Silicom (SILC $19.50) reported excellent on target Q2 results. Earnings advanced 50% to $.30 a share. The company's administrative and engineering personnel are located primarily in Israel. Those costs are translated into U.S. Dollars for financial reporting purposes. In the June period income was reduced by $.03 a share by the declining value of the U.S. Dollar. Excluding the currency effect income would have been up 65%. Sales widened 39% to $9.36 million. Revenues weren't bolstered by the currency swing because Silicom prices its products mainly in U.S. Dollars. North America represented 73% of revenue; Europe, 15%; Asia, 12%. The high potential SETAC line contributed 9% of revenue. Demand for the company's established server networking systems remains vibrant. Existing customers are designing the technology into an expanding number of new products. Silicom also is continuing to add new manufacturers to its customer list, which now exceeds 75 OEMs. The SETAC line is gaining adoption at an accelerating pace as customers familiarize themselves with the technology's cost savings and versatility. Margins are benefiting from declining component costs, enabling the company to preserve its high margins despite the currency headwind.
We are raising our full year 2011 earnings estimate a nickel to $1.20 a share. Next year $1.50 a share represents a realistic target. Above average growth could be sustained well into the decade as the server networking market keeps growing and the SETAC line accounts for an increasing portion of total revenue. Cash reserves exceed $6.50 a share so growth might be amplified by future acquisitions.
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