Alex Henderson – Needham & Company Amit Dayal – H.C. Wainwright Don McKiernan – Landolt Securities Dave Wilson – UCS Finance

Welcome to the Silicom Third Quarter 2014 Results 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’s Investor Relations team at GK Investor Relations or view it in the news section of the company’s website, www.silicom-usa.com I would now like to handover the call to Mr. Ehud Helft of GK Investor Relations. Mr. Helft would you like to begin please?

Thank you, operator. I would like to welcome all of you to the Silicom’s third quarter 2014 results conference call. Before we start, I’d like to draw your attention to the following Safe Harbor Statement. This conference call contains projections and other forward-looking statements regarding future events or future performance of the company. These statements are only predictions and may change as time passes. Silicom does not assume any obligation to update their information. Actual events or results may differ materially from those projected, including as a result of changing industry and market trends, reduced demand for Silicom’s products, the timing and development of new products and the adoption by the market, increased competition in the industry and price reductions as well as due to risks 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 release, such non-GAAP financial measures will be discussed during this call. Such non-GAAP measures are used by the management to make strategic decision focus future results and evaluate the company’s current performance. Management believes that the representation of these non-GAAP financial measures is useful to investor understanding and assessment 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 methods 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 you can find on Silicom’s website. With us on the line today are Mr. Shaike Orbach, CEO and Mr. Eran Gilad, the CFO. Shaike would begin with an overview of the results followed by Eran who will provide the analysis of the financials. We’ll then turn over the call for the question and answer session. And with that, I would like now to hand over the call to Shaike. Shaike, please.

Thank you Ehud. Good morning everyone and welcome to our third quarter 2014 results conference call. As we shared with you last quarter we were expecting a challenging second half of 2014 with Q3 being the lowest and revenues ramping up thereafter. Our third quarter results were in-line with our expectations and we presented revenues of $15.9 million bringing our revenues for the first nine months of 2014 to $52.8 million. Combining these results with what we expect for Q4, we believe that we’re completely on track with our plan both for the short term and for the longer term. We believe that the third quarter will definitely prove to be the lowest of this year and we’re now again back on a growth path. Our expectations for that 2015 will be better than 2014 and as we move forward this specific negative factors which affected us in 2014 will have been mitigated or over-written by our natural growth. In terms of our balance sheet strength our cash levels remain strong for a company of our scale growing to 58.5 million at the end of the quarter with no debt. This remains a significant asset for us and demonstrates to all of our customers that we’re a strong and stable company that can meet and support all their needs over the long term. In addition our current cash levels also enable us to act quickly to take advantage of external growth opportunities through potential acquisitions especially as we grow our addressable markets. It is also important for me to emphasize that a result of this quarter further support the faith that we have in our strategy for both the short and long term. We continue to believe in the long term power of our growth engines which we have been…

Our geographical revenue breakdown for the first nine months of 2014 was as follows. North America, 73%, Europe and Israel 15%, Far East 12%. 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 auctions and RSUs granted to employees and director as well as amortization of intangible assets. For the full reconciliation from GAAP to non-GAAP, please refer to the press release we issued earlier today. Gross profit for the third quarter of 2014 was $6.5 million, representing a gross margin of 40.8%. This is compared with $7 million or 40.9% of revenues in the third quarter of last year. The gross margin does vary between quarters, mainly as a result of the specific mix of products sold during the quarter. Operating expenses in the third quarter of 2014 were $3 million or 18.7% of revenue, compared with $2.8 million or 16.3% of revenue in the third quarter of last year. Operating income for the third quarter of 2014 was $3.5 million or 22.1% of revenue compared to $4.2 million or 24.7% of revenues as reported in the third quarter of 2013. Third quarter 2014 net income was $3 million or 18.6% of revenues compared to $4.2 million or 24.4% of revenues in the third quarter of last year. Earnings per diluted share were $0.41 in the quarter, compared with $0.58 in the third quarter of last year. Now turning to the balance sheet, as of September 30, 2014, the company’s cash, cash equivalent and marketable securities totaled $58.5 million or $8.14 per outstanding share. That ends my summary and we will be happy to take any questions. Operator? Question-And-Answer Session

(Operator Instructions). The first question is from Alex Henderson of Needham. Please go ahead. Alex Henderson – Needham & Company: So, I guess the first question is can you give us a breakout of the non-GAAP adjustments for R&D, sales and marketing and the G&A lines that you only do it in aggregate for OpEx, this doesn’t allow us to run a model.

Yes I can. For the cost of sales the amount is $39,000, for R&D expenses 114,000, for selling expenses 127,000 and for G&A 153,000. Alex Henderson – Needham & Company: Second question, the Sheqel has moved quite sharply versus the dollar but is actually currently stable versus the euro. Can you talk a little bit how the currency swings have impacted your OpEx costs? And whether you think there is any impact on revenues from that?

I will start with the last question, there is no impact at all on our revenues. All our revenues are in U.S. dollar so it doesn’t matter what the Sheqel is. Regarding the expenses, indeed the dollar was stronger this quarter and the result of that is we have a positive dollar effect on our operating expenses in the amount of about $200,000. On the other end we had a negative dollar effect on our financial income. The amount is something close to $100,000. So the bottom line is that the net effect on the net income is not dramatic, it's about a positive impact of $100,000. Alex Henderson – Needham & Company: So looking forward if we assume a flat exchange rate and don’t try to forecast the direction of the exchange rate, does that allow you to bring your costs down as we go sequentially forward or should I be looking at? How should I be thinking about your -- the impact on that on your cost structure for the upcoming quarter?

It is supposed to take us down but again it's not -- as you can see it's not a dramatic impact. The change was -- the change of the dollar in the quarter was dramatic, 7.5% and even though it was a dramatic change of 7.5% as you can see the impact on Silicom results is very close to negligible. Alex Henderson – Needham & Company: Third question, you seem to be more confident on your growth rate going forward. Your comment about potentially 20% plus top line growth annually for the next five years. Is that something that will accelerate based off of a particular set of products ramping or is there -- what gets -- ignites that fuse and gets that fuse going to those higher rates of growth than where we’re currently as it just rebuilding the loss from that one large contract or is it ramp of a particular product line, help us get some granularity around what gives you the confidence for that kind of five year target.

Okay. First of all I would like to mention again that we have mentioned these rates last quarter or so and that’s because while we felt some difficulties or challenges I would say as we mentioned, as I have mentioned in what I’ve said but nothing has basically changed in our model and nor in the strategy, not in the business model and with that in mind everything is still moving fine and even more than fine and that means in several aspects. So we continue to get design wins, we continue to see these design wins when I was talking about broadening our pipeline that’s what I was meaning. I mean some design wins will hopefully happen pretty soon. So we see that, we have new products that we see are getting traction and customers are interested in them and evaluate them. So the overall situation remains positive. We had several specific challenges which is why this quarter is 15.9 or 15.8 just like I’ve said but overall our goal would be to get there to these $200 million in about five years and that’s due to the model that we’re using for a long time already with the specific of what we believe our exciting new product such as the Coleto Creek and the Time Stamping [ph] etcetera. Alex Henderson – Needham & Company: So can we get any sense of when you think you can get back on a 20% plus growth trajectory?

It's a little bit difficult to say because then you’re trying to model. I mean let me give you an example. I mean we’re talking about five years and average of 20% something, things I mean will happen and obviously it would be a little bit slower at the beginning because if you compare to last year or to this year but it's still, the first quarter of this year still does not include any of the effects of the challenges that we had. So I don’t want to be very specific in that kind of the resolution were when exactly this would happen because then you would need to define exactly the way that you calculate that. I'm saying that overall we feel good about moving forward in the future. I'm sure that sometimes we would grow even more than 20% something, a lot of times it would be a little less but this is happening. Just as -- it used to happen in the last year's that we have been growing, not every year it's the same percentage it's sort of an average.

The next question is from Amit Dayal of H.C. Wainwright. Please go ahead. Amit Dayal – H.C. Wainwright: Just going into the guidance you mentioned in the last quarter call you had said 68 million to 74 million on the top line, can you provide any additional color whether we’re going to be closer to the higher end or the lower end of that range?

Well I believe we would be in the higher end. I mean I think the calculation is relatively simple, just like I’ve said, I think maybe even today but definitely in the last conference call. We believe that well even today as a matter of fact. We believe that this quarter Q3, not this quarter I mean the third quarter is the lowest of the year. That means that Q4 would be more than 15.8 or 15.9 and typically our fourth quarter is more than the third quarter by more than just 1% or 2%. I mean even if we sell I think exactly the same in the fourth quarter than we already hit the guidance that we’re at, approximately 69 and we have definitely or like we put it this way and there is nothing in the world which is 100% but I'm very close to that percentage that we would be higher than Q3 by more than just 1%, 2%, 3%, 4% I would say, so that would take us definitely into the higher-end. I think that there is a very good chance that we would be in the higher-end of the guidance. Amit Dayal – H.C. Wainwright: And talking about the new design wins for Coleto, is this the margins for this product particularly are they better than what you see for your other products on average and again in terms of the revenue opportunities from this product, how big do you think this could be?

Well first of all the margins, I would say that in general we should expect similar margins. I'm not talking about any specific deal right now but in general the markets would get to become very typical to our current margins. Now how big it is, I'm not -- I cannot know for sure how big it would become but I can say that I believe it would be significant and that means that I think eventually may take some time but it would be more than 10% of our revenues and I think at least there is a potential for that and even more. Amit Dayal – H.C. Wainwright: And just one last question, you mentioned acquisitions; this is something you really haven't brought up too often on these calls. Are we looking at anything you know going into 2015 just to support the product expansion efforts or your growth efforts just from a portfolio point of view?

Well I think that, I mean I may be wrong but I think that we do mention that quite frequently the fact that we are looking up (indiscernible). And indeed we’re continuously looking, and if we find appropriately opportunity we will move forward for that and assuming that once we find something like that, it doesn’t take more than a year to materialize if we find and once we find then -- I mean it could happen in 2015 but maybe not.

(Operator Instructions). The next question is from Don McKiernan of Landolt Securities. Don McKiernan – Landolt Securities: My question is around Intel and Coleto Creek, you announced the product, it's coming up on almost one year I believe and you’ve one design win. Can you provide some color as to sort of the pipeline of opportunities, the number of prospects and how it's your cards are being marketed? Is Intel selling them or helping to sell them or introducing you to clients, or customers and all that?

Okay. I would say that right now there are approximately 15 or 10 to 15 customers which are looking to that and Intel is helping us. Don McKiernan – Landolt Securities: Okay. And from a competitive standpoint you’ve won one design win apparently that you took away from an Intel competitor. Are all of your present opportunities similar types of situations where you’re looking to take competition away from somebody else?

Not all of them. I mean there are two scenarios and one scenario that we’re looking to take the market share from the competition and the other scenario is for customers which did not use encryption or compress at all before and right now due to the significant increase in data and significant increase in the need of encryption they have decided or at least consider the possibility to move ahead with off-loading encryption and/or compression tasks onto cards which we do with [ph] that rather than doing that on software. Don McKiernan – Landolt Securities: And you mentioned Time Stamp, we have one design wins at least announced I think or not even announced really you mentioned something last year but we were expecting some design wins going forward. Can you give us an update there?

Yes, I mean first we definitely had announced the design win with Time Stamp and I’ve mentioned another one, the smaller one that we did not make an announcement and as I’ve indicated several times I mean getting a design win with time stamps is a long process. This is more complicated card than our regular cards and we’re getting there. I mean we’re -- that was a part of when I said that we’re broadening or thickening I would say our pipeline, that’s a part of it and I believe that we’re getting there. There are customers I would say -- I would be a little bit hesitant to say that because I don’t want to be understood incorrectly. I mean I can say that the customer has decided to use our cards but sometimes decision is not enough so that’s why -- I mean I'm not saying, yes, we have a design win. So the fact that someone tells me that’s our decision to go ahead with that is not enough. We need more than that before we declare something to be a design win but definitely we’re moving forward with that. Don McKiernan – Landolt Securities: Okay, last question, an update on SETAC, are you still seeing meaningful acceptance of your strategy with the appliance manufacturers?

Well we do see continuation of SETAC. I can tell you that recently we have even I would say upgraded the SETAC portfolio to include some more functionality going not only into regular I would say SETAC appliances but also being a proposal going into an offering which would be relevant mostly towards the cloud and it's environment which uses SVN [ph] etcetera and we’re seeing traction with that as well.

The next question is from Dave Wilson of UCS Financial. Please go ahead. Dave Wilson – UCS Finance: I have two, one is can you refresh or talk about the status of your shelf registration you did a while back, that was when the price of the stock I believe was in the high-60s, low-70s clearly not they are now. When would you use it? Were you planning on using it and if you made an acquisition? And then the second question is just getting a feel of what your current dividend policy is?

Well I mean in terms of the shelf we placed a shelf, it was a shelf and it's there right now and we’re not doing anything with that right now of course. I mean it's there. As to the dividend I mean of course the policy does not change, Eran can you repeat?

Yes the policy as Shaike said, the policy has not changed and we’re supposed to declare the dividends for 2014 by late March 2015.

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 by tomorrow on Silicom’s website at www.silicom-usa.com. Mr. Orbach, would you like to make your concluding statement? Mr. Orbach there is a further question, would you like it to be asked?

Yes.

Okay. So the next question is again from Alex Henderson of Needham. Alex Henderson – Needham & Company: I just was hoping you could go through a little bit more granularity on a couple of the product end areas. Can you talk a little bit about what developments you’ve delivered in terms of progress for instance going into the white label box market for the infrastructure as a service/Web 2.0 type customers, what type of progress you’ve made on that front? Can you talk a little bit about with the Time Stamping product, can you talk a little bit what's going on with the encrypt, decrypt modules. Just a little more granularity on a product by product area where you’re seeing strength and take up?

Well okay, I mean the first part of your question I'm not sure I understood about white box? Alex Henderson – Needham & Company: So there is a program at the company to position a generic appliance that could be used in the Web 2.0 category that you’ve talked about in your slide decks.

Okay. I understand what you mean right now. So just to explain I mean we’re not talking about us providing the white boxes, it would be used by the major I would say clouds such as from Facebook's, Google's, etcetera. We’re talking about solutions going into there and there are some solutions that we have done, there are some solutions which are in progress. I will give you a very simple example because it's simple to propose that. So I mean a lot of guys are building OCP boxes which is Open Compute -- I don’t remember what the P stands for but in any case this is some sort of standard for boxes, sort of a mini-servers which would be sold as clusters going into the cloud etcetera. So we already have offerings with these cards and actually we’re having two customers that were having specific discussions about pushing our cards. These would be just regular I would say networking cards but they would fit the specific form factor which is relevant for the OPC and therefore for one sort or one type of these white boxes. So that’s one part. In terms of time stamp, I have just said that I mean we’re moving forward with the time stamping cards. We have several customers, important customers that have even said the words -- I’ve explained that before that they have decided to use us but we’re very careful. Many times I’ve seen in the past when someone says decided doesn’t mean anything until you see more than that which is why we’re not announcing anything but we definitely think we’re moving forward and we also move forward in developing because currently what we’re offering to the market is just a two ports of 10 gigabit cards, we’re moving to propose Quad Port, we’re moving to propose 40 gig and even 100 gig in that area. So we’re definitely moving both from the sales and marketing perspective and the technology and development perspective. Similarly with Coleto Creek, with Coleto Creek as I’ve said we have 10 to 15 companies or customer -- potential customers in the pipeline evaluating or discussing these costs with us. There is a family of cost there. We have improved or upgraded our offering I would say in the Coleto Creek arena by adding some softer capabilities to the hardware that we’re selling in order to make that more attractive to customers and I mean we have announced one design win the first one actually this quarter as I have said and again I mean this is moving forward. Alex Henderson – Needham & Company: Just a couple of house-keeping, can you give us your head count and any comment about your tax rate going forward?

Okay. Regarding the head count currently we have about a 180 employees. Regarding the tax rate as you can see the tax rate spew quarter one to quarter three was a very stable around 15%. I feel it will be the same percentage towards the end of 2014 and our estimation forecast for the tax rate in 2015 is also approximately 15%.

Mr. Orbach would you like to make your concluding statement?

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

Thank you. This concludes Silicom's third quarter 2014 results conference call. Thank you for your participation. You may go ahead and disconnect.