Yeah, thank you operator. I would like to welcome all of you to Silicom's conference call discussing the results for the second quarter of 2013. Before we start I'd like also to draw your attention to 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 decision, 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 financials discussed in this conference call will be on a non-GAAP basis. A full reconciliation of non-GAAP to GAAP financial measures is included in today's earning release, which can be found on Silicom's website. With us on the line 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 now like to turn over the call to Shaike. Shaike, please?

Thank you, Ehud. Good morning everyone and welcome to our second quarter 2013 conference call. We are very pleased with our fantastic second quarter results showing substantial revenue and profit growth over last year demonstrating that we are indeed on track and evolving into a different and higher level company. We reported revenues of $15.7 million. This is a 51% year-over-year improvement and the third quarter in a row in which we've been able to show substantial revenue increases at these levels highlighting the continued trend of immense growth that we are experiencing. The contribution to growth was diversified across all our product lines and especially from the newer ones. We sold products across our entire base of customers with initial sales to new customers while strongly ramping sales to existing customers in all our target markets. Our net profit also grew substantially to $3.5 million, up 45% over last year and we reported a high level of margins with both operating and net margins at over 20%, a significant achievement in itself. Our balance sheet remains very strong. We ended the second quarter with $52.7 million in net cash. This substantial level enables us to share the rewards of our success with our shareholders through the distribution of the dividend. At the same time it is more than enough to handle all our working capital needs and provide us with the flexibility to take advantage of any growth opportunities that may arise. This balance sheet strength was a factor in our decision to distribute a dividend of $3.9 million to our shareholders just a few months ago, our first distribution under a new policy to issue an annual dividend based on our prior year's financial performance. We are confident that our continued growth over the coming years, built on…

Thank you, Shaike and hello everyone. Revenue for the second quarter of 2013 grew to $15.7 million, a growth of 51% compared with revenues of $10.4 million in the second quarter of 2012. Our geographical revenue breakdown for the first half of 2012 -- of '13 was as follows: North America, 80%; Europe and Israel, 10%; far East, 10%. 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 second quarter of 2013 was $6.3 million, representing a gross margin of 40.3%. This is compared with $4.4 million or 42.4% of revenues in the second quarter of last year. Note that 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 second quarter of 2013 were $2.7 million or 17.1% of revenues compared with $2.1 million or 19.9% of revenues in the second quarter of last year. Over the long term our revenues continue to grow at a faster pace than our expenses and this is a solid indication of the inherent leverage in our business model. Operating income for the second quarter of 2013 was $3.6 million or 23.2% of revenues. This is a 55% increase over operating income of $2.4 million as reported in the second quarter of 2012 or 22.6% of revenues. Second quarter 2013 net income was $3.5 million or 22% of revenues. This is a 45% increase compared with a net income of $2.4 million or 22.9% of revenues in the second quarter of last year. Earnings per diluted share were $0.48 in the quarter compared with $0.34 in the second quarter of last year. Now turning to the balance sheet; as of June 30, 2013 the company's cash, cash equivalents, bank deposits and marketable securities totalled $52.7 million or $7.41 per outstanding share. On April 17, 2013 we paid out $3.9 million as a dividend to our shareholders. That ends my summary and we would be happy to take any questions. Operator?

Thank you. (Operator Instructions) The first question is from [Ken Faislet of Overlife Asset Management]. Please go ahead.

Hi, good morning. Congratulations on another strong quarter. Your year-over-year inventory growth has been accelerating over the last few quarters. What color can you provide to help us feel comfortable that you don't have excess inventory and does the acceleration in year-over-year inventory growth portend that revenue growth might actually accelerate from the 50% growth rate that you had this quarter?

I would like to start by telling you that we do not have even the slightest concern about increasing this revenue, which was the first part of your question. All the increase in this inventory -- all this inventory increase is obviously against I would say, customers and projects or programs that are being pursued -- continuously pursued by these customers. So I don't have any concern about what's going to happen with that inventory. It would be consumed, I am sure about that. Now obviously a part of this inventory is related to the fact that we are growing and therefore a part of that is some sort of indication to the fact that we are growing and planning to continue to grow. However that being said, I would like also to explain that our customers are demanding from us to be ready with stock against many potential upside scenarios and not necessarily all these scenarios will happen, for example in the next quarter or even in the next second quarter. So we are prepared in inventory, not only against the forecast that we are seeing, but also against upside, which is on top of the forecast that we are having. So you cannot just take the inventory and say wow, this company is now going to grow just like as reflected by the growth of its inventory. But on the other side I would say that this inventory is a reflection of the fact that we are growing together with these demands by customers which are asking us to be ready for their upside.

Okay. Well that's very helpful color, thank you. Just one more quick question and I am sorry if I missed it, did you break down revenues by SETAC 10 gigabit and External Bypass in the quarter?

No, I think that last quarter or maybe the one before that, we said that we would no longer do that. I mean we have found out that this is a tool which is being used by some of our competitors in deciding which areas of our business they are trying to pursue. So we are no longer sharing this information.

Fair enough, thanks again and congratulations again.

The next question is from Jeff Meyers of Cobia Capital. Please go ahead.

Great, thanks guys. So just wondered if you can give some color on the performance of one of your newer product categories, which is the Time-Stamping product and also the external bypass product that you have.

Well, once again, I mean I think that we no longer give the percentage of these things, but what I can tell you is that in terms of the Time-Stamping that we are proceeding in accordance with our plans and this means that this card is now in evaluation by more players at more advanced situation than what it was just three months ago, but these processes are taking time. As I have said, I believe last time as well, but the fact that almost every player in the market is in various stage of evaluating this product is very positive to us and I am pretty sure that we will have more design wins of this product. It may take time, but we will have these design wins. As to the external bypass, so I think we did well in this product but there isn't anything specific that needs to be highlighted regarding the external bypass.

Okay, great. Thanks, guys.

The next question is from Don McKiernan of Landolt Securities. Please go ahead.

Yeah, thanks and congratulations as well. In the press release you mentioned with -- and I am just reading here with the SDN, NSV virtualization and cloud computing I understand SDN, is software defined network and I know what virtualization and cloud are, what is NSV?

NSV is network slow virtualization, I believe. It's very similar to SDN in terms of what it requires from us.

Okay. And my other question was already answered on Time-Stamp. Thank you.

The next question is from Edward Balinsky of Segmark International.

Hi, and good morning. My question has to do -- I recently signed a proxy statement with regard to the issuance of shares to employees. I am afraid I was rather confused by it all given the performance of the management, I went ahead and signed and sent it in. Could you explain what you plan -- what you are doing and what this enables you to do and what you plan to do with regard to issuing shares to the employees?

I am sorry to say but we have not released anything connected to issuance of shares to employees in the last few months.

No, I was referring to changes, which were in the proxy statement which I just received -- which I received last week.

You received last week a proxy concerning to a compensation plan -- a general compensation plan for senior employees, for executive employees at Silicom. This is a general plan. It doesn't specify any specific amount for certain time.

So you are not contemplating any radical change in your -- in the share compensation?

Not at all. Not at all.

Fine. All right thank you then.

Thank you.

The next question is from Noah Steinberg of G2 Investment Partners. Please go ahead.

Hi, Josh Goldberg here, congratulations on a good quarter. Just -- if you could just give us a little more color on this increase in inventory. I mean obviously having an increase in your top line will cause you to have more inventory on hand, but just a sheer magnitude of the increase in the second quarter would you be able to tell us how much of that is in finished goods versus sort of work in process or any sort of other color on why the inventory went up over $8 million in the quarter? And it seems like your DSOs went down as well. So that would imply that the business had a strong beginning in the quarter. If you can just comment a little more about both those items, thanks.

Once again I mean as I said regarding the inventory, when I think the inventory is growing in all aspects including finished goods and a part of that is indeed I believe due to business that we will do at the beginning of the next quarter, but overall if you look at the growth of inventory then while a part of that may be related to the beginning of next quarter, but the phenomena that needs to be described is not a specific phenomenon, which is related to any specific date but rather to what I said before. I mean it's a combination of some of a which is reflecting our growth because as we are growing we need to have more inventory and the demand by our major customers to be ready for upside and I can tell you that in some scenarios or some examples our customers are asking us to be ready for even twice the forecast that they are providing. Now because we are talking about appliances which are still having quite some time to go ahead so even though we are increasing this inventory, as I said before I am not concerned about these inventories being consumed but definitely it is growing now because we need, I would say to have some of this inventory as a buffer for to take into consideration an upside. Now if these upsides are happening then of course we will have to buy this again. If these upsides are not happening and not necessarily each of them is going to happen then this level of increase in inventory will not continue as we move forward, but these are the main two components in here. I mean we used to have inventory which is based on our forecast only, because some of our customers are doing pretty good and that had made us run into having to use extreme efforts in order to meet their delivery schedules, so they asked us and we agreed to do that, to keep inventory and stock including in finished goods and it's components in various levels of the stock in order to take account of their potential upside and we did that. So that's more of the combination of their inventory.

Okay. Shaike you also mentioned, I guess on the last call that you expected continued strong growth for the rest of this year. Has that changed at all based on what you've seen in the last three months that you are not expecting to see the same level of growth or same type of growth as you've seen at the beginning of the year?

I do not -- as you can imagine, I do not remember exactly my words last quarter, but I can say that my level of optimism is exactly like it was last quarter. So it's not less than that and obviously we are very hopeful moving forward. As you know I mean we are not providing data per quarter and I don't want to stop and do that right now, but we are definitely very optimistic.

Thank you.

The next question is from Jay Steinhilber of Morgan Stanley. Please go ahead

Yeah, great quarter guys, couple of questions. With regards to your tax rate, I am no expert on the Israeli tax law, but can we expect roughly the same tax rate over the next 18 months? You guys pay considerably less than what we do here in the U.S.

Okay. First of all, the tax rate in the first half of 2012 as can be seen in the reports is approximately 8% and is expected to remain at the same level for entire 2013. The tax rate for 2014 and onwards is supposed to be higher than the rate in 2013 due to the fact that actual tax rate will be based on a combination of many factors and the impact of some factors not yet being certain we cannot presently specify a definite number but we can say that it will be higher than the rate in 2013.

Are you talking significantly higher are we talking little bit higher, we are not going to go from 8% up to 20% or 25% are we, maybe the low teens or can you give us some ballpark?

Again it's difficult to give a ballpark. It's very early to say that right now. A general ballpark can be around 15%.

Okay. About a year ago also marketing the company, I noticed you have one analyst. Many other technology companies of your size and growth have four or five and even six analysts. What specifically do you have on the calendar to market your company as to presentations and getting more analysts on-board so we can hopefully ride the wave higher with the stock price?

All I believe that -- well first of all, we would be happy to have more analysts and we hope that obviously the fact that we are successful with the business will encourage more analyst to do that. And we are using this increase in the business in order to meet more potential analysts and try to get their attention. Hopefully we will be successful with that. We are making the efforts in that direction.

Thank you. That's all I have.

The next question is a follow-up question from [Ken Faislet of Overlife Asset Management]. Please go ahead.

Hi, thanks for the follow-up. I just wanted to talk a little bit about gross margin, obviously gross margin has deteriorated a little bit over the last few quarters which is not unexpected given the volume ramps that you have had with major customers, excuse me. Do you think you can -- should we expect that you can hold that 40% level roughly going forward or do you think that we potentially could see some more gross margin erosion as you continue to ramp in volume with some of these major customers. How should we think about gross margin going forward?

Okay. I mean, I think that as offsetting the path the main factor defining the gross margin is the mix of products, which is why it's a little bit difficult to tell or to say for sure how the gross margin is going to move forward, because the factors in there are, there are several factors. So one of them is obviously and maybe the most important one is the mix of products because this is the main reason between the deviations I would say in gross margins between the various quarters. As you can tell, we are approximately the same gross margin now as the last quarter and then I believe the fourth quarter we were a little bit less and then the first quarter we were more. So mostly the mix of products, but again you are right, there are other factors. The other factors are the volumes you are right and the volumes are expressed by having -- experiencing pressure on the prices, which is natural but on the other side once we have the volume we are becoming more efficient in our manufacturing, so that reduces the cost on the other side and we are able to do that, because I mean if you would just take the prices that we are being pushed to, that would reduce the gross margin more than what you actually see because we sometimes are enabling our manufacturing not only to compensate for their reduction in prices but even to do more than that. So we were talking about prices, volumes on the one side, efficiency of manufacturing on the other side and on top of all that, the mix of the product, which is why it's a little bit difficult to say. I don't see, well I mean of course there could be changes but I don't see very dramatic changes in where we are right now.

Okay. Thank you very much.

The next question is from Marcel Herbst of Herbst Capital Management. Please go ahead.

Good morning and thanks for taking my call. Regarding your new Time-Stamp product, would it be likely to replace a competitor in an existing appliance or would all your design wins come from new product launch as it is more typical for your other products?

Well I think that it could be both. I mean typically when you are presenting a new product then in most cases, this product would become a part of a system that's one of our OEM customers is selling in a new launch or at least a refresh simply because it's easier because otherwise he needs to qualify just to board while it's much easier if he is qualifying and releasing to the market a new appliance then this would be a natural point of change for any customer. However, what we're seeing is that with this Time-Stamp product because some of the advantages and specifically the fact that we're able to deliver the same performance in a significantly lower price is so high or so highly important to some of our customers then I believe that in some cases it will happen even within the lifecycle of the certain appliance.

Oh, that sounds very good. In regards to your overall momentum in getting design wins, how would you compare the first half of the year to last year?

Well last year you mean the second half, which did not happen yet?

No, I mean just in general the momentum that you're seeing in gaining…

I mean in terms of design wins, I do not say -- well let me put it in a positive terms rather than the other way around. I think that the second half is going to be at least as good as first half in terms of design wins.

All right I wasn't not so much looking for forward-looking into the second half, but more like what we had in the first half compared to last year is do you see similar level of roughly speaking?

The answer is still the same, what we were experiencing in terms of design wins, what we have experienced in this half is more or less similar to what we experienced in the last half of 2012.

Okay. And in July you announced a customer and you just mentioned in the release as well that the [ramped] purchase of modules to about four million, what level did that come from?

You mean in terms of what is the starting point? A starting point when we announced this customer I think at that time we did not specify this number for this customer because it was announced together with someone else. But in general when it started was at approximately a level of one million. Now but still since there has been I'd say a slow, a crawl, I would say of additional things that we started to do with this customer. So I am not saying that necessarily what we got now is four minus one. We are in the midst of this process of moving from the one, which was a clear case on to towards the four. But what their customer decided right now is to standardize on all these modules and to go to the other product line of appliances and that is what would take us to the four while we haven't been there until now.

Okay, great. Thanks again and congratulations to an excellent quarter and your continued progress.

(Operator Instructions) The next question is from [George Marino]. Please go ahead.

Good morning. I had a question about the -- I want to press a little more on the design win pipeline. In the past year you've won a lot of design win. Is the backlog of design win pipeline still thick and strong or have you got them off so to speak?

I mean the pipeline for design wins is thick and strong I would say more than ever. The difference is only that in the past when we were much smaller we used to count the design wins and report the number of design wins. We stopped to do that especially because we are a bigger company right now and not any design win would be something which is I mean it would be meaningful to count and report and so on and so forth. So there are a lot of design wins, but if a design win would give us $100,000 per year then not necessarily this is something to count and report now that we are at the rate that we are. Previously we used to tell the market about any design win and then count them. Right now we don't this is important, which is why we tell the market about the important ones and we do not count them anymore. But the pipeline is there and it's as long and thick as ever.

On the SETAC line specifically you had a lot of recent strong wins including some major Tier 1 player it sounds like. So are there any other Tier 1 type players out there in the pipeline now?

There are still Tier 1 players in the pipeline.

Okay. All right, thank you.

Thank you.

There are no further questions at this time. (Operator Instructions) 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 increasing shareholder value over the long-term. Good day to all of you and I look forward to speaking with you next quarter.

Sorry Mr. Orbach, there are two more questions. Would you like to take them?

Sure.

The next question is a follow-up question from Don McKiernan of Landolt Securities. Please go ahead.

Oh, thanks. On the Time-Stamp product you had announced back in February a new product with a design win. Do you have any more design wins for Time-Stamp now?

No, not yet even though as I said we are moving -- I would like to explain that, not only say no. I mean the design win that we got and reported was a surprise as a matter of fact because typically these design wins take much longer than this first design win that we have reported. I believe that the second design win will also be within the timeframe, which is much shorter than usually necessary for this kind of an intelligent cut for a design win and that's due to the special features of this card. But at that moment we do not had -- we have not had yet another design win with the Time-Stamp, even though we are working with a lot of players which evaluate this card right now.

Did you have any revenues in the first or second quarter on the Time-Stamp?

Yes.

Okay. And about how many additional companies are evaluating the Time-Stamp product?

I think that right now it's at least 10 or between 10 to 15 companies.

Okay, great. Thanks, good luck?

The next question is from Noah Steinberg of G2 Investment Partners. Please go ahead.

Hey guys. Could you give us some more color on just the customer concentration if there was any this quarter and linearity of the quarter?

Hey we usually do not provide details on the quarterly basis for such a questions, but I can say that we had two 10% plus customers in quarter two 2013 and in the first six months of 2013, the same two customers as in 2012. These two customers are still approximately 40% together as it was in 2012.

Okay, so they are growing nicely for you and linearity in the quarter?

Excuse me?

Linearity in the quarter, how much was the quarter last two weeks of the quarter versus the beginning of the quarter?

More or less same.

Linearity of the sales, the revenues in general, I mean I think that in the last quarter this was more or less linear, even though typically we are more towards the end of the quarter, so it's the back end. But I think that in this quarter it was more linear.

Got it, shows in your DSO number, okay, fantastic. Thank you so much.

Thank you.

There are no further questions at this time. Mr. Orbach would you like to make a concluding statement?

Well, I think I don't think that I need to repeat everything, but still I mean good day to all of you and I look forward to speaking with you next quarter.

Thank you. This concludes Silicom's second quarter 2013 results conference call. Thank you for your participation. You may go ahead and disconnect.