Silicom .(US:SILC)2021-04-28 13:00Financial Performance - Sales in 2020 were US$ 107,398 thousand, a slight increase from US$ 105,240 thousand in 2019, despite challenges from Covid-19[226] - Gross profit in 2020 was US$ 33,766 thousand, representing 31.4% of sales, down from 34.3% in 2019, primarily due to a US$ 1.7 million impairment of intangible assets[228] - Net income in 2020 was US$ 5,725 thousand, a decrease of 44.1% from US$ 10,236 thousand in 2019, due to lower gross profit and higher operating expenses[243] Expenses - Research and development expenses increased by 14.4% to US$ 17,244 thousand in 2020, driven by higher employee-related costs and investments in new product development[231] - Sales and marketing expenses decreased by 6.6% to US$ 6,209 thousand in 2020, mainly due to reduced travel expenses during the pandemic[233] - General and administrative expenses slightly decreased by 2.3% to US$ 4,065 thousand in 2020, attributed to lower payroll-related expenses[236] Cash Flow and Working Capital - Cash provided by operating activities in 2020 was US$ 4,956 thousand, significantly lower than US$ 26,726 thousand in 2019, primarily due to net income and inventory changes[252] - Working capital as of December 31, 2020, was US$ 106,853 thousand, with a current ratio of 4.64[248] - Cash and cash equivalents increased by US$ 4,207 thousand to US$ 20,676 thousand as of December 31, 2020[248] Investments and Securities - Short-term marketable securities increased by US$ 21,072 thousand to US$ 35,117 thousand as of December 31, 2020[248] - The investment portfolio consisted of approximately US$ 50.4 million in corporate and government debt securities, all classified as "held to maturity" and in fixed-rate instruments[520] Trade and Inventory - Trade receivables decreased to US$ 21,660 thousand as of December 31, 2020, down from US$ 24,936 thousand as of December 31, 2019, reflecting improved average payment terms with customers[249] - Trade payables decreased to US$ 14,610 thousand as of December 31, 2020, compared to US$ 16,419 thousand as of December 31, 2019, due to changes in payment terms with suppliers[250] - Inventories increased to US$ 47,650 thousand as of December 31, 2020, up from US$ 36,491 thousand as of December 31, 2019, driven by increased inventory purchasing to meet customer delivery expectations[251] Future Outlook and Trends - The shift to Cloud and trends of Disaggregation and Decoupling are expected to impact product demand, with a decrease in Server Adapters but an increase in demand for Smart Cards and CPE devices[272][274] - The company anticipates positive impacts from the O-RAN trend, allowing for separate procurement of hardware and software, enhancing market opportunities[275] - Long sales cycles in the market necessitate continuous achievement of Design Wins for sustained long-term revenues[276] Liabilities and Obligations - As of December 31, 2020, the total outstanding contractual obligations amounted to approximately US$ 40,790 thousand, with operating leases contributing US$ 8,120 thousand and purchase obligations US$ 32,670 thousand[284] - The liability for employees' severance benefits was approximately US$ 3,256 thousand as of December 31, 2020[285] Currency and Exchange Rate Risks - Accounts receivable in NIS amounted to US$ 4,210 thousand, with a potential decrease of US$ 383 thousand estimated from a hypothetical 10% increase in the Dollar exchange rate[525] - The company had accounts payable in NIS amounting to US$ 10,522 thousand, with a potential increase of US$ 1,175 thousand estimated from a hypothetical 10% decrease in the Dollar exchange rate[525] - A hypothetical 10% weakening of the U.S. Dollar relative to the NIS would have resulted in an increase in operating expenses of approximately US$ 1,101 thousand for the year ended December 31, 2020[530] - The company is not engaged in any hedging or other transactions intended to manage risks related to foreign currency exchange rate or interest rate fluctuations as of December 31, 2020[531] Customer Concentration - The top three customers accounted for approximately 36% of the company's revenues in 2020, indicating a significant reliance on a small number of customers[533] Indemnification Agreements - The maximum liability under the Indemnification Agreements for any monetary obligation imposed on an officer or director is currently US$ 3,000,000 for each instance of a covered scenario[278] - The company is not aware of any material pending action that may result in anyone claiming indemnification under the Indemnification Agreements[278]