarter, before moving on to our guidance, I wanted to update you on our experiences facing the global shortage of electronic components and materials, which has been intensifying since early 2021 and will probably be with us at least until the end of 2022. Similar to all our peers, we continue to experience these component shortages across all our suppliers, including our major vendors, and this is an increasingly challenging issue for us, as well as everyone in the industry. We are experiencing extremely long lead time for many components, as well as decommission areas by many of our vendors, which need to delay their deliveries to us due to unexpected delays in their manufacturing process. And in many cases, we even see vendors terminating the production of components entirely And that even happens with components for which there are no replacements in the market, and we consider this challenge as our highest priority these days. To mitigate all these risks, we're taking a broad array of action items. We continuously escalate any situation with our vendors, pushing to get parts as early as possible, explaining why our part in their allocations should be more significant. We leverage our financial strength. buying any available stock of components, both from the vendors and in the free market, sometimes paying more for these components in order to expedite delivery. We are working with our customers to replace products, the delivery of which is challenging with other products. We are implementing redesigns to some products to achieve optimized availability. And obviously, when we design new products, our first criteria is for component availability optimization. To date, we've been successfully meeting our growth targets, even despite the challenging environment. I want to add that based on the strong demand for our products, with no component shortages, we could have easily superseded our initial expectations and demonstrated even higher growth in 2021. Moving forward, while we predict that the difficulties in the market will even intensify, at least for the course of 2022, we believe that the significant increase in demand for our products, which is happening at a rate which is higher than what we originally thought, as well as the many actions we've taken in order to overcome the shortages, will once again help us to maintain high growth rates over the coming years. Of course, we will keep you updated on the issue. I would like to now discuss our guidance. For the fourth quarter of 2021, we continue to expect revenues at between $34 million and $36 million, which at the midpoint represents 2021 growth of approximately 18% over that of 2020. Looking more broadly, we expect that the coming new years for silicon will see performance ahead of what we have achieved over the past few years, and that we will continue to achieve ongoing revenue growth at a double-digit compound annual growth rate for several years ahead. In summary, our momentum is strong. We continue to bring important design wins, which position us exceptionally well for building on our growth in the coming quarters. In fact, given the scale of our recent design wins, the future potential, even starting from 2022, is greater than what we have traditionally experienced. We see a sustained long-term revenue growth path as we cement and broaden our relationship with some of the world's largest companies. More broadly, our long and growing list of design wins Generating ongoing orders, our solid baseline of activities and strong market fundamentals, with our focus on some of the fastest growing markets in the networking space, as well as our current long and deep pipeline, makes us ever more optimistic. With that, I will now hand over the call to Eran for a detailed review of the quarter's results. Eran, please go ahead.
spk01: Thank you, Sharikeh, and hello, everyone. Revenues for the third quarter of 2021 were $32.9 million. This is a year-over-year increase of 16% compared with revenues of $28.4 million as reported in the third quarter of last year. Our geographical revenue breakdown over the last 12 months were as follows. North America, 65%, Europe and Israel, 29%, Far East, and rest of the world, 6%. During the last 12 months, our top three 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 options and RSUs, granted to directors, officers, and employees, acquisition-related adjustments, as well as lease liabilities, financial expenses. For the full reconciliation from GAAP to non-GAAP numbers, please refer to the press release we issued earlier today. Gross profit for the third quarter of 2021 was $11.3 million, representing a gross margin of 34.3% in the middle of the range of our gross profit guidance of 32 to 36% and compared to a gross profit of $9.4 million or gross margin of 33.3% in the third quarter of 2020. The variance in the gross margin is a function of the specific product mix sold in the quarter. Operating expenses in the third quarter of 2021 were $7.1 million, an increase compared with $6.3 million in the third quarter of 2020. Most of the increase compared to last year is R&D related, and as we discussed last quarter, has been planned and represents our continuous significant investment in developing new products, IP, and technologies. Operating income for the third quarter of 2021 was $4.2 million, an increase of 33% compared to operating income of $3.2 million as reported in the third quarter of 2020. Net income for the quarter was $3.6 million, an increase of 23% compared to $2.9 million in the third quarter of 2020. Earnings per diluted share in the quarter were 52 cents. This is a year-over-year increase of 27% compared with EPS of 41 cents as reported in the third quarter of last year. Now, turning to the balance sheet, as of September 30, 2021, The company's cash, cash equivalents, and marketable securities totaled $66.3 million with no debt or $9.81 per outstanding share. During the quarter, we further executed on our third $50 million share buyback plan, which we started on May 4, 2021. During the third quarter, we purchased approximately 73,000 shares at a total cost of $3.2 million. That ends my summary. And now, back to the operator for questions and answer session.
spk00: Thank you. Ladies and gentlemen, at this time, we'll begin the question and answer session. If you have a question, please press star 1. If you wish to cancel your request, please press star 2. If you are using speaker equipment, kindly lift the handset before pressing the numbers. Your questions will be pulled in the order they are received. Please stand by while we pull for your questions. The first question is from Alex Henderson of Needham and Company. Please go ahead.
spk05: Give us a little bit more granularity. Can you hear me? Yeah. Yep. Okay, great. So I was hoping you could give us a little bit more granularity on the impact of the supply constraints in terms of how much of a pressure it was on the gross margins in the quarter and whether you expect that to increase as a cost element as we go forward. Clearly, you cited mix as the primary reason for the margins coming in where they did, but You also cited this cost increase but didn't mention it as a factor. I'm trying to get a little bit better granularity around it.
spk03: Yeah, well, I would say that the most serious impact of the material shortage is not – It's not on the margin. It is on the cost. I would explain that in a minute, but rather on the ability to deliver and when we are able to deliver. Related to the margins, so yes, I mean, the price of components is going up, and sometimes it is going up very significantly. However, on the other side, most of the customers, they do understand the situation, and therefore... In most cases, or in many cases, the customers are willing to pay for the difference in the cost, in our cost, when we have to buy these components at higher prices. And that's why the impact on the margin is not that dramatic. That being said, the impact on the ability to deliver is much more significant.
spk05: Okay, so as I'm looking out into the December quarter, I should assume that you've passed through the majority of those cost increases that you're absorbing, and we should not be tapering the margin down to reflect.
spk03: I mean, the impact on the margin, there may be an impact of the margin. I'm not saying it's zero, but it's not that significant that it should dramatically impact the model that you're using right now in terms of our margins. which are still, I would say, between the 32 and 36 that we're usually using to model our margins. So that would still be the same. And if there is an impact, it would be still within these limits.
spk05: Okay, got it. So then going back to the top line, basically, if you had 100% availability of components, what was the delta to revenues? resulted from the inability to ship? I mean, is it $5 million, $10 million? Is it $1 million?
spk03: I would say that for the year, and that includes the next quarter, it's millions of dollars.
spk05: Okay. And so are you anticipating any improvement in that, or are you expecting it to get worse as we go from $3 million
spk03: Right now, we are expecting it to go worse from the materials perspective. However, on the other side, as I've said, I mean, we see, I would even say, dramatic increase in the demand. So overall, when these two trends are colliding with each other, that's why we believe we will continue to grow. But the material issue is going to intensify and even become worse. next year. But on the other side, I mean, we have new demands coming. Some or some parts of this demand we're planning, at least, would be based on our newer products, which are taking the lead time into account already. So that's why combining all of these, we're still believing that we would be growing next year. It's going to be within a challenging environment, but that's what we believe in.
spk05: Okay. So as we look out into the 2022 timeframe, can you talk about, I mean, I think you've announced five major contract wins that are with significant companies. Can you talk a little bit about the timeline for those product announcements ramping, whether that's a slight feather in in 2022, a larger feather in in 2022? And I assume that there's volume discounts relative to to your norms, as those ramp up, will that impact gross margins? So I guess the small amount of revenue, I guess it has a limited, minor impact to gross margins. Could you talk a little bit about those two mechanics for 22 off of what's announced in 21, these large deals?
spk03: Well, first of all, I mean, we have announced one large deal just Two weeks ago or something like that, so that's one of these deals. I am expecting that even within this year, we would have one more of these deals, and the others would probably be announced, some of them, hopefully. I mean, obviously nothing is guaranteed, but we're planning for these to be announced next year. As to the relevance of these deals... on the gp um once again i mean any one single of these may have an impact on the gp but overall right now combining everything that i know which is a lot of details i do not see any reason right now to change the range of the gp that we're working within which is a still a a GM of between 32 to 36. Some of these deals may be somewhat better, others less than that. There is also some unclarity in here due to the increase in prices because sometimes when we need to increase price, we increase price, but not necessarily we could burden everything that we're used to over that increase price. But the overall feeling that I can share with you is that we're still going to be within the same range of a margin.
spk05: Okay, so that sounds then that you're not feathering in a large contribution from the contracts that were announced during FY20 or CY21 so far, but that's more of a 23 and 24 ramp, which is normal. I mean, you guys normally have 18-month-plus type contracts. lead times on these type of deals. So that seems reasonable. Is that the right way to think about it?
spk03: Yeah.
spk05: Okay. And then one more question and then I'll see the floor. We've seen very strong order rates for traditional equipment from many of the appliance vendors. It looks like the work from home kind of Partial return to office with lots of Zoom is driving up edge traffic across the enterprise. And I would assume that a lot of your traditional customers where you're designed in are seeing the benefit of that. Companies like F5 are seeing huge increases in orders for Zoom. you know, appliances, companies like Juniper announced a 50% increase in orders for the last two quarters. Clearly, that's a company that normally grows at low single digits. So that enterprise market seems like it's quite hot. Can you talk about your traditional business, whether you're seeing a pickup in that area and, you know, just kind of address whether the more... standard businesses is seeing strength that might have a little bit more legs to it than normal.
spk03: Yeah, I mean, I can confirm what you've been seeing with some of the other companies. Yes, I mean, we have been able to see some of our traditional customers, I would say at least at the beginning, traditionally coming up or going up with orders compared to what they used to do and compared with our expectation from them. which was actually to be somewhat less than what they used to do due to everything moving to the cloud. But, and I think you were accurate when you said that as well, that is in terms of demand and in terms of orders and not always, not necessarily in terms of the ability to deliver because of the material shortages.
spk05: Of course, that makes sense. But that suggests good visibility there. well through 22 for that demand to persist. Your visibility to growth is there, right?
spk03: Yes, I can tell you it is ironic in a way. I mean, we have the best visibility ever that we ever had, I think, in terms of the demand going into 2022. But we have the worst visibility ever in terms of our ability to deliver due to the material shortages.
spk05: I understand. I'll see the floor and let somebody else ask questions and come back into the queue. Thanks.
spk00: The next question is from Sergei Mascaro. Please go ahead.
spk04: Hey, guys. Good evening from Sri Lanka, and thanks for taking my questions. Do you hear me well?
spk02: Yeah, we hear you fine. Yes?
spk04: Perfect. Perfect. So can you share with us what are you seeing in terms of faster than expected ramp ups? How big is the risk that you lose some projects because you don't have the inventory on time and the customer wants to ramp up faster?
spk03: So I think that while there is a risk, of course, but on the other side, I believe that we are organized I would say in the best way possible under the circumstances. So the net result of this overall situation may even be positive for us because we are still able to, I would say, be compliant with some of the customers' needs by maneuvering and allocating everything and all the stock that we have acquired using our cash position, et cetera, in a way that sometimes our competition cannot do. So the overall result of that, I think, is going to be positive. That being said, yes, there is definitely a chance that in a specific cases here and there, we may lose a project because we're not able to deliver a specific product that a competitor may have been able to be in a better position than us to deliver. But because we analyze all these opportunities and we do have our inventory and the decisions that we have taken in order to mitigate these risks, then I think that a total conclusion of all these forces is positive for us.
spk04: Great, because I remember that you had an SD-WAN customer that was delayed for a while. And at the last call, I think that you said it would maybe start ramping up soon. Has this situation changed? And do you believe if this customer wants to ramp up, you would get the inventory on time?
spk03: I do not remember exactly to which customer you're referring and which customer was discussed last time. We have several customers ramping up. These days, with the materials crisis as it is, there are challenges everywhere. But as you could see from our results as well, I mean, we are addressing these issues. And we are successful... in holding, I would say, all these customers with us. To this date, I am not aware of even one single customer who has left us due to inability to deliver what it wants.
spk04: Okay. I think that this quote, Nokia decided to delay some of its 5G projects. Do you think that this could impact you and can you update us on why you are seeing in the 5G slash O-RAN space, please?
spk03: No, I think that overall the 5G O-RAN space is in an initial phase anyhow. Yes, and it's very typical in this phase that companies are delaying their announcements and their deployments. So it's very typical. I don't think, while it may delay the ramp up of our products in this market, but I don't think that it's going to be negative in general for us. Just the other way around, we are developing quite a few products which are looking at the 5G market as their target market. And I think that in some cases, it would just allow us to have our products at the level which is more mature to go to the market, so we might even be in a better position than we are right now. Overall, yes, I mean, 5G deployments are ramping up relatively slowly, maybe more slowly than some people thought, and it may slow down the rate at which some of our 5G products are ramping up, but eventually it's going to catch up, and I think it's not bad news for us, but rather good news.
spk04: Okay, this slowdown that you say has anything to do with new competition or is nothing about that?
spk03: This what? I'm sorry, I lost you for a minute. Can you repeat the question, please?
spk04: Yeah, this slowdown that you say in the 5G market deployment.
spk03: Slowdown. Oh, oh, oh. Well, competition is there. Competition is there. I don't think that because of this slowdown we would have more competition or less competition. For the products which were already selling in this, we were the first to the market and that's helping us. I still believe that with the next wave of products, we are also going to hit the market first. But in any event, I mean, in order to be effective when we go to the market, we have to have our products mature enough. So with some products, this is helping us. Yes, I mean, it is helping the competition as well, but I still believe that we're going to be the first to the market with these products.
spk04: Okay, so just to be sure, no change regarding the competition in the 5G market, right? Yeah, no change. Perfect. And my last question. I think that your long-term model at the investor presentation slide has been fixed at $250 million in revenue aspirations during the last four years or so. Maybe if you can provide us with some color about this aspiration that you have. Don't you think that with all the project wins that we had the last two years, the inter-partnership and the 5G potential, this aspiration could maybe be conservative and need to be updated?
spk03: Yeah, I mean, we are not saying how long it would take to get to the $250 million goal. revenues goal. And I think that the situation that is happening right now with the materials prices is a good example as to why we shouldn't say that, because a lot of things could happen. But we definitely have a strategic plan, a roadmap of products for which we see traction even now that we believe would take us there.
spk04: Yeah, yeah. I'm not asking about the time that it will take to get there. I'm asking about the amount. I think that this $250 million has been there during the last four years. And I think that during the last two years, we had lots of projects and also the 5G market. So my question is, do you think that with all the demand that you are seeing right now, this amount, this 250 million, could be increased in the future, in a few years?
spk03: It could. The 250 is more or less an example, I would say. We are heading to grow the company significantly. And with the demand that we're seeing right now, yes, we may increase over that. That's a strategic plan. It's not something that's going to happen next year. But on the other side, I feel quite safe that it's going to happen and decided the aim is to show the margins.
spk04: Yeah, and one last question, please. Any news regarding the Intel partnership?
spk03: Well, the Intel partnership is as strong as it was. The relationships with Intel are very, very good. And we are working together in many fronts. Just as an example, the penetration that we've been able to accomplish into the 5G space has been achieved in really very close cooperation between us and Intel approaching customers together. They are pushing us wherever they can. So I feel very confident about the partnership with Intel. And yeah, this is even tightening. And I mean, just good news in that space.
spk04: Yeah, and just now I remember that we haven't had any FPGA design wins for the last few months or years. Why is that? Can you give us some color of what's happening in the FPGA space?
spk03: Yes, I mean, well, the FPGA, first of all, the sales cycle. with FPGAs and the development cycle with FPGAs is much longer than with the other devices. So that's a given from the opening point. We still believe, obviously, in the FPGA space. We're investing in that. Right now as we speak, there are quite a few POCs, proof of concepts, with some of the cards that we have built together with Intel, I would say, and some very major customers. So we're still very optimistic about that. You should remember that, in fact, our strategy related to FPGA has been moved from one strategy to the other just about two years or two and a half years, I'm not sure about the accurate date, ago, two and a half years ago, where we moved from, I would say, a sporadic a strategy using silence-based solutions into working together very closely with Intel. So during this time, during this period, we had to invest, most of the time was invested in creating the products. And then after creating the product, you need to create the workload with which you go to the customers with, I would say, one and a half of the products were already there, which means we're presenting the solutions to customers these days, and we're seeing very good traction to our solutions. With two other products, we're still developing the product, so it's a long cycle, but we are very optimistic, and working with Intel, the longer term lookout for these type of products is very promising.
spk04: Yes, perfect. Thank you, Shaikh and Duran. Have a nice day. Thank you.
spk00: There is a follow-up question from Alex Henderson of Needham and Company. Please go ahead.
spk05: Great, thanks. So there were several comments that were made about challenges in getting parts that may have actually been decommissioned. And one, I was wondering if that has had an impact on revenues to the extent that you couldn't ship something because that part was gone. But more to the point, I assume that you're designing workarounds for those. And I would think, A, any new design requires the customer to prove out that it works and therefore would require some testing and proof of adoption of the technology. And two, some costs. So can you talk a little bit about whether you're OPEX costs, particularly on the R&D side, are going up as a result of the need to do redesigns and workarounds on parts that are not available. How should we be thinking about OPEX sequentially into the fourth quarter? And for that matter, for the full year 22, if you could give us any thoughts on that, that would be helpful.
spk03: Okay, so first of all, I would say that overall, I mean, everything that you described is actually happening. And yes, I mean, sometimes we were not able to deliver because we had a certain decommit or something like that. And yes, we need to do some redesigns here and there. And yes, customers need to evaluate these redesigns, and it's going to take time. And this is all a part of the challenges that we were experiencing. Now, in terms of the level of expenses... We would need to do some more R&D design, and they may result in a certain increase in R&D. I don't think this is going to be dramatic. I mean, if we're talking about new products that we're designing, then it's the same level of effort, only while in the past, I would say optimization point for the designers was the lowest cost, now the optimization point for the designer... is going to be availability. But yes, just like you've said, I mean, this does not cover all cases. If we have a design that we just need to do a slight modification in order to replace a certain component, which is challenging to get in another component, then this is on top of everything else that we want to do. But this is not very significant it may add to our expenses but I don't think it's going to change the basic model we may need to because we don't want to increase our force just for that we may outsource some of these jobs just in order to make sure that these small things that we need to do are being handled properly so from a model perspective expenses moving forward we may see a certain growth but nothing dramatic is going to happen due to that As to the challenges itself, there would be challenges, as I said before. Hopefully, and we believe they would be compensated by the increased demand and the fact that we would be selling or required to sell or to deliver more products, which would increase our flexibility in terms, okay, maybe we can deliver A, but we can't deliver B, so we still will achieve the revenue goal.
spk05: Okay. Can you give us any sense of whether your OPEX is going to increase sequentially for the quarter or what you're thinking about in terms of increases for 2022, particularly given the magnitude of the contract wins? I would assume that there's some upfront investment that will have to accelerate in order to accommodate those large wins.
spk03: I think that, once again, I mean, overall, there are going to be the same expenses, I think, maybe with a slight increase. Obviously, there are other elements impacting that. For example, the rate of exchange of the shekel versus the dollar, et cetera. I think that, once again, investment would not... change the basic model of expenses. We may need to invest and buy some more, I would say, servers if we increase our quantities, which would go into the capital equipment. But overall, I think we're going to be more or less at the same area with a slight increase. I think that right now we're somewhat over $7 million. it could get up to 7.5 in 2022. All right.
spk05: So increasing less than revenues then, it sounds like.
spk03: Yeah.
spk05: Okay. Going back to one of the questions that was just asked, I think to some extent people remember a very large IBM event that did not go well and was potentially going to be transformative to the company's scale. It seems quite clear to me at this point that you've transcended that risk to the extent that you've had so many contracts. Can you talk about the breadth of the large contracts versus your past history so that people can understand the diversity implied by some of these larger programs and how that helps reduce single project risk?
spk03: Yeah, well, okay, so first of all, I would say that more or less, this is not a 100% accurate statement, but at the time of this very big project, Silicon, I would say, had almost a single... It's not accurate because we were after... At the time of this big project, the IBM project, now everyone knows it was IBM, even though who is IBM actually? I said that by mistake, I think, several times in the conference call. We were not supposed at that time to disclose that. But anyhow, at that time, while we were beginning to show revenues with our edge products and to a lower extent with our FPGA solutions as well but still almost everything in the business was based around I would say server adapters what we called at that time server adapters and therefore the dependency on a project like that was huge now we are in a different situation we still have the server adapters but the edge products within the SD-WAN and not only SD-WAN becoming more and more significant right now so we're definitely not dependent only on one line of product we're having the ad product and in terms of planning forward we are going to have quite a few what we call smart cards and that we're looking forward to become significant growth driver from for the company so from the perspective of being dependent on a one single project or customer, I think we're no longer there. We're still looking to get some very major and significant wins from specific customers, but I don't think that the impact of any one of these is going to be as big as it was with the IBM project. What you could see is Just look at that as an example. I mean, if you look at the time of the IBM project, you can see that we're more or less at the same level of revenue now after removing entirely IBM, which means that we've been growing to the same level that we were when we had this huge project at the time. But this time, we're not dependent on any one big project.
spk05: So single customer risk has pretty much been removed from IBM. from that equation with such a diversity of large winds in the headlights. Great. Thanks. I'll see the floor.
spk00: If there are any additional questions, please press star 1. If you wish to cancel your request, please press star 2. Please stand by 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's website, www.silicon-usa.com. Mr. Orbach, would you like to make your concluding statement?
spk03: Yes. Thank you, Operator. Thank you, everybody, for joining the call. We wish you all health, and we look forward to hosting you on our next call in three months' time. Good day.
spk00: Thank you. This concludes Silicon's third quarter 2021 results conference call. Thank you for your participation. You may go ahead and disconnect.
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