Ehud Helft - IR Shaike Orbach - CEO Eran Gilad - CFO.

Alex Henderson - Needham & Company Marcel Herbst - Herbst Capital Management Edward Balinsky - Segmark International Don McKiernan - Landolt Securities Ronald Mullins - Segmark.

Ladies and gentlemen, thank you for standing by. Welcome to the Silicom’s Third Second Quarter 2015 Results Conference Call. All participants are at 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 Relations 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. Ehud Helft of GK Investor Relations. Mr.

Helft, would you like to begin?.

Thank you, operator. I would like to welcome all of you to Silicom's third quarter 2015 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 their information.

Actual events or results may differ materially from those projected including as a result 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 price reductions as well as due to risks identified in the 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 management to make strategic decisions, focus future results and evaluate the company's current performance.

Management believes that the presentation of these non-GAAP financial measures is useful to investors understanding and assessment of the company's ongoing corporation and prospects 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 today 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. With us today on the call 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 would like now to hand over the call to Shaike.

Shaike please?.

Thank you, Ehud. Good morning everyone and welcome to our third quarter 2015 results conference call. We are pleased with our results with revenues coming at $19.4 million ahead of our guidance range between 18 million and 19 million due to sales performance which was ahead of our expectations.

We are also happy with the strong level of growth in operating margins which were better on both the sequential and year-over-year basis. Our solid performance enables us to be optimistic with regard to our near-term future and I will discuss our guidance in a few moments.

On the bottom-line, we reported net income of $4.2 million which translates to earnings per diluted share of $0.57, a very strong improvement over the prior quarter and the third quarter last year.

Our net cash position amounting to 55.1 million remains strong providing us with significant financial flexibility and in particular the ability to act decisively when the opportunity arises to acquire synergistic businesses to further fuel our growth.

A prime example of this was our agreement to acquire ADI Engineering which was announced just three weeks ago. ADI is a U.S. based provider of first-to-market, high performance and high quality Intel based products targeted at SDN, NFV, IoT, Cloud computing and Virtualization market.

The purchase price of ADI is $10 million with additional potential payouts on the attainment of certain milestones. We expect this acquisition to close very soon and our expectations are that it will be a credit to earnings per share on a non-GAAP basis.

We believe that this acquisition strengthens our leadership position in the networking appliances industry while expanding our technology and products for the fast growing cloud market.

ADI brings us the number of improved capabilities including an enhanced technology and expansion of our product lines leading to increased total addressable markets, TAM, as well as further diversifying our customer base. It will enable us to offer an expanded product line to our existing customers as well as selling to new customers.

The acquisition renewals will enables us to address a new market of us that of cloud related providers of CPE branch office equipment, NFV Edge product suppliers and more. ADI’s products and core technologies are highly complementary with ours and there is no overlap.

ADI focuses on the implementation of highly innovated networking, telecom and embedded solutions using the latest Intel technologies that enable new applications to be brought to market quickly. In fact since ADI frequently develops reference designs for upcoming Intel technologies.

ADI can leverage its deep technical expertise and early access into a time-to-market edge over competitors. On an organic basis, we continue to be successful in bringing new design. These are from new customers as well as through our leveraging of the close relationships with existing customers to bring additional design wins.

Furthermore across our range of 100 plus customers there is also a potential for our sales to expand as these customers intern grow their sales in their respective end markets, particularly in growing sector such as cyber security, storage and the cloud.

A few weeks ago we've received the first design win from an important and new customer in the fast growing cyber security market. This customer is a recognized visionary leader in this field and his selection of our adaptors is a strong confirmation of the superiority of our technology and expertise.

This customer has already placed initial orders for our 1 gig and 10 gig multi-port adaptors with the goal of improving the performance of its cyber security appliances.

While we expect the sales from this new design win to ramp to around $1 million a year we’re also actively engaging discussions with this customer regarding additional Silicom products including intelligent solutions.

As such we see significant further sales and design win potential and we’re bullish about the prospect that this customer can contribute to our business over the long term. Just as importantly this win expands our penetration into this strategically critical cyber security space.

We see this new customer win making it easier for us to further penetrate our solutions into other cyber security applications both within our current customer base and with new clients.

In August we announced a new design win for 100 gig Bypass Blades with an important player and a longtime customer of ours in the network traffic management industry. We expect that the initial production will ramp up to around $1 million a year.

Given our close working relationship over the many years they know us well and the way that we work and are entrusting us to take the product portfolio into the 100 gig environment. We believe that our strong 100 gig capabilities present an increasingly strategic advantage and will contribute significantly to our growth for many years to come.

This design win also confirms the quality of our Bypass technology. In addition it again confirms our ability to correctly and timely read current market trends, which is now in fact beginning to progress towards 100 gig.

The ongoing stream of design wins that we present quarter-after-quarter demonstrates our strong and attractive product portfolio build upon our significant R&D capability, both internally developed and acquired.

Our continued investment and spends in R&D arena focused on future customer needs supports our leading competitive position and our ability to grow. With regard to our guidance we expect the fourth quarter to be the strongest of 2015 and we forecast fourth quarter revenues between $20 million and $21 million.

In summary we continue to believe strongly in our strategy and our growth engines and we continue to invest resources in developing our products and markets as well as in synergetic acquisition.

Our strategy remains to realize the full inherent potential of our multiple growth, engines, our expanding customer base, industry insights, superior core technologies and extensive existing product portfolio. Our continued high level of profitability and ongoing cash generation demonstrated this strategy is correct.

All in all we’re pleased with our progress this quarter and continue to be optimistic about our prospects to continue to our long-term growth in the years ahead.

Before we move on to financial review I would like to mention that Eran Gilad, our CFO will be leaving us in a few weeks and [indiscernible] our Director of Finance will be taking over the CFO position. I want to take this opportunity to thank Eran for his hard work over the many years and wish him luck, much luck in all his future endeavors.

One last thing I would like to mention is that we've chosen to delete our shares from the Tel Aviv [ph] Stock Exchange. This will have no impact on our continued NASDAQ listing whatsoever. On the contrary it may increase the volume of trade on NASDAQ, as the NASDAQ will be only place where investors can trade our shares.

With that I'll now hand over the call to Eran for the last time for a more detailed review of the quarter's results.

Eran?.

Thank you Shaike and hello everyone. Revenues for the third quarter of 2015 were at $19.4 million, a 22% increase over the revenues of $15.9 million as reported in the third quarter of last year. Our geographical revenue breakdown for the first nine months of 2015 were as follows.

North America 65%, Europe and Israel 21%, far East and rest of the world 14%. 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 and acquisition related adjustments.

I should note that the large than usual different between the GAAP and non-GAAP numbers this quarter is due to the fact that that's the maximum allowed [ph] amount in connection with the Fiberblaze acquisition which was closed at the end of last year will be lower than the amount we originally incorporated in our GAAP financial report as at the time of the acquisition.

For the further consideration from GAAP to non-GAAP numbers, please refer to the press release, we issued earlier today. Gross profit for the third quarter of 2015 was $8.3 million, representing a gross margin of 42.9%. This is compared with $6.5 million or gross margin of 40.8% in the third quarter of last year.

I note that the gross margin does vary between quarters, mainly as a result of the specific mix of product sold during the quarter. Operating expenses in the third quarter of 2015 were $3.6 million or 18.7% of revenues, compared with $3 million or 18.7% of revenues in the third quarter of last year.

The increase in the absolute level of operating expenses versus the third quarter of last year were partially due to the added expenses from the acquisition of Fiberblaze which were not included in the third quarter results of last year.

Operating income for the third quarter of 2015 was $4.7 million or 24.2% of revenues, compared to $3.5 million or 22.1% of revenues as reported in the third quarter of 2014. Third quarter 2015 net income was $4.2 million or 21.5% of revenues, compared to $3 million or 18.6% of revenues in the third quarter of last year.

Earnings per diluted share in the quarter were $0.57 in the quarter compared with $0.41 in the third quarter of last year. Now turning to the balance sheet, as of September 30, 2015 the company's cash, cash equivalent, short-term bank deposits and marketable securities totaled $55.1 million or $7.58 per outstanding share.

That ends my summary and we would be happy to take any questions.

Operator?.

Thank you. [Operator Instructions] The first question is from Alex Henderson of Needham & Company. Please go ahead..

A couple of questions.

First one, what is the incremental OpEx, where we should be -- incorporating into the model as a result of the acquisition?.

Well, there definitely would be some increase in the OpEx due to the acquisition. You should note that though that areas are areas that we're investing in R&D anyhow. So there should be an increased that being said just like you said overall the acquisition is going to be credit for 2016. .

Yes, it's not the question the question is as I look sequentially from the September quarter to the December quarter, I'm assuming, you have that acquisition in for the full quarter, what's the incremental cost that I should be building into the model for the acquisition quarter to quarter?.

First of all the acquisition would not be consider as the full quarter because the acquisition obviously would take part -- would actually happened only after closing, which did not happened yet. .

What's the date of closure?.

We don't have dated but it's going to be very soon. .

Okay.

Well, that's going to be in the fourth quarter or not in the fourth quarter?.

It's going to be in the fourth quarter, yes..

So, I'll go back to the original question, roughly what do you think I should be adding to the cost?.

I don't think we provide this information, especially not knowing exactly when the closing is going to be, but even if it were..

Let me try again, for a full quarter, what's the incremental cost associated with this company that you're acquiring, that we should be building into our OpEx cost?.

And I'm saying this is not the kind of information that's we're providing, especially as there should be some structural changes when we do that and some of the activities would be combined. So this is not the information that we'd provide any insight as to what’s really happening.

There would be an increase, which would not be very dramatic, but there would be an increase. I cannot provide accurate number on that right now. .

Okay.

So can you give us some guidance for what our OpEx cost should be for the December or March quarters?.

Well..

I mean, you got to give us some benchmark here, I mean is it bigger than a bread box, we’ve got to build a model and you just did an acquisition and obviously it changes the numbers, we have no way to knowing what the net impact of that change is..

There are two parts into that. I think that two parts in that, one part is that we do not know exactly what the closing date is, which means that we don’t know exactly in terms of the OpEx what will be the influence of the OpEx.

Take also into considerations that this is not the only issue, I mean for example, I mean the OpEx in this quarter changed quite a bit due to the shekel versus the dollar. So I am not sure whether this at all is going to be more significant than the other. I think that in general the impact of that would not be more than 10% anyhow..

So is it reasonable to think that we should see a modest increase sequentially in the December quarter OpEx, I am just trying to figure out what to model, I am not trying to give you a hard time here..

That’s reasonable, I mean that’s reasonable to assume that you would see a modest increase in OpEx..

Could measure it with -- because the reasonable thing might be to measure it with the amount of increase in revenues or would it be -- is our OpEx -- is our operating margin going to look like the number you just posted, is really what I am trying to get to, the percentages?.

Not sure, would you run that again by me?.

Is it 20 -- you did 24.2% operating margin in the September quarter, what should I be looking at for the December quarter, is it similar kind of margin?.

I don’t think you're going to see dramatic changes there..

Okay. Thank you very much, that’s very helpful. The second question is, you had it last quarter, you had obviously a little bit of divide in the numbers is because of the acquisition associated with a major customer.

Can we attribute any of the rebound here in the back half for the year as either a normalization or a catch up on that? How should we be viewing the net relationship between what occurred in 1Q and what’s occurring in the back half?.

Please explain the question again to me because I am not sure we understood?.

Last quarter you had a divide in your numbers, you had some pressure in your numbers because of disruption associated with the acquisition that was occurring of one of your customers which disrupted revenues, that was the explanation given in the June quarter.

Obviously, to the extent you had some disruption, are we playing catchup against that disruption in the back half of the year? Is this an ongoing run rate we should be looking at or is the disruption artificially increasing the third and fourth quarter numbers a little bit because of the divide in the second quarter?.

So what I can tell you is that we believe that these issues that we had in this quarter, that we announced about these problems I would say are mostly behind us, they are not entirely behind us, but they are mostly behind us and we do feel that -- as a matter of fact we’ve seen some sort of an improvement with these customers in this quarter even and we believe that this improvement will move forward.

Even though I am not saying that all the problems are gone. There are still some issues there that we feel, we don’t know for sure, but that we feel, but we’re thinking that the impact of these issues are negligible, if at all. And we believe that we are as a matter of fact in a trend of growth with these customers again..

So you're still absorbing some pressure, so we’re still understating the numbers and as that customer completely rebounds than we would get additional benefit?.

Well, I mean it's not as if there is a fix number that we need to cross and therefore we know that we’re back on track or not because, obviously, there are always some changes in the mixes of product, et cetera.

But there seems to be -- we were talking about one customer specifically, it seems that right now this customer is back on rack and it seems that it will continue like that. Now the customer believes that it will grow even beyond that, whether that would have it or not, we’re not yet 100% sure about.

So if we were to listen to the customer, yes, from now on it will grow moving forward. As to whether or not, the customer this quarter is back on track from previous quarters. So it seems like an indication that we are on the right track, but we cannot guaranty that they will continue to grow..

That’s very helpful.

One last question and I’ll recede the floor, your historical margins has generally been around 40% to 41%, for the last three quarters you’ve been running 42.5 plus on gross margins, is that the new normal? I mean should we be assuming 42% to 43% is currently the base line going forward or should we be reverting back to the 40% to 41% level overtime, any help on that would be very useful? Thank you..

So as you know gross margin is a result of the mix of products and I wouldn’t want to change the level of expected gross margin at this point from what we’ve used in the past.

I guess that’s the answer, the fact is that our gross margin this quarter was so much higher, but I don’t think that you can define that as a trend which you could put in your model..

So reverting back towards the 41% level going forward is what you would advise then?.

Yes..

Okay. Thank you very much that’s very helpful.

One last question for you, what was the headcount at the end of the quarter?.

The headcount for the end of the quarter is about 215 employees and not including the new guys from ADI..

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

On the past call you mentioned that you're waiting for two important customer product launches and I think one was related to the Broadcom Tomahawk line and other to Intel's Lewisburg.

Can you give us an update on that and maybe also give us a bit more color on what makes those launches more important relative to others?.

I'm not sure we addressed specifically the Tomahawk, but the Lewisburg we did. But I can talk about Broadcom and Intel from two aspects and give you some more color.

So first of all about Lewisburg, so as you know Intel Technologies competing with Cavium Technology on the SSL acceleration, encryption acceleration and compression, well mostly SSL acceleration it’s related to that. So actually Intel had three levels I would say in their development of technology competing with Cavium.

The first was Cave Creek and that was a premature or everyone considered that to be a premature attempt to compete with Cavium, which is why there was hardly any success by Intel to penetrate -- Intel or Intel partners like Silicom to enter the market with Cave Creek. The second step was Coleto Creek.

Coleto Creek was already a mature technology and therefore the levels of success with Coleto Creek are higher or were higher and are higher compared to their levels of success that they used to have and we used to have with Cave Creek.

So we asked some customers, there is still a potential for us and Intel as well when they were selling their chips for Coleto Creek competing against Cavium and we’re seeing a trend moving towards Intel in general, not a very higher rate, I would say trend, but we definitely see customers moving towards that direction.

Now obviously, while all that is happening both companies are developing their next generations.

So Cavium is not releasing their next generation of what they call NITROX 5, and Intel is coming and little later or somewhat later with Lewisburg, but Lewisburg unlike the Cavium’s solution is a combination of SSL acceleration and networking which is going to be very important to customers, especially in the cloud era and the virtualized datacenter when everyone is trying to save cost, to save space, to save power, et cetera, and that would be very helpful in that regard.

And add to that the fact that the performance of Lewisburg in certain key areas are going to be even better than the N5 [ph] are, so that means that the transition from Cavium to Intel with the Lewisburg could be significantly more significant, if that’s the way to say it, than with the Coleto Creek which is why it's important.

Now the Lewisburg is right now at the point in time where only we have to already have to [indiscernible] in order to move forward and start building boards with us, which is what we’re doing right now and by the end of Q4 beginning of next year we would start to hopefully be able to deliver samples to customers and we believe that this is very important in terms of getting market share.

So that’s with respect to Intel. Now Broadcom. There are two different parts of work that we’re doing with Broadcom. The one part is indeed the Tomahawk that you mentioned, this is not something about the product release right now but rather a roadmap.

We do have what we call Switch SETAC or application switch which is using standard motherboards together with the switch. There are some customers which are interested in using this technology not only with Red Rock Canyon, but with the Broadcom as well.

We may do that, this would be very much dependent on a better investigation and in-depth analysis of the market requirement for our technology.

The other side of Broadcom is, that Broadcom may or -- not may I'm sorry Broadcom is going to release some adapters for 25 gig, they would like us to cover some segments of the market with these adapters and that’s probably something that we will do, but -- and that could be important because they are targeting special niche like, niches like high performance computing and things like that.

Areas where we’re not present today which is why that could be important. The status of these adapters is similar to the Lewisburg adapters, we have all the information, the chips are not formally released yet and by Q1 or so we hope to be able to release samples. .

Okay, that’s very helpful. Going back to Lewisburg, you mentioned that you’ll probably deliver samples in the beginning of next year.

How long is the timeframe from sample to launch and first design wins for you?.

Well I would say that it depends, I would say that big design wins typically take more than a year, smaller design wins could happen earlier than that, within say six months or eight months but the importance of the Lewisburg is not only on its own design wins.

The release of Lewisburg, even though these are samples would also help customers make a decisions to run Coleto Creek itself, because once they know that there is a next generation which maybe more suitable for their next generation because their next generation would be needing better performance, so they are more accepting the current generation as well.

So the release of Lewisburg and the fact that's we're able to provide Lewisburg performance level is a key factor for them to go for Coleto Creek as well, not only for Lewisburg. And obviously we do have several Coleto Creek design wins pending that we hope to exercise, within, I would say the next even half year or a year..

Okay, great, that's an interesting dynamic with those two playing off of each other.

Speaking of pipeline, can you give us an update on your larger time spend opportunities that you have in the pipeline, is anything moving there?.

Yes. I can say that things are moving, yes, but I don't want to be too optimistic about that one because I've been optimistic in the past and it didn't happens.

So I can say, yes things are moving but I wouldn't like to commit to anything here, we didn't committed in the past but we gave you the impression that we had ourselves that it was going to happen very soon, it did not happened that soon. So I'm very careful right now, but yes, we're moving forward there..

Okay. Congratulations on a very good quarter and on all the progress you're making. .

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

When you look at your product set, network adaptors, SETAC and bypass and other source of categories, can you give us a sense in order of which one, two or three specific product areas, you're most optimistic about in terms of delivering dollars and revenue in the next year, in terms of growth from where you are today?.

Okay. I mean the breakdown into that could be done in several ways. So first of all obviously we would -- our 10 gigabit part will grow in terms whether it's bypass or non-bypass or whether it's with FPGA, without FPGA, no matter what, 10 gigabit will grow over 1 gigabit solution, that's for sure.

So 1 gigabit will continue to decrease while 10 gigabit will increase within the 10 gigabit adaptors, I could say that dual-port will become -- I would -- more likely be stable, but that's because they would be losing part of it into quad-port adaptors while at the same time some 1 gigabit adaptors will become dual-port 10 gigabit adaptors.

I think that's 40 gig and 100 gig, while they will increased still they would not be very big.

In general I would say that growth areas of course, I mean not only for 2016, but 2016 and higher would be 25 gig and 100 gig, their product possibly also the 40 gig, even though they’re not going to be very big yet, encryption product, FPGA based products, assuming we close, we definitely would see some growth coming from ADI products as well. .

Great, thank you and then I'm not sure, if you can talk about today but I think your largest three customers or so as I recollect maybe 40% of revenue or so can you just quantify how large the revenue contribution from your largest customers in the September quarter versus June when you have some disruptions?.

In this current quarter, we have just one customer which is a bigger than 10% and all the other customers are less than 10%. I mean, we had two relatively or three big customers but they're all under 10%. .

Your next question is from Edward Balinsky of Segmark International. Please go ahead..

With regard to Fiberblaze, the period which continues additional consideration terminated at August 31, are you building a termination period for ADI engineering and if so what is the period?.

Yes, there is, just like we've said in the press release about ADI. There are periods defined in the agreement with them which would allow them to some earn-out based on some milestones to be achieved. I believe that this payout period would be done by December 2017. So we've spoken about a two years period or so..

Just to confirm, your intellectual property, you're amortizing it at the rate of about $180,000 a quarter, could you venture a guess as to what that might be, if you were to acquire ADI?.

It's too early to say..

Alright.

Look, with only non-GAAP activities that have taken place, with the acquisition of Fiberblaze, I’ve got to assume that you’ve taken a similar hard look with regard to ADI and could you -- and no one is expecting any precision, but could you venture a guess as to whether the adjustments with regard to ADI would be equal to those in Fiberblaze, hopefully less or will they be considerably more?.

No, we cannot say at this stage, this is really, really early, we have not closed the deal yet. So first of all we have to close the deal and then we will get into all the calculations..

I see alright fine that answers my question. Thank you very much..

The next question is from Brandon Rose. Please go ahead..

I am curious what caused you to change your mind about the dual listing, whether there were some evidence you came across that caused you to think that that sort of thing was holding back either volume or evaluations for companies like yours?.

Well actually there are several reasons for that decision. First of all we wanted to be subject to just one set of listing regulations rather than having two of these, which required resources and time from us. Secondly, we wanted to have a concentration of all this trading volume in one exchange we thought that that would be better.

Obviously, we wanted to allow some greater management focus in the company’s business rather than beating with two exchanges and we wanted to somewhat reduce the cost of operations, I believe that we are a lean company, but we wanted to take advantage of the fact that we could do that here as well considering all the other reasons that we felt would be -- would work to our benefits.

So no reason to pay more..

Just one for Eran, so what you guys have done from a growth and profitability perspective, you are surprising cheap compared to especially for your sector. You probably trail a little bit below the [indiscernible] you got to growing fast and be more profitable than the typical companies.

So do you attribute part of that to -- and I am talking about small caps too, do to attribute part of this to the dual listing turning away some investors?.

Well we cannot speak for the investors, but we think that Israeli Institutional Investors they held telecom shares before we were traded in the Tel Aviv stock exchange. They know how to trade in the NASDAQ, so I don’t -- we don’t see any reason for that to happen.

Obviously once, I mean there is a certain percentage but we don’t think that is really significant of their trading or not trading or holding which is related to the various industries here in the Tel Aviv Stock Exchange market, but we don’t think that’s very significant..

And some of you guys being part of [indiscernible] have plenty of info on this sorts of things. Alright. Thank you..

[Operator Instructions] The next question is a follow-up question from Alex Henderson of Needham. Please go ahead..

Just following up on the question about the delisting, roughly what does that save you per year in terms of cost associated with that listing?.

Well it does something which is very dramatic and I don’t think it should be a significant thought factor in your modeling, but still there is some savings, at least when we decided about that we didn’t make a very accurate calculation because it's not very significant, but it is there and we wanted to save that’s once we determined that it was not necessary or would not give us any significant benefits on the other side..

Like 0.5 million a year kind of thing?.

No I don’t think so..

Couple of hundred thousand?.

I don’t know, I don’t want to say a number right now that I am not -- that I do not feel sure about. It's not something which is significant..

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

Just a couple of questions with respect to the ADI acquisition, you said in the press release that it would expand your total addressable market, could you be more specific as to some of the areas that you’ll expand into? And then secondly, is there much customer overlap between the two companies?.

Okay, so in terms of expanding the market ADI is a product or a significant part of their products used as a CPE, customer premise equipment or branch equipment for cloud operates or so whenever there is some sort of an operator or a service provider who offers a cloud service to someone, but he needs to provide a CPE, a portion of that service.

So ADI is providing solutions to such customers and we did not sell to these customers.

Not only did we not sell to these customers these type of customers which are cloud providers or service providers were actually a part of our strategy when we started to look at cloud players on top of the application developers which are our traditional customers.

So this is a typical example of the market which has to do with the cloud and the cloud lenders that we’re excited about with ADI because they are targeting exactly this market. Now in terms of overlapping between customers.

So I would say that there is hardly any overlapping, there is, but only with one customer at the moment between customer of theirs and customer of ours even that for us it was hardly a customer but it's almost negligible, but we definitely see the need would be for ADI's products by our customers as well.

And in fact there is already an interest by several of our customers who have heard about this acquisition that they want to work with us in acquiring or buying or using ADI's product for themselves because right now we as Silicom, we did not have these products while we knew that these companies they were interested in this kind of product.

So at the moment ADI does not sale to our customers but we definitely hope that ones we close this acquisition we would go together to our customers and they would be able to use their products as well. .

And then one quick follow-up.

Can you comment at all on the gross margins at ADI?.

I think that in general the gross margin of Silicom would not be affected by that. I think that there is some products with higher gross margin and gross margins of other products with a lower gross margin, we’re not yet 100% sure we didn't go into as to how efficient they are running their operation, we believe that we could help them there.

So overall I think that there wouldn't be any significant change on Silicom's overall gross margin. .

And the next question is from Ronald Mullins of Segmark. Please go ahead. .

Are there any tax implications as you're now acquiring a U.S.

corporation?.

NASDAQ, so there is no impact. .

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 Web site www.silicom-usa.com. Mr. Orbach would you like to make your concluding statement. .

Thank you operator. Thank you everybody for joining the call. We look forward to hosting you in our next call in three months’ time. Good day. .

This concludes Silicom's third quarter 2015 results conference call. Thank you for your participation. You may go ahead and disconnect..