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Silicom Ltd  (NASDAQ:SILC)
Q4 2018 Earnings Conference Call
Jan. 31, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Silicom Fourth Quarter and Full Year 2018 Results Conference Call. All participants are 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 and Public Relations at 1646-688-3559 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.

Ehud Helft -- Investor Relations

Yeah, thank you, operator. I would like to welcome all of you to Silicom's Fourth Quarter and Full Year 2018 Results Conference Call. Before we start, I would 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 that information. Actual events or results may differ materially from those projected, including as a result of our increasing dependency for substantial revenue growth on a limited number of customers in the evolving cloud-based market; the speed and extent to which cloud-based and cloud-focused solutions are adopted by the market; the likelihood that we will rely increasingly on customers which provide cloud-based and cloud-focused solutions in this evolving market, resulting in an increasing dependency on a smaller number of larger customers; difficulty in commercializing and marketing Silicom's products and services; maintaining and protecting brand recognition; protection of intellectual property, competition and other factors identified in documents filed by the company with the SEC.

In addition, following the Company's disclosures, 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, forecast future results, and evaluate the Company's current performance. Management believes that the presentation of these non-GAAP financial measures is useful to investor understanding and assessment of the Company's ongoing collaborations and prospect for the future. Unless otherwise stated, it should be assumed that financials discussed in this conference call will be on a non-GAAP basis.

Non-GAAP financial measures discussed by management are provided as an 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 can be found 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 now like to hand over the call to Shaike. Shaike, please.

Shaike Orbach -- President and CEO

Thank you, Ehud. I would like to welcome all of you to our conference call to discuss the results of the fourth quarter capping off 2018. We are very pleased with the results, not only of the quarter, but also for 2018, as a whole. We showed all-time record revenues for the quarter at $45.5 million, which increased by 20% year-over-year. Furthermore, we showed record revenues for the year, coming in at $134 million, 6% ahead of those of last year. We had a very strong year in terms of cash generation, adding $43.3 million to our balance sheet whereby by our cash stands at $74 million with no debt. Our balance sheet remains very strong with shareholders' equity of $158 million as a result of 14 years of ongoing and continued profitability. I would like to spend a moment discussing the revenue growth. Specifically, our year-over-year growth.

As you all know, in March 2018 we informed you about the decision by our Top 10 cloud player customer to cancel a project, which included our biggest ever design win. As a result of this cancellation, the contribution from the canceled project in 2018 was $10 million less than it was in 2017. It is therefore all the more impressive that we continue to show -- to show year-over-year growth. Our ninth consecutive year of growth despite the challenge of a lower level of these revenues in 2018. Looking at our revenue growth, which excludes those from the discontinued project, 2018 would have shown solid double-digit revenue growth of over 15% year-over-year. This confirms as we asserted immediately after the cancellation of the projects that our sales engines remain powerful and that our long-term prospect remain intact .

I note that as we exit the fourth quarter of 2018, there are no unresolved issues with regard to the canceled projects and this is finally behind us . Throughout 2018, we worked very closely with our customer and our partners in this project to achieve the best possible closure on all outstanding issues. The strong working relationship with the customer and parties involved built over many years of close cooperation allowed us to progress through all the issues in a positive and collaborative atmosphere and we reached a fair and positive resolution for all involved. We believe that these relationships will also help us moving forward, potentially achieving new wins with all the parties involved in this project, all of which are top world leaders in their industries.

The success of these relationships is also demonstrated by the lower than originally expected inventory writedown, which we had anticipated in Q in the first quarter at $5 million but which finally amounted to $3.2 million, over a third less. Looking ahead, as I mentioned, we do not anticipate any further impact going forward. And our financial results in 2019 will be fully reflective of the continued health and performance of our business, which as I explained earlier demonstrated double-digit growth in 2018. The primary driver for this growth came from our uCPE edge product. These target some of the networking markets' hottest segments, particularly that of SD-WAN and NFV. We're seeing the beginning of deployments already happening and industry analysts continue to expect growth in this market to accelerate for the foreseeable future.

We are happy with the ongoing progress our business is making in this space. And as the quarters move ahead, we're becoming increasingly excited with regard to our long-term future. Our success will be built on the ramp of the existing design wins we have already achieved, especially the wins with major telcos service providers and leading SD-WAN players. Beyond that our pipeline of deals that we are competing for is broad and deep and represents significant long-term revenue potential for Silicom. Silicom continues to increasingly penetrate new customers and is also reselected over and over again by existing customers for further design wins. The ongoing market response to our offering confirms that there is a strong fit between the products and services we provide with the current needs of leading telcos and OEMs.

These are all increasingly embracing SD-WAN and NFV technologies as a part of their IT and networking strategy going forward. Looking back to the beginning of 2018, we set for ourselves ambitious design win target in the ad space. I'm pleased to say that we achieved everything that we set out to do. During the year, we have indeed secured quite a few such wins which combined with those secured in previous years amount now to over more than 10 edge-related wins. Two of the wins secured during this year were with major telco service providers. The first one announced back in April was with a Tier 1 US telco which selected our edge devices for its SD-WAN Small Business Services. This win is expected to ramp up to between $15 million and $20 million per year at peak deployment. The second one announced a few weeks ago in December was with one of the world's largest service providers which selected our modular uCPE unit for its worldwide NFV implementation with SD-WAN integrated as one of its network functions. This win is expected to generate tens of millions of dollars per year at its peak. Across all our edge design wins and especially those at the top tier telco and service provider leaders, the initial ramp process takes time, longer than what we typically experienced with our more traditional design wins. Therefore because we're still early in the process for all the recent wins in this space, the exact timing of orders and revenues are not fully clear. This means our short-term visibility is somewhat reduced. As we start to ramp during the current year, 2019 will likely be more back-end loaded, even though we will have revenues from these wins throughout the whole year.

Beyond our recent wins there remains very strong further potential and we have built a nice pipeline of potential design wins. This pipeline is bigger, stronger and broader than ever and looking ahead, the potential opportunities are much greater than what we have achieved to date. We believe that a further important driver for our Company in the coming years is our Field Programmable Gate Arrays or FPGA solutions. Because of the potential we identified, we made significant R&D investment in this space in recent years. One of the major selling points is that our SmartNIC uses a unique Packet Mover technology, that feature enabling customers to easily integrate their own IP into our core FPGA framework. We have already achieved early success. And just a few weeks ago we announced that a leading ISP and Global Communications leader selected our FPGA-based SmartNICs indeed using our Packet Mover technology for use in its datacenters throughout the world. Today this customer has placed initial purchase orders and forecasts that its order rate will gradually ramp to around $4 million per year.

Again, the fact that such an important industry leader has selected our solution confirms the unique and attractive value proposition of our FPGA technology for cloud and service providers. With the feasibility of our solution now proven, we believe we have ignited the imagination of this and other target customers. This first FPGA win for us is an important step opening doors for us to new possibilities with a broadened range of solutions that we can offer to further fast-growing target markets. We expect to achieve additional similar design wins in 2019, leading to the ramp up in Q, 2020 with accelerated growth in the years following. We continue to invest significantly in developing and advancing our FPGA technology and we consider it to be an important element in Silicom's long-term growth strategy.

With regard to our guidance for the first quarter. We project that revenues for the first quarter of 2019 will be between $30 million and $31 million. Excluding the revenues from the projects canceled by our customer during the first quarter of 2018, the middle point of the guidance range -- of the guidance range for Q1 of 2019 represents a significant double-digit growth year-over-year.

In summary, we are very happy with our performance in the quarter and the year as a whole. More importantly, we continue to focus on maintaining our long-term growth trend for the foreseeable future. As we have successfully done over many years, we continue to identify and invest in those areas we chose strong promise in the future, taking advantage of the many opportunities. In particular, we continue to invest R&D dollars and effort in our edge and FPGA product and we look forward to reaping the continued and growing fruits of these investments.

Our business is healthy, showing broad growth and we believe this will be -- continue over the long term. Many of the recent large design wins we have achieved are moving into the early ramp stage, which will provide a long-term runway for growth. Our growing design win momentum especially with major telcos, service providers and top SD-WAN players underlies my confidence that Silicom has the right product for today's as well as tomorrow's market with all the right existing relationships in place.

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 -- Chief Financial Officer

Thank you Shaike, and hello everyone. Revenues for the first quarter of 2018 were a record $45.5 million, an increase of 20% compared with revenues of $37.8 million, as reported in the fourth quarter of last year. Revenues for the full year of 2018 were also at a record, reaching $133.8 million, representing year-over-year growth of 6% compared with $125.7 million reported last year.

Our geographical revenue breakdown over the last 12 months were as follows; North America 80%, Europe and Israel 16%, Far East and Rest of the World 4%. During the last 12 months period, we had three 10% plus customers. These three customers together accounted for about 35% of our revenues. 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, acquisition-related adjustments, as well as discontinued project-related write-off. For the full reconciliation from GAAP to non-GAAP numbers, please refer to the press release we issued earlier today. Gross profit for the fourth quarter of 2018 were $16.5 million, representing a gross margin of 36.2% compared to a gross profit of $13.6 million in the fourth quarter of last year, representing a gross margin of 36%.

Operating expenses in the first quarter of 2018 were $6.3 million or 13.9% of revenues compared with $5.8 million or 15.3% of revenues in the fourth quarter of last year. Operating income for the fourth quarter of 2018 was $10.1 million, an increase of 30% compared to $7.8 million as reported in the fourth quarter of last year. Net income for the quarter was $8.9 million or 19.6% of revenues, an increase of 30% compared to $6.9 million or 18.2% of revenues in the fourth quarter of last year. Earnings per diluted share in the quarter were $1.17, an increase of 31% over the $0.89 reported in the fourth quarter of last year.

Now turning to the balance sheet, as of December 31st, 2018, the Company's cash, cash equivalents and marketable securities totaled $74 million with no debt or $9.79 per outstanding share, up $23 million compared with the end of the third quarter of 2018 and up $43.3 million compared with $30.7 million at the end of 2017. That ends my summary.

And we would all be to take any questions. Operator?

Questions and Answers:

Operator

Thank you. Ladies and gentlemen at this time we will begin the question-and-answer session. (Operator Instructions). The first question is from Alex Henderson of Needham & Co. Please go ahead.

Alex Henderson -- Needham & Co -- Analyst

Great, thanks. I guess it goes without saying nice quarter. So the first question I had for you, I just wanted to clarify on the gross margin numbers here. It sounds like you had a $1.8 million reversal in your reserves, if you went from $5.8 million, down to $3.2 million. Should we be adjusting out the $1.8 million from the cost of goods sold to get the normalized gross margins, in which case, I think it would be 32.2% if I'm doing my math correctly, is that right?

Eran Gilad -- Chief Financial Officer

No, it's wrong. The $5 million as well as the $3.2 million or the reduction of $1.8 million, affected only our GAAP results. There is no connection to the numbers of the non-GAAP results.

Alex Henderson -- Needham & Co -- Analyst

I say, so it's backed out. Okay. So what accounts for the sharp acceleration in gross margins. I mean that's -- I haven't seen a 36% in a while.

Shaike Orbach -- President and CEO

Well, yeah, I mean, so first of all, obviously the fourth quarter was unique, and the uniqueness, a part of that at least was indeed due to the canceled project. I think that if you look at the full year, that would give you a much better look as to where we are in terms of gross margin. So for the full year, we're not at that number, it does not take into consideration any one timers or so, it does but it's compensated throughout the year more or less. So the full year number is what you should look at in terms of being whether or not we're being within our guidance, which is still at 32% to 36% moving forward.

Alex Henderson -- Needham & Co -- Analyst

So just to be clear on the December quarter revenue number it sounds like there was clear out of a number, you know, a good chunk of the remaining inventory that might have been associated with the canceled project. If we no longer expect that to recur, can you give us any sense of what that impact was on the top line?

Shaike Orbach -- President and CEO

Yeah, I mean, what I can tell you is that just like we've been saying for the full year, the same thing is correct for Q4 as well, which means if you neutralize the canceled project, then we grew in the fourth quarter double digits compared to Q4 in 2017.

Alex Henderson -- Needham & Co -- Analyst

Just trying to figure out what the baseline is. Should I be assuming that at least $5 million worth of revenues in the quarter is associated (multiple speakers) going to recur again.

Shaike Orbach -- President and CEO

This is where we come to an area that I cannot give you the number itself, just the growth figures. Please note, I'm sure that there would be a lot of questions here related to that, but we are restricted by very specific NDAs in place and we cannot disclose the numbers. I mean, I'm trying to give you as much feeling as I can in terms for you to be able to evaluate the growth and what we're doing, but I cannot give numbers or figures as -- which would indicate as to the size and the real dollars value.

Alex Henderson -- Needham & Co -- Analyst

Let me try a different angle on it, is it reasonable to think that as we look at December '19 quarter, which I know realize that it's quite a ways out and a lot of things to deal with that even -- leaving the stuff in the numbers, that we would not therefore have an up quarter in the fourth quarter, because this is -- this base falls out and therefore offsets say 10% to 15% growth. Otherwise, if I was looking for say 15% growth would I be able to still have an upside quarter off of the baseline?

Shaike Orbach -- President and CEO

Well, I mean, it is really too difficult to say now what would happen in the last quarter of 2019. Obviously, I mean, beating up the $45.5 million is not going to be a simple task even for 2019. However, I mean, we still don't know exactly when and how the ramp up of the big wins that we had for the edge devices would happen. And as I just said, I mean, these wins are supposed to be tens of millions of dollars per year, each of them. If they happen -- if the ramp-up is happening early and if we get some new wins, it is possible for that to happen as well, but I cannot commit to that of course, right now.

Alex Henderson -- Needham & Co -- Analyst

That's a good follow-on to my second question which is around the Tier 1 announced in March. Has -- was there in the fourth quarter or for that matter in the back half a meaningful amount of call it field test units and prototype units that were shipped? I assume that that project is not kicked off. As I understand it was intended to kick off in October. Do we have any sense of what the date might look like for when they hope to be launching, obviously, that's a squish number given they've already pushed it out somewhat.

Shaike Orbach -- President and CEO

We hope that the real deployments or the real ramp up, it's not the, I'm not talking about the big quantity, but we're hoping that the relaunching would be within the first half of the year.

Alex Henderson -- Needham & Co -- Analyst

And so was there any initial prototyping or --?

Shaike Orbach -- President and CEO

Yes.

Alex Henderson -- Needham & Co -- Analyst

Field trial units in the fourth quarter?

Shaike Orbach -- President and CEO

Yes, yes. I mean, throughout -- as of the time that we have announced this, we are seeing purchase orders.

Alex Henderson -- Needham & Co -- Analyst

So is there something that's going to happen that will give you some clarity on what the timing of that is, or do you just or all of just suddenly a flood come across the trans -- what type of stuff should you be looking for in anticipation of that as to when ramp.

Shaike Orbach -- President and CEO

Well, I mean this is even more complicated than it sounds right now because at a certain point in time, we thought it was already happening and then we started to get significant deals and then they found something within, I don't know, I think it was software related, but I'm not sure and then they told us to wait a little bit and then they released it. So there are a lot of going up and down with that and I think that it's not a one single point that we can say, OK this is now where we are 100% sure that they're, they really have launched the project, but rather the continuation of the process of getting purchase orders. This is what would tell us OK we are there already and that seems to be like only once we're there we'll know we're there, but as long as we are not there, we will not be able to know for sure because it's not a specific date. It happened and then got back, it has some ups and downs not related to us again, which is why it's not 100% clear date to answer your question.

Alex Henderson -- Needham & Co -- Analyst

The gross margins in the first half of the year '19 should we be assuming the full year 34% type level in the first half assuming very limited amounts of the Tier 1 or Tier -- or the second Tier 1, either of the Tier 1 service providers ramping. Obviously those projects are -- going to be lower gross margins, given the scale of them. So should we assume that we're kind of at that 34% range in the first half excluding it?

Shaike Orbach -- President and CEO

Well, I mean, 34% is the midpoint of what we're saying all along that it's going to be 32% to 36% and this is a combination of not only the edge devices, but also the mix of the other projects. So while I would agree with you that definitely in the first half, the balance with respect to edge devices would be lower than it would be in the second half of the year, but we cannot know for sure what would be the impact of the other products because I mean a change in the mix of these other products can definitely result in a change of a 2% or above 2% to either direction. So I would say that the more you go to the second half it may have an impact, but exactly what would be the number I don't know. It's still within 32% to 36%.

Alex Henderson -- Needham & Co -- Analyst

Okay, two more questions then I'll cede the floor. The OpEx line saw a pretty good increase in both the R&D and the sales and marketing. Can you give us some sense of what you're thinking in terms of OpEx for 1Q and any sense of what we ought to be modeling for the full year?

Shaike Orbach -- President and CEO

Okay. I mean, so indeed OpEx this time include both one-timers but also increased investments in the the edge and the FPGA product. Moving forward I think that the OpEx in 2019 will be around $6 million on the average.

Alex Henderson -- Needham & Co -- Analyst

I see and the tax rate was the other one I wanted to get some guidance on obviously it's hard for us to forecast that.

Shaike Orbach -- President and CEO

Actually, we believe that the guidance is quite similar to what we said in previous quarters. It should be approximately 14% to 15%.

Alex Henderson -- Needham & Co -- Analyst

I'll cede the floor. Thanks.

Operator

The next question is from Abba Horwitz of OS Capital. Please go ahead.

Abba Horwitz -- OS Capital -- Analyst

Hi, congratulations on the quarter, it was very nice quarter. And in general, I think it's a very well-managed company in general. I was just wondering, I had three questions actually. Is -- you said that a lot of 2019 will back half loaded and I was wondering, you've already given guidance for Q1, so does that mean the only question mark really for you is Q2 or is Q3 also a question mark in terms of the visibility for the business in 2019?

Shaike Orbach -- President and CEO

All quarters of the year are definitely not very clear to us right now. The one thing that we know is that these projects are huge, exactly how much time it's going to take to our customers to really ramp up toward these huge quantities, that's what is not clear to us right now. So that's why it's not only Q2, it -- but hopefully, I mean, hopefully, the visibility will be better -- well, I'm sure the visibility will be better as we move forward, but right now we definitely do not know exactly when the real ramp-up of these huge quantities is going to happen.

Abba Horwitz -- OS Capital -- Analyst

Okay. I applaud your candor. How many customers were there in Q4?

Eran Gilad -- Chief Financial Officer

Regular customers.

Shaike Orbach -- President and CEO

It's the regular number more or less.

Eran Gilad -- Chief Financial Officer

Regular number, it's not, no change compared to...

Abba Horwitz -- OS Capital -- Analyst

Sorry, how many customers above 10% were in the quarter?

Eran Gilad -- Chief Financial Officer

Okay. There were three 10% plus customers and this all of them accounted for 35% of our total revenues.

Abba Horwitz -- OS Capital -- Analyst

Okay. And of those three customers, were any of those three new customers?

Eran Gilad -- Chief Financial Officer

In terms of quarter four, the answer is no.

Abba Horwitz -- OS Capital -- Analyst

Okay. Okay. Okay, very good. And I guess something that's been sort of hanging over the market. I wanted to actually address. I know there's probably not much you can say about Mr. Zisapel selling his shares in the open market, but I was wondering maybe, actually you can. But in addition to that, I was just wondering if the Company itself with all the cash, the Company has, has the Company actually tried to address it on one to one with Mr. Zisapel and try and find buyers for the shares that he is trying to dispose of?

Shaike Orbach -- President and CEO

Well, Mr. Zisapel is not on the Board of the Company for a few years, right now. There is no relationship that Mr. Zisapel has with the Company right now other than being an investor. So we don't know -- that needs to go to Mr. Zisapel himself, we really don't know.

Abba Horwitz -- OS Capital -- Analyst

Okay. Have you approached Mr. Zisapel or I'm just wondering, he too is in Israel, so I was wondering if you actually may have approached him and tried to find out if there is a way for him to dispose it in a more orderly manner.

Shaike Orbach -- President and CEO

No.

Abba Horwitz -- OS Capital -- Analyst

Okay, fair enough. Alright, beautiful. Thank you very much. Wonderful Company, wonderful management. Thank you.

Shaike Orbach -- President and CEO

Thank you.

Operator

The next question is from Ethan Etzioni of Etzioni Portfolio Management. Please go ahead.

Ethan Etzioni -- Etzioni Portfolio Management -- Analyst

Yes, thank you for taking my question. I'm still puzzled by the fourth -- by the outstanding of fourth quarter. So I understand, the 1.8% reversal in the gross margin, but looking at the top -- at the revenue line, at the $45 million and then looking at the drop from from the Q4 to the, to the guidance for '19 Q1, I still don't understand, is there anything of a one-time nature or can you help -- or maybe can you help us explain the drop from '18 Q4 to '19 Q1 that's more than regular seasonality.

Shaike Orbach -- President and CEO

Well, first of all, yes, absolutely. I mean, Q4 includes a one-time component of revenues, which is related to the canceled project. As I said before, I cannot give accurate numbers, but there is definitely a part of that which is related to this canceled project. And I would say that it's significant. It's not something negligible. Otherwise, I wouldn't sell that.

Now that taking apart as you've seen, I think many times the quarters are not always -- I mean, to say many times, not always but many times in the past, Q4 ended up being the best quarter ever during the year or something like that, which is why I gave you -- the data that I gave before. I mean, Q4 even if you neutralize all the revenues coming from this canceled project, then I am able to say that Q4 in '18 is double-digit better than Q4 in 2017. And same thing goes for Q1, Q1 '19 is double digits better than Q1 '18. So that gives you more as a feeling as to where we are in terms of growth, without having the accurate numbers as to what is the baseline but I think this is the important information.

Ethan Etzioni -- Etzioni Portfolio Management -- Analyst

Okay, OK. And any plans with your $74 million in cash?

Shaike Orbach -- President and CEO

About that, well there is nothing specific that we should discuss right now, but obviously, we're always looking for opportunities, nothing special in terms of what I'm talking about right now is M&As. There is another part of the equation, of course, which is also something that we're always discussing which is buybacks or dividends et cetera, and these are always on the table.

Ethan Etzioni -- Etzioni Portfolio Management -- Analyst

I put my vote for share buyback on the table. Thank you. Thank you very much.

Operator

The next question is from Mark Sharogradsky of Kepler Capital. Please go ahead.

Mark Sharogradsky -- Kepler Capital -- Analyst

Hello. I also -- I think you answered my question, but I also want to mention that to have a lot of cash in our balance sheet, we will prefer to see buyback in any future time, you fairly have very large cash in your balance sheet. Thank you.

Eran Gilad -- Chief Financial Officer

Okay.

Operator

The next question is from(ph)Scott Hogan of TiE Capital . Please go ahead.

Scott Hogan -- -- Analyst

So if neither of these big contracts ramp in 2019, do you think you'll generally be able to sustain double-digit growth on the core business?

Shaike Orbach -- President and CEO

Well, it still could happen because growth could come from many areas. So I don't know. I mean, I'm not saying that without the growth from these two specific wins, we definitely will not be there, but I cannot commit that we will be there?

Scott Hogan -- -- Analyst

And on the two large wins, I know you said your visibility is low, but are they giving you any other dynamics about whether they're in trial phase? Are they rolling out to any specific geographies yet? Are they giving you any thoughts about any timing?

Shaike Orbach -- President and CEO

They are giving us, I wouldn't say exactly -- well as a matter of fact, even timing, they're giving us a lot of details. The only thing is that whatever they're giving us is very dynamic and changed I would say weekly sometimes. So the fact that they're giving us some information today is far from being that meaningful as out for us to be able to say yes indeed it's going to happen at that time or at that time. Because they're doing everything very, very thoroughly and each thing which happens, which is not exactly in accordance with their plan requires reevaluation and maybe new dates, etcetera and so on and so forth. So that's why, yes, we're fully updated and they're giving us dates and plans, etcetera. But looking at the history, we can say that never actually these dates are happening. And that's why we're saying that we actually do not have this visibility.

Scott Hogan -- -- Analyst

Is there any question about the technology design that they're pursuing like how the cloud customer ended up, catering to overall design structure?

Shaike Orbach -- President and CEO

No, I mean, the technology that we're talking about right now is proven both our's and the customer's. It's not, while with the canceled projects it was really an issue of a new concept that no one tried before, this is not the case in here, the technology is proven.

Scott Hogan -- -- Analyst

Okay, thank you.

Operator

The next question is from Nehal Chokshi of Maxim Group. Please go ahead.

Nehal Chokshi -- Maxim Group -- Analyst

Yeah, my question has already been answered, but I will reflect the same sentiment that some of the other speakers said that I would definitely think that a share buyback would be a positive given where the stock is at this point in time? So unless if you have additional comments on that, I don't really have a last question. Thank you.

Shaike Orbach -- President and CEO

Thank you.

Operator

We have a follow-up question from Alex Henderson of Needham and Company. Please go ahead.

Alex Henderson -- Needham & Co -- Analyst

Great. I was hoping we could talk about a couple of things. One, if I were to look at the business slicing it by historical enterprise platforms, security, storage, SD-WAN. Can you give us some sense of where the growth is, what's flat, what's grow -- which -- what percentage of your business is going into the various segments? It's my sense that SD-WAN has now become a very significant portion of your revenues. But I don't really have a great sense of how -- what portion it's become.

Shaike Orbach -- President and CEO

Well, I mean, let us do two things. First, Eran, I suggest that you tell us about the end markets that our products are going that would give you some sense as to where we are right now, because I think that overall, it is pretty obvious that our sales toward, I would say the infrastructure with respect to telcos and cloud is growing, while the sales which just go into enterprises are somewhat flat or something like that. That's what I think we are but Eran, do you have that.

Eran Gilad -- Chief Financial Officer

Yes. Just, just second.

Shaike Orbach -- President and CEO

Okay. And by the way, I mean you're obviously 100% right that SD-WAN -- and I would say SD-WAN and SD-WAN related sales is -- that's currently our main growth engine.

Alex Henderson -- Needham & Co -- Analyst

To that point, the SD-WAN business is growing predominantly with the OEMs at this point and that's what we're talking about here as opposed to the two Tier 1s.

Shaike Orbach -- President and CEO

You're correct. I mean, because as I said, I mean, the Tier 1s that we were talking about, they did not ramp up very significantly right now even though they are contributing. I'm not saying we don't have any sales whatsoever. But the major part of the ramp up in these revenues is coming through the OEMs. And we have OEMs customers for that -- for SD-WAN as well.

Eran Gilad -- Chief Financial Officer

Our market segments, it can be seen on our quarterly presentation, which will be uploaded in one hour on the website is as follows; platforms or infrastructure, about 36%, cyber security, about 25%, network applications such as application delivery, WAN Optimization, etcetera, 23%, storage 12% and the others 4%.

Alex Henderson -- Needham & Co -- Analyst

So within the, the question that people are asking here I think is to what extent is there a risk around the two Tier 1s to the extent that the SD-WAN space is growing that rapidly. And that is underlying -- undermining what is a very high profitability business for the service providers, such as your MPLS services business. Can you talk about what these Tier 1 service providers are thinking relative to the important and strategic value of this business relative to those trends?

Shaike Orbach -- President and CEO

So my feeling at least from both of these customers is that they understand that this is extremely important and they're moving ahead with that and that would happen. The difficulties that they're having are difficulties which -- the impact of which will be seen in timing rather in whether or not this would happen or not. And timing could be affected by a lot of things. I mean, we are obviously not aware to all of them, but we could see that with these huge organizations with the so many departments involved in each of these launch and so on and so forth, the plans are really dynamic, but we didn't see any hesitation whatsoever as to the fact that they need to go ahead with that. They -- we believe that this is going to happen. We're seeing that this is happening. Timing could be a question mark.

Now I'm saying that we're talking about the, the major Tier 1s just like you said, but obviously, even though we sell to OEMs, but these OEMs are eventually selling well not also, but the big portion of what we sell to OEMs also go to some telcos and so on and so forth. So there is a question mark around timing there as well. Obviously, they also sell the SD-WAN solutions to enterprises as well. And for these, they may not have such visibility issues in terms of timing, but because they are selling to telcos as well, this is what is making the timing situation unclear, but as to whether or not this would happen and happen big, I think there is a consensus around that.

Alex Henderson -- Needham & Co -- Analyst

The conversation is focused on the first OEM who was signed in March. The second one signed much later in the year. Can you give us any sense of what timing line we should be thinking there? Is that a mid-summer type target launch and what do you think the risk is that that gets delayed similarly to the projects that the first Tier 1 got delayed. So is it possible that you can make the numbers if that was delayed through the end of the year and launched in the first half of 2020?

Shaike Orbach -- President and CEO

I don't think it would be launched only in 2020. I believe it would be -- both of these projects would be generating revenues of field launches during the year. The two questions are when would that happen during the year and what would be the rate of the ramp up. This is what is creating the reduced visibility in these areas. And well, I mean, I don't know, I mean that's why I'm saying it would happen more toward the second half of the year, but I'm not sure I can give you a better feeling than what I've given until now due to the current reduced visibility that I was talking about because it's not clear. I mean, they have given us dates again and again. There are delays and sometimes we get surprised by a certain deal and then there could be a certain hold on this deal and it moves through the following quarter. So it's really is difficult to say but because everyone seems to be so confident that it is going to happen and happen big, and because overall we're moving forward with both accounts. That's why we're saying a, it would happen and b, it would happen mostly in terms of significance toward the second half of the year. I think that any effort to be more precise than that would be irresponsible for me because we actually don't know, we really don't know.

Alex Henderson -- Needham & Co -- Analyst

Let me restate what I the question I just asked. So what I was asking is, given the risk that there could be delays similar to you had with the first Tier 1 which would push out 3 to 6 months, because that's the push out that you're seeing on the first one. Would you be able to make the numbers if the first Tier 1 ramped and the other one was pushed out to 2020 is what I'm asking. In other words how important is the second Tier 1 shipping in the second half to making the the full year target?

Shaike Orbach -- President and CEO

I would say that we would, but it's not dependent only on that. I mean, after all, even though we are looking at these two guys to obviously contribute significant amounts during the year, but it's not only them. I mean we have other customers, including SD-WAN, it's dependent on what's going to happen with them as well. Would they continue with their growth rate that we have seen until now, would that not happen for how much, how many new customers that are quicker to launch systems, I mean, so I'm -- what I'm saying is that, let's assume that only one of them is launching during the year and the other does not. I'm not saying that this definitely means we wouldn't meet the numbers, our numbers that we're looking at the growth numbers, but it's dependent on a lot of things, I cannot commit to that either.

Alex Henderson -- Needham & Co -- Analyst

So we've talked a lot about the things the risk to the model and the other side of the coin, it sounds like the pipeline is extremely strong, much stronger than it had been in prior periods and showing a big acceleration and momentum. Can you talk about these, I mean, the strength of the pipeline and what the timeline is for some of those projects to come out of the pipeline and could there be enough momentum in that to further drive an acceleration and how does this start to look in 2020 if the pipeline kicks in and those two Tier 1s are both ramping?

Shaike Orbach -- President and CEO

Okay. The pipeline is -- and I'm talking right now only about the edge devices and then I will say several words about FPGAs as well. So the pipeline for the edge devices that we're having is based on, I would say several components. So first of all, we're talking about a pipeline, which includes both existing customers and new customers and there are significant opportunities within both of them. I mean, we could win. We have in our pipeline several tenders I would say where we're bidding and each of these ones if we win would -- may contribute tens of millions of dollars. We don't know exactly when the win is going to be announced. We have lot of these tenders that we're talking to. Well, I think more than a year that they have been saying that they would make a decision and didn't make a decision as of yet, but that could happen I mean from new customers.

I don't think that any new wins will contribute tens of millions of dollars in 2019. I mean, that's that's not going to happen, but it's enough that we win some of these and each of which contribute a few millions, even a very small and that would help us of course. So that's one thing. Maybe even more significant is additional wins with the current customers, including these biggest Tier 1 customers that we've announced because with them, there is quite a few opportunities as well that we are either competing or considered not necessarily with the competition for other services, other types of application, etcetera. These could and I hope and believe that some of them would happen through 2019. But once again I mean, revenue is probably more toward the second half and real ramp up in big quantities following years and the same is true for OEMs. I mean our OEM customers, we could win with new OEMs. We can go ahead and do some more with current OEMs. So I mean, all of that can happen.

Now a similar process, but to a certain extent with a, I would say, a difference in phase is happening with the FPGAs. We already have this win that I talked about with the service provider looking or taking our FPGA cards, which include a pocket mover. We think -- we believe this is really a strategic product and we see the need for these FPGA solutions. Now, let me say one more thing that I did not address at all. We see a need that everyone is coming to us with in terms of FPGAs in 5G. Now in 5G, one of the things, one of the areas that we see is that the compute part of the 5G is going to be much more distributed than it was in earlier generations due to the huge amount of data, which is coming, which would need compute points of and not only in the major data centers, but rather outside there. Now, they are traditionally they have been using some FPGA, but that was very limited due to the fact that everything, almost everything was in the datacenter. But now this is going to change and that would create a significant opportunity for FPGA solutions .

Now unlike with the cloud where people are talking about FPGAs, for sure, but it is more or less a new area, which is needed in order to accelerate the performance within the cloud using FPGAs. In the 5G arena, the company seem to know much better what they need. So I think the opportunity is there in terms of us winning them may even be quicker and happen during 2019. But on the other side, once again, I mean revenues for these 5G is not key yet, so it would take time. So if we look at what is going to happen for the long term, I think that we have significant opportunities for both FPGAs and obviously the edge. With the edge, we would be selling both I think to the telcos and to OEMs. With the FPGAs, we may continue and sell to the service providers as well just like we had with this opportunity, but I think that the market would be even bigger with the OEM customers.

Alex Henderson -- Needham & Co -- Analyst

So if I were to summarize what I think I hear you're saying. If you get these two contracts with the Tier 1s to ramp say producing I don't know $10 million and $15 million in revenues in 2019, then you're looking out to '20, you've got a huge ramp in front of you, you should have two or three going $10 million to $20 million kind of run rates, plus the baseline growth in the SD-WAN plus the FPGA stuff, it sounds like 2020 is when the number should really jump to the upside, is that the right way to think about the timelines here?

Shaike Orbach -- President and CEO

That's what I believe in. There could always be surprises, but that's definitely, what I believe in.

Alex Henderson -- Needham & Co -- Analyst

Right. Thank you.

Operator

(Operator Instructions) We have a follow-up question from Abba Horwitz of OS Capital. Please go ahead.

Abba Horwitz -- OS Capital -- Analyst

Hi, I was just wondering if you could talk about the competitive front, what you're seeing out there and who you're bidding against, if you are at all when it comes to these tenders?

Shaike Orbach -- President and CEO

Okay. So, yes, there is definitely a competition in this space of the edge devices. We're competing and it's not -- it's not easy to win against the competition. We have some what we believe are important advantages and these important advantages are coming up in several fronts. So the first front is the technology front. We have some capabilities, which the other tenders do not have. With one of these major wins that I was talking about before, this was the main reason for our success there, because we had a technology advantage.

This technology advantages are related to both the software part of the business that we include in our offering to this kind of customer and also to some other aspects of the design that, I mean, there is no point in going into that right now, but we do have a technology -- technology advantage. That's one thing.

The other thing which is helping us and has been helping us throughout the years is, I would say the depth and the relationships that the kind of relationships that we're having with the customer. So this -- I know this is somewhat I mean, you may think, I mean, it's easy to say, everyone can say that, I think it's true, everyone and say that, but we've been winning business due to that. Customers like us, they've always liked us in wherever area we were competing with and that gives us a very is significant advantage. Let me say again, I don't want to be too specific because I cannot, but in one of these wins that I was talking about, well actually, not only in these two wins, but in others related to SD-WANs, there were others that were there before us working with these customers and once they started working with us they could see the difference in the way that we support them in the depth of the understanding, in our willingness to support them in areas even if these were not our direct responsibility and maybe most of all, with their recommendations coming from Intel because Intel is aware of these advantages as well and when these guys are going to Intel, because Intel is obviously the provider of the main silicon which is being used in these edge devices, so Intel will in most of these cases recommend us, and that's helping a lot. We are by the way, I mean obviously, I -- you may remember that we are doing for Intel and that's where Intel is knowing us from mostly and -- I mean, in that business. They know us in the other business for many years from other aspects of the business, but we have been doing reference design for Intel for these specific parts -- pieces of silicon that we're using in these designs, so Intel also understands that we know better and can support the customers better and they're giving this information to our customers.

Abba Horwitz -- OS Capital -- Analyst

Okay. And can you just name some of the competitors that you see when bidding for these projects?

Shaike Orbach -- President and CEO

Yeah, I mean, you could look, they're mostly Taiwanese companies such as Lanner and Advantech. They are those that in the SD-WAN I think they're most well known, but there are others as well not all of which are Taiwanese. These two companies are Taiwanese companies, but they're not the only competitors, they are the most significant though.

Abba Horwitz -- OS Capital -- Analyst

Right, fair enough very good. And it's just that the software part of it, is that, is that allow you to get a higher gross margin when you charge for your products or --?

Shaike Orbach -- President and CEO

Hardly.

Abba Horwitz -- OS Capital -- Analyst

Sorry?

Shaike Orbach -- President and CEO

I'm saying hardly, it hardly gives us or allows us to give higher margins because I mean typically I would say that we win with margins which are even to begin with a little higher. I mean, if you're asking whether this allows us or not to get somewhat higher margins than the competition then the answer would be yes, but we're still need to be very close to that, what they're telling us in most cases is OK, you're better, but you need to be better and more or less at the same price.

Abba Horwitz -- OS Capital -- Analyst

Okay. Okay, got it. Thank you and thank you for the clarity.

Shaike Orbach -- President and CEO

Thank you.

Operator

There are no further questions at this time. Before I ask Mr. Orbach to go ahead with his closing statements, I would like to remind participants that a replay of this call will be available by tomorrow on Silicom's website, www.silicom-usa.com. Mr. Orbach, would you like to make your concluding statement.

Shaike Orbach -- President and CEO

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

Operator

Thank you. This concludes Silicom's fourth quarter 2018 results conference call. Thank you for your participation, you may go ahead and disconnect.

Duration: 61 minutes

Call participants:

Ehud Helft -- Investor Relations

Shaike Orbach -- President and CEO

Eran Gilad -- Chief Financial Officer

Alex Henderson -- Needham & Co -- Analyst

Abba Horwitz -- OS Capital -- Analyst

Ethan Etzioni -- Etzioni Portfolio Management -- Analyst

Mark Sharogradsky -- Kepler Capital -- Analyst

Scott Hogan -- -- Analyst

Nehal Chokshi -- Maxim Group -- Analyst

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