Welcome to the Silicom's fourth quarter 2013 results conference call. (Operator Instructions) You should have all received by now the company's press release. If you have not received it, please contact Silicom's Investor Relations team at GK Investor Relations 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 GK Investor Relations. Mr. Helft, would you like to begin, please?

Thank you, operator. I would like to welcome all of you to Silicom's fourth quarter 2013 results conference call. With us on the line today are Mr. Shaike Orbach, the CEO; and Mr. Eran Gilad, the CFO. 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. Before we start, I'd like to draw your attention to the following Safe Harbor statement. This conference call may contain 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. Silicom does not assume any obligation to update their information. Actual events or results may differ materially from those projected including as a results of changing industry and market trends, reduced demand for Silicom's products, the timing and development of new products, and the adoption by the market, increased competition in the industry, and product reductions as well as due to risks identified and document 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 the management to take strategic decisions focused future results and evaluate the company's current performance. Management believes that the presentation of these non-GAAP financial measures is useful for investor understanding and assessment of the company's ongoing corporation 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 conditions 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. And with that, I would like now to turn over the call to Shaike. Shaike, please?

Thank you, Ehud. Good morning, everyone, and welcome to our fourth quarter 2013 results conference call. Our results for the quarter were outstanding and again our strongest-ever quarter, tapping up our strongest-ever year. Our fourth quarter revenues were 52% over those of last year and for the year 2013, as a whole, revenues were 50% higher than those of 2012. Our financial results broke all previous records, in terms of revenue, operating and net income, and we achieved record-highs in our operating and net margins. We are exceptionally proud of these achievements as well as our record-breaking performance over the past year. The contribution to our strong growth in 2013 was diversified across all our product lines, particularly the newer ones. We sold products throughout our broad base of 90-plus customers, while already making significant sale to some of the newer customers, our sales ramped quickly among many of our existing customers in all our target markets. While the same was also during the fourth quarter, we also saw significant upside in revenues from one particular customer, which is one of our two 10% or more customers based on their annual 2013 contribution. I note that we have worked with this customer for eight years, and over that period, we have grown from a single design win in one of their appliances to selling multiple products for a large number of different appliances covering many market segments. This is a true demonstration of the potential of our OEM model and where any single design win has the potential to lead a significant business with cross-sale opportunities down the road. We now have multiple customers with a potential to make a significant contribution in the coming years. In fact, in the fourth quarter we saw a third OEM customer's reach 10%…

Thank you, Shaike, and hello, everyone. Revenues for the fourth quarter of 2013 were $25.4 million, a growth of 52% compared with revenues of $16.7 million in the fourth quarter of 2012. Revenues for the full year of 2013 were at a record $73.3 million, growing 50% compared with $48.7 million as reported for 2012. This phenomenal growth is even more impressive on the heel of three previous record years with a compound average growth rate of 33%. Our geographical revenue breakdown for the full year of 2013 was as follows: North America 74%, Europe and Israel 14%, Far East 12%. 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, one-time cost related to an aborted acquisition, as well as amortization of intangible assets. For the full reconciliation from GAAP to non-GAAP numbers, please refer to the press release we issued earlier today. Gross profit for the fourth quarter of 2013 was $10.1 million, representing a gross margin of 39.9%. This is compared with $6.3 million or 37.8% of revenues in the fourth 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. Gross profit for 2013 was $29.5 million, representing a gross margin of 40.3%. This is compared with a gross profit of $19.9 million or gross margin of 40.9% for 2012. Operating expenses in the fourth quarter of 2013 were $3.2 million or 12.7% of revenues compared with $2.7 million or 16.4% of revenues in the fourth quarter of last year. In 2013, our operating expenses were $11.3 million or 15.4% of revenues compared with $9.2 million in 2012 or 18.9% of revenues.…

(Operator Instructions) The first question is from Alex Henderson of Needham & Company. Alex Henderson - Needham & Company: A couple of questions. One, can you talk a little bit about the 10% customer addition, so as the three of the customers combined now, what 50% of sales approximately. Can you give us a percentage on that?

Well, typically I think, I mean in terms of percentage, so for the full year this third customer was not a 10% customer yet. It became a 10% customer only in the third quarter. I can tell you that during the year, obviously, we had two 10% and more customers, both of them together approximately 40%, but the biggest one being approximately 30% over the year and another one approximately 10%. So now with the last customer, 10% in the last quarter, so off hand, I didn't look at the number of the quarter, but it could be something which is similar to what you've said, even though I don't have the figures for the year. For the year, I can tell as of that before, approximately 40% for a year 10% customers. Alex Henderson - Needham & Company: The second question is can you talk a little about the linearity in the orders on the F5, in earnings release last night, they were talking about an acceleration in demand in their enterprise business as the quarter progressed. Did you see any uptick in orders as the quarter progressed, as we exited '13?

Yes. I mean I believe that we did see definitely an uptick, just like you've said towards the end of the quarter. I mean I think we felt that our quarter was going to be a good one even before that, but definitely in the last part of the quarter, we could see more of the demand coming and customers pushing and making us work very hard in order to be able to deliver because these demands some times arrived later and yet they wanted it to be delivered within this quarter, so yes, I could agree with your assessment. Alex Henderson - Needham & Company: And then on the storage side, how long do you think it takes before that shows up in the revenues? The design win in 4Q, is it two or three quarters or sort of back half of the year that it shows up?

Well, some of the revenues out of that design win has already been recognized even in the fourth quarter, but definitely next year we're going to see revenues out of that, definitely, and even in the first half we'll see revenues. Alex Henderson - Needham & Company: And the Intel partnership, going after the infrastructure, the service, white-label side, again how long do you think it takes for that to generate as an increment to revenues?

I think that this would take longer than the storage part that we discussed before, because it's a new product. I mean in the storage business, we just had to, I would say, customize and make our existing solutions relevant towards the needs of the specific customers. With Intel, encryption and compression cards, these are new products, and I think it would take some time before these become revenues to us, definitely not through the first half of the year and then I believe we will start to see some revenues of that. But that being said, for the longer term, I think that this is going to be very, very important, because I think that the need for these products is significantly increasing. Up until now, Intel was not really committed to that market in terms of the silicon that it provides, now it is, and it is working with us, so well, I think that it has a huge potential for us, say for the longer term, but it's going to take some time.

The next question is from Edward Balinsky of Segmark International.

My question is, I am not concerned with who and how much or even when, but I wonder if you have ever received an offer for the purchase of Silicom? And I'd be curious to know if you rejected it because of price or because you were never going to sell out?

Well, I don't recall ever receiving any real offer to buy Silicom. I mean there may have been some talks, but nothing of any sort of really moving forward with that.

The next question is from Don McKiernan of Landolt Securities.

The timestamp product was announced almost a year ago, and wanted to get some color on that in terms of, are we seeing much in revenue yet? And how many customers do we have and how many are in the pipeline?

So I think that in terms of numbers or quantity, this is not different from what I said last time, but I'll try to give you some color on that. So as we've said from the beginning, the sales of this product will not happen quickly. But I think that we are making a lot of progress in there. What we have right now is two customers, I think one of them we had, was the first customer that we announced when we announced the product and then we had another design win that we did not announce in the press release, but I've talked about that in the last presentation that we had. We currently have about, I think around 10 companies, which are evaluating this product, but the important thing is that some of the major companies that are evaluating this are making progress. So we are making progress. They are evaluating, they are testing. We're moving ahead with that. And I think that we would definitely see more design wins during 2014 for that product, because the pipeline is not only getting longer, but the most important thing is that it's getting thicker. We'll get some design wins with this product, I'm sure about that.

The next question is from [ph] John Macuso.

Have you considering at all raising the dividend?

Can you run that again, I didn't hear you?

I am very pleased with what you're doing, obviously, as everyone is. Are you considering raising the dividend for stockholders?

Raising the dividend. Well, I think that in absolute numbers it would be higher anyhow, but as to the percentage I believe that this would probably be something that we will discuss right now, the decisions are where they were.

The next question is from Ronald Mullins of Segmark International.

I have two questions. The first one is regards to presentation that you recently gave at Needham. I'm wondering whether you intend to do more of those in 2014, as you have [indiscernible] a superb story. And the other is whether or not you would have some discussions of a possible stock split?

Well, with respect to the Needham-like presentation, then, yes, we would be planning to do more of these in 2014. With regards to the splits, so this is something which is being discussed here and there and we will continue to consider that as we move on. So it is not something that we ignore it, it is on the table and we will continue to discuss that and make hopefully drive efficiency.

The next question is from Ken Farsalas of Oberweis Asset Management.

Normally, you have a seasonal sequential decline from Q4 to Q1, would you expect this similar behavior in the business this year or does year current design win momentum give you the opportunity to be flat or potentially up quarter-over-quarter into the first quarter? Oberweis Asset Management: Normally, you have a seasonal sequential decline from Q4 to Q1, would you expect this similar behavior in the business this year or does year current design win momentum give you the opportunity to be flat or potentially up quarter-over-quarter into the first quarter?

Well, as you know, we do not provide guidance at all, not to speak about a quarterly basis. It is a little bit early in the quarter, especially if you take into consideration what happened in Q4, or as I've said before, most of the huge demand came through at the end of the quarter. So I don't know. I cannot tell you exactly what would happen in Q1. The only thing I can say about that is that overall, just like I said and what I read, when I told you about what I was thinking, we are positioned in a very good position I would say for growth, and hopefully that will happen continuously, but I cannot say anything specific about Q1 right now.

Have you seen the order momentum continue in the January though from December or no? Oberweis Asset Management: Have you seen the order momentum continue in the January though from December or no?

Well, as I've said, I mean, typically it goes on towards and this is not only in the fourth quarter. In most of the quarters we see increased demand towards to the end of the quarter. Overall, we do feel a regular behavior I would say.

And then talking about your inventory levels, how confident do you feel about where you're at from an inventory perspective right now? Oberweis Asset Management: And then talking about your inventory levels, how confident do you feel about where you're at from an inventory perspective right now?

Well, I am 100% confident with the inventory levels, the way that we handle the inventory, which is based on the focus that we get from our customers as well as with, I would say, level of matching between what is actually happening. And the focus is such that I don't have any concerns regarding the inventory.

The next question is from [ph] George Marima.

I had a couple of questions. The addressable markets for some of these new areas you're getting into, could you maybe elaborate a little bit more on the size of these markets in dollar terms? And also now that your $100 million mid-term goal is getting insight here, what are your new long-term goals?

First of all about, the first question. I am not sure that I can give any number in here. But I think that one thing is very clear and this is the trend towards the virtualized data centers, towards the cloud, which is actually a virtualized data center. Now, what that means is actually two parts, one part is immediately a market, which is an add-on to our current markets, and the other part of that is just a shift, because the first part is obviously the explosion of data. The explosion of data requires more data centers and in order to manage that effectively, then you need to have them virtualized within the cloud. And that's obviously a market, which has not been there before, and as soon as we have products for that -- so this is something which is very good for us. Now, what exactly is the size of our solutions going into this market? I am not sure that I do have a reliable number for that. But I do know, that the growth of data centers and the cloud, et cetera, is phenomenal, and we think that we'll become a part of that. So that's one part of that, even though I don't have right numbers. Now, as to our new goal, well, I mean once again, I don't want to give you an answer to that right now, because we really feel good. We think that our business is going to grow and we do need to put a line, and say, well, okay, this is our next goal. We have not done that yet. I think that possibly by the next time that we speak, we'll be able to do that.

The next question is a follow-up question from Alex Henderson of Needham & Company. Alex Henderson - Needham & Company: Just to be clear, the dividend policy that was referred to earlier, is that your standard payout is targeted at 50% of your cash flow for the year, is that correct? And that's normally paid out in April, am I right on those facts?

Yes. It is normally paid in April. We will probably declare the dividend at the end of March. And the policy has remained the same, up to 50% of our net income. Alex Henderson - Needham & Company: And finally, will you guys be breaking out the split on the share compensation and amortization adjustments on the OpEx lines in future periods or when you'll release, and do you have that breakout at this point?

Breakout of what? Alex Henderson - Needham & Company: Well, you have non-GAAP adjustments to your numbers to OpEx, but you don't break it out by line item, which makes it tough to model. Do you have a breakout of that on a per line basis for marketing R&D and G&A?

No. We break it for the types of non-GAAP expenses, but we do not disclose what is the specific amount for R&D, G&A or sales and marketing, just the total. Alex Henderson - Needham & Company: It does make pretty difficult for people to forecast, if you don't allow us to actually have actual numbers for those three line items, which are kind of critical for the modeling exercise, you might want to consider breaking that out in future press releases.

We will consider it.

Now, let's consider that. And probably we'll consider that.

The next question is from [indiscernible].

I wanted to ask about some of the customer concentration metrics. I mean how do you see them shaping up in the future? I mean do you see them more spread out among larger number of customers or do you see the primary growth coming from the existing ones?

Well, I mean, actually the combinations. I mean we see most of the growth coming from existing customers, but keep in mind that we are adding new customers. So as soon as we add new customer, this new customer is already an existing customer and at that point we can see the potential from him. What I am trying to say in here is that typically, not always, but typically new customers, when they come, they start relatively small. They don't start becoming a 10% customer as soon as they start. They start typically with one product looking for the products, for the quality, for the company, et cetera. Then they start feel confident with us and eventually they become more and more important. So that's how the product moves. So when I'm telling you that it's coming mostly from existing customers, I am not necessarily saying that for the longer term it's going to be these three customers that are currently the biggest, best driver of growth. As I've mentioned before, in the fourth quarter there is one customer, which just became a 10% customer for the last quarter, and that being, that up until now we haven't been while right with the biggest, and it's becoming big and bigger and bigger. So we see this phenomenon across the board. New customers are growing, growing and at some point in time, they cross the line of the 10%. And the bigger they are, assuming that they are significant companies, and most of them are, the potential within the customer is becoming bigger. So it's an ongoing process, which I believe is what is driving our growth.

So assuming that your products are sort of being deployed within their solutions and becoming more and more entrenched. I mean what are the risks if you will of them replacing you or switching you with other potential products or by definition the single source there, I mean how do you view that?

Well, first of all I would like to say and mention that each of these big customers is using many products from us, across many appliances. So I don't see any scenario at all, where a customer would at the certain point in time just simply stop buying from us. This simply cannot happen because they are depending on us in a variety of products and a variety of appliances. So that risk is not existent. On top of that I would say that in this market once you are selected, you are actually a sole source. Wherever we have a design win that means at that that design win we are a sole source, and that's because the products are being integrated into their systems and the customer needs to qualify and has a lot of effort actually in integrating our products within their systems. The point of risk, so to speak of is when the customer is moving to a new appliance or to a new configuration. When a customer is moving into a new appliance or a new configuration, then a customer may decide, first of all, that the configuration no longer requires a certain part, and so on and so forth, or even though that never happened to us, that he would like to use a competing card. That never happened, but it may happen. But once again, even if that is happening, it cannot happen for all the products and all the appliances that we sell to these big customers of ours.

The next question is from Jonathan Weiss of G2 Investment Partners.

This is Josh Goldberg for Jonathan. Just wondering if you can just comment on a couple of items. One thing is that, you said that the third OEM became the 10% customer in the fourth quarter. Please tell what you're seeing in terms of the design wins and forecasts? Do you see this customer continuing to grow with you as you continue into 2014? And I have a follow-up.

There is definitely a good chance for that.

Are you saying that you probably have more than one design win with this customer at this point?

Excuse me, can you run that again by me. I lost one word.

Is it fair to say that you have more than one design win at this customer going forward?

Well, right now, we have of course, just like with the other every customers we have more than one design win, right now with them for more than one product. And there are several additional design wins, which are on the table, which we hope to get during 2014.

So the design wins are on the table, but the question is when they will move to production?

Well, if the question is when they will move into production? I mean some times they changed their mind. I mean as long as something is not final, a lot of things could happen, but we definitely feel that this customer will grow with us. Even if this specific design win is currently on the table for 2014 will not materialize, we are continuously working with these customers. We may have design wins with these customers because we'll push them, we will not only push, I mean we're demonstrating to them our solutions. We are continuously developing. They may select something that right now is not one of those design wins, which are on the table. So that's why I think that there is definitely a potential for them to grow with us with more design wins.

And I would just echo some other sentiments that obviously you're confident in your inventory and you're confident in your fourth quarter going into the middle half of the year, was clearly shown with a 47% sequential growth in the fourth quarter. It certainly is well above your peers, and I just wanted to congratulate you on all your hard work. It would seem to me based on some of the stuff you're doing with Intel that some of these opportunities in the cloud could be a incremental driver to your growth. And certainly I'm not expecting you to grow about 50% again for next year, but could you talk a little bit about that when the cloud part of the business can add to your topline in a meaningful way?

Thank you.

The next question is from Alex Henderson of Needham & Company. Alex Henderson - Needham & Company: I forgot to ask earlier, I know you added at least one customer in the fourth quarter, did you actually announce how many customers adds you had in the quarter?

No, and because right now we cannot not do that. Actually, adding customer is an ongoing business and we add more than one customer each and every quarter. We only announce those that we think have a real significance that can be demonstrated through our press release. The others we don't yet announced -- but we don't know yet, otherwise we would have announced. Some of them will based on history will become more important as they move forward at which point we may announce them, but we're getting more than one new design win every quarter. Alex Henderson - Needham & Company: So just to recap, there was more than one in the quarter, but you're not specifying the numbers?

Yes.

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. We look forward to hosting you on our next call in three months time. Good day.