Silicom .(US:SILC)2022-04-27 13:05Financial Performance - Sales in 2021 increased by 19.6% to $128,460 thousand compared to $107,398 thousand in 2020, driven by demand for Smart Edge products and initial penetration into the 5G/O-RAN market [223]. - Gross profit in 2021 was $44,388 thousand, representing 34.6% of sales, an increase from 31.4% in 2020, attributed to product mix changes and a one-time impairment in 2020 [225]. - Net income in 2021 was $10,541 thousand, an increase of 84.1% compared to $5,725 thousand in 2020, attributed to increased activity and sales [239]. - Financial expenses, net in 2021 amounted to $152 thousand, a significant decrease from financial income of $1,034 thousand in 2020, due to reduced investment income and currency fluctuations [234]. Expenses - Research and development expenses in 2021 rose by 16.5% to $20,091 thousand, reflecting increased costs for product development and enhancements [227]. - Sales and marketing expenses in 2021 increased by 6.3% to $6,599 thousand, driven by investments in networking solutions and customer base expansion [230]. - General and administrative expenses in 2021 increased by 14.2% to $4,641 thousand, primarily due to higher payroll and share-based compensation [232]. - Research and development expenses for 2021 were US$ 20,091 thousand, constituting approximately 15.64% of sales, reflecting a continued investment in new product development and enhancements [262]. Inventory and Receivables - The inventory write-downs as a percentage of sales increased to 4.1% in 2021 from 1.5% in 2020, indicating challenges with slow-moving or obsolete inventory [225]. - Trade receivables rose to US$ 31,120 thousand as of December 31, 2021, up from US$ 21,660 thousand in 2020, attributed to increased sales [245]. - Inventories increased significantly to US$ 75,753 thousand as of December 31, 2021, compared to US$ 47,650 thousand in 2020, driven by higher inventory purchasing to meet customer delivery expectations [248]. - Cash provided by operating activities decreased to US$ 1,079 thousand in 2021 from US$ 4,956 thousand in 2020, primarily due to increased inventory levels [249]. Working Capital and Liabilities - As of December 31, 2021, the company had working capital of US$ 98,806 thousand and a current ratio of 2.96, with cash and cash equivalents increasing by US$ 8,609 thousand to US$ 29,285 thousand compared to US$ 20,676 thousand in 2020 [244]. - Trade payables increased to US$ 29,918 thousand as of December 31, 2021, compared to US$ 14,610 thousand in 2020, reflecting increased business activity [246]. - The liability for employees' severance benefits was approximately US$ 3,443 thousand as of December 31, 2021 [281]. - As of December 31, 2021, the company's total outstanding contingencies related to IIA amounted to approximately US$ 2,960 thousand [280]. Currency and Exchange Rate Risks - The company does not currently engage in hedging to manage foreign currency exchange rate risks but may consider it in the future [243]. - The company had accounts receivable in NIS amounting to US$ 13,046 thousand as of December 31, 2021, with a potential decrease of US$ 1,186 thousand estimated from a hypothetical 10% increase in the Dollar exchange rate [526]. - The company had accounts payable in NIS amounting to US$ 16,889 thousand as of December 31, 2021, with a potential increase of US$ 1,877 thousand estimated from a hypothetical 10% decrease in the Dollar exchange rate [526]. - 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$ 1,534 thousand for the year ended December 31, 2021 [529]. - A hypothetical 10% weakening of the U.S. Dollar relative to the DKK would have resulted in an increase in operating expenses of approximately US$ 1,116 thousand for the year ended December 31, 2021 [529]. Market Trends and Future Outlook - The shift to cloud computing is decreasing demand for server adapters while increasing demand for smart cards and CPE devices due to disaggregation and decoupling trends in the market [269][270]. - The company anticipates positive impacts from disaggregation and decoupling trends in the 4G/5G O-RAN deployments, leveraging its smart platforms and smart cards [271]. - The company expects to continue investing in research and development, with 133 employees engaged in these activities as of March 31, 2022 [262]. - The company has received approximately US$ 4,388,000 in funding from the IIA for research and development, with US$ 1,428,000 paid in royalties [260]. Customer Concentration - The company's top four ultimate customers accounted for approximately 35% of revenues in 2021, indicating a concentration risk [534].