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Silicom Ltd (NASDAQ:SILC)
Q3 2020 Earnings Call
Oct 29, 2020, 8:00 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's Third Quarter 2020 Result Conference Call. [Operator Instructions] 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 Investor Relations team at GK Investor & Public Relations at 1(646) 688-3559 or view it in the News section of the company's website at www.silicom-usa.com.

I would now like to hand over the call to Mr. Kenny Green of GK Investor Relations. Mr. Green, would you like to begin, please?

Kenny Green -- Investor Relations Officer

Thank you, operator. I would like to welcome all of you to Silicom's third quarter 2020 results conference call.

Before we start, I would like to draw your attention to the following Safe Harbor statements. 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 SD-WAN, NFV and edge markets, the speed and the extent to which solutions are adopted by these markets, the likelihood that we will rely increasingly on customers, which provides solutions in these evolving markets, resulting in an increasing dependence on a smaller number of larger customers, difficulty in commercializing and marketing Silicom's products and revenues, maintaining and protecting brand recognition, protection of intellectual property, competition, disruptions to our manufacturing and development, along with general disruptions to the entire world economy relating to the spread of the novel coronavirus, COVID-19, and other factors identified in the documents filed by the company with the SEC.

In addition, following the company's disclosure of certain non-GAAP financial measures in today's earnings press release, such non-GAAP financial measures will be discussed during this conference call. Such non-GAAP financial 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 are useful to investors' understanding and assessments of the company's ongoing cooperation and prospects 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 disclosed by management are provided as additional information to investors in order to provide them with an alternative method for assessing our financial condition and operating result. These measures are not in accordance with or as substitute for GAAP. A full reconciliation of non-GAAP to GAAP financial measures are included in today's earnings press release, which you can find on Silicom's website.

With us on the line today are Mr. Shaike Orbach, CEO, and Mr. Eran Gilad, 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 the call over to the question-and-answer session.

And with that, I would like to hand the call over to Shaike. Shaike, please go ahead.

Shaike Orbach -- President and Chief Executive Officer

Thank you, Kenny. I would like to welcome all of you to our conference call to discuss our third quarter 2020 results. We are very pleased with the solid improvement in both the top and bottom-line. We reported revenue of $28.4 million, an 18% improvement over the third quarter of the past year, and also a strong 23% improvement over the prior quarter. Furthermore, we have reported our 63rd quarter of profitability with net income of $2.9 million, the highest level this year. This represents a 15% increase over Q3 last year and a 59% increase versus the prior quarter.

We also ended the quarter with over $86 million in net cash and through the quarter, used our strong cash position to further progress on our share buyback with the goal of bringing increased value for shareholders.

We achieved all this despite the ongoing impact from the corona pandemic. Like everyone, we continue to experience the unusual working and logistical challenges, as well as various levels of economic shutdown and social distancing in the countries in which we operate.

Our results demonstrate that not only have we maintained business continuity but also a return to growth. This demonstrates the resilience of our business and our ability to plan for and overcome the supply chain interruptions and component shortages, which we saw earlier this year. Revenue visibility continues to improve and our expectations are for further out into the fourth quarter. I will discuss the guidance in a few moments.

I would like to discuss some trends we are capitalizing on, which has led us to increasingly focus on the telco and mobile market in recent quarters. I believe these trends are important and significant to Silicom. Over the past few years, as you know, we experienced a decrease in demand for our Server Adapters products driven by a shift toward cloud datacenters and away from enterprise data set [Technical Issues]. In parallel, we have seen solid growth in our SD-WAN business. This was driven by the shift toward disaggregated and decoupled architectures separating the hardware and software of the network, utilizing [Technical Issues] interfaces and protocols.

The decline in demand for our Server Adapters was actually compensated by our success in the growing SD-WAN market. Our wins in this space [Technical Issues] relationships with leading software vendors and telcos, our extensive collaboration with Intel and our current long and deep pipeline provide us with much optimism going forward. Especially during the work-from-home environment, we're seeing global demand for capacity, which in turn increases the demand for our SD-WAN related products.

As I mentioned earlier, a key principle underlying the SD-WAN market is the decoupling of software from underlying hardware. This trend is driving other markets forward as well, which in turn are becoming Silicom's future growth drivers. The market segment where this approach is most evident is in [Technical Issues] the mobile market, specifically among the various global telcos and mobile operators. Traditionally, this market was relatively centralized, led by two major players, Nokia and Ericsson, providing their proprietary equipment.

In an effort to reduce costs and to be able to choose from the best-in-class, as well as increase efficiencies, telcos started to look to disaggregate using x86 platforms with additional specific add-on cards and accelerators decoupled from the software. This trend is demonstrated by the Open Radio Access Networks or O-RAN initiative, which has been embraced by all telcos. The new era of open solutions brings to Silicom significant and new potential opportunities as telcos can now look at x86-based hardware for a variety of nodes within their infrastructure and then they enhance the capabilities of such platforms by adding specific functionalities and acceleration.

We are very much positioned at the epicenter of these latest technologies. Our new developments are focused around this concept and trend, the disaggregation and decoupling of the software and hardware within mobile infrastructure and cloud including telco cloud worlds. Furthermore, unlike other traditional white-box manufacturers, our integrated solutions provide additional value-added components and functionality. An example is our acceleration card based on either an Intel E86 solution or an FPGA solution, which is more comprehensive acceleration. Both these cards were developed in cooperation with Intel, and as we speak, this joint development effort is being followed by joint go-to-market and sales activities by both Intel and telco.

A further example is our upgraded time synchronization product, which enabled unique solutions for 4G and 5G networks either as a fully integrated solution or as a stand-alone add-on card. Our FPGA-based solutions that are used for acceleration within O-RAN are also including time synchronization mechanisms and are also used as a platform to accelerate user plane functionality or other cloud and telco cloud functionalities.

Indeed, both our potential customers and partners understand the unique advantages that we provide, which combine the expertise in x86, time synchronization, acceleration and FPGA acceleration into a single set of specifications. This is why many of the world's major telcos, independent global software vendors, as well as some of the world's largest server manufacturers are in discussions with us. We can demonstrate the differentiating advantages of our integrated solutions a true "whole is greater than the sum of its parts" offering that combines the strength of our best-of-breed technologies.

Given the current level of interest we are seeing, the evaluation POs, the trials in which we are involved with, and the current breadth of our pipeline [Technical Issues] telco market segments, whether it's via OEMs, integrators or even directly with the telcos, will become a significant new growth driver for Silicom over the coming years. While the sales process in the telco world is a long one, each design win is typically at a larger scale than what we have traditionally experienced. We feel confident that we will see the fruit of our significant investments in the coming years.

Our recent announcements demonstrate our increasing traction resulting from the disaggregation and decoupling trend. We have recently achieved three new uCPE device wins with top-tier telcos. This represents a combined revenue potential of approximately $10 million per year at steady-state delivery levels. This is a result of ongoing fruitful cooperation over the past two years between Silicom and the leading SD-WAN software vendor, combining our latest generation hardware CPEs with the partner's software-based disaggregated routers. These wins demonstrate the demand that the disaggregation concept, which I discussed earlier, is creating for our feature-rich uCPE devices.

Our announcement last week is a demonstration as to how disaggregation concept has the potential to become a huge future growth engine for us. As we announced, a tier-1 mobile operator selected our O-RAN-ready architecture for next generation distribution units for its field trials. This architecture was selected because it fits the disaggregation model, while at the same time, it provides an integrated solution and putting all the requirements of a 4G, 5G distribution unit.

Furthermore, the architecture selected is based on our x86 Edge units designed originally for use in disaggregated SD-WAN, NFV applications. Should the solution be selected for mass production, the revenue potential could be tens of millions of dollars from this customer alone.

And beyond that, even as we plan the field trials for this solution, we are already engaged in further discussions with the customer about next generation acceleration solutions based on our FPGA technology, which may even increase this potential.

Our unique ability to offer solutions for huge 4G/5G infrastructure projects, together with a full range of synergistic and complementary product line positions us well to address these emerging opportunities. As such, we believe the 4G/5G marketplace and telco demand, including many aspects of the planned deployment from the Edge toward the core and the telco cloud represents a very large future growth driver for Silicom.

I would like to spend a few moments discussing our guidance. We project sequential growth in revenues for the fourth quarter of 2020 with revenues expected at between $30 million and $31 million. Given our long and growing list of design wins, generating order, our solid baseline activities and strong market fundamentals and our focus in growing markets, we are well-positioned and are optimistic that as markets return to normal, we will achieve ongoing revenue growth at a double-digit compound annual growth rate for several years ahead.

In summary, the disaggregation and decoupling trend has the impact of significantly increasing Silicom's potential within the SD-WAN market, as well as the market of mobile operator infrastructure, both at the Edge and at the telco cloud. These are all markets in which Silicom is very well-positioned. This positioning is already demonstrated by our SD-WAN wins and we believe that success in the mobile operators market will follow.

Our optimism continues to grow and I reiterate that as our end-markets returns to normal, we expect that the coming new year for Silicom will be much greater than what we have achieved over the past few years.

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 third quarter of 2020 were $28.4 million. This is a year-over-year increase of 18% compared with revenues of $24.1 million as reported in the third quarter of last year and a sequential increase of 23% over the $23 million reported in the prior quarter.

Our geographical revenue breakdown over the last 12 months were as follows: North America, 68%; Europe and Israel, 25%; Far East and Rest of the World, 7%. During the last 12 months, our top three 10% 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, as well as acquisition-related adjustments. For the full reconciliation from GAAP to non-GAAP numbers, please refer to the press release we issued earlier today.

Gross profit for the third quarter of 2020 was $9.4 million, representing a gross margin of 33.3% compared to a gross profit of $8.5 million, or gross margin of 35.2% in the third quarter of 2019. The variance in the gross margin is a function of the specific product mix sold during -- in the quarter.

Operating expenses in the third quarter of 2020 were $6.3 million compared with $6 million in the third quarter of 2019. Operating income for the third quarter of 2020 was $3.2 million, an increase of 26% compared to operating income of $2.5 million as reported in the third quarter of 2019.

Net income for the quarter was $2.9 million, an increase of 15% compared to $2.5 million in the third quarter of 2019. Earnings per diluted share in the quarter were $0.41. This is a year-over-year increase of 31% compared with EPS of $0.34 as reported in the third quarter of last year, and a sequential increase of 58% over the $0.26 reported in the prior quarter.

Now turning to the balance sheet. As of September 30, 2020, the Company's cash, cash equivalents, bank deposits and marketable securities totaled $86.6 million with no debt or $12.36 per outstanding share.

During the quarter, we executed on our new $15 million share buyback plan, which we started on May 4, 2020. During the third quarter, we purchased approximately 100,000 shares at a total cost of $3.6 million. This means that we are on track to execute the full buyback plan on time.

That ends my summary. And we would all be happy 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 from Needham & Company. Please go ahead.

Alex Henderson -- Needham & Company -- Analyst

Thank you very much. So I just wanted to start off with a little bit of granularity around the contract conversations here. You said, I think, three wins that you've announced are $10 million and then you talked about the Tier-1 O-RAN project. I'm assuming that that is not included in that $10 million as the O-RAN project is still in testing and it has to go through the rest of the process. So that's about upside to the $10 million, correct?

Shaike Orbach -- President and Chief Executive Officer

Obviously. I mean, what we announced about the Tier 1 is just that we were selected for field trials. Definitely, it's not included in the $10 million. Not only that, I mean the $10 million are SD-WAN wins. They're not O-RAN wins.

Alex Henderson -- Needham & Company -- Analyst

Yes.

Shaike Orbach -- President and Chief Executive Officer

The Tier 1 that we announced now just last week was about O-RAN rather than SD-WAN.

Alex Henderson -- Needham & Company -- Analyst

Yes. Understood. Just wanted to make it clear. Now we had also talked about two Tier 1s in the U.S. that were expected to ramp, fairly large projects with you. I think one is progressed, the other one seems to have stalled a little bit. Can you give us an update on those two?

Shaike Orbach -- President and Chief Executive Officer

Yes. This has not changed from last quarter and your description is pretty accurate. One of them has ramped up and is contributing quite significantly to our revenues. We're even hoping that in the future, it would be more. The other one, yes, the other one actually didn't ramp up and they're still in the mode of changing their decision as to where to take their strategy toward and didn't ramp up for us yet. We're still hoping, but nothing is happening right now.

Alex Henderson -- Needham & Company -- Analyst

There has been some consolidation of some of the players in the SD-WAN space, several acquisitions. Has that changed or altered your trajectory with any of those OEMs?

Shaike Orbach -- President and Chief Executive Officer

Let me put it this way. I mean, typically, when customers or when, let's say, partners of ours or customer of ours are acquired by bigger companies, that has, in most cases, short-term, the impact is positive because they are getting prepared for more and they're buying more. Sometimes, over time, it seems that they prepared for too much. That happened to us in the past as well. And for the longer term, it is not clear. We can see different types of impact because on the one side, sometimes when something like that happens, sometimes the buying organization, which is a big one, would like to use its own hardware, but on the other side, if it decides not to do that and rather continue and use our hardware with the higher or bigger footprint that it has in the market, it may end up positively for us.

So all in all, it's difficult to say what would be the impact. Let me say that, in general, as we're talking to these companies, I lean to say that it would have a positive impact, but I cannot guarantee that, of course, because it could turn out to be a non-impact at all or even, to a certain extent, negative in the longer term. I don't see any short-term negative impact for sure.

Alex Henderson -- Needham & Company -- Analyst

I see. And so just to round that out. If you look at the rest of the appliance legacy product lines, the more traditional business, have you seen any change in the rate of decline in that business as a result of COVID shifting spending within the enterprise or alternatively is it still relatively stable to declining slightly?

Shaike Orbach -- President and Chief Executive Officer

Well, I would say that in Server Adapters, which is the most significant part of our legacy products, I wouldn't say accelerating decline. Accelerating maybe too, I would say, powerful or stronger word to say on that. But if you look over time, then it is not also exactly a steady decline in demand. So it's -- the decline, I mean, I'm not -- I have not done accurate statistics model specifically for this quarter. So I cannot tell you for sure if the decline in demand is accelerating. But there is definitely a decline in demand, this is for sure.

Alex Henderson -- Needham & Company -- Analyst

I see. And as you're looking forward, are you anticipating any change in the trajectory of that? I assume from your answer that that's kind of a steady environment.

Shaike Orbach -- President and Chief Executive Officer

Yes, I mean the Server Adapters through the appliance, customers that we used to have would definitely, I mean, the demand would continue to get lower to become -- to reduce, to get reduced for sure.

Alex Henderson -- Needham & Company -- Analyst

And then one other question. You mentioned during the market changing, I noticed the Intel announcements very visibly talking about the interchangeability of their products with your products. It seems like you've gotten significantly more important to Intel. Can you talk about how that was blossoming because these press releases is glowing and very prominent?

Shaike Orbach -- President and Chief Executive Officer

You were cut in the middle for some reason. Can you please repeat that?

Alex Henderson -- Needham & Company -- Analyst

Sure. Sorry, headsets sometimes don't broadcast very well. The Intel announcements that you guys jointly put out are glowing.

Shaike Orbach -- President and Chief Executive Officer

Oh, the Intel.

Alex Henderson -- Needham & Company -- Analyst

Yes, Intel. They're glowing, I mean your prominence in these releases and the way they talk about their product with your product is pretty unusual. And could you talk a little bit more about how big an impact this is going to have, how the go-to market with Intel is changing your presence in some of the larger cloud companies and how long it takes for this to capitalize do you think?

Shaike Orbach -- President and Chief Executive Officer

Yes, OK. So indeed I mean, I think that the corporation that we're having with Intel is growing in scope and I do think that this is indeed something which is extremely important. This cooperation, I would say is now, counting in my head, I would say that it is now around -- it is happening around three major areas where Intel -- where we have developed things in cooperation with Intel and where Intel is supporting us, recommending us, even providing leads for us and introducing us to customers in many of these cases.

And the three areas are; the first one, is the area of actually the platforms, which we're building with them and just the Tier 1 announcement that we've made last week includes such a platform and such a recommendation from Intel about the platform, even though it was not only the platform, I would come to the other aspect of that. So, platform wise is one thing. The other thing is, and I think we have -- I've been talking about that is the development -- the mutual development of the eASIC cards. Now I'm not sure, if everyone is familiar, but I would say that eASIC is a technology, which allows you to produce an ASIC in a relatively quick time. Intel has developed an eASIC such as this, which means an ASIC, but developed in a quick technology to offload some sort of 5G technology. We developed the card, which includes this ASIC for them. This card is currently to the best of my knowledge, the only one in the market, which is doing such kind of an offload on an ASIC. Now there would be competition to that card in the future, but right now, there isn't, so we have an advantage right now, and which is why Intel is helping us, pushing us, promoting us, introducing us in order to be able to sell this card.

Now in parallel to this effort, we are also cooperating with Intel on development of FPGA cards. So there was an announcement about the FPGA cards that we developed together as well. In this case, it would probably be just this card, which would, I mean, not formally, but would be presented as if it's an Intel card, because we're doing that together with them. And as such, they're indeed taking us to customers and providing leads to us and they support us in moving forward with this FPGA card. So in all these fronts, which are -- now on top of that, I mean these fronts that I described right now are relatively new. Actually when we're developing our time synchronization card, which is a neck [Phonetic] plus time synchronization, this is based on, I would say, the standard more of Intel helping us and supporting us, because it's using Intel Silicom.

But the other three areas that I mentioned are relatively new with the platforms happening, I would say, during the last two years or something or maybe even three years, but eASIC and FPGAs are new in the last two years, maybe even 18-months or so, coming to the market right now. So there -- we indeed consider that to be extremely important.

Alex Henderson -- Needham & Company -- Analyst

So if I look at the press release that they put out, it talks about penetration and a variety of different major players, including SK Telecom, Twitter, like BitLabs and some other stuff. And it's tied into the barefoot networks acquisition that they did. So it sounds like they're putting a lot of emphasis on this. So how do we see this program and projects ramping beyond what we've already heard?

Shaike Orbach -- President and Chief Executive Officer

Well, actually this is a part of what I said, because we mentioned a telco and telco cloud and cloud and for many of these were indeed using, again in cooperation with Intel. IP that was developed by Intel and it's now being integrated with our cards in order to be presented to all these customers. So this is a reason for our optimism. However, as we cautioned in what I've said earlier, the processes -- the decision and the decision, the evaluation and all these part of the equation with telcos and telco clouds along. So, and that's why, unlike the SD-WAN, we're seeing the fruit, even if this cooperation and even in this year be compensating for the decline in demand of the Server Adapters and definitely in next year, all these things, I believe they would have an impact on revenues in 2021 as well. But really, I think the more significant contribution to revenues would happen later on 2022 or later. So some impact in 2021, but not that significant and then the most part -- the significant part of that later on.

Alex Henderson -- Needham & Company -- Analyst

So one last question on this front. Is the margin -- gross margin, you're expecting from these cards similar to your current gross margins around 33%, higher or lower? What are your thoughts in terms of the way this plays out?

Shaike Orbach -- President and Chief Executive Officer

I think that more or less, it would be on the same kind of gross margin. I would like to -- what I'm telling you is about the average in this case, because I think that the pricing of these components would be very much dependent on the quantities. I think that for the low quantities opportunities, the prices, their margins may be somewhat higher. But on the other side, going through the really very significant quantities in these, the margins may even be lower, but still, I mean in terms of overall profitability for the company, it would be justified, because if we do win one of these huge opportunities that are in the pipeline right now, I'm assuming that our manufacturing and all that would be very effective, as well as the relation between the level of R&Ds and the quantities. So overall, even if margins are somewhat lower with these opportunities, overall it's going to have quite a significant contribution at the bottom line.

Alex Henderson -- Needham & Company -- Analyst

So if I look at it from that perspective, I mean, your margins have come down a little bit over time. Going back to 17%, 18% in the '18 time frame, and prior to that actually was above 20%. Can you talk to us a little bit about whether you think you can bring those margins back up into the 15% plus range, over the next two or three years? Is that a viable expectation?

Shaike Orbach -- President and Chief Executive Officer

I think that at the bottom line that could happen. I'm not sure yet. I mean, there are some unknowns, because we're moving into an entirely different era with quantities per product, which might be much bigger on one side. And if you take any of these deals on a P&L basic by itself, it may definitely demonstrate higher margins at the bottom line, but on the other side, I mean on the operate -- if you just are -- is calculating gross margins, it may be even lower, but the quantities may become much bigger.

Alex Henderson -- Needham & Company -- Analyst

Right. And then just one last question, little bit more minor, any change in the tax rate thinking as we go forward here?

Shaike Orbach -- President and Chief Executive Officer

Eran?

Eran Gilad -- Chief Financial Officer

No, there is no change. During quarter one to quarter three, the average effective tax rate, it can be seen as around 16%. And currently, we believe that this is the range that we should expect in the short-term and medium-term 16%.

Alex Henderson -- Needham & Company -- Analyst

Perfect. I'll see the -- let me see the floor to anybody else who's got questions. Thanks.

Operator

[Operator Instructions] The next question is from Sergi Mascaro [Phonetic] from -- of [Indecipherable]. Please go ahead.

Sergi Mascaro -- Analyst

Good morning. Congratulations for the results. We have been waiting a long time for this. Hello?

Eran Gilad -- Chief Financial Officer

Yes.

Shaike Orbach -- President and Chief Executive Officer

Thank you.

Eran Gilad -- Chief Financial Officer

Thank you.

Sergi Mascaro -- Analyst

Okay. My first question is about the FPGA segment, some of your competitors like [Technical Issues] have a constant gross margin between 70% and 50%. Silicom has a 32% gross margins. As you said, we could expect pressure in the gross margin as revenues ramp up. Can you give us more color on why do you do differently versus your competitors?

Shaike Orbach -- President and Chief Executive Officer

Yes, I mean I can definitely explain that or at least trying to explain that. I wouldn't like to talk too much about our competitors, but let me say a few words. First of all, I mean you mentioned two competitors; one of them, I mean, one of them, I don't think that we need to really address the gross margin, because due to the safe level, I mean they're selling less than $2 million per year or something like that. So with that -- with this kind of sales, I do not think that the comparison of gross margins could be too meaningful.

The other one it is definitely a significant and important company. However, I mean, I would like to say that most of these sales that you see indeed in the FPGA market is in the capture market. We are selling some quality in the capture market and in this market our margins are very similar to these companies, but this is not our strategic markets. Our strategic markets are as we mentioned before, the cloud and the telco cloud and the telco in general and SD-WAN. These are entirely different markets where we are trying to achieve much higher level of revenues, and that's why the business model is different, we're not approaching the same markets. If we were to approach just these markets, we would have been able to maintain the same level of gross margin that these companies do. But this is not our strategy. Our strategy is to go big as you can tell, obviously we're -- our revenues per quarter are much higher than these companies each of them.

And this is an indication to the fact that you're addressing different market with also different products. And yes, the margins in the markets that we're targeting are lower, but the potential for revenues is much higher and that's what we're trying to achieve in -- are lower in terms of gross margins, of course.

Sergi Mascaro -- Analyst

Yes, yes, perfect, thank you. So can you speak about FPGA on where we are? I think that we have not had FPGA design wins for a while, and these are the competitions are growing 20% plus, so can you explain us where we are in FPGA terms?

Shaike Orbach -- President and Chief Executive Officer

Yes, I can explain where we are in the FPGA. And this is in a way, this is related to my previous answer, I mean in -- we have not announced FPGA wins. I mean, obviously there is one reason to that, it doesn't mean that we didn't have any FPGA win, but we are not announcing every win that we have. But you're right in one thing, we have not announced anything, which is really significant win with FPGAs. And the reason is exactly the reason that I explained before, because we have taken our FPGA strategy to a different direction, I mean we have taken it into development of new cards, which are addressing the other markets that you're targeting, which are mostly the -- as I mentioned before that telco overrun infrastructure. This is where we have taken this development and we've done that together with Intel as has been announced. And this is a process which takes time.

So why we still have design win here and there in our traditional markets, which were mostly the capturing cards, as well as the high frequency trading market. We have decided to focus on a market which is synergetic to any other -- to all our other activities, which is the overrun area as I've described. And this is taking time, you could see with the announcements that we had with Intel that we're making progress in this direction, and we expect that the FPGAs would be a significant part in what I have described before as the emerging market for us within the mobile infrastructure. This is where we expect our big wins to be.

Sergi Mascaro -- Analyst

Okay, I see. So 128 technology was bought by Juniper earlier this month.

Shaike Orbach -- President and Chief Executive Officer

What?

Sergi Mascaro -- Analyst

But it have...

Shaike Orbach -- President and Chief Executive Officer

Okay, 128. Yes. Go ahead please.

Sergi Mascaro -- Analyst

So does it have an impact in you since you're partners and you reported some design wins in collaboration with that company?

Shaike Orbach -- President and Chief Executive Officer

Can you run the question again, what did you ask?

Sergi Mascaro -- Analyst

Yes, 128 technology, the software partners was both by Juniper earlier this month?

Shaike Orbach -- President and Chief Executive Officer

Yes.

Sergi Mascaro -- Analyst

My question is, does it have an impact on you and your partners and you reported some design wins in collaboration with that company?

Shaike Orbach -- President and Chief Executive Officer

Well, first of all, I think I'm not 100% sure that while the fact that we are partners with once with the eight is public information. But specifically about design wins, I'm not sure that there is any information. So I cannot refer specifically to any design wins. However, I can repeat the general answer that I provided before about impact of consolidation within the SD-WAN industry, where we definitely do not see any negative impact short-term probably a positive impact on the short-term. And as for the longer term cannot tell yet, it may be positive also be negative in some cases, we hope based on discussions that we had with 128 that it's going to be positive about that.

Sergi Mascaro -- Analyst

Okay. Do we know anything about the Silicom Telefonica and flexiWAN project posted by Intel? Any progress on that, that you can share with us?

Shaike Orbach -- President and Chief Executive Officer

I cannot share. I mean, we have said in the conversation that we are involved in discussions with many of the world's leading telcos and unfortunately I cannot provide any specific information, more than that right now.

Sergi Mascaro -- Analyst

Yes, I understand. Do you currently have any visibility into the next year '21?

Shaike Orbach -- President and Chief Executive Officer

Well, I believe that 2021 will be a growth year, there are still many unknowns including the impact of COVID-19 on the business, which could happen is still an impact from a variety of perspectives, not only in disruptions of their supply chain, but rather on their rate at which [Indecipherable] are being performed or even deployments are being performed in certain places, so cannot be sure of that as of now, there is unclarity, but we consider it to be a year of growth.

Sergi Mascaro -- Analyst

Great. The Federal Reserve is telling that interest rates are going to stay 0% level for a long time for some years. You have a net cash position of one-third of your market capitalization. It might opinion you are not going to need around $30 million of this cash for working capital needs. Did you have any plans with this extra cash? I think it would be a really nice opportunity for you to do a tender offer increase or accelerate the share buyback program?

Eran Gilad -- Chief Financial Officer

As we said over the course, where we are in the middle of the second buyback plan. We progress as planned and intend to meet on the target set by our Board, which means the buyback of $15 million. This is currently our plan.

Sergi Mascaro -- Analyst

Okay and anything from M&A?

Shaike Orbach -- President and Chief Executive Officer

Well, I'll just like we always M&A, there is nothing specific at the table right now, but we are always looking. We -- our strategy is not to go for an M&A just because we have the cash, but definitely having this cash encourages us and makes us look around, look for synergies and if we find something we would go for it.

Sergi Mascaro -- Analyst

Yes. I understand. And now about the COVID pandemic, did you have any COVID cases at Silicom? How we will deal with them?

Shaike Orbach -- President and Chief Executive Officer

Yes, first of all we did. I mean, we had -- I think two employees that were hit by COVID-19. But I mean we're taking measures, which allow us to operate properly by splitting the company's into capsules in a way. As a part of that it may even be that you're not hearing we as good as you would have heard me or as you might have heard me in previous calls, because the meeting that we typically use for the conference call is now a lab, because we decided to divide the labs into several capsule.

So that if someone is indeed being infected by COVID, it does not mean that everyone else needs to go home, because we do have labs and as a hardware company we cannot allow everyone to work from home. So we're taking the right measures and I think that the results is some sort of a demonstration to that. I mean, even though as two of our employees separately were impacted by COVID. The number of employees, which had to be quarantined due to that was minimal, maybe two or three in each case and the company could continue as usual.

Sergi Mascaro -- Analyst

I think, perfect. And my final question, do you expect the lockdowns in Europe have and impacting you?

Shaike Orbach -- President and Chief Executive Officer

Lockdowns may cause an impact, I don't think that -- the lockdowns in Europe, specifically would have a dramatic impact, but they may cause an impact. I mean we have -- as you know, a subsidiary company in Denmark, I mean, right now, they're not impacted, of course, but we have customers in other territories, which could be significant for us. So it may have an impact, that's a part of what I said before that 2021, there is still definitely some areas, which are not clear as to how and what we develop and that's definitely part of that.

Sergi Mascaro -- Analyst

Thank you. Perfect, that's all. Thank you for your time.

Shaike Orbach -- President and Chief Executive Officer

Thank you. You too.

Operator

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

Shaike Orbach -- President and Chief Executive Officer

Yes. Thank you, operator. Thank you everybody for joining the call. We wish you all health and we look forward to hosting you in our next call in three months' time. Good day.

Operator

[Operator Closing Remarks]

Duration: 51 minutes

Call participants:

Kenny Green -- Investor Relations Officer

Shaike Orbach -- President and Chief Executive Officer

Eran Gilad -- Chief Financial Officer

Alex Henderson -- Needham & Company -- Analyst

Sergi Mascaro -- Analyst

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