Silicom Q2 2026 Earnings Call: Complete Transcript

Silicom (NASDAQ: SILC ) held its second-quarter earnings conference call on Wednesday. Below is the complete transcript from the call. APIs provide real-time access to earnings call transcripts and financial data. Visit to learn more.

8 million, marking a 59% year-over-year increase and surpassing prior guidance. The company raised its full-year 2026 revenue guidance to $93-$95 million, up from $82-$83 million, reflecting strong performance and new AI inference production orders. Silicom secured seven new design wins, including significant wins in FPGA SmartNICs and a white-label switching deal with a potential $5 billion per year impact. The company expects to return to quarterly non-GAAP profitability in the second half of 2026, earlier than anticipated.

Silicom's core business is driving growth, with new AI inference and switching products expected to contribute significantly in future quarters. The company maintains a strong balance sheet with $107 million in working capital and no debt, allowing flexibility for growth investments. Management highlighted the proactive expansion of inventory to support revenue growth and mitigate supply chain risks. Full Transcript OPERATOR Ladies and gentlemen, thank you for standing by.

Welcome to the Silicom second quarter 2026 results conference call. All participants are 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 EK Global Investor Relations at 12-378-8040 or view it in the news section of the company's website, I would now like to hand over the call to Mr. Kenny Green of EK Global Investor Relations. Mr.

Green, would you like to begin, please? Kenny Green, EK Global Investor Relations Thank you, operator. I would like to welcome all of you to Silicom's second quarter 2026 results conference call. Before we start, I would like to draw your attention to the following safe harbor statement.

During this call, we may make forward-looking statements within the meaning of applicable securities laws. These statements may include, among other things, statements regarding the Company's strategy, market opportunities, customer demand, product development initiatives, industry trends, expected deployments of the Company's solutions, financial outlook, revenue expectations, margins, operating expenses, profitability, and future growth opportunities. These statements involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied in such statements. S.

Securities and Exchange Commission, including its annual report on Form 20-F. The Company undertakes no obligation to update any forward-looking statements. With us on the line today are Mr. Liron Eizenman, President and CEO, and Mr.

Eran Gilad, CFO and Company Secretary. Liron will begin with an overview of the results, followed by Eran, who will provide the analysis of the financials. We will then turn the call over to the question-and-answer session, and with that, I'd now like to hand the call over to Liron. Liron, please go ahead.

Liron Eizenman, CEO and President Thank you, Kenny, and good day everyone. I'm very happy to share a truly outstanding set of results for the second quarter of 2026, results that came in significantly ahead of our expectations and that demonstrate the clear success of our strategic plan. Looking ahead, and from our perspective in mid-2026, I have rarely been more excited about Silicom's strong momentum, upcoming potential, and the trajectory ahead. The second quarter was an exceptionally good one for Silicom, and it marks a clear acceleration of the growth inflection we talked about earlier this year.

8 million, up a very strong 59% year over year and well ahead of the $20 to $21 million guidance range we shared with you last quarter. Our strategic plan of the core business is tracking well ahead of our original expectations from when we first launched the plan. Our highly predictable platform of recurring revenue built on years of design win momentum, combined with the upside from our growth engines, is now driving a key inflection point in our business. You can see it clearly in the increasing trajectory of our revenue growth.

Two quarters ago, in Q4 2025, we reported 17% year over year growth. Then we accelerated to 33% growth last quarter and now a further step up to 59% in the current quarter. Beyond that, we are maintaining and even further building on this momentum, with the guidance for the next quarter implying a further acceleration to 66% year over year growth at the upper end. This is a powerful, accelerating trend, and it reflects the compounding contribution of our multiple recent design wins as they ramp.

Importantly, our visibility into the remainder of this year has improved markedly over the past few months. As a result, we are raising our revenue guidance for the full year 2026 significantly to a range of $93 to $95 million, up from our previous guidance of $82 to $83 million. This higher guidance reflects the better-than-expected improvements in our core business and is further supported by the additional multi-million dollar revenues that we now expect from AI inference production orders in 2026. We have discussed many times the long-term growth and strength of our core business are best tracked via our design win momentum.

As you may remember, for 2026 as a whole we targeted between seven and nine new design wins. I'm very pleased to report that we are just over halfway through the year and we've already secured seven new design wins. This means we are well on track to meet and to even exceed the upper end of the range. Those design wins achieved in recent months are the foundation for continued strong growth into next year and beyond.

I want to spend a few moments discussing the design wins that we secured during the second quarter and more recently. During the quarter, in April we announced an FPGA SmartNICs design win with the European leader in advanced encryption and secure communication solutions. The customer selected our solution following a successful evaluation, testing the performance and reliability required for its advanced encryption solutions, including post-quantum cryptography. This was our third PQC design win.

As we continue to build post-quantum cryptography as an emerging future growth engine for Silicom, we expect to scale towards an anticipated annual deployment of around $3 million. On top of that, we are in discussions regarding this customer's next-generation higher-speed FPGA SmartNIC, which is planned to launch in 2028, as well as a potential full system solution combining a server with an FPGA SmartNIC—opportunities that could each add meaningfully to our future revenues from this account. A few weeks later, in May, we announced our first ever white-label switching design win. This was a win with a $5 billion per year potential.

With a Tier 1 global security leader seeking to move away from vendor lock-in, the customer decided to replace its existing proprietary switches from an incumbent industry leader with Silicom's open white-label solutions. The customer selected a full range of Silicom-designed white-label switches as the networking infrastructure for its security platforms. First production orders are expected before the end of the year. And more recently, in July, an existing blue chip customer awarded us a new design win for a custom high-speed server adapter engineered to exact customer specifications for a specific use case.

This win triples our expected business with this customer to nearly $10 million in 2027, a significant contribution to our growth in 2027 on top of the very strong growth we are already delivering in 2026. Those wins capture the essence of our strategy. First, each successful win opens the door to the next, with satisfied customers coming back to us for additional products and additional use cases. Second, they reflect the compounding value of the long-term trusted supply relationships we have cultivated over decades of operation with blue chip customers.

Together they strengthen the visibility we have into continued growth in 2027 and beyond. Beyond the wins we already secured, our pipeline of potential opportunities remains very broad and deep, spanning all our core product lines including AD systems, SmartNICs, and FPGA-based solutions across both new and existing customers. We expect this pipeline to continue converting into design wins, laying the groundwork for sustained strong growth well beyond this year. Turning to our outlook for the third quarter, we expect revenues in the range of $25 to $26 million, representing accelerated 66% year over year growth at the upper end.

For the full year, as I mentioned earlier, we raised our revenue guidance to a range of $93 to $95 million, representing over 50% year over year growth. I want to emphasize a particularly important milestone. Driven by our strong execution and the significant inherent leverage in our business model, we now expect to return to quarterly non-GAAP profitability during the second half of this year, significantly earlier than we had originally anticipated. This is a meaningful inflection point for Silicom and a clear demonstration of the earnings power that our rapidly growing revenues are beginning to unlock.

Let me now turn to the exciting progress we are making in the AI inference market. We are very pleased with the tangible, strong progress we achieved on the AI front in less than nine months. I want to highlight a few of our key AI-related engagements. Recently, we secured a design win with a pioneering AI inference acceleration provider and received the first production order from this customer.

This is an important milestone, establishing a foundation for what we believe can become an exceptional revenue stream. Additionally, we successfully customized an AI NICs solution to meet the customer's specific needs, delivered the first unit to the customer for evaluation, and are preparing for initial deliveries of this customized product per a purchase order received from the customer, a leading AI inference ASIC and infrastructure vendor. In parallel, we are expanding our AI inference product portfolio and, based on orders secured, we are now developing a completely new, bespoke inference-specific solution.

We are witnessing AI spending shift decisively from training to inference, and the rise of disaggregated inference architectures is positioning Silicom as a key player, bringing our networking know-how and building blocks to the architectures that power those workloads and creating significant new opportunities for us along the way. We view our rapid progress and expanding footprint in AI inference as a potential game changer for Silicom, and successfully capitalizing on this generational shift will significantly enhance our long-term growth trajectory.

This brings me to our balance sheet, which remains exceptionally strong and provides us with the flexibility to invest in our growth while maintaining a conservative financial profile. At the end of June, our working capital and marketable securities totaled $107 million, representing approximately $19 per share, including $55 million in cash, cash equivalents, and highly rated marketable securities, with no debt. In summary, this was an outstanding quarter and it's an exciting time for Silicom. Our core business is accelerating rapidly, with 59% year over year growth in the second quarter and third quarter guidance pointing to accelerated 66% growth at the upper end.

At the same time, we are making fast and exciting progress on our AI inference upside. Our design win engine is firing on all cylinders, with the lower end of our full-year target already reached in only half a year. On the strength of this momentum and improved visibility, we have raised our full-year revenue guidance to $93 to $95 million, and we now expect to return to quarterly non-GAAP profitability in the second half of this year. This quarter demonstrates again the exceptional performance of our core business, which is the foundation for everything else we're doing.

It is the success of our strategic plan and the strength of our core that gives us the platform, the customer relationships, and the balance sheet strength to invest in AI inference and other additive growth engines, each of which is an extension of our core expertise, capabilities, customer base, and the same IP roots. We could not be more excited about Silicom's strong and accelerating momentum, and we are moving with confidence and determination to fully capture the opportunities ahead. We look forward to delivering strong and accelerating returns for our shareholders in the quarters ahead and over the long term.

With that, I will now hand over the call to Eran for a detailed review of the quarter's results. Eran, please go ahead. Eran Gilad, CFO and Company Secretary Thank you, Liron, and good day to everyone. I will review the financial results and business performance for the second quarter of 2026.

Before beginning the financial overview, I would like to remind you that, unless otherwise indicated, all financial results are non-GAAP. The full reconciliation of our results on a GAAP to non-GAAP basis is available in the press release issued earlier today. 8 million, 59% above the $15 million reported in the second quarter of last year. The geographical revenue breakdown over the last 12 months was: North America 79%; Europe and Israel 13%; Far East and rest of the world 8%.

During the last 12 months we had two 10%-plus customers, which accounted for about 23% of our revenues. 8 million in the second quarter of 2025. 4% in the quarter is at the upper part of our short- to mid-term expected gross margin range of 27% to 32%. 2 million reported in the second quarter of 2025.

16% year over year, compared with 59% revenue growth, a clear demonstration of the operating leverage inherent within our business model. 4 million reported in the second quarter of 2025. This narrowing of the operating loss reflects the operating leverage inherent in our business model, as our revenue returned to strong growth, and points clearly to the improving profitability profile we expect to deliver as our growth accelerates. 9 million, a 54% improvement compared with the net loss of $2 million in the second quarter of 2025.

We are very pleased with the pace at which we are closing the gap to profitability, and we expect to return to quarterly non-GAAP profitability during the second half of this year, significantly earlier than we had originally anticipated. 35 as reported in the second quarter of last year. Now turning to the balance sheet: as of June 30, 2026, our working capital and marketable securities amounted to $107 million, including $71 million in high-quality inventory and $55 million in cash, cash equivalents, and highly rated marketable securities, with no debt. I would like to add a few words on the increase in inventory.

We are intentionally building our inventory both to support our strong revenue trajectory and to safeguard our ability to ensure uninterrupted product delivery to our customers. This is a deliberate, proactive step, and we are leveraging our balance sheet strength to take it effectively, mitigating the impact of the currently extended lead times for memory chips and positioning us well to continue capitalizing on the growth opportunities ahead. That ends my summary. I would like to hand back to the operator for a question-and-answer session.

OPERATOR Thank you, ladies and gentlemen. At this time, we will begin the question-and-answer session. If you have a question, please press star one. If you wish to cancel your request, please press star two.

If you are using a speakerphone, kindly lift the handset before pressing the numbers. Your questions will be polled in the order they are received. Please stand by while we poll for your questions. The first question is from Ryan Koons of Needham & Company.

Please go ahead. Ryan Koons, Analyst at Needham & Company Great. Thanks for the question, and just terrific results, guys. Really nice to see the business inflecting.

Reflecting here on your accelerating revenue here in the first half of the year, are there any particular market verticals you'd point out, use cases that are particularly strong within your core business, that are resulting in the outperformance here in the first half or in the second quarter? Liron Eizenman, CEO and President So first of all, Ryan, thank you very much. And I would say what we're seeing basically is the core business. So core business is booming, and the core business is, I mean, across the board, across all the product lines.