Ladies and gentlemen, thank you for standing by. Welcome to the Silicom Fourth Quarter and Full Year 2018 Results Conference Call. All participants are present in 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 Silicom's Investor Relations team at GK Investor & Public Relations at 1-646-688-3559 or view it in the News section of the company's website, www.silicom-usa.com. I'd now like to hand over the call to Mr. Ehud Helft of GK Investor Relations. Mr. Helft, would you like to begin?

Yeah. Thank you, operator. I would like to welcome all of you to Silicom's fourth quarter and full year 2018 results conference call. Before we start, I'd like to draw your attention to the following Safe Harbor statement. 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. Silicom 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 for substantial revenue growth on a limited number of customers in the evolving cloud-based market; the speed and extent to which cloud-based and cloud-focused solutions are adopted by the market; the likelihood that we will rely increasingly on customers, which provide cloud-based and cloud-focused solutions in this evolving market, resulting in an increasing dependency on a smaller number of larger customers; difficulty to commercializing and marketing Silicom's products and services; maintaining and protecting brand recognition; protection of intellectual property, competition and other factors identified in documents filed by the Company with the SEC. In addition, following the Company's disclosures 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 is useful to investor understanding and assessment of the Company's ongoing collaborations and prospect for the future. Unless otherwise stated, it should be assumed that the financials discussed in this conference call will be on a non-GAAP basis. Non-GAAP financial measures discussed by management are provided as an 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 found on Silicom's website. With us on the call 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. And with that, I'd like now to hand over the call to Shaike. Shaike, please.

Thank you, Ehud. I'd like to welcome all of you to our conference call to discuss the results of the fourth quarter capping off 2018. We are very pleased with the results, not only of the quarter, but also for 2018 as a whole. We showed all-time record revenues for the quarter at $45.5 million, which increased by 20% year-over-year. Furthermore, we showed record revenues for the year coming in at $134 million, 6% ahead of those of last year. We had a very strong year in terms of cash generation adding $43.3 million to our balance sheet, whereby our cash stands at $74 million with no debt. Our balance sheet remains very strong with shareholders equity of $158 million as a result of 14 years of ongoing and continued profitability. I would like to spend a moment discussing the revenue growth, specifically our year-over-year growth. As you all know, in March 2018, we informed you about the decision by our top 10 cloud player customer to cancel a project, which included our biggest ever design win. As a result of this cancelation, the contribution from the cancelled project in 2018 was $10 million less that it was in 2017. It is therefore all the more impressive that we continue to show year-over-year growth, our ninth consecutive year of growth, despite the challenge of a lower level of these revenues in 2018. Looking at our revenue growth, which excludes those from the discontinued project, 2018 would have shown solid double-digit revenue growth of over 15% year-over-year. This confirms as we have said immediately after the cancellation of the project, that our sales engines remain powerful and that our long-term prospects remain intact. I note that as we exit the fourth quarter of 2018, there are no unresolved issues with regard…

Thank you, Shaike and hello everyone. Revenues for the fourth quarter of 2018 were record $45.5 million, an increase of 20% compared with revenues of $37.8 million reported in the fourth quarter of last year. Revenues for the full year of 2018 were also better record reaching $133.8 million, representing year-over-year growth of 6% compared with $125.7 million reported last year. Our geographical revenue breakdown over the last 12 months were as follows; North America, 80%, Europe and Israel, 16%, Far East and rest of the world 4%. During the last 12 months period, we had three 10% plus customers. These 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 discontinued project-related write-offs. 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 2018 were $16.5 million, representing a gross margin of 36.2% compared to a gross profit $13.6 million in the fourth quarter of last year, representing a gross margin of 36%. Operating expenses in the fourth quarter of 2018 were $6.3 million or 13.9% of revenues, compared with $5.8 million or 15.3% of revenues in the fourth quarter of last year. Operating income for the fourth quarter of 2018 was $10.1 million, an increase of 30% compared to $7.8 million as reported in the fourth quarter of last year. Net income for the quarter was $8.9 million or 19.6% of revenues, an increase of 30% compared to $6.9 million or 18.2% of revenues in the fourth quarter of last year. Earnings per diluted share in the quarter were $1.17, an increase of 31% over the $0.89 reported in the fourth quarter of last year. Now turning to the balance sheet, as of December 31, 2018, the company's cash, cash equivalents and marketable securities totaled $74 million with no debt or $9.79 per outstanding share, up $23 million compared with the end of the third quarter of 2018 and up $43.3 million compared with $30.7 million at the end of 2017. That ends my summary and we would all be happy to take any questions. Operator?

[Operator Instructions] The first question is from Alex Henderson of Needham and Co. Please go ahead.

Great. Thanks. I guess it goes without saying nice quarter. So the first question I had for you, I just wanted to clarify on the gross margin numbers here, it sounds like you had a $1.8 million reversal in your reserves, if you went from $5.8 million down to $3.2 million. Should we be adjusting out the $1.8 million from the cost of goods sold to get the normalized gross margins, in which case I think it would be $32 million if I am doing my math correctly, is that right?

No, it's wrong. The $5 million as well as the $3.2 million or the reduction of $1.8 million affected only our GAAP results. There is no connection to the numbers of the non-GAAP results.

So it's backed out. Okay. So what accounts for the sharp acceleration in gross margins? That's -- I haven't seen 36 in a while.

So first of all obviously the fourth quarter was unique and the uniqueness, part of that at least was indeed due to the cancelled product. I think that if you look at the full year, that would give you a much better look as to where we are in terms of the growth margin. So for the full year, were not at that number. It does not take into consideration any one timers or so. It does, but it's compensated throughout the year more or less. So the full-year number is what you should look at in terms of being whether or not we're being within our guidance, which is still at $32 million to $36 million moving forward.

So just to be clear, on the December quarter revenue number, it sounds like there was clear out of a good chunk of the remaining inventory that might've been associated with the canceled project. If we no longer expect that to recur, can you give us any sense of what that impact was on the top line?

I will tell you is that just like we've been saying for the full year, the same thing is correct for Q4 as well, which means if you neutralize the canceled project, then we grew in the fourth quarter double digits compared to Q4 in 2017.

Just trying to figure out what the baseline is, should I be assuming that at least $5 million for the revenues in the quarter is going to recur again?

This is where we come to an area that I cannot give you the number itself, just the growth figures. Please note, I sure that there would be a lot of questions here related to that, but we are restricted by very specific NDAs in place and we cannot disclose the numbers. I'm trying to give you as much feeling as I can in terms for you to be able to evaluate the growth and what we're doing, but I cannot give numbers or figures, which would indicate as to the size and they real dollar value.

Let me try a different angle on it, is it reasonable to think that as we look at December '19 quarter, which realizes quite a ways out and lot of things to deal with that even -- leaving this stuff in the numbers that we would not therefore have an up quarter in the fourth quarter because this is the base falls out and therefore offsets say 10% to 15% growth. Otherwise if I was looking for say 15% growth, would I be able to still have an upside quarter off of the baseline?

Well, it is really too difficult to say now what would happen in the last quarter of 2019. Obviously I mean beating up the $45.5 million is not going to be a simple task even for 2019. However, we still don't know exactly when and how the ramp up of the big wins that we had for the Edge devices would happen. And as I just said, these wins are supposed to be tens of millions of dollars per year each of that. If there happen, if the ramp up is happening early and if we get some new wins, it is possible for that to happen as well, but I cannot to that of course right now.

Well, that's a good follow-on to my second question, which is around the Tier 1 announced in March, was there in the fourth quarter or for that matter in the back half, a meaningful amount of call it field test units and prototype units that were shipped? I assume that that project is not kicked off. As I understand it, it was intended to kick off in October. Do we have any sense of what the date might look like for when they hope to be launching? Obviously it's a squishy number given they’ve already pushed it out somewhat.

We hope that the real deployment or the real ramp up, it's not -- I am not talking about the big quantity, but we're hoping that the real launching would be within the first half of the year.

And so was there any initial prototyping or field trial units in the fourth quarter.

Yes, throughout as of the time that we have announced this, we are seeing purchase orders.

So is there something that's going to happen that will give you some clarity on what the timing of that is or do you or just suddenly flood come across the transom. What type of stuff should you be looking for in anticipation of that as to when ramp?

Well, this is even more complicated than it sounds right now because at a certain point in time, we thought it was already happening and then we started to get significant deals and then they found something within I don't know, I think it was software related, but I'm not sure and then they don't wait a little bit and that they released it. So there are a lot of going up and down with that and I think that it's not a one single point that we can say, okay this is now where we are 100% sure that they are -- they really have launched the project, but rather the continuation of the process of getting purchase orders this is what would tell us, okay, we are there already and that seems to be like only ones who are there will know were there. But as long as we're not there, we will not be able to know for sure, because it's not specific date. It happened and then got back. It has some ups and downs not related to us again, which is why it's not a 100% clear date to answer your question.

The gross margins in the first half of the year '19, should we be assuming the full year 34% type level in the first half, assuming very limited amounts of the Tier 1 or Tier or the second Tier 1, either the Tier 1 the service providers ramping, obviously those projects are going to be lower gross margins given the scale of them. So should we assume that we're kind of at that 34% range in the first half excluding it?

Well, 34% is the midpoint of what we're saying at all along that it's going to be 32% to 36% and this is a combination of not only the edge devices, but also the mix of the other products. So while I would agree with you that definitely in the first half the balance with respect to edge devices would be lower than it would be in the second half of the year, but we cannot know for sure what would be to impact of the other product because a change in the mix of the these other products can definitely result in a change of 2% or above 2% to either direction. So I would say that the more you go to the second half, it may have an impact, but exactly what would be the number I don't know. It's still within 32% to 36%.

Okay. Two more questions and then I'll seize the floor. The OpEx line saw a pretty good increase in both the R&D and the sales and marketing. Can you give us some sense of what you're thinking in terms of OpEx for 1Q and any sense of what we ought to be modeling for the full year?

Okay. So indeed OpEx this time include both one timers, but also increased investment in Edge and the FPGA product. Moving forward I think that the OpEx in 2019 will be around $6 million on the average.

I see and the tax rate was the other one I wanted to get some guidance on, obviously it's for us to forecast that.

Actually we believe that the guidance is quite similar to what we said in previous quarters. It should be approximately 14% to 15%.

I'll seize the floor, thanks.

The next question is from [indiscernible] of OS Capital. Please go ahead.

Hi congratulations on the quarter. It was very nice quarter and in general I think it's a very well-managed company in general. I was just wondering, I had three questions actually, is you said that a lot of 2019 were back half loaded and I was wondering you've already given guidance for Q1. So does that mean the only question mark really for you is Q2 or is Q3 also a question mark in terms of the visibility for the business in 2019?

All quarters of the year are definitely not very clear to us right now. The one thing that we know is that these projects are huge. Exactly how much time it's going to take to our customers to really ramp up towards these huge quantities that's what is not clear to us right now. So that's why it's not only Q2. But hopefully, the visibility will be better, well I am sure the visibility will be better as we move fully, but right now, we definitely did not know exactly when the real ramp up of these huge quantities is going to happen.

Okay. I applaud your candor. How many customers were there in Q4?

Regular number, it's no change…

Sorry, how many customers above 10% were in the quarter?

Okay. There were three 10% plus customers. All of them accounted for 35% of our total revenues.

Okay. And of those three customers, were any of those three new customers?

In terms of quarter four, the answer is no.

Okay. Very good. And I guess something that's been sort of hanging over the market, I wanted to actually address, I know there is probably not much you can say about Mr. [indiscernible] selling his shares in the open market, but I was wondering maybe actually you can, but in addition to that, I just wondering if the company itself with all the cash the company has, has the company actually tried to address it on one-to-one with [indiscernible] try and find buyers for the shares that he's trying to dispose off.

Well, Mr. [indiscernible] is not on the Board of the company for a few years right now. There's no relationship that Mr. [indiscernible] has with the company right now other than being an investor. So we don't know. That needs to go to the Mr. [indiscernible] himself. We really don't know.

Okay. Have you approached Mr. [indiscernible] or I am just wondering too is in Israel, so I was wondering if you actually may have approached him and tried to find out if there's a way for him to dispose it in more orderly manner?

No.

Okay. Fair enough. All right, beautiful. Thank you very much. Wonderful company. Wonderful management. Thank you.

The next question is from [indiscernible]. Please go ahead.

Yes, thank you for taking my question. I'm still puzzled by the fourth quarter -- by the outstanding fourth quarter. So I understand the 1.8 reversal in the gross margin, but looking at the top of the revenue line at the 45 and then looking at drop from the Q4 to the guidance for '19 Q1, I still don't understand, is there anything of a one-time nature, or can you help, or maybe can help us explain the drop for from '18 Q4 to '19 Q1, that's more regular seasonality.

Well, first of all yes, absolutely, Q4 includes a one-time component of revenues, which is related to the canceled project. As I said before, I cannot give accurate numbers, but there is definitely a part of that which is related to this canceled project and I would say that it's significant, it's not something negligible, otherwise I wouldn't say that. Now that's taking apart as you've seen I think many times the quarters are not always the same many times not always, but may times in the past Q4 ended up being the best quarter ever during the year or something like that, which is why I gave you the data that I gave before. Q4 even if you neutralize all the revenues coming from this canceled project, then I am able to say that Q4 in '18 is double-digit better than Q4 in '17 and same thing goes for Q1. Q1 '19 is double-digit better than Q1 '18. So that gives you more as a feeling as to where we are in terms of growth without having the accurate numbers as to what is the baseline, but I think that this is important information.

Okay. And any plans with your $74 million in cash?

About that, well there is nothing specific that we should discuss right now, but obviously we're always looking for opportunities, nothing special in terms of what I am talking about right now is M&A. There is another part of the equation of course, which is also something that we're always discussing, which is buybacks or dividends etcetera and these are always on the table.

I put my vote for share buyback on the table. Thank you very much.

The next question is from Mark Sharogradsky of Kepler Capital. Please go ahead.

I think you answered my question, but I also wanted to mention that since you have a lot of cash on your balance sheet, we will prefer to see a buyback in near future pile of cash in your balance sheet. Thank you.

The next question is from Scott Hogan of Capital [ph]. Please go ahead.

So if neither of these big contract ramp in 2019, do you think, you'll generally be able to stay in double-digit growth on the core business?

Well, it still could happen because growth could come from many areas. So I don't know. I'm not saying that we welcome the growth from these two specific wins, we definitely will not be there, but I cannot commit that we will be there.

And on the two large wins, I know you said your visibility is low, but are they giving you any other dynamic about whether they're in trial phase, are they rolling out any specific geographies yet? Are they giving you any thoughts about any timing?

They are giving us, I wouldn’t say well, as a matter of fact even timing. They're giving us a lot of details. The only thing is that whatever they're giving us is very dynamic and changed I would say weekly sometimes. So the fact that they're giving us some information today is far from being that meaningful for us to be able to say yes, indeed it's going to happen at that time or at that time because they are doing everything very, very thoroughly and each thing which happens, which is not exactly in accordance with their plan requires reevaluation and maybe new data, so on and so forth. So that's why yes, we're fully updated and they're given us dates and plans etcetera but looking at the history, we can say that never actually these dates are happening and that's why we're saying that we actually do not have this visibility.

Is there any question about the technology design that they're pursuing like how the cloud customer ended up overall design structure?

No, the technology that we're talking about right now is proven both ours and the customers, it's not while with the cancelled project it was really an issue of a new concept that no one tried before. This is not the case, the technology is proven.

Okay. Thank you.

The next question is from Nehal Chokshi of Maxim Group. Please go ahead.

Yeah my question has already been answered, but I will reflect the same sentiment that some of the other speaker said that I would definitely think that a share buyback would be a positive from where the stock is at, at this point in time and most of them have additional comments on that, I don't really have a question, thank you.

We have a follow-up question from Alex Henderson of Needham and Company. Please go ahead.

Great. I was hoping we could talk about a couple of things, one if I were to look at the business is slicing it by historical enterprise platforms, security, storage, SD-WAN, can you give us some sense of where the growth is, what's flat, what percentage of your business is going into the various segments? It's my sense that SD-WAN has now become a very significant portion of your revenues, but I don't really have a great sense of how -- what portion it has become?

Let us do two things, first I suggest that you tell us about the end markets that our products are going. That would give you some sense as to where we are right now because I think that overall it is pretty obvious that our sales towards I would say that infrastructure with respect to telcos and cloud is growing, while the sales which just go into enterprises are somewhat flat or something like that. That's where I think we are, but Eran do you have that?

Yes, just a second.

And you're obviously 100% right that SD-WAN and I would say SD-WAN and SD-WAN related sales is that currently our main growth engine.

To that point, the SD-WAN business is growing predominantly with the OEMs at this point and that's what we're talking about here as opposed to the two tier ones.

You're correct. Because as I said, the tier ones the three we were talking about, they did not ramp up very significantly right now. Even though they are building, I'm not saying we don't have any sales whatsoever, but the major part of the ramp up in these revenues is coming through the OEMs and we have OEM customers for SD-WAN as well.

Our market segments, it can be seen on our quarterly presentation, which will be uploaded in one hour on the website either follows platforms or infrastructure about 36%, cyber security about 25%, network implications such as application delivery, one optimization etcetera 23%, storage 12% and other 4%.

So within the -- the question that people are asking here I think is to what extent is their risk around the two tier ones to the extent that the SD-WAN space is growing that rapidly and that is undermining what is a very high profitability business for the service providers such as their MPLS services business. Can you talk about what these Tier 1 service providers are thinking relative to the importance and strategic value of this business relative to those trends?

My feeling at least from both of these customers is that they understand that this is extremely important and they're moving ahead with that and that, that would happen. The difficulties that they are having are difficulties which, the impact of which will be seen in timing rather in whether or not, this would happen or not and timing could be affected by a lot of things. We are obviously not aware to all of them, but we could see that with these huge organizations with the so many departments involved in each of these launch and so on and so forth, the plans are really dynamic, but we didn't see any hesitation whatsoever as to the fact that they need to go ahead with that. We believe that this is going to happen, we're seeing that this is happening. Timing could be a question mark. Now I am saying that we're talking about the major Tier 1s just like you said, but obviously even though we sell to OEMs, but these OEMs are eventually selling well, not also but the big portion of what result will OEMs also go to some telcos and so on and so forth. So there is a question mark around timing there as well. Obviously, they also sell the SD-WAN solutions to enterprises as well and so these they may not have such visibility issues in terms of timing, but because they are selling to telcos as well, this is what is making the timing situation unclear, but as to whether or not this would happen and happen big, I think there is a consensus around that.

The conversation is focused on the first OEM who was signed in March. The second one signed much later in the year. Can you give us any sense of what timing line we should be thinking there? Is that a midsummer type target launch, and what do you think the risk is that that gets delayed similarly to the projects that the first Tier 1 got delayed. So is it possible that you can make the numbers if that was delayed through the end of the year and launched in the first half of 2020?

I don't think it would be launched only in 2020. I believe it would be -- both of these products would be generating revenues of field launches during the year. The two questions are when will that happen during the year and what would be the rate of the ramp up. This is what is creating the reduced visibility in these areas and well I don't know. That's why I am saying it would more towards the second half of the year, but I'm not sure I can give you a better feeling than what I've given until now due to the current reduced visibility that I was talking about because it's not clear. They’ve given us date again and again. There are delays and sometimes can get us little surprised by a certain deal and then they could be a certain hold in this deal and it moves to the following quarter. So it really is difficult to say, but because everyone seems to be so confident that it is going to happen and happen big and because overall we're moving forward with both accounts, that's why we're saying A, it would happen and B, it would happen mostly in terms of significant towards the second half of year. I think that any effort to be more precise than that would be responsible for me because we actually don't know. We really don't know.

Now let me restate what the question I just asked. So what I was asking is given the risk that there could be delays similar to you had with the first Tier 1, which would push out three to six months, because that's the push out that you're seeing in the first one, would you be able to make the numbers if the first Tier 1 ramped and the other one was pushed out to 2020, is what I'm asking? In other words, how important is the second Tier 1 shipping in the second half to making the full-year target?

I would say that we would, but it's not dependent only on that. After all even though we are looking at these two guys to obviously contribute significant amounts during the year, but it's not only them. We have other customers including SD-WAN, it's dependent on what's going to happen with them as well. Would they continue with their growth rate that we've seen until now, would that not happen for how much, how many new customers that are quicker to launch systems. So what I am saying is that let's assume that only one of them is launching during the year and the other is not, I am not saying that this definitely means we wouldn’t meet the numbers, our numbers that we're looking at, the growth numbers, but it depends on a lot of things. I cannot commit to that either.

So we've talk a lot about those things, the risk to the model, the other side of the coin is sounds like the pipeline is extremely strong, much stronger than it had been in prior periods and showing a big acceleration in momentum. Can you talk about these, the strength of that pipeline and what the timeline is for some of those projects to come out of the pipeline and could there be enough momentum in that to defer their drive and acceleration. And how does this start to look in 2020 if the pipeline kicks in and those two tier ones are both ramping?

Okay. The pipeline is and I am talking right now only about the Edge devices and then I'll say several words about FPGAs as we'll. So the pipeline for the Edge devices that we're having is based on I would say several components. So first of all, we're talking about a pipeline, which includes both existing customers and new customers and there is significant opportunities within both of them. We could win, we're having our pipeline several tenders I would say where we're bidding and each of these were if we win would may contribute tens of millions of dollars. We don't know exactly when the win is going to be announced. We have a lot of these tenders that we're talking to, well, I think more than a year that they’ve been saying that they would make a decision and didn't make a decision as of yet, but that could happen from new customers. I don't think that any new wins will contribute because tens of millions of dollars in 2019, I mean that's not going to happen, but it's enough that we win some of these and each of which contribute a few millions even if very small and that would help us of course. So that's one thing. Maybe even more significant is additional wins with the current customers including these biggest tier one customers that we've announced, because with them there is quite a few opportunities as well that we are either competing or considered not necessarily with the competition for, for other services other types of publication etcetera. These could and I hope and believe that some of them would happen through 2019, but once again revenues probably more towards the second half and real ramp up in big quantities following years and the same…

So if I were to summarize what I think I hear you saying, if you get these two contracts with the tier ones to ramp say producing $10 million and $50 million in revenues in '19 then you're looking out to '20, you've got a huge ramp in front of you. You should have two or three going to $10 million to $20 million run rate plus the baseline growth in the SD-WAN plus the FPGA stuff. It sounds like 2020 is when the number should really jump to the upside. Is that the right way to think about the timelines here?

That's what I believe in. So that could always be surprises, but that's definitely what I believe in.

Thank you.

[Operator Instructions] We have a follow-up question from [indiscernible]. Please go ahead.

Hi I was just wondering if you can talk about the competitive front, what you're seeing out there and who you're bidding against, if you are at all when it comes to these tenders?

Okay. So yeah there is definitely a competition in the space of the Edge devices. We're competing and it's not easy to win against the competition. We have some what we believe are important advantages and these important advantages are coming up in several fronts. So the first front is the technology front. We have some capabilities, which the other tenders do not have. With one of these major wins that I was talking about before, this was the main reason for our success there because we had a technology advantage. These technology advantages are related to both the software part of the business that we include in our offering to this kind of a customer and also to some other aspects of the design that I mean that, I mean there is no point in going into that right now, but we do have a technology advantage. That's one thing. The other thing which is helping us and has been helping us throughout the years is I'd say the depth and the relationships the kind of relationships that you're having with the customer. So this I know, this is somewhat you may think it's easy to say everyone can say that, I know it's true, everyone can say that, but we've been winning business due to that. Customers like us. They’ve always liked us in whatever area we were competing with and that gives us a very significant advantage. Let me say again, I don't want to be too specific because I cannot, but in one of these wins that I was talking about, well actually not only in these two wins, but in others related to the SD-WAN, there were others that were there before us working with these customers and once they started working with us they could see the difference in the way that we support them in the depth of the understanding in our willingness to support them in areas even if these were not our direct responsibility and maybe most of all with their recommendations coming from Intel because Intel is aware of these advantages as well and when these guys are going to Intel because Intel is obviously the provider of the main silicon which is being used in these Edge devices. So Intel will in most of these cases recommend us and that's how things go. We are by the way obviously you may remember that we are doing for Intel and that's where Intel is knowing us from mostly in that business. They know us in the other business for many youth from other aspects of the business, but we have been record designs for Intel. So these specific pieces of silicon that we're using in these designs. So Intel also understands that we know better and can support the customers better and they're giving this information to our customers.

Okay. And can you just name some of the competitors that you see when bidding for these projects?

You could look, they're mostly Taiwanese company such as Lanner and Advantech, they are those that in the SD-WAN I think that most are well known, but there are others as well, not all of which are Taiwanese. These two companies are Taiwanese companies, but they are not the only competitors. They are the most significant out.

All right. Fair enough. Very good. And just that the software part of it, is that allow you to get a higher gross margin, when you charge for your products or…

Hardly. I am saying hardly. It hardly gives us or allows us to give a higher margins because typically I would say that we win with lodges, which are even to begin with a little higher, if you're asking whether this allows us or not to get somewhat higher margins then the competition, then the answer would be yes. but we still need to be very close to them. What they're telling us in most cases is, okay you're better, but you need to be better and more of less at the same price.

Okay. Got it. Thank you. And thank you for the clarity.

There are no further questions at this time. Before I ask Mr. Orbach to go ahead with his closing statements, 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 a few concluding statements?

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.

Thank you. This concludes Silicom's fourth quarter 2018 results conference call. Thank you for your participation. You may go ahead and disconnect.