6-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16

OR 15d-16 OF THE SECURITIES EXCHANGE ACT OF 1934

For the month of March, 2021

Commission File Number 000-23288

SILICOM LTD.

(Translation of Registrant's name into English)

14 Atir Yeda St., P.O.Box 2164, Kfar-Sava 4464323, Israel

(Address of Principal Executive Offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F ☒  Form 40-F ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ____

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ____

On March 15, 2021, the Registrant released its Consolidated Financial Statements and registrant's review of its results of operations and financial condition as of and for the year ended December 31, 2020.

Attached hereto as Exhibit 99.1 are Consolidated Financial Statements as of and for the year ended December 31, 2020 (including the notes thereto).

Attached hereto as Exhibit 99.2 is the registrant’s review of its results of operations and financial condition as of and the year ended December 31, 2020.

Attached hereto as Exhibit 99.3 is Consent of Somekh Chaikin, Independent Registered Public Accounting Firm, a member firm of KPMG International.

This Form 6-K, including all exhibits hereto, is hereby incorporated by reference into all effective registration statements filed by

the registrant under the Securities Act of 1933.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	SILICOM LTD. (Registrant)
Date: March 15, 2021	By	/s/ Eran Gilad
	Eran Gilad
	Chief Financial Officer

EX-99.1

Exhibit 99.1

Silicom Ltd.

and its Subsidiaries

Consolidated

Financial Statements

As of and for the year ended

December 31, 2020

Silicom Ltd. and its Subsidiaries

Consolidated Financial Statements as of December 31, 2020

Contents

	Page
Report of Independent Registered Public Accounting Firm	F - 3
Consolidated Balance Sheets	F - 6
Consolidated Statements of Operations	F - 8
Consolidated Statements of Changes in Shareholders' Equity	F - 9
Consolidated Statements of Cash Flows	F - 10
Notes to the Consolidated Financial Statements	F - 11

F - 2

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of

Silicom Ltd.:

Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying consolidated balance sheets of Silicom Ltd. and subsidiaries (the Company) as of December 31, 2019 and 2020, the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Change in accounting principle

As discussed in Note 2N to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of ASC 842 Leases.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Form 6-K. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

F - 3

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

F - 4

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Determination of the pattern of revenue recognition for customer contracts

As described in Note 2O to the consolidated financial statements, the Company derives revenues primarily from the sale of networking and data infrastructure solutions. Revenue is recognized over time for sales of goods manufactured to unique customer specifications, in which the Company’s performance does not create an asset with an alternative use to the Company and the Company has an enforceable right to payment for performance completed to date if the customer were to terminate the contract. Revenue recognized over time is measured by the costs incurred to date relative to the estimated total direct costs to fulfill each contract.

We identified the assessment of the determination of the pattern of revenue recognition for customer contracts as a critical audit matter. Evaluating whether the Company transfers control of products over time requires the application of subjective auditor judgment. This judgment includes the determination of whether the promised goods have no alternative use to the Company and whether the Company has an enforceable right to payment, inclusive of a reasonable margin, for performance completed to date if the customer were to terminate the contract. The determination of whether control is transferred over time significantly influences the amount and timing of revenue recognized.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s revenue recognition process. This included a control related to the determination of whether the Company transfers control of certain products over time as they are manufactured. We evaluated the Company’s assessment of the revenue recognition patterns for a selection of customer contracts, including contracts for sales of products manufactured to unique customer specifications. For selected contracts, we inquired of the Company’s product and engineering department to understand whether the Company would incur practical limitations on its ability to readily direct the goods for another use, such as selling it to a different customer. We compared the facts and circumstances of the selected customer contracts per the Company’s assessment to significant terms and specifications per customer contracts, results of inquiries, and other relevant documents.

Somekh Chaikin

Member Firm of KPMG International

We have served as the Company’s auditor since 1997.

Tel Aviv, Israel

March 15, 2021

F - 5

Silicom Ltd. and its Subsidiaries

Consolidated Balance Sheets as of December 31

		2019		2020
	Note	US$ thousands		US$ thousands
Assets
Current assets
Cash and cash equivalents	4		16,469		20,676
Short-term bank deposits	2F		13,542		5,000
Marketable securities	2G, 5		14,045		35,117
Accounts receivable:
Trade, net	2H		24,936		21,660
Other	6		4,964		6,126
Inventories	7		36,491		47,650
Total current assets			110,447		136,229
Marketable securities	2G, 5		46,542		15,281
Assets held for employees' severance benefits	11		1,640		1,833
Deferred tax assets	15G		1,798		1,790
Property, plant and equipment, net	8		3,574		4,110
Intangible assets, net	9		1,718		1,170
Operating leases right-of-use, net	10		3,783		9,913
Goodwill			25,561		25,561
Total assets			195,063		195,887

Avi Eizenman Chairman of the Board of Directors Shaike Orbach Chief Executive Officer Eran Gilad Chief Financial Officer

Kfar-Saba, Israel

March 15, 2020

The accompanying notes are an integral part of these consolidated financial statements.

F - 6

Silicom Ltd. and its Subsidiaries

Consolidated Balance Sheets as of December 31 (Continued)

			2019			2020
	Note		US$ thousands			US$ thousands
Liabilities and shareholders' equity
Current liabilities
Trade accounts payable				16,419			14,610
Other accounts payable and accrued expenses				8,823			12,953
Operating lease liabilities		10		1,090			1,813
Total current liabilities				26,332			29,376
Long-term liabilities
Operating lease liabilities		10		2,693			8,282
Liability for employees' severance benefits		11		2,910			3,256
Deferred tax liabilities		15G		205			136
Total liabilities				32,140			41,050
Shareholders' equity		12
Ordinary shares, ILS 0.01 par value; 10,000,000 shares authorized; 7,618,676 and 7,670,033 issued as at December 31, 2019 and 2020, respectively; 7,351,317 and 6,899,515 outstanding as at December 31, 2019 and 2020, respectively				22			22
Additional paid-in capital				57,130			60,117
Treasury shares (at cost) 267,359 and 770,518 ordinary shares as at December 31, 2019 and 2020, respectively				(8,009	)		(24,807	)
Retained earnings				113,780			119,505
Total shareholders' equity				162,923			154,837
Total liabilities and shareholders’ equity				195,063			195,887

The accompanying notes are an integral part of these consolidated financial statements.

F - 7

Silicom Ltd. and its Subsidiaries

Consolidated Statements of Operations for the Year Ended December 31

			2018		2019		2020
			US$ thousands
	Note		Except for share and per share data
Sales*		2O, 13		133,753		105,240		107,398
Cost of sales				91,697		69,146		73,632
Gross profit				42,056		36,094		33,766
Operating expenses
Research and development**				14,820		15,075		17,244
Sales and marketing				6,642		6,647		6,209
General and administrative				3,943		4,159		4,065
Total operating expenses				25,405		25,881		27,518
Operating income				16,651		10,213		6,248
Financial income, net		14		923		1,646		1,034
Income before income taxes				17,574		11,859		7,282
Income taxes		15		2,937		1,623		1,557
Net income				14,637		10,236		5,725
Income per share:
Basic income per ordinary share (US$)		2U		1.938		1.361		0.804
Diluted income per ordinary share (US$)				1.912		1.352		0.800
Weighted average number of ordinary shares used to compute basic income per share (in thousands)				7,552		7,520		7,118
Weighted average number of ordinary shares used to compute diluted income per share (in thousands)				7,657		7,573		7,157

* Including sales to related parties in the amount of US$ 1,063 thousand, US$ 0 thousand and US$ 0 thousand in 2018, 2019 and 2020, respectively.

** Including services from related parties in the amount of US$ 311 thousand, US$ 0 thousand and US$ 0 thousand in 2018, 2019 and 2020, respectively.

The accompanying notes are an integral part of these consolidated financial statements.

F - 8

Silicom Ltd. and its Subsidiaries

Consolidated Statements of Changes in Shareholders' Equity

	Ordinary shares					Additional paid-in capital		Treasury shares			Retained earnings		Total shareholders’ equity
	Number of shares(1)			US$ thousands
Balance at January 1, 2018		7,549,531			22		51,909		(38	)		88,907		140,800
Exercise of options and RSUs(2)		9,674			*-		288		-			-		288
Share-based compensation		-			-		2,424		-			-		2,424
Net income		-			-		-		-			14,637		14,637
Balance at December 31, 2018		7,559,205			22		54,621		(38	)		103,544		158,149
Exercise of options and RSUs(2)		44,500			*-		154		-			-		154
Purchase of treasury shares		(252,388	)		-		-		(7,971	)		-		(7,971	)
Share-based compensation		-			-		2,355		-			-		2,355
Net income		-			-		-		-			10,236		10,236
Balance at December 31, 2019		7,351,317			22		57,130		(8,009	)		113,780		162,923
Exercise of options and RSUs(2)		51,357			*-		276		-			-		276
Purchase of treasury shares		(503,159	)		-		-		(16,798	)		-		(16,798	)
Share-based compensation		-			-		2,711		-			-		2,711
Net income		-			-		-		-			5,725		5,725
Balance at December 31, 2020		6,899,515			22		60,117		(24,807	)		119,505		154,837

(1)	Net of shares held by Silicom Inc. and Silicom Ltd.
(2)	Restricted share units (hereinafter - "RSUs")
*	Less than 1 thousand.

The accompanying notes are an integral part of these consolidated financial statements.

F - 9

Silicom Ltd. and its Subsidiaries

Consolidated Statements of Cash Flows for the Year Ended December 31

	2018			2019			2020
	US$ thousands
Cash flows from operating activities
Net income		14,637			10,236			5,725
Adjustments required to reconcile net income to  net cash provided by (used in) operating activities:
Depreciation and amortization		3,293			1,997			2,384
Impairment of intangible assets		-			-			1,657
Write-down of obsolete inventory		6,211			2,106			1,578
Discount on marketable securities, net		32			144			244
Share-based compensation expense		2,424			2,355			2,711
Deferred taxes, net		5			(699	)		(61	)
Changes in assets and liabilities:
Accounts receivable - trade		16,985			(1,441	)		3,467
Accounts receivable - other		(3,384	)		4,385			(1,362	)
Accounts receivable - related parties		261			364			-
Change in liability for employees' severance benefits, net		(79	)		175			153
Inventories		2,540			3,529			(13,336	)
Trade accounts payable		3,059			769			(2,076	)
Other accounts payable and accrued expenses		(314	)		2,824			3,872
Accounts payable - related parties		8			(18	)		-
Net cash provided by operating activities		45,678			26,726			4,956
Cash flows from investing activities
Investment in short-term bank deposits, net		-			(13,542	)		8,542
Purchase of property, plant and equipment		(1,345	)		(1,441	)		(1,694	)
Investment in intangible assets		(1,022	)		(1,018	)		(1,487	)
Proceeds from maturity of marketable securities		7,750			1,997			16,629
Purchases of marketable securities		(41,670	)		(15,604	)		(6,558	)
Net cash provided by (used in) investing activities		(36,287	)		(29,608	)		15,432
Cash flows from financing activities
Exercise of options		288			154			276
Purchase of treasury shares		-			(7,971	)		(16,798	)
Net cash provided by (used in) financing activities		288			(7,817	)		(16,522	)
Effect of exchange rate changes on cash balances held		108			360			341
Increase (decrease) in cash and cash equivalents		9,787			(10,339	)		4,207
Cash and cash equivalents at beginning of year		17,021			26,808			16,469
Cash and cash equivalents at end of year		26,808			16,469			20,676
Supplementary cash flow information
A. Non-cash transactions:
Investments in property, plant and equipment		146			97			347
B. Cash paid during the year for:
Income taxes		3,260			1,103			1,284

The accompanying notes are an integral part of these consolidated financial statements.

F - 10

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 1 - General

Silicom Ltd. is an Israeli corporation engaged in designing, manufacturing, marketing and supporting high performance networking and data infrastructure solutions for a broad range of servers, server based systems and communications devices.

The Company's shares have been traded in the United States on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") since February 1994. Since January 2, 2014 the Company's shares have been traded on the NASDAQ Global Select Market (prior thereto they were traded on the NASDAQ Global Market).

In these financial statements the terms "Company" or "Silicom" refer to Silicom Ltd. and its wholly owned subsidiaries, Silicom Connectivity Solutions, Inc. (hereinafter - "Silicom Inc.") and Silicom Denmark A/S (Fiberblaze A/S) (hereinafter – "Silicom Denmark"), whereas the term "subsidiaries" refers to Silicom Inc. and Silicom Denmark.

Note 2 - Summary of Significant Accounting Policies

The significant accounting policies, which are applied consistently throughout the periods presented, are as follows:   

A.Financial statements in US dollars

Substantially all sales of the Company are made outside of Israel (see Note 13A regarding geographical distribution), in US dollars ("dollars"). Most purchases of materials and components, and a significant part of the marketing costs are made or incurred, primarily in dollars. Therefore, the dollar is the currency that represents the principal economic environment in which the Company operates and is thus its functional currency.

Transactions and monetary balances in other currencies are translated into the functional currency using the current exchange rate.

All exchange gains and losses from remeasurement of monetary balance sheet items denominated in non-dollar currencies are reflected in earnings when they arise.

B.Basis of presentation

The accompanying consolidated financial statements have been prepared with accounting principles generally accepted in the United States of America and include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

F - 11

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 2 - Summary of significant Accounting Policies (cont’d)

C.Estimates and assumptions

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include revenue recognition over time, income taxes, inventories, marketable securities, goodwill, intangible assets and share-based compensation.

D.Business combinations

The Company accounts for business combination in accordance with ASC No. 805, "Business Combinations". ASC No. 805 requires recognition of assets acquired and liabilities assumed at the acquisition date, measured at their fair values as of that date. Any excess of the fair value of net assets acquired over purchase price and any subsequent changes in estimated contingencies are to be recorded in the consolidated statements of operations.

E.Cash and cash equivalents

The Company considers highly liquid investments with original maturities of three months or less from the date of deposit to be cash equivalents.

F.Short-term bank deposits

Short term bank deposits consist of bank deposits with original maturities of more than three months and up to twelve months. As of December 31, 2020, the Company's short-term bank deposits consist of bank deposits in US dollars carrying a weighted average interest rate of 2.05%.

These short-term bank deposits are held with a major Israeli bank, and their use and withdrawal are not subject to any restrictions.

G.Marketable securities

The Company classifies its marketable securities as held-to-maturity as they are debt securities in which the Company has the intent and ability to hold to maturity. Held-to-maturity (HTM) debt securities are recorded at amortized cost adjusted for the amortization or accretion of premiums or discounts.

Premiums and discounts on debt securities are amortized or accreted over the life of the related held-to-maturity security as an adjustment to yield using the effective interest method. Such amortization and accretion are included in the "Financial income, net" line item in the consolidated statements of operations.

F - 12

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 2 - Summary of significant Accounting Policies (cont’d)

G.Marketable securities (cont’d)

When other-than-temporary impairment has occurred, the amount of the other-than-temporary impairment recognized in earnings depends on whether the Company intends to sell the security or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss.

A decline in the market value of HTM security below cost that is deemed to be other than temporary results in an impairment to reduce the carrying amount to fair value. To determine whether an impairment is other than temporary, the Company considers all available information relevant to the collectibility of the security, including past events, current conditions, and reasonable and supportable forecasts when developing estimate of cash flows expected to be collected. Evidence considered in this assessment includes the reasons for the impairment, the severity and duration of the impairment, changes in value subsequent to year end, forecasted performance of the investee, and the general market condition in the geographic area or industry the investee operates in.

If the Company intends to sell the security or it is more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss, the other-than-temporary impairment is recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If the Company does not intend to sell the security and it is not more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss, the other-than-temporary impairment is separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings.

H.Trade accounts receivable, net

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Amounts collected on trade accounts receivable are included in net cash provided by operating activities in the consolidated statements of cash flows. The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management considers historical losses adjusted to take into account current market conditions and its customers’ financial condition, the amount of receivables in dispute, and the current receivables aging and current payment patterns.

As of December 31, 2019 and 2020, the provision for doubtful accounts receivable amounted to US$ 20 thousand.

I.Inventories

Inventories are stated at the lower of cost and net realizable value. Cost is determined using the "weighted average-cost" method.

The Company writes down obsolete or slow moving inventory to its net realizable value.

F - 13

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 2 - Summary of significant Accounting Policies (cont’d)

J.Assets held for employees’ severance benefits

Assets held for employees’ severance benefits represent contributions to severance pay funds and cash surrender value of insurance policies. The assets are recorded at their current cash redemption value.

K.Property, plant and equipment

Property, plant and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated on the straight-line basis over the estimated useful life of the assets at the following annual rates:

	%
Machinery and equipment	15 - 33
Office furniture and equipment	6 - 33
Leasehold improvements	*

* Over the shorter term of the lease or the useful life of the asset

L.Goodwill and other intangible assets

Goodwill reflects the excess of the purchase price of business acquired over the fair value of net assets acquired. Goodwill is not amortized but instead is tested for impairment at least annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.

The Company operates in one operating segment and this segment comprises one reporting unit.

Goodwill is reviewed for impairment at least annually in accordance with ASC 350, Intangibles—Goodwill and Other. ASC 350 provides an entity the option to perform a qualitative assessment to determine whether it is more likely than-not that the fair value of a reporting unit is less than its carrying amount prior to performing the two-step goodwill impairment test. If this is the case, the two-step goodwill impairment test is required. If it is more likely than-not that the fair value of a reporting unit is greater than its carrying amount, the two-step goodwill impairment test is not required.

If the two-step goodwill impairment test is required, first, the fair value of the reporting unit is compared with its carrying amount (including goodwill). If the fair value of the reporting unit is less than its carrying amount, an indication of goodwill impairment exists for the reporting unit and the entity must perform step two of the impairment test (measurement). Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation and the residual fair value after this allocation is the implied fair value of the reporting unit goodwill. If the fair value of the reporting unit exceeds its carrying amount, step two does not need to be performed. During the year ended December 31, 2020, no impairments were found and therefore no impairment losses were recorded.

F - 14

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 2 - Summary of significant Accounting Policies (cont’d)

L.Goodwill and other intangible assets (cont’d)

Intangible assets that are not considered to have an indefinite useful life are amortized over their estimated useful lives in proportion to the economic benefits realized. This accounting policy results in amortization of such intangible assets in the straight-line method.

M.Impairment of long-lived assets

In accordance with Impairment or Disposal of long-lived assets Subsections of FASB ASC Subtopic 360-10, Property, Plant, and Equipment – Overall. Long-lived assets, such as property, plant, equipment and purchased intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or an asset group to be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third party independent appraisals, as considered necessary.

F - 15

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 2 - Summary of significant Accounting Policies (cont’d)

N.Leases

In February 2016, the FASB established Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02. The guidance establishes a right-of-use model ("ROU") that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. The Company determines if an arrangement is or contains a lease at contract inception.

The Company adopted the new accounting standard ASC 842 "Leases" and all the related amendments on January 1, 2019.  

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

As of December 31, 2020, all of the company's leases are operating leases.

On the commencement date, the lease payments shall include variable lease payments that depend on an index (such as the Consumer Price Index), initially measured using the index at the commencement date. The Company does not remeasure the lease liability for changes in future lease payments arising from changes in an index unless the lease liability is remeasured for another reason. Therefore, after initial recognition, such variable lease payments are recognized in profit or loss as they are incurred.

Variable payments that depends on use of the underlying asset are not included in the lease payments. Such variable payments are recognized in profit or loss in the period in which the event or condition that triggers the payment occurs.

Upon initial recognition, the Company recognizes a liability at the present value of the lease payments to be made over the lease term, and concurrently recognizes a ROU asset at the same amount of the liability, adjusted for any prepaid lease payments.

The Company’s incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments, the lease term and the effect on that rate of designating specific collateral with a value equal to the unpaid lease payments for that lease.

After lease commencement, the Company measures the lease liability at the present value of the remaining lease payments using the discount rate determined at lease commencement (as long as the discount rate hasn’t been updated as a result of a reassessment event). The Company subsequently measures the ROU asset at the present value of the remaining lease payments, adjusted for the remaining balance of any cumulative prepaid or accrued rent if the lease payments are uneven throughout the lease term.

The Company's lease agreements have remaining lease terms up to 10 years. Some of these agreements include options to extend the leases for up to 5 years and some include options to terminate the leases immediately. Some of our vehicle lease agreements include rental payments based on the actual usage of the vehicles and other lease agreements include rental payments adjusted periodically for inflation. The agreements related to leases in Israel are in Israeli Shekel ("ILS") or in ILS, linked to the Israeli Consumer Price Index or to the US Dollars. The agreements related to leases in the USA are in US Dollars and the agreements related to leases in Denmark are in Danish Krone ("DKK"). The Company's lease agreements do not contain any residual value guarantees. See Note 10.

F - 16

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 2 - Summary of significant Accounting Policies (cont’d)

O.Revenue recognition

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers, a new accounting standard related to revenue recognition. ASC 606 supersedes nearly all U.S. GAAP on revenue recognition and eliminated industry-specific guidance. The underlying principle of ASC 606 is to recognize revenue when a customer obtains control of the promised goods at an amount that reflects the consideration that is expected to be received in exchange for those goods. It also requires increased disclosures including the nature, amount, timing, and uncertainty of revenues and cash flows related to contracts with customers. The Company adopted ASC 606 at the beginning of the first quarter of fiscal year 2018 and implemented new accounting policies and internal controls necessary to support the requirements of ASC 606.

The Company derives revenues primarily from the sale of networking and data infrastructure solutions.

The Company recognizes revenue upon transfer of control of the promised goods in a contract with a customer in an amount that reflects the consideration the Company expects to receive in exchange for those products. Transfer of control occurs once the customer has the contractual right to use the product, generally upon shipment or once delivery and risk of loss has transferred to the customer. The Company accounts for a contract with customer when it has approval and commitment from both parties, the rights of the parties and payment terms are identified, the contract has commercial substance and collectability of consideration is probable. The Company identifies separated contractual performance obligations and evaluates each distinct performance obligation within a contract, whether it is satisfied at a point in time or over time. Revenue is recognized over time for sales of goods manufactured to unique customer specifications, in which the Company’s performance does not create an asset with an alternative use to the Company and the Company has an enforceable right to payment for performance completed to date if the customer were to terminate the contract. Revenue recognized over time is measured by the costs incurred to date relative to the estimated total direct costs to fulfill each contract. Incurred costs represent work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, materials and overhead.

Revenue is allocated among performance obligations in a manner that reflects the consideration that the Company expects to be entitled to for the promised goods based on standalone selling prices (SSP). SSP are estimated for each distinct performance obligation and judgment may be required in their determination. The best evidence of SSP is the observable price of the product when the Company sell the goods separately in similar circumstances and to similar customers.

F - 17

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 2 - Summary of significant Accounting Policies (cont’d)

P.Research and development costs

Capitalization of software development costs related to programmable components incorporated into the Company's products, are charged to expense until technological feasibility has been established for the product. Once technological feasibility is established, all software costs are capitalized until the product is available for general release to customers. Judgment is required in determining when technological feasibility of a product is established. The company has determined that technological feasibility for its software components of hardware products is reached after all high-risk development issues have been resolved through coding and testing. Amortization begins once the software is ready for its intended use, generally based on the pattern in which the economic benefits will be consumed. The amortization of these costs is included in cost of revenue over the estimated life of the products. Other costs incurred in the research and development of the Company’s products are expensed as incurred.

Q.Allowance for product warranty

The Company grants service warranties related to certain products to end-users. The Company estimates its obligation for such warranties to be immaterial on the basis of historical experience. Accordingly, these financial statements do not include an accrual for warranty obligations.

R.Treasury shares

Treasury shares are recorded at cost and presented as a reduction of shareholders' equity.

F - 18

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 2 - Summary of significant Accounting Policies (cont’d)

S.Income taxes

Deferred taxes are accounted for under the asset and liability method based on the estimated future tax effects of temporary differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases, and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are presented as non-current assets and liabilities and measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statements of operations in the period that includes the enactment date. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured as the largest amount that is greater than 50 percent likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

T.Share-based compensation

The Company recognizes compensation expense based on estimated grant date fair value in accordance with ASC Topic 718, Compensation -Stock Compensation as follows:

When portions of an award vest in increments during the requisite service period (graded-vesting award), the Company’s accounting policy is to recognize compensation cost for the award over the requisite service period for each separately vesting portion of the award.

F - 19

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 2 - Summary of significant Accounting Policies (cont’d)

U.Basic and diluted earnings per share

Basic income per ordinary share is calculated by dividing the net income attributable to ordinary shares, by the weighted average number of ordinary shares outstanding. Diluted income per ordinary share calculation is similar to basic income per ordinary share except that the weighted average of common shares outstanding is increased to include outstanding potential common shares during the period if dilutive. Potential common shares arise from stock options and RSUs, and the dilutive effect is reflected by the application of the treasury stock method.

The following table summarizes information related to the computation of basic and diluted income per ordinary share for the years indicated.

	Year ended December 31
	2018		2019		2020
Net income attributable to ordinary shares (US$ thousands)		14,637		10,236		5,725
Weighted average number of ordinary shares outstanding used in basic income per ordinary share calculation		7,552,094		7,520,389		7,118,244
Add assumed exercise of outstanding dilutive potential ordinary shares		105,236		52,228		38,519
Weighted average number of ordinary shares outstanding used in diluted income per ordinary share calculation		7,657,330		7,572,617		7,156,763
Basic income per ordinary shares (US$)		1.938		1.361		0.804
Diluted income per ordinary shares (US$)		1.912		1.352		0.800
Weighted average number of shares related to options and RSUs excluded from the diluted earnings per share calculation because of anti-dilutive effect		171,086		351,610		180,916

F - 20

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 2 - Summary of Significant Accounting Policies (cont’d)

V.Comprehensive Income

For the years ended December 31, 2018, 2019 and 2020, comprehensive income equals net income.

W.Fair Value Measurements

The Company's financial instruments consist mainly of cash and cash equivalents, marketable securities, trade and other receivables and trade accounts payable. The carrying amounts of these financial instruments, except for marketable securities, approximate their fair value because of the short maturity of these investments. The fair value of marketable securities is presented in Note 5 to these consolidated financial statements. Assets held for severance benefits are recorded at their current cash redemption value.

The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.

F - 21

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 2 - Summary of Significant Accounting Policies (cont’d)

X.Concentrations of risks

(1)​Credit risk

Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist principally of cash and cash equivalents, short-term bank deposits, marketable securities, trade receivables and assets held for employees’ severance benefits. Cash and cash equivalents balances of the Company, which are subject to credit risk, consist of cash accounts held with major financial institutions. Short-term bank deposits balances of the Company, which are subject to credit risk, consist of short-term bank deposits held with a major Israeli Bank. Marketable securities consist of held to maturity marketable securities issued by highly rated corporations. As of December 31, 2019 and 2020, the ratings of the securities in the Company's portfolio was at least A- and BBB+ respectively. Nonetheless, these investments are subject to general credit and counterparty risks (such as that the counterparty to a financial instrument fails to meet its contractual obligations). The Company closely monitors extensions of credit and has never experienced significant credit losses.

On January 1, 2020, the Company adopted ASU 2016-13 (Topic 326) Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments, as further clarified by the Financial Accounting Standards Board (the "FASB") through the issuance of additional related ASUs, which requires the measurement and recognition of current expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model, which requires the use of forward-looking information to calculate credit loss estimates. The Company adopted the standard under the modified retrospective approach. Upon adoption, the standard did not have a material impact on the Consolidated Financial Statements. We continue to monitor the financial implications of the COVID-19 pandemic on expected credit losses.

(2)​Significant customers

The Company's top three customers accounted for approximately 36% of its revenues in 2020. The Company expects that a small number of customers will continue to account for a significant portion of its revenues for the foreseeable future. See Note 13.

Y.Liabilities for loss contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.

F - 22

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 2 - Summary of Significant Accounting Policies (cont’d)

Z.Recent Accounting Pronouncements

(1)In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, which removes certain exceptions for: recognizing deferred taxes for investments, performing intraperiod tax allocation and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. This ASU is effective for annual periods in fiscal years beginning after December 15, 2020. The Company does not expect the adoption of ASU 2019-12 to have a material impact on its consolidated balance sheets, results of operations, cash flows or presentation thereof.

F - 23

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 3 - Acquisitions

A.ADI Engineering, Inc.

On October 28, 2015 (hereinafter – "closing date") the Company acquired certain assets from ADI Engineering, Inc. (hereinafter – "ADI"), a privately-held, US-based provider of custom embedded communications and networking products, for an aggregate purchase price of US$ 10,000 thousand in cash and estimated contingent consideration of US$ 7,802 thousand in cash and in options to ordinary shares, payable in three yearly payments, after the closing, subject to the attainment of certain performance milestones until December 31, 2017. Of the total purchase price of US$ 17,802 thousand, US$ 222 thousand was attributed to tangible assets, US$ 4,261 thousand was attributed to intangible assets and US$ 13,319 thousand was attributed to goodwill. The goodwill is primarily attributable to the synergies expected to arise after the acquisition. The recognized goodwill is deductible for income tax purposes for 10 years.

B.   Silicom Denmark

On December 10, 2014 (hereinafter – "closing date"), the Company completed the acquisition of all of the outstanding shares and voting interests of Silicom Denmark, a provider of high performance application acceleration solutions, for an aggregate purchase price of US$ 10,161 thousand in cash and estimated contingent consideration of US$ 4,683 thousand in cash and in options to ordinary shares, subject to the attainment of certain performance milestones until August 31, 2015.

In connection with the contingent consideration, during 2016 the Company paid to the Silicom Denmark sellers an amount of US$ 1,463 thousand, of which 90% was paid in cash and 10% in options to ordinary shares of the Company.

In relation to this acquisition, on April 18, 2016, the Company granted, in the aggregate, 22,795 options to the Silicom Denmark sellers and to the Silicom Denmark employees (see Note 12I).

F - 24

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 4 - Cash and Cash Equivalents

	December 31
	2019		2020
	US$ thousands
Cash		13,382		19,477
Cash equivalents *		3,087		1,199
		16,469		20,676

* Comprised mainly of deposits in banks as at December 31, 2019 and 2020 carrying a weighted average interest rate of 1.04% and 0.84%, respectively.

F - 25

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 5 - Marketable Securities

The Company's investment in marketable securities as of December 31, 2019 and 2020 are classified as ''held-to-maturity'' and consist of the following:

	Amortized cost basis**		Gross unrealized holding gains		Gross unrealized holding (losses)			Aggregate fair value*
	US$ thousands
At December 31, 2020
Held to maturity:
Corporate debt securities and government debt securities
Current		35,445		265		(102	)		35,608
Non-Current		15,365		339		-			15,704
		50,810		604		(102	)		51,312
At December 31, 2019
Held to maturity:
Corporate debt securities and government debt securities
Current		14,170		24		(97	)		14,097
Non-Current		46,955		408		(112	)		47,251
		61,125		432		(209	)		61,348

*	Fair value is being determined using quoted market prices in active markets (Level 2).
**	Including accrued interest in the amount of US$ 538 thousand and US$ 412 thousand as of December 31, 2019 and 2020, respectively.
	The accrued interest is presented as part of other receivables on the balance sheet.

Activity in marketable securities in 2020	US$ thousands
Balance at January 1, 2020		61,125
Purchases of marketable securities		6,558
Discount on marketable securities, net		(244	)
Proceeds from maturity of marketable securities		(16,629	)
Balance at December 31, 2020		50,810

F - 26

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 5 - Marketable Securities (Cont’d)

The following table summarizes the gross unrealized losses on investment securities for which other-than-temporary impairments have not been recognized and the fair value of those securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2020:

	Less than 12 months					12 months or more					Total
Held to maturity:	Unrealized Losses			Fair value		Unrealized Losses			Fair value		Unrealized Losses			Fair value
Corporate debt securities and government debt securities		(2	)		1,105		(100	)		6,770		(102	)		7,875

The unrealized losses on the investments were caused by changes in interest rate. The Company has the ability and intent to hold these investments until maturity and it is more likely than not that the Company will not be required to sell any of the securities before recovery; therefore these investments are not considered other than temporarily impaired.

Note 6 - Other Receivables

	December 31
	2019		2020
	US$ thousands
Advances to suppliers		805		618
Government authorities		2,758		3,668
Prepaid expense		553		477
Other receivables		848		1,363
		4,964		6,126

Note 7 - Inventories

	December 31
	2019		2020
	US$ thousands
Raw materials and components		20,986		29,362
Products in process		7,137		10,041
Finished products		8,368		8,247
		36,491		47,650

F - 27

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 8 - Property, Plant and Equipment, Net

	December 31
	2019			2020
	US$ thousands
Machinery and equipment		13,374			15,494
Office furniture and equipment		924			991
Leasehold improvements		2,528			2,884
Property, plant and equipment		16,826			19,369
Accumulated depreciation		(13,252	)		(15,259	)
Property, Plant and equipment, net		3,574			4,110

Depreciation expense for the years ended December 31, 2018, 2019 and 2020 were US$ 2,190 thousand, US$ 1,731 thousand and US$ 2,000 thousand, respectively.

F - 28

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 9 - Intangible Assets

			December 31
			2019		2020
	Useful life		US$ thousands
Original cost:
Capitalization of software development costs		3		1,946		2,983
Licenses		3		106		556
				2,052		3,539
Accumulated amortization:
Capitalization of software development costs				274		2,163
Licenses				60		206
				334		2,369
Intangible assets, net:
Capitalization of software development costs				1,672		820
Licenses				46		350
				1,718		1,170

Amortization expense for the years ended December 31, 2018, 2019 and 2020 were US$ 1,103 thousand, US$ 266 thousand and US$ 378 thousand, respectively. The company recorded an impairment charge of US$ 1,657 thousand in the year ended December 31, 2020, for software that will no longer be utilized by the company and the asset value and accumulated amortization were written off. The impairment was recorded in cost of sales.

F - 29

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 10 - Leases

A.The components of operating lease cost for the year ended December 31, 2020 and 2019 were as follows:

	Year ended December 31
	2019		2020
	US$ thousands
Operating lease costs		1,494		1,623
Variable lease payments not included in the lease liability		2		3
Short-term lease cost		287		285
Total operating lease cost		1,783		1,911

B.Supplemental cash flow information related to operating leases was as follows:

	Year ended December 31
	2019		2020
	US$ thousands
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases		1,541		1,601
Right-of-use assets obtained in exchange for lease obligations (non-cash):
Operating leases		1,524		7,201

C.Supplemental balance sheet information related to operating leases was as follows:

	December 31
	2019		2020
	US$ thousands
Operating leases:
Operating leases right-of-use		3,783		9,913
Current operating lease liabilities		1,090		1,813
Non-current operating lease liabilities		2,693		8,282
Total operating lease liabilities		3,783		10,095

F - 30

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 10 - Leases (cont’d)

C.Supplemental balance sheet information related to operating leases was as follows (cont’d):

	December 31
	2019			2020
	US$ thousands
Weighted average remaining lease term (years)		4.8			8.2
Weighted average discount rate		3.3	%		2.4	%

D.Future minimum lease payments under non-cancellable leases as of December 31, 2020 were as follows:  

	December 31, 2020
	US$ thousands
2021		1,743
2022		1,575
2023		1,426
2024		1,161
After 2025		4,934
Total operating lease payments		10,839
Less: imputed interest		(744	)
Present value of lease liabilities		10,095

F - 31

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 11 - Assets Held and Liability for Employees' Severance Benefits

A.Under Israeli law and labor agreements, Silicom is required to make severance payments to retired or dismissed employees and to employees leaving employment in certain other circumstances.

In respect of the liability to the employees, individual insurance policies are purchased and deposits are made with recognized severance pay funds.

The liability for severance pay is calculated on the basis of the latest salary paid to each employee multiplied by the number of years of employment. The liability is covered by the amounts deposited including accumulated income thereon as well as by the unfunded provision.

B.According to Section 14 to the Severance Pay Law ("Section 14") the payment of monthly deposits by a company into recognized severance and pension funds or insurance policies releases it from any additional severance obligation to the employees that have entered into agreements with the company pursuant to such Section 14. Commencing July 1, 2008, the Company has entered into agreements with a majority of its employees in order to implement Section 14. Therefore, as of that date, the payment of monthly deposits by the Company into recognized severance and pension funds or insurance policies releases it from any additional severance obligation to those employees that have entered into such agreements and therefore the Company incurs no additional liability since that date with respect to such employees. Amounts accumulated in the pension funds or insurance policies pursuant to Section 14 are not supervised or administrated by the Company and therefore neither such amounts nor the corresponding accrual are reflected in the balance sheet.

C.Consequently, the assets held for employees' severance benefits reported on the balance sheet, in respect of deposits for those employees who have signed agreements pursuant to Section 14, represent the redemption value of deposits made through June 30, 2008. The liability for employee severance benefits, with respect to those employees, represents the liability of the Company for employees' severance benefits as of June 30, 2008.

As a result of the implementation of Section 14, as described above, the liability with respect to those employees is calculated on the basis of number of years of employment as of June 30, 2008, multiplied by the latest salary paid. The liability is covered by the amounts deposited, including accumulated income thereon, as well as by the unfunded provision. Such liability will be removed, either upon termination of employment or retirement.

D.Expenses recorded with respect to employees' severance payments for the years ended December 31, 2018, 2019 and 2020 were US$ 605 thousand, US$ 929 thousand and US$ 986 thousand, respectively.

F - 32

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 12 - Shareholders' Equity

Capital and reserves

On May 2, 2019, the Company's Board of Directors authorized and began implementation of a one-year share repurchase plan to repurchase up to $15 million of the Company's ordinary shares. On April 30, 2020 the Company's Board of Directors authorized another one-year share repurchase plan allowing the Company to invest up to $15 million to repurchase its ordinary shares. This plan has began as the previously announced $15 million one-year share repurchase plan was completed. Repurchases may be made in the open market and will be in accordance with applicable securities laws and regulations. The timing and amount of each repurchase transaction may depend on a variety of factors. The share repurchase plan does not obligate the Company to acquire any specific number of ordinary shares and may be suspended or terminated at any time at management’s discretion.

Share based compensation

A.On October 21, 2013 the Board resolved to adopt the Global Share Incentive Plan (2013) (the "2013 Plan") and to reserve up to 500,000 ordinary shares for issuance under the 2013 Plan to employees, directors, officers and consultants of the Company or of any subsidiary or affiliate of the Company. In January 2018, our Board approved the increase of the number of ordinary shares reserved for issuance under the 2013 Plan by 600,000 additional ordinary shares. Grants under the 2013 Plan, whether as options, restricted stock units, restricted stock or other equity based awards, including their terms, are subject to the Board of Directors' approval. Grants to directors and certain other officers are generally subject to the approvals of the Compensation Committee as well as Board of Directors, and grants to directors or a CEO (and under certain circumstances certain other officers) will also have to be approved by the Shareholders.

B.Options or RSUs granted to Israeli residents may be granted under Section 102 of the Israeli Income Tax Ordinance pursuant to which the awards of options, or the ordinary shares issued upon their exercise, must be deposited with a trustee for at least two years following the date of grant. Under Section 102, any tax payable by an employee from the grant or exercise of the awards is deferred until the transfer of the awards or ordinary shares by the trustee to the employee or upon the sale of the awards or ordinary shares.

Capital gains on awards granted under the plans are subjected to tax of 25% to be paid by the employee, and the Company is not entitled to a tax deduction.

Gains which are not capital gains on awards under the plans are subjected to regular tax rates on individuals, and the Company is entitled to a tax deduction for such gains.

F - 33

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 12 - Shareholders' Equity (cont'd)

Share based compensation (cont'd)

C.During 2017 and 2020, the Company granted 78,000 and 86,000 RSUs respectively to certain of its directors, employees and consultants under the 2013 Plan. In relation to those grants:

1.The vesting period of the RSUs ranges between 2 to 3 years from the date of grant.

2.The fair value of RSUs is estimated based on the market value of the Company’s stock on the date of grant, less an estimate of dividends that will not accrue to RSUs holders prior to vesting.

3.The Company recognizes compensation expenses on these RSUs based on estimated grant date fair value, with the following assumptions:

	2017			2020
Expected dividend yield		2.68	%		0	%
Termination rate		1.74	%		1.58	%

F - 34

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 12 - Shareholders' Equity (cont'd)

Share based compensation (cont'd)

D.On June 8, 2016, the Company granted, in the aggregate, 93,660 options to certain of its directors and employees under the 2013 Plan. In relation to this grant:

1.The exercise price for the options (per ordinary share) was US$ 28.38 and the Option expiration date was the earlier to occur of: (a) June 8, 2024; and (b) the closing price of the shares falling below US$ 14.19 at any time after the date of grant. The options vest and become exercisable on the second anniversary of the date of grant.

2.The Company recognizes compensation expenses on these options based on estimated grant date fair value using the Binomial option-pricing model with the following assumptions:

Average Risk-free interest rate (a)	1.58	%
Expected dividend yield	2.42	%
Average expected volatility (b)	47.90	%
Termination rate	9	%
Suboptimal factor (c)	3.32

(a)	Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant.
(b)	Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market.
(c)	Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies.

F - 35

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 12 - Shareholders' Equity (cont'd)

Share based compensation (cont'd)

E.On January 30, 2017, the Company granted, in the aggregate, 119,925 options to certain of its directors and employees under the 2013 Plan. In relation to this grant:

1.The exercise price for the options (per ordinary share) was US$ 39.62 and the Option expiration date was the earlier to occur of: (a) January 30, 2025; and (b) the closing price of the shares falling below US$ 19.81 at any time after the date of grant. The options vest and become exercisable on the second anniversary of the date of grant.

2.The Company recognizes compensation expenses on these options based on estimated grant date fair value using the Binomial option-pricing model with the following assumptions:

Average Risk-free interest rate (a)	2.35	%
Expected dividend yield	2.42	%
Average expected volatility (b)	43.71	%
Termination rate	9	%
Suboptimal factor (c)	3.28

(a)	Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant.
(b)	Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market.
(c)	Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies.

F - 36

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 12 - Shareholders' Equity (cont'd)

Share based compensation (cont'd)

F.On April 30, 2018, the Company granted, in the aggregate, 137,010 options to certain of its directors and employees under the 2013 Plan. In relation to this grant:

1.The exercise price for the options (per ordinary share) was US$ 36.11 and the Option expiration date was the earlier to occur of: (a) April 30, 2026; and (b) the closing price of the shares falling below US$ 18.06 at any time after the date of grant. The options vest and become exercisable on the second anniversary of the date of grant.

2.The Company recognizes compensation expenses on these options based on estimated grant date fair value using the Binomial option-pricing model with the following assumptions:

Average Risk-free interest rate (a)	2.92	%
Expected dividend yield	0.0	%
Average expected volatility (b)	45.13	%
Termination rate	9	%
Suboptimal factor (c)	3.2

(a)	Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant.
(b)	Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market.
(c)	Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies.

F - 37

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 12 - Shareholders' Equity (cont'd)

Share based compensation (cont'd)

G.On January 31, 2019, the Company granted, in the aggregate, 141,928 options to certain of its directors and employees under the 2013 Plan. In relation to this grant:

1.The exercise price for the options (per ordinary share) was US$ 33.83 and the Option expiration date was the earlier to occur of: (a) January 31, 2027; and (b) the closing price of the shares falling below US$ 16.92 at any time after the date of grant. The options vest and become exercisable on the second anniversary of the date of grant.

2.The Company recognizes compensation expenses on these options based on estimated grant date fair value using the Binomial option-pricing model with the following assumptions:

Average Risk-free interest rate (a)	2.55	%
Expected dividend yield	0.0	%
Average expected volatility (b)	44.62	%
Termination rate	9	%
Suboptimal factor (c)	3.18

(a)	Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant.
(b)	Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market.
(c)	Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies.

F - 38

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 12 - Shareholders' Equity (cont'd)

Share based compensation (cont'd)

H.On June 8, 2020, the Company granted, in the aggregate, 148,426 options to certain of its directors and employees under the 2013 Plan. In relation to this grant:

3.The exercise price for the options (per ordinary share) was US$ 32.54 and the Option expiration date was the earlier to occur of: (a) June 8, 2028; and (b) the closing price of the shares falling below US$ 16.27 at any time after the date of grant. The options vest and become exercisable on the second anniversary of the date of grant.

4.The Company recognizes compensation expenses on these options based on estimated grant date fair value using the Binomial option-pricing model with the following assumptions:

Average Risk-free interest rate (a)	0.75	%
Expected dividend yield	0.0	%
Average expected volatility (b)	45.29	%
Termination rate	9	%
Suboptimal factor (c)	3.16

(a)	Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant.
(b)	Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market.
(c)	Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies.

F - 39

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 12 - Shareholders' Equity (cont'd)

Share based compensation (cont'd)

I.The following table summarizes information regarding stock options as at December 31, 2020:

	Options outstanding					Options exercisable
				Weighted average				Weighted average
				remaining				remaining
Exercise price		Number		contractual life		Number		contractual life
US$		of options		(in years)		of options		(in years)
26.91			19,332		2.6		19,332		2.6
33.27			19,706		5.3		19,706		5.3
28.38			68,649		3.4		68,649		3.4
39.62			101,004		4.1		101,004		4.1
36.11			114,090		5.3		114,090		5.3
33.83			125,674		6.1		-		-
32.54			141,592		7.4		-		-
			590,047				322,781

The aggregate intrinsic value of options outstanding as of December 31, 2019 and 2020 is US$ 593 thousand and US$ 4,589 thousand, respectively.

The aggregate intrinsic value of options exercisable as of December 31, 2019 and 2020 is US$ 593 thousand and US$ 2,263 thousand, respectively.

The total intrinsic value of options exercised during the year ended December 31, 2019 and 2020, is US$ 28 thousand and US$ 240 thousand, respectively.

F - 40

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 12 - Shareholders' Equity (cont'd)

Share based compensation (cont'd)

J.The stock option activity under the abovementioned plans is as follows:

	Number of options			Weighted average exercise price		Weighted average grant date fair value
				US$		US$
Balance at January 1, 2018		249,911
Granted		137,010			36.11		14.71
Exercised		(9,674	)		28.02		9.94
Forfeited		(11,752	)		36.73		13.05
Balance at December 31, 2018		365,495
Granted		141,928			33.83		13.35
Exercised		(5,500	)		28.09		10.03
Forfeited		(36,676	)		35.88		13.50
Balance at December 31, 2019		465,247
Granted		148,426			32.54		14.82
Exercised		(12,357	)		22.38		8.63
Forfeited		(11,269	)		33.93		14.56
Balance at December 31, 2020		590,047
Exercisable at December 31, 2020		322,781

F - 41

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 12 - Shareholders' Equity (cont'd)

Share based compensation (cont'd)

K.The Restricted Share Units activity under the abovementioned plans is as follows:

	Number of Restricted Share Units			Weighted average grant date fair value
				US$
Balance at January 1, 2018 and December 31, 2018		78,000
Vested		(39,000	)		35.36
Balance at December 31, 2019		39,000
Granted		86,000			35.33
Vested		(39,000	)		34.43
Balance at December 31, 2020		86,000

The aggregate intrinsic value of RSUs outstanding as of December 31, 2019 and December 31, 2020 is US$ 1,297 thousand and US$ 3,599 thousand, respectively.

F - 42

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 12 - Shareholders' Equity (cont'd)

Share based compensation (cont'd)

L.During 2018, 2019 and 2020, the Company recorded share-based compensation expenses. The following summarizes the allocation of the stock-based compensation expenses:

	Year ended December 31
	2018		2019		2020
	US$ thousands
Cost of sales		372		437		535
Research and development costs		953		900		959
Selling and marketing expenses		569		493		602
General and administrative expenses		530		525		615
		2,424		2,355		2,711

As of December 31, 2020, there were US$ 3,616 thousand of unrecognized compensation costs related to outstanding stock options and RSUs to be recognized over a weighted average period of 1.73 years.

The total tax benefit recognized in the consolidated statements of operations related to share based compensation expenses amounted to US$ 67 thousand for the year ended December 31, 2020.

F - 43

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 13 - Geographic areas and major customers

A.Information on sales by geographic distribution:

The Company has one operating segment.

Sales are attributed to geographic distribution based on the location of the customer.

	Year ended December 31
	2018		2019		2020
	US$ thousands
North America		108,024		77,161		65,142
Europe		21,038		20,956		35,570
Asia-Pacific		4,691		7,123		6,686
		133,753		105,240		107,398

B.Sales to single customers exceeding 10% of sales (US$ thousands):

	Year ended December 31
	2018		2019		2020
	US$ thousands
Customer "A"		305		2,428		13,468
Customer "B"		-		-		13,328
Customer "C"		18,855		17,107		12,278
Customer "D"		14,506		11,030		4,225
Customer "E"		14,220		121		44

F - 44

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 13 - Geographic areas and major customers (cont'd)

C.Information on Long-Lived Assets - Property, Plant and Equipment and ROU assets by geographic areas:

The following table presents the locations of the Company’s long-lived assets as of December 31, 2019 and 2020:

	Year ended December 31
	2019		2020
	US$ thousands
North America		1,189	1,081
Europe		198	189
Israel		5,970	12,753
		7,357	14,023

F - 45

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 14 - Financial Income (Expenses), Net

	Year ended December 31
	2018			2019			2020
	US$ thousands
Interest income		840			2,295			2,197
Discount on marketable securities, net		(32	)		(144	)		(244	)
Exchange rate differences, net		208			(357	)		(748	)
Bank charges		(93	)		(148	)		(171	)
		923			1,646			1,034

F - 46

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 15 - Taxes on Income

A.Measurement of results for tax purposes under the Israeli Income Tax Regulations (Rules for Maintaining Accounting Records of Foreign Invested Companies and Certain Partnerships and Determining Their Taxable Income) - 1986

As a "foreign invested company" (as defined in the Israeli Law for the Encouragement of Capital Investments-1959), the taxable income or loss and the tax basis of assets and liabilities of the Company’s Israeli operations are denominated in US Dollars.

B.Corporate tax rate in Israel

The regular corporate tax rate applied to taxable income of Israeli companies is 23% (as from 2018 onwards).

C.Tax benefits under the Israeli Law for the Encouragement of Capital Investments, 1959 (hereinafter - the "Law")

1.On December 29, 2010 the Knesset approved the Economic Policy Law for 2011-2012, which includes an amendment to the Law for the Encouragement of Capital Investments – 1959 (hereinafter – "the Amendment to the Law"). The Amendment to the Law is effective from January 1, 2011 and its provisions will apply to preferred income derived or accrued in 2011 and thereafter by a Preferred Company, per the definition of these terms in the Amendment to the Law.

Companies can choose to not be included in the scope of the Amendment to the Law and to stay in the scope of the law before its amendment until the end of the benefits period.

Under the Amendment to the Law, upon an irrevocable election made by a company, a uniform corporate tax rate will apply to all preferred income of such company. The Company elected to apply the uniform corporate tax rate as of 2014. From 2017 onwards, the uniform tax rate is to be 7.5% in areas in Israel designated as Development Zone A and 16% elsewhere in Israel. The company has two facilities in Israel of which one of them is located in Development Zone A. The profits of these Preferred Companies will be freely distributable as dividends, subject to a withholding tax of 20% (or a lower rate under an applicable tax treaty).

Should the Company derive income from sources other than the Preferred Company, such income will be taxable at the regular corporate tax rates for the applicable year.

F - 47

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 15 - Taxes on Income (cont’d)

C.Tax benefits under the Israeli Law for the Encouragement of Capital Investments, 1959 (hereinafter - the "Law") (cont'd)

On December 29, 2016 the Israeli Parliament (the "Knesset") enacted the "Economic Efficiency Law (Legislative Amendments for Achieving Budget Objectives in the Years 2017 and 2018) – 2016" in which the Law was also amended (hereinafter: “the Amendment”). The Amendment added new tax benefit tracks for a “preferred technological enterprise” and a “special preferred technological enterprise” which award reduced tax rates to a technological industrial enterprise for the purpose of encouraging activity relating to the development of qualifying intangible assets.

The benefits will be awarded to a “preferred company” that has a “preferred technological enterprise” or a “special preferred technological enterprise” with respect to taxable “preferred technological income” per its definition in the Law.

Preferred technological income that meets the conditions required in the law, will be subject to a reduced corporate tax rate of 12%, and if the preferred technological enterprise is located in "Development Area A" in Israel - to a reduced tax rate of 7.5%. A company that owns a special preferred technological enterprise will be subject to a reduced corporate tax rate of 6% regardless of the development area in which the enterprise is located. The Amendment is effective as from January 1, 2017.

On June 14, 2017 the Knesset Finance Committee approved "Encouragement of Capital Investment Regulations (Preferred Technological Income and Capital Gain of Technological Enterprise) – 2017" (hereinafter: “the Regulations”), which provides rules for applying the “preferred technological enterprise” and “special preferred technological enterprise” tax benefit tracks, including the Nexus formula that provides the mechanism for allocating the technological income eligible for the benefits.

Should the Company derive income from sources other than the “preferred technological enterprise”, such income will be taxable at the "Preferred Company" tax rate (for manufacturing activity in Israel) or regular corporate tax rates for the applicable year.

As a result of the aforesaid legislation, starting 2021 the Company is expected to implement the “preferred technological enterprise” tax benefit track; however, the transition to this tax benefit track is not expected to significantly change the Company's effective tax rate and the deferred tax liabilities and deferred tax assets that were recognized.

F - 48

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 15 - Taxes on Income (cont’d)

C.Tax benefits under the Israeli Law for the Encouragement of Capital Investments, 1959 (hereinafter - the "Law") (cont'd)

2.In the event of distribution by the Company of dividends out of its retained earnings that were generated prior to the 2014 tax year and were tax exempt under the "Approved Enterprise" or "Benefited Enterprise" status, the Company would be subjected to a maximum of 25% corporate tax on the amount distributed, and a further 15% withholding tax would be deducted from the amounts distributed to the shareholders.

Out of the Company’s retained earnings as of December 31, 2020, approximately US$ 54,303 thousand are tax-exempt, under our previous "Approved Enterprise" and "Benefited Enterprise" status. If such tax-exempt income is distributed as a dividend (including a liquidation dividend), it would be taxed at the regular corporate tax rate applicable to such profits (subject to a maximum rate of 25%) and an income tax liability of up to approximately US$ 13,576 thousand would be incurred as of December 31, 2020. The Company anticipates that any future dividends distributed pursuant to its dividend policy, will be distributed from income sources which will not impose additional tax liabilities on the Company. The Company intends to reinvest its tax-exempt income. Accordingly, no deferred tax liability has been recognized for income attributable to the Company’s previous "Approved Enterprise" or "Benefited Enterprise" status. If the Company was to declare a dividend from its tax-exempt income, an income tax expense would be recognized in the period a dividend is declared.

F - 49

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 15 - Taxes on Income (cont’d)

D.Taxation of the subsidiaries

1.The subsidiary Silicom Inc. files tax returns with US federal tax authorities and with state tax authorities in the states of New Jersey, California, Virginia, New York, New Mexico, Tennessee, Texas and Illinois.

The federal corporate income tax rate is 21%.

2.The subsidiary Silicom Denmark is taxed according to the tax laws in Denmark.

3.The Company has not provided for Israeli income and foreign withholding taxes on US$ 8,702 thousand of its non-Israeli subsidiaries' undistributed earnings as of December 31, 2020. The earnings could become subject to tax if earnings are remitted or deemed remitted as dividends or upon sale of a subsidiary.

The Company currently has no plans to repatriate those funds and intends to indefinitely reinvest them in its non-Israeli operations. The unrecognized deferred tax liability associated with these temporary differences was approximately US$ 1,188 thousand at December 31, 2020.

4.As of December 31, 2020, the net operating loss carry-forwards of the Companys’ subsidiaries for tax purposes amounted to approximately US$ 300 thousand. These losses are available to offset any future taxable income.

E.Tax assessments

1.For the Israeli jurisdiction the Company has final tax assessments for all years up to and including the tax year ended December 31, 2015.

2.For the US federal jurisdiction, Silicom Inc. has final tax assessments for all years up to and including the tax year ended December 31, 2016. For the New Jersey and California state jurisdictions, Silicom Inc. has final tax assessments for all years up to and including the tax year ended December 31, 2015. For the Virginia, Tennessee, New York and New Mexico state jurisdictions, Silicom Inc. has final tax assessments for all years up to and including the tax year ended December 31, 2017. For the Texas state jurisdiction, Silicom Inc. has open tax assessments for the years 2018 through 2020. For the Illinois state jurisdiction, Silicom Inc. has open tax assessment for the year 2020.

3.For the Danish jurisdiction, Silicom Denmark has final tax assessments for all years up to and including the tax year ended December 31, 2015.

F - 50

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 15 - Taxes on Income (cont’d)

F.Income before income taxes and income taxes expense (benefit) included in the consolidated statements of operations

	Year ended December 31
	2018			2019			2020
	US$ thousands
Income before income taxes:
Israel		14,703			9,339			5,565
Foreign jurisdictions		2,871			2,520			1,717
		17,574			11,859			7,282
Current taxes:
Israel		2,400			1,732			1,260
Foreign jurisdictions		831			611			506
		3,231			2,343			1,766
Current tax (benefits) expenses relating to prior years:
Israel		(73	)		(17	)		50
Foreign jurisdictions		(226	)		(4	)		(198	)
		(299	)		(21	)		(148	)
Deferred taxes:
Israel		(106	)		(904	)		8
Foreign jurisdictions		111			205			(69	)
		5			(699	)		(61	)
Income tax expense		2,937			1,623			1,557

F - 51

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 15 - Taxes on Income (cont’d)

G.Deferred tax assets and liabilities

The tax effects of significant items comprising the Company’s deferred tax assets and liabilities are as follows:  

	December 31			December 31
	2019			2020
	US$ thousands			US$ thousands
Deferred tax assets:
Accrued employee benefits		327			368
Research and development costs		1,597			1,859
Operating loss carryforwards		196			66
Property, plant and equipment		31			-
Share based compensation		374			365
Intangible assets		347			287
Operating lease liabilities		-			1,121
Other		-			1
Total deferred tax assets		2,872			4,067
Deferred tax liabilities:
Intangible assets		(397	)		(203	)
Goodwill		(879	)		(1,089	)
Operating leases right-of-use, net		-			(1,100	)
Other		(3	)		(21	)
Total deferred tax liabilities		(1,279	)		(2,413	)
Net deferred tax assets		1,593			1,654
In Israel		1,798			1,790
Foreign jurisdictions		(205	)		(136	)
Net deferred tax assets		1,593			1,654
Non-current deferred tax assets		1,798			1,790
Non-current deferred tax liabilities		(205	)		(136	)

F - 52

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 15 - Taxes on Income (cont’d)

H.Reconciliation of the statutory tax expense to actual tax expense

	Year ended December 31
	2018			2019			2020
	US$ thousands
Income before income taxes		17,574			11,859			7,282
Statutory tax rate in Israel		23.0	%		23.0	%		23.0	%
		4,042			2,728			1,675
Increase (decrease) in taxes resulting from:
Non-deductible operating expenses		295			417			508
Prior years adjustments		(299	)		(21	)		(148	)
Tax effect due to
"Preferred Enterprise" status*		(1,398	)		(1,099	)		(714	)
Statutory rate differential		176			18			105
Changes in tax rate		-			7			181
Creation of deferred taxes for tax losses and benefits from previous years for which deferred taxes were not created in the past		-			(476	)		-
Other		121			49			(50	)
Income tax expense		2,937			1,623			1,557

* The effect of the benefit resulting from the "Preferred Enterprise" status on net earnings per ordinary share is as follows:

	Year ended December 31
	2018		2019		2020
Basic		0.19		0.15		0.10
Diluted		0.18		0.15		0.10

F - 53

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 15 - Taxes on Income (cont’d)

I.Accounting for uncertainty in income taxes

The accounting literature clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The standards prescribe a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. It also requires significant judgment in determining what constitutes an individual tax position as well as assessing the outcome of each tax position.

During 2018, 2019 and 2020 the Company and its subsidiaries did not have any significant unrecognized tax benefits and thus, no related interest and penalties were accrued.

In addition, the Company and its subsidiaries do not expect that the amount of unrecognized tax benefits will change significantly within the next twelve months.

F - 54

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 16 - Subsequent Events

(1)In January 2021, the Company’s compensation committee and board of directors, respectively, have approved the grant of a total of 137,759 options under the Global Share Incentive Plan (2013), of which options granted to directors and office holders are subject to the approval of the Annual General Meeting, which is currently scheduled to convene no later than June 2021, as prescribed under the Israeli Companies Law, 1999 and the Company's Amended and Restated Articles of Association.

(2)Pursuant to the share repurchase plan approved on April 30, 2020, the Company has purchased 49,555 shares of the Company's ordinary shares subsequent to December 31, 2020 and through March 5, 2021 for a total cost of US$ 2,257 thousand inclusive of transaction costs.

F - 55

EX-99

Exhibit 99.2

A.          Operating Results

You should read the following management’s discussion and analysis of our financial condition and operating results in conjunction with the consolidated financial statements and the related notes thereto included in this annual report. The following table sets forth, for the periods indicated, the relationship (in percentages) of items from our Consolidated Statement of Operations Data to our total sales:

Year Ended December 31,
	2018			2019			2020
Sales		100	%		100	%		100	%
Cost of sales		68.6			65.7			68.6
Gross profit		31.4			34.3			31.4
Research and development expenses		11.1			14.3			16.1
Sales and marketing expenses		5.0			6.3			5.8
General and administrative expenses		2.9			4.0			3.7
Operating Income		12.4			9.7			5.8
Financial income, net		0.7			1.6			1.0
Income before income taxes		13.1			11.3			6.8
Income tax expenses		2.2			1.6			1.4
Net Income		10.9			9.7			5.4

Sales in 2020 were US$ 107,398 thousand compared to US$ 105,240 thousand in 2019, reflecting the significant challenges presented in 2020 by Covid-19 and the continuous impact of the main market trends on our business - the move to the Cloud and Disaggregation & Decoupling.

Sales in 2019 decreased by 21.3% to US$ 105,240 thousand compared to US$ 133,753 thousand in 2018. This decrease was mainly attributed to the lack of revenues from our largest-ever Cloud related Design Win we lost in March 2018. During 2019 we had no revenues from this Design Win.

Gross profit in 2020 was US$ 33,766 thousand compared to US$ 36,094 thousand in 2019. Gross profit as a percentage of sales in 2020 was 31.4%, compared to 34.3% in 2019. The lower gross profit percentage in 2020 compared to 2019 was mainly attributed to: (i) a one-time US$ 1.7 million impairment of intangible assets, (ii) changes to the mix of products that we sold in 2020, on which our gross profit is largely dependent. Gross profit was also affected by, among other factors, write-downs of inventory made with respect to any slow moving or obsolete inventory we can no longer use; the inventory write-downs as a percentage of sales in 2020 decreased to 1.5%, compared to 2.0% in 2019.

Gross profit in 2019 was US$ 36,094 thousand compared to US$ 42,056 thousand in 2018. Gross profit as a percentage of sales in 2019 was 34.3%, compared to 31.4% in 2018. The higher gross profit percentage in 2019 compared to 2018 was mainly attributed to: (i) a US$ 3.2 million write-off in 2018 related to the loss of our largest-ever Cloud related Design Win, which we announced on March 13, 2018, (ii) changes to the mix of products that we sold in 2019, on which our gross profit is largely dependent. Gross profit was also affected by, among other factors, write-downs of inventory made with respect to any slow moving or obsolete inventory we can no longer use (not including the above mentioned write-off); the inventory write-downs as a percentage of sales in 2019 decreased to 2.0%, compared to 2.9% in 2018.

Research and development expenses in 2020 increased by 14.4% to US$ 17,244 thousand compared to US$ 15,075 thousand in 2019. This increase was mainly attributed to an increase in our research and development employees’ related costs, required for our continued investment in new product development, enhancements to existing products and the development of new networking and connectivity technologies expanding our product offering to our target markets, which contributed approximately US$ 1,479 thousand to such increase, combined with the following factors: (i) capitalization of internal software development costs in the amount of US$ 822 thousand in 2020, compared to US$ 1,018 thousand in 2019, (ii) an increase in the share-based compensation which amounted to approximately US$ 959 thousand in 2020, compared to US$ 900 thousand in 2019, as well as to (iii) a weakening of the US Dollar against the New Israeli Shekel and the Danish Krone (since a significant portion of our research and development expenses are incurred in New Israeli Shekels and Danish Krone), which amounted to approximately US$ 435 thousand.

Research and development expenses in 2019 increased moderately by 1.7% to US$ 15,075 thousand compared to US$ 14,820 thousand in 2018. This increase was mainly attributed to an increase in our research and development employees’ related costs, required for our continued investment in new product development, enhancements to existing products and the development of new networking and connectivity technologies expanding our product offering to our target markets, which contributed approximately US$ 1,169 thousand to such increase, offset by the following factors: (i) a decrease in amortization of acquired intangible assets, which amounted to US$ 0 in 2019, compared to US$ 655  thousand in 2018, (ii) capitalization of internal software development costs in the amount of US$ 1,018 thousand in 2019, compared to US$ 928 thousand in 2018, (iii) a decrease in the share-based compensation which amounted to approximately US$ 900 thousand in 2019, compared to US$ 953 thousand in 2018, and to (iv) the net effect of the strengthening of the US Dollar against the  Danish Krone, on the one hand, offset by a weakening of the US Dollar against the New Israeli Shekel on the other hand,  (since a significant portion of our research and development expenses are incurred in New Israeli Shekels and Danish Krone), which amounted to approximately US$ 116 thousand.

Sales and marketing expenses in 2020 decreased by 6.6% to US$ 6,209 thousand compared to US$ 6,647 thousand in 2019. This decrease was mainly attributed to a decrease in the travel expenses in 2020 compared to 2019 as a result of the Covid-19 pandemic, which contributed approximately US$ 642 thousand, offset by an increase in the share-based compensation which amounted to approximately US$ 602 thousand in 2020, compared to US$ 493 thousand in 2019, and by a weakening of the US Dollar against the New Israeli Shekel and the Danish Krone (since a significant portion of our sales and marketing expenses are incurred in New Israeli Shekels and Danish Krone) which amounted to approximately US$ 95 thousand.

Sales and marketing expenses in 2019 increased slightly by 0.1% to US$ 6,647 thousand compared to US$ 6,642 thousand in 2018. This increase was mainly attributed to our continued investment in the promotion of our networking and data infrastructure solutions, expanding our customer base and product offering, which contributed approximately US$ 465 thousand, offset by a decrease in amortization of acquired intangible assets which amounted to US$ 0 in 2019, compared to US$ 384 thousand in 2018, as well as to a decrease in the share-based compensation which amounted to approximately US$ 493 thousand in 2019, compared to US$ 569 thousand in 2018.

General and administrative expenses in 2020 decreased slightly by 2.3% to US$ 4,065 thousand compared to US$ 4,159 thousand in 2019. This decrease was mainly attributed to a decrease in payroll related expenses attributed to general and administrative activity which amounted to approximately US$ 203 thousand,  offset by a weakening of the US Dollar against the New Israeli Shekel and the Danish Krone (since a significant portion of our general and administrative expenses are incurred in New Israeli Shekels and Danish Krone) which amounted toapproximately US$ 109 thousand.

General and administrative expenses in 2019 increased by 5.5% to US$ 4,159 thousand compared to US$ 3,943 thousand in 2018. This increase was mainly attributed to various general and administrative costs which amounted to approximately US$ 244 thousand, offset by the net effect of the strengthening of the US Dollar against the Danish Krone, on the one hand, offset by a weakening of the US Dollar against the New Israeli Shekel, on the other hand  (since a significant portion of our general and administrative expenses are incurred in New Israeli Shekels and Danish Krone), which amounted to approximately US$ 28 thousand.

Financial income, net in 2020 decreased by 37.2% to US$ 1,034 thousand compared to US$ 1,646 thousand in 2019. The decrease resulted mainly from the net effect of the following factors: (i) a decrease in income from investment in marketable securities and bank deposits, which was attributed to a decrease in funds available for investment, which amounted to US$ 1,953 thousand in 2020 compared to US$ 2,151 thousand in 2019, and(ii) a weakening of the US Dollar against the New Israeli Shekel and the Danish Krone, which created net financial expenses in US Dollars from exchange rate differences (a portion of our balance sheet assets and obligations are denominated in New Israeli Shekels as well as Danish Krone) of US$ 748 thousand in 2020 compared to net financial expenses of US$ 357 thousand in 2019.

Financial income, net in 2019 increased by 78.3% to US$ 1,646 thousand compared to US$ 923 thousand in 2018. The increase resulted mainly from the net effect of the following factors: (i) an increase in income from investment in marketable securities and bank deposits, which was attributed to an increase in funds available for investment, which amounted to US$ 2,151 thousand in 2019 compared to US$ 808 thousand in 2018, offset by (ii) the net effect of the weakening of the US Dollar against the New Israeli Shekel, on the one hand, offset by a strengthening of the US Dollar against the Danish Krone on the other hand, which created a net financial expenses in US Dollars from exchange rate differences (a portion of our balance sheet assets and obligations are denominated in New Israeli Shekels as well as Danish Krone) of US$ 357 thousand in 2019 compared to a net financial income of US$ 208 thousand in 2018.

In 2020 we recorded current income tax expenses of US$ 1,766 thousand and deferred income tax benefit of US$ 61 thousand compared to current income tax expenses of US$ 2,343 thousand and deferred income tax benefit of US$ 699 thousand in 2019. The decrease in our current income tax expenses was mainly attributed to a decrease in our income and the resulting taxable income. The decrease in the deferred income tax benefit was mainly attributed to the following factors: (i) a deferred income tax benefit relating to research and development costs, which amounted to US$ 262 thousand in 2020 compared to deferred income tax benefit in the amount of US$ 755 thousand in 2019, and (ii) deferred income tax expenses in relation to acquired goodwill, which amounted to US$ 210 thousand in 2020 compared to US$ 72 thousand in 2019. In addition, in 2020 we recorded an income tax benefit relating to prior years in the amount of US$ 148 thousand, compared to an income tax benefit relating to prior years in the amount of US$ 21 thousand in 2019.

In 2019 we recorded current income tax expenses of US$ 2,343 thousand and deferred income tax benefit of US$ 699 thousand compared to current income tax expenses of US$ 3,231 thousand and deferred income tax expenses of US$ 5 thousand in 2018. The decrease in our current income tax expenses was mainly attributed to a decrease in our income and the resulting taxable income. The change in the deferred income tax benefit was mainly attributed to the following factors: (i) a deferred income tax benefit relating to research and development costs, which amounted to US$ 755 thousand in 2019 compared to deferred income tax expenses in the amount of US$ 4 thousand in 2018,  (ii) a decrease in deferred income tax expenses relating to intangible assets, which amounted to US$ 40 thousand in 2019 compared to US$ 120 thousand in 2018, offset by (iii) a decrease in deferred income tax benefit relating to share-based compensation provided by us to our employees and directors, which amounted to US$ 26 thousand in 2019 compared to US$ 135 thousand in 2018. In addition, in 2019 we recorded an income tax benefit relating to prior years in the amount of US$ 21 thousand, compared to an income tax benefit relating to prior years in the amount of US$ 299 thousand in 2018.

In 2020 we recorded net income of US$ 5,725 thousand compared to net income of US$ 10,236 thousand in 2019, a decrease of 44.1%. The decrease was mainly attributed to our lower gross profit in 2020 compared to 2019, as mentioned above, combined with higher operating expenses we incurred in 2020 relative to operating expenses we incurred in 2019.

In 2019 we recorded net income of US$ 10,236 thousand compared to net income of US$ 14,637 thousand in 2018, a decrease of 30.1%. The decrease was mainly attributed to our lower gross profit in 2019 compared to 2018, as mentioned above.

Impact of Inflation and Currency Fluctuations on Results of Operations, Liabilities and Assets

Since the majority of our revenues are denominated and paid in U.S. Dollars, we believe that inflation in Israel and in Denmarkand fluctuations in the U.S. dollar exchange rates do not have any material effect on our revenue. Inflation in Israel or Denmark and the Israeli and Danish currency as well as U.S. dollar exchange rate fluctuations, may however, have an effect on our expenses and, as a result, on our net income/loss. The cost of our Israeli and Danish operations, as expressed in U.S. Dollars, is influenced by the extent to which any change in the rates of inflation in Israel or Denmark are not offset (or are offset on a lagging basis) by a change in valuation of the NIS or DKK in relation to the U.S. dollar.

We do not presently engage in any hedging or other transactions intended to manage the risks relating to foreign currency exchange rate or interest rate fluctuations. However, we may in the future undertake such transactions, if management determines that it is necessary to offset such risks.

B.        Liquidity and Capital Resources

As of December 31, 2020, we had working capital of US$ 106,853 thousand and our current ratio (current assets to current liabilities) was 4.64. Cash and cash equivalents as of December 31, 2020 increased by US$ 4,207 thousand to US$ 20,676 thousand, compared to US$ 16,469 thousand as of December 31, 2019. Short-term bank deposits as of December 31, 2020 decreased by US$ 8,542 thousand to US$ 5,000 thousand, compared to US$ 13,542 thousand as of December 31, 2019. Short-term marketable securities increased by US$ 21,072 thousand to US$ 35,117 thousand, compared to US$ 14,045 thousand as of December 31, 2019, and long-term marketable securities decreased by US$ 31,261 thousand to US$ 15,281 thousand, compared to US$ 46,542 thousand as of December 31, 2019. The net decrease of US$ 14,524 thousand in these four balance sheet items in 2020 was mainly attributed to the following factors: (i) purchase of treasury shares in the amount of approximately US$ 16,798 thousand, (ii) payments in relation to purchase of property, plant and equipment which amounted to US$ 1,694 thousand, and (iii) to investment in intangible assets which amounted to US$ 1,487 thousand,  offset by (iv) a positive cash provided by operating activities in the amount of US$ 4,956 thousand, and(v) consideration received in connection with exercise of options to purchase our ordinary shares in the amount of approximately US$ 276 thousand.

Trade receivables decreased to US$ 21,660 thousand as of December 31, 2020, compared to US$ 24,936 thousand as of December 31, 2019. This decrease was mainly affected by a decrease in the average payment terms of our customers compared to the terms that were in 2019. Other receivables increased to US$ 6,126 thousand as of December 31, 2020, compared to US$ 4,964 thousand as of December 31, 2019.

Trade payables decreased to US$ 14,610 thousand as of December 31, 2020, compared to US$ 16,419 thousand as of December 31, 2019. This decrease was mainly attributed to a change of average payment terms with our suppliers. Other payables and accrued liabilities increased to US$ 12,953 thousand as of December 31, 2020, compared to US$ 8,823 thousand as of December 31, 2019. This increase was mainly attributed to an increase in advance payments relating to customers.

Inventories increased to US$ 47,650 thousand as of December 31, 2020, compared to US$ 36,491 thousand as of December 31, 2019. This increase was primarily the result of an increase in our inventory purchasing, in order to secure continuous production to support our customers' expectations of a swift delivery, making the readily available inventory pivotal to our business.

Cash provided by operating activities in 2020 amounted to US$ 4,956 thousand compared to cash provided by operating activities in the amount of US$ 26,726 thousand in 2019. The cash provided by operating activities in 2020 was mainly the result of our net income, combined with changes in our inventory.

Capital expenditures on property and equipment for the year ended December 31, 2020 were US$ 2,543 thousand, compared to US$ 1,635 thousand as of December 31, 2019. This increase was mainly attributed to an increase in investment in equipment used for production and research and development.

We have cash and cash equivalents that we believe are sufficient for our present requirements. Furthermore, our cash resources are sufficient to fund our operating needs for at least the next twelve months.

EX-99.3

Exhibit 99.3

Consent of Independent Registered Public Accounting Firm

The Board of Directors Silicom Ltd.:

We consent to the incorporation by reference in registration statement No. 333-149144, No. 333- 185230, No. 333-193034 and No. 333-249717 on Form S-8 of Silicom Ltd. of our report dated March 15, 2021, with respect to the consolidated balance sheets of Silicom Ltd. and its subsidiaries as of December 31, 2019 and 2020, and the related consolidated statements of operations, changes in shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes, and the effectiveness of internal control over financial reporting as of December 31, 2020, which report appears in Form 6-K of Silicom Ltd. dated March 15, 2021.

Our report refers to a change to the method of accounting for leases.

/s/ Somekh Chaikin

Member Firm of KPMG International Tel Aviv, Israel

March 15, 2021

XML

Document And Entity Information	12 Months Ended
	Dec. 31, 2020
Document And Entity Information [Abstract]
Entity Registrant Name	SILICOM LTD.
Entity Central Index Key	0000916793
Document Type	6-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2020
Current Fiscal Year End Date	--12-31
Entity File Number	000-23288
Entity Address, Address Line One	14 Atir Yeda St.
Entity Address, Address Line Two	P.O.Box 2164
Entity Address, Address Line Three	Kfar-Sava
Entity Address Country	IL
Entity Address, Postal Zip Code	4464323

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019
Current assets
Cash and cash equivalents	$ 20,676	$ 16,469
Short-term bank deposits	5,000	13,542
Marketable securities	35,117	14,045
Accounts receivable:
Trade, net	21,660	24,936
Other	6,126	4,964
Inventories	47,650	36,491
Total current assets	136,229	110,447
Marketable securities	15,281	46,542
Assets held for employees' severance benefits	1,833	1,640
Deferred tax assets	1,790	1,798
Property, plant and equipment, net	4,110	3,574
Intangible assets, net	1,170	1,718
Operating leases right-of-use, net	9,913	3,783
Goodwill	25,561	25,561
Total assets	195,887	195,063
Current liabilities
Trade accounts payable	14,610	16,419
Other accounts payable and accrued expenses	12,953	8,823
Operating lease liabilities	1,813	1,090
Total current liabilities	29,376	26,332
Long-term liabilities
Operating lease liabilities	8,282	2,693
Liability for employees' severance benefits	3,256	2,910
Deferred tax liabilities	136	205
Total liabilities	41,050	32,140
Shareholders' equity
Ordinary shares, ILS 0.01 par value; 10,000,000 shares authorized; 7,618,676 and 7,670,033 issued as at December 31, 2019 and 2020, respectively; 7,351,317 and 6,899,515 outstanding as at December 31, 2019 and 2020, respectively	22	22
Additional paid-in capital	60,117	57,130
Treasury shares (at cost) 267,359 and 770,518 ordinary shares as at December 31, 2019 and 2020, respectively	(24,807)	(8,009)
Retained earnings	119,505	113,780
Total shareholders' equity	154,837	162,923
Total liabilities and shareholders' equity	$ 195,887	$ 195,063

XML

Consolidated Balance Sheets (Parenthetical) - ₪ / shares	Dec. 31, 2020	Dec. 31, 2019
Statement of Financial Position [Abstract]
Ordinary shares, par value	₪ 0.01	₪ 0.01
Ordinary shares, authorized	10,000,000	10,000,000
Ordinary shares, issued	7,670,033	7,618,676
Ordinary shares, outstanding	6,899,515	7,351,317
Ordinary shares, treasury shares	770,518	267,359

XML

Consolidated Statements of Operations - USD ($) $ in Thousands		12 Months Ended
		Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
Income Statement [Abstract]
Sales	[1]	$ 107,398	$ 105,240	$ 133,753
Cost of sales		73,632	69,146	91,697
Gross profit		33,766	36,094	42,056
Operating expenses
Research and development	[2]	17,244	15,075	14,820
Sales and marketing		6,209	6,647	6,642
General and administrative		4,065	4,159	3,943
Total operating expenses		27,518	25,881	25,405
Operating income		6,248	10,213	16,651
Financial income, net		1,034	1,646	923
Income before income taxes		7,282	11,859	17,574
Income taxes		1,557	1,623	2,937
Net income		$ 5,725	$ 10,236	$ 14,637
Income per share:
Basic income per ordinary share (US$)		$ 0.804	$ 1.361	$ 1.938
Diluted income per ordinary share (US$)		$ 0.800	$ 1.352	$ 1.912
Weighted average number of ordinary shares used to compute basic income per share (in thousands)		7,118,244	7,520,389	7,552,094
Weighted average number of ordinary shares used to compute diluted income per share (in thousands)		7,156,763	7,572,617	7,657,330

[1] Including sales to related parties in the amount of US$ 1,063 thousand, US$ 0 thousand and US$ 0 thousand in 2018, 2019 and 2020, respectively.

[2] Including services from related parties in the amount of US$ 311 thousand, US$ 0 thousand and US$ 0 thousand in 2018, 2019 and 2020, respectively.

XML

Consolidated Statements of Operations (Parenthetical) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
Consolidated Statement of Operations Parenthetical:
Sales to related parties	$ 0	$ 0	$ 1,063
Services from related parties	$ 0	$ 0	$ 311

XML

Consolidated Statements of Changes In Shareholders' Equity - USD ($) $ in Thousands		Ordinary shares [Member]		Additional paid-in capital [Member]	Treasury shares [Member]	Retained earnings [Member]	Total
Balance at Dec. 31, 2017		$ 22		$ 51,909	$ (38)	$ 88,907	$ 140,800
Balance, shares at Dec. 31, 2017	[1]	7,549,531
Exercise of options and RSUs	[3]		[2]	288			288
Exercise of options and RSUs, shares	[1],[3]	9,674
Share-based compensation				2,424			2,424
Net income						14,637	14,637
Balance at Dec. 31, 2018		$ 22		54,621	(38)	103,544	158,149
Balance, shares at Dec. 31, 2018	[1]	7,559,205
Exercise of options and RSUs	[3]		[2]	154			154
Exercise of options and RSUs, shares	[1],[3]	44,500
Purchase of treasury shares					(7,971)		(7,971)
Purchase of treasury shares, shares	[1]	(252,388)
Share-based compensation				2,355			2,355
Net income						10,236	10,236
Balance at Dec. 31, 2019		$ 22		57,130	(8,009)	113,780	162,923
Balance, shares at Dec. 31, 2019	[1]	7,351,317
Exercise of options and RSUs	[3]		[2]	276			276
Exercise of options and RSUs, shares	[1],[3]	51,357
Purchase of treasury shares					(16,798)		(16,798)
Purchase of treasury shares, shares	[1]	(503,159)
Share-based compensation				2,711			2,711
Net income						5,725	5,725
Balance at Dec. 31, 2020		$ 22		$ 60,117	$ (24,807)	$ 119,505	$ 154,837
Balance, shares at Dec. 31, 2020	[1]	6,899,515

[1] Net of shares held by Silicom Inc. and Silicom Ltd.

[2] Less than 1 thousand.

[3] Restricted share units (hereinafter - "RSUs")

XML

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
Cash flows from operating activities
Net income	$ 5,725	$ 10,236	$ 14,637
Adjustments required to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	2,384	1,997	3,293
Impairment of intangible assets	1,657
Write-down of obsolete inventory	1,578	2,106	6,211
Discount on marketable securities, net	244	144	32
Share-based compensation expense	2,711	2,355	2,424
Deferred taxes, net	(61)	(699)	5
Changes in assets and liabilities:
Accounts receivable - trade	3,467	(1,441)	16,985
Accounts receivable - other	(1,362)	4,385	(3,384)
Accounts receivable - related parties		364	261
Change in liability for employees' severance benefits, net	153	175	(79)
Inventories	(13,336)	3,529	2,540
Trade accounts payable	(2,076)	769	3,059
Other accounts payable and accrued expenses	3,872	2,824	(314)
Accounts payable - related parties		(18)	8
Net cash provided by operating activities	4,956	26,726	45,678
Cash flows from investing activities
Investment in short-term bank deposits, net	8,542	(13,542)
Purchase of property, plant and equipment	(1,694)	(1,441)	(1,345)
Investment in intangible assets	(1,487)	(1,018)	(1,022)
Proceeds from maturity of marketable securities	16,629	1,997	7,750
Purchases of marketable securities	(6,558)	(15,604)	(41,670)
Net cash provided by (used in) investing activities	15,432	(29,608)	(36,287)
Cash flows from financing activities
Exercise of options	276	154	288
Purchase of treasury shares	(16,798)	(7,971)
Net cash provided by (used in) financing activities	(16,522)	(7,817)	288
Effect of exchange rate changes on cash balances held	341	360	108
Increase (decrease) in cash and cash equivalents	4,207	(10,339)	9,787
Cash and cash equivalents at beginning of year	16,469	26,808	17,021
Cash and cash equivalents at end of year	20,676	16,469	26,808
Supplementary cash flow information Non-cash transactions:
Investments in property, plant and equipment	347	97	146
Supplementary cash flow information Cash paid during the year for:
Income taxes	$ 1,284	$ 1,103	$ 3,260

XML

General

12 Months Ended

Dec. 31, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

General

Note 1 - General

Silicom Ltd. is an Israeli corporation engaged in designing, manufacturing, marketing and supporting high performance networking and data infrastructure solutions for a broad range of servers, server based systems and communications devices.

The Company's shares have been traded in the United States on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") since February 1994. Since January 2, 2014 the Company's shares have been traded on the NASDAQ Global Select Market (prior thereto they were traded on the NASDAQ Global Market).

In these financial statements the terms "Company" or "Silicom" refer to Silicom Ltd. and its wholly owned subsidiaries, Silicom Connectivity Solutions, Inc. (hereinafter - "Silicom Inc.") and Silicom Denmark A/S (Fiberblaze A/S) (hereinafter – "Silicom Denmark"), whereas the term "subsidiaries" refers to Silicom Inc. and Silicom Denmark.

XML

Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2020

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Note 2 - Summary of Significant Accounting Policies

The significant accounting policies, which are applied consistently throughout the periods presented, are as follows:   

A.Financial statements in US dollars

Substantially all sales of the Company are made outside of Israel (see Note 13A regarding geographical distribution), in US dollars ("dollars"). Most purchases of materials and components, and a significant part of the marketing costs are made or incurred, primarily in dollars. Therefore, the dollar is the currency that represents the principal economic environment in which the Company operates and is thus its functional currency.

Transactions and monetary balances in other currencies are translated into the functional currency using the current exchange rate.

All exchange gains and losses from remeasurement of monetary balance sheet items denominated in non-dollar currencies are reflected in earnings when they arise.

B.Basis of presentation

The accompanying consolidated financial statements have been prepared with accounting principles generally accepted in the United States of America and include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

F - 11

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 2 - Summary of significant Accounting Policies (cont’d)

C.Estimates and assumptions

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include revenue recognition over time, income taxes, inventories, marketable securities, goodwill, intangible assets and share-based compensation.

D.Business combinations

The Company accounts for business combination in accordance with ASC No. 805, "Business Combinations". ASC No. 805 requires recognition of assets acquired and liabilities assumed at the acquisition date, measured at their fair values as of that date. Any excess of the fair value of net assets acquired over purchase price and any subsequent changes in estimated contingencies are to be recorded in the consolidated statements of operations.

E.Cash and cash equivalents

The Company considers highly liquid investments with original maturities of three months or less from the date of deposit to be cash equivalents.

F.Short-term bank deposits

Short term bank deposits consist of bank deposits with original maturities of more than three months and up to twelve months. As of December 31, 2020, the Company's short-term bank deposits consist of bank deposits in US dollars carrying a weighted average interest rate of 2.05%.

These short-term bank deposits are held with a major Israeli bank, and their use and withdrawal are not subject to any restrictions.

G.Marketable securities

The Company classifies its marketable securities as held-to-maturity as they are debt securities in which the Company has the intent and ability to hold to maturity. Held-to-maturity (HTM) debt securities are recorded at amortized cost adjusted for the amortization or accretion of premiums or discounts.

Premiums and discounts on debt securities are amortized or accreted over the life of the related held-to-maturity security as an adjustment to yield using the effective interest method. Such amortization and accretion are included in the "Financial income, net" line item in the consolidated statements of operations.

F - 12

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 2 - Summary of significant Accounting Policies (cont’d)

G.Marketable securities (cont’d)

When other-than-temporary impairment has occurred, the amount of the other-than-temporary impairment recognized in earnings depends on whether the Company intends to sell the security or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss.

A decline in the market value of HTM security below cost that is deemed to be other than temporary results in an impairment to reduce the carrying amount to fair value. To determine whether an impairment is other than temporary, the Company considers all available information relevant to the collectibility of the security, including past events, current conditions, and reasonable and supportable forecasts when developing estimate of cash flows expected to be collected. Evidence considered in this assessment includes the reasons for the impairment, the severity and duration of the impairment, changes in value subsequent to year end, forecasted performance of the investee, and the general market condition in the geographic area or industry the investee operates in.

If the Company intends to sell the security or it is more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss, the other-than-temporary impairment is recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If the Company does not intend to sell the security and it is not more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss, the other-than-temporary impairment is separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings.

H.Trade accounts receivable, net

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Amounts collected on trade accounts receivable are included in net cash provided by operating activities in the consolidated statements of cash flows. The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management considers historical losses adjusted to take into account current market conditions and its customers’ financial condition, the amount of receivables in dispute, and the current receivables aging and current payment patterns.

As of December 31, 2019 and 2020, the provision for doubtful accounts receivable amounted to US$ 20 thousand.

I.Inventories

Inventories are stated at the lower of cost and net realizable value. Cost is determined using the "weighted average-cost" method.

The Company writes down obsolete or slow moving inventory to its net realizable value.

F - 13

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 2 - Summary of significant Accounting Policies (cont’d)

J.Assets held for employees’ severance benefits

Assets held for employees’ severance benefits represent contributions to severance pay funds and cash surrender value of insurance policies. The assets are recorded at their current cash redemption value.

K.Property, plant and equipment

Property, plant and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated on the straight-line basis over the estimated useful life of the assets at the following annual rates:

	%
Machinery and equipment	15 - 33
Office furniture and equipment	6 - 33
Leasehold improvements	*

* Over the shorter term of the lease or the useful life of the asset

L.Goodwill and other intangible assets

Goodwill reflects the excess of the purchase price of business acquired over the fair value of net assets acquired. Goodwill is not amortized but instead is tested for impairment at least annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.

The Company operates in one operating segment and this segment comprises one reporting unit.

Goodwill is reviewed for impairment at least annually in accordance with ASC 350, Intangibles—Goodwill and Other. ASC 350 provides an entity the option to perform a qualitative assessment to determine whether it is more likely than-not that the fair value of a reporting unit is less than its carrying amount prior to performing the two-step goodwill impairment test. If this is the case, the two-step goodwill impairment test is required. If it is more likely than-not that the fair value of a reporting unit is greater than its carrying amount, the two-step goodwill impairment test is not required.

If the two-step goodwill impairment test is required, first, the fair value of the reporting unit is compared with its carrying amount (including goodwill). If the fair value of the reporting unit is less than its carrying amount, an indication of goodwill impairment exists for the reporting unit and the entity must perform step two of the impairment test (measurement). Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation and the residual fair value after this allocation is the implied fair value of the reporting unit goodwill. If the fair value of the reporting unit exceeds its carrying amount, step two does not need to be performed. During the year ended December 31, 2020, no impairments were found and therefore no impairment losses were recorded.

F - 14

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 2 - Summary of significant Accounting Policies (cont’d)

L.Goodwill and other intangible assets (cont’d)

Intangible assets that are not considered to have an indefinite useful life are amortized over their estimated useful lives in proportion to the economic benefits realized. This accounting policy results in amortization of such intangible assets in the straight-line method.

M.Impairment of long-lived assets

In accordance with Impairment or Disposal of long-lived assets Subsections of FASB ASC Subtopic 360-10, Property, Plant, and Equipment – Overall. Long-lived assets, such as property, plant, equipment and purchased intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or an asset group to be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third party independent appraisals, as considered necessary.

F - 15

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 2 - Summary of significant Accounting Policies (cont’d)

N.Leases

In February 2016, the FASB established Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02. The guidance establishes a right-of-use model ("ROU") that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. The Company determines if an arrangement is or contains a lease at contract inception.

The Company adopted the new accounting standard ASC 842 "Leases" and all the related amendments on January 1, 2019.  

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

As of December 31, 2020, all of the company's leases are operating leases.

On the commencement date, the lease payments shall include variable lease payments that depend on an index (such as the Consumer Price Index), initially measured using the index at the commencement date. The Company does not remeasure the lease liability for changes in future lease payments arising from changes in an index unless the lease liability is remeasured for another reason. Therefore, after initial recognition, such variable lease payments are recognized in profit or loss as they are incurred.

Variable payments that depends on use of the underlying asset are not included in the lease payments. Such variable payments are recognized in profit or loss in the period in which the event or condition that triggers the payment occurs.

Upon initial recognition, the Company recognizes a liability at the present value of the lease payments to be made over the lease term, and concurrently recognizes a ROU asset at the same amount of the liability, adjusted for any prepaid lease payments.

The Company’s incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments, the lease term and the effect on that rate of designating specific collateral with a value equal to the unpaid lease payments for that lease.

After lease commencement, the Company measures the lease liability at the present value of the remaining lease payments using the discount rate determined at lease commencement (as long as the discount rate hasn’t been updated as a result of a reassessment event). The Company subsequently measures the ROU asset at the present value of the remaining lease payments, adjusted for the remaining balance of any cumulative prepaid or accrued rent if the lease payments are uneven throughout the lease term.

The Company's lease agreements have remaining lease terms up to 10 years. Some of these agreements include options to extend the leases for up to 5 years and some include options to terminate the leases immediately. Some of our vehicle lease agreements include rental payments based on the actual usage of the vehicles and other lease agreements include rental payments adjusted periodically for inflation. The agreements related to leases in Israel are in Israeli Shekel ("ILS") or in ILS, linked to the Israeli Consumer Price Index or to the US Dollars. The agreements related to leases in the USA are in US Dollars and the agreements related to leases in Denmark are in Danish Krone ("DKK"). The Company's lease agreements do not contain any residual value guarantees. See Note 10.

F - 16

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 2 - Summary of significant Accounting Policies (cont’d)

O.Revenue recognition

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers, a new accounting standard related to revenue recognition. ASC 606 supersedes nearly all U.S. GAAP on revenue recognition and eliminated industry-specific guidance. The underlying principle of ASC 606 is to recognize revenue when a customer obtains control of the promised goods at an amount that reflects the consideration that is expected to be received in exchange for those goods. It also requires increased disclosures including the nature, amount, timing, and uncertainty of revenues and cash flows related to contracts with customers. The Company adopted ASC 606 at the beginning of the first quarter of fiscal year 2018 and implemented new accounting policies and internal controls necessary to support the requirements of ASC 606.

The Company derives revenues primarily from the sale of networking and data infrastructure solutions.

The Company recognizes revenue upon transfer of control of the promised goods in a contract with a customer in an amount that reflects the consideration the Company expects to receive in exchange for those products. Transfer of control occurs once the customer has the contractual right to use the product, generally upon shipment or once delivery and risk of loss has transferred to the customer. The Company accounts for a contract with customer when it has approval and commitment from both parties, the rights of the parties and payment terms are identified, the contract has commercial substance and collectability of consideration is probable. The Company identifies separated contractual performance obligations and evaluates each distinct performance obligation within a contract, whether it is satisfied at a point in time or over time. Revenue is recognized over time for sales of goods manufactured to unique customer specifications, in which the Company’s performance does not create an asset with an alternative use to the Company and the Company has an enforceable right to payment for performance completed to date if the customer were to terminate the contract. Revenue recognized over time is measured by the costs incurred to date relative to the estimated total direct costs to fulfill each contract. Incurred costs represent work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, materials and overhead.

Revenue is allocated among performance obligations in a manner that reflects the consideration that the Company expects to be entitled to for the promised goods based on standalone selling prices (SSP). SSP are estimated for each distinct performance obligation and judgment may be required in their determination. The best evidence of SSP is the observable price of the product when the Company sell the goods separately in similar circumstances and to similar customers.

F - 17

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 2 - Summary of significant Accounting Policies (cont’d)

P.Research and development costs

Capitalization of software development costs related to programmable components incorporated into the Company's products, are charged to expense until technological feasibility has been established for the product. Once technological feasibility is established, all software costs are capitalized until the product is available for general release to customers. Judgment is required in determining when technological feasibility of a product is established. The company has determined that technological feasibility for its software components of hardware products is reached after all high-risk development issues have been resolved through coding and testing. Amortization begins once the software is ready for its intended use, generally based on the pattern in which the economic benefits will be consumed. The amortization of these costs is included in cost of revenue over the estimated life of the products. Other costs incurred in the research and development of the Company’s products are expensed as incurred.

Q.Allowance for product warranty

The Company grants service warranties related to certain products to end-users. The Company estimates its obligation for such warranties to be immaterial on the basis of historical experience. Accordingly, these financial statements do not include an accrual for warranty obligations.

R.Treasury shares

Treasury shares are recorded at cost and presented as a reduction of shareholders' equity.

F - 18

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 2 - Summary of significant Accounting Policies (cont’d)

S.Income taxes

Deferred taxes are accounted for under the asset and liability method based on the estimated future tax effects of temporary differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases, and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are presented as non-current assets and liabilities and measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statements of operations in the period that includes the enactment date. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured as the largest amount that is greater than 50 percent likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

T.Share-based compensation

The Company recognizes compensation expense based on estimated grant date fair value in accordance with ASC Topic 718, Compensation -Stock Compensation as follows:

When portions of an award vest in increments during the requisite service period (graded-vesting award), the Company’s accounting policy is to recognize compensation cost for the award over the requisite service period for each separately vesting portion of the award.

F - 19

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 2 - Summary of significant Accounting Policies (cont’d)

U.Basic and diluted earnings per share

Basic income per ordinary share is calculated by dividing the net income attributable to ordinary shares, by the weighted average number of ordinary shares outstanding. Diluted income per ordinary share calculation is similar to basic income per ordinary share except that the weighted average of common shares outstanding is increased to include outstanding potential common shares during the period if dilutive. Potential common shares arise from stock options and RSUs, and the dilutive effect is reflected by the application of the treasury stock method.

The following table summarizes information related to the computation of basic and diluted income per ordinary share for the years indicated.

	Year ended December 31
	2018		2019		2020
Net income attributable to ordinary shares (US$ thousands)		14,637		10,236		5,725
Weighted average number of ordinary shares outstanding used in basic income per ordinary share calculation		7,552,094		7,520,389		7,118,244
Add assumed exercise of outstanding dilutive potential ordinary shares		105,236		52,228		38,519
Weighted average number of ordinary shares outstanding used in diluted income per ordinary share calculation		7,657,330		7,572,617		7,156,763
Basic income per ordinary shares (US$)		1.938		1.361		0.804
Diluted income per ordinary shares (US$)		1.912		1.352		0.800
Weighted average number of shares related to options and RSUs excluded from the diluted earnings per share calculation because of anti-dilutive effect		171,086		351,610		180,916

F - 20

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 2 - Summary of Significant Accounting Policies (cont’d)

V.Comprehensive Income

For the years ended December 31, 2018, 2019 and 2020, comprehensive income equals net income.

W.Fair Value Measurements

The Company's financial instruments consist mainly of cash and cash equivalents, marketable securities, trade and other receivables and trade accounts payable. The carrying amounts of these financial instruments, except for marketable securities, approximate their fair value because of the short maturity of these investments. The fair value of marketable securities is presented in Note 5 to these consolidated financial statements. Assets held for severance benefits are recorded at their current cash redemption value.

The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.

F - 21

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 2 - Summary of Significant Accounting Policies (cont’d)

X.Concentrations of risks

(1)​Credit risk

Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist principally of cash and cash equivalents, short-term bank deposits, marketable securities, trade receivables and assets held for employees’ severance benefits. Cash and cash equivalents balances of the Company, which are subject to credit risk, consist of cash accounts held with major financial institutions. Short-term bank deposits balances of the Company, which are subject to credit risk, consist of short-term bank deposits held with a major Israeli Bank. Marketable securities consist of held to maturity marketable securities issued by highly rated corporations. As of December 31, 2019 and 2020, the ratings of the securities in the Company's portfolio was at least A- and BBB+ respectively. Nonetheless, these investments are subject to general credit and counterparty risks (such as that the counterparty to a financial instrument fails to meet its contractual obligations). The Company closely monitors extensions of credit and has never experienced significant credit losses.

On January 1, 2020, the Company adopted ASU 2016-13 (Topic 326) Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments, as further clarified by the Financial Accounting Standards Board (the "FASB") through the issuance of additional related ASUs, which requires the measurement and recognition of current expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model, which requires the use of forward-looking information to calculate credit loss estimates. The Company adopted the standard under the modified retrospective approach. Upon adoption, the standard did not have a material impact on the Consolidated Financial Statements. We continue to monitor the financial implications of the COVID-19 pandemic on expected credit losses.

(2)​Significant customers

The Company's top three customers accounted for approximately 36% of its revenues in 2020. The Company expects that a small number of customers will continue to account for a significant portion of its revenues for the foreseeable future. See Note 13.

Y.Liabilities for loss contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.

F - 22

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 2 - Summary of Significant Accounting Policies (cont’d)

Z.Recent Accounting Pronouncements

(1)In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, which removes certain exceptions for: recognizing deferred taxes for investments, performing intraperiod tax allocation and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. This ASU is effective for annual periods in fiscal years beginning after December 15, 2020. The Company does not expect the adoption of ASU 2019-12 to have a material impact on its consolidated balance sheets, results of operations, cash flows or presentation thereof.

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Acquisitions

12 Months Ended

Dec. 31, 2020

Business Combinations [Abstract]

Acquisitions

Note 3 - Acquisitions

A.ADI Engineering, Inc.

On October 28, 2015 (hereinafter – "closing date") the Company acquired certain assets from ADI Engineering, Inc. (hereinafter – "ADI"), a privately-held, US-based provider of custom embedded communications and networking products, for an aggregate purchase price of US$ 10,000 thousand in cash and estimated contingent consideration of US$ 7,802 thousand in cash and in options to ordinary shares, payable in three yearly payments, after the closing, subject to the attainment of certain performance milestones until December 31, 2017. Of the total purchase price of US$ 17,802 thousand, US$ 222 thousand was attributed to tangible assets, US$ 4,261 thousand was attributed to intangible assets and US$ 13,319 thousand was attributed to goodwill. The goodwill is primarily attributable to the synergies expected to arise after the acquisition. The recognized goodwill is deductible for income tax purposes for 10 years.

B.   Silicom Denmark

On December 10, 2014 (hereinafter – "closing date"), the Company completed the acquisition of all of the outstanding shares and voting interests of Silicom Denmark, a provider of high performance application acceleration solutions, for an aggregate purchase price of US$ 10,161 thousand in cash and estimated contingent consideration of US$ 4,683 thousand in cash and in options to ordinary shares, subject to the attainment of certain performance milestones until August 31, 2015.

In connection with the contingent consideration, during 2016 the Company paid to the Silicom Denmark sellers an amount of US$ 1,463 thousand, of which 90% was paid in cash and 10% in options to ordinary shares of the Company.

In relation to this acquisition, on April 18, 2016, the Company granted, in the aggregate, 22,795 options to the Silicom Denmark sellers and to the Silicom Denmark employees (see Note 12I).

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Cash and Cash Equivalents

12 Months Ended

Dec. 31, 2020

Cash and Cash Equivalents [Abstract]

Cash and Cash Equivalents

Note 4 - Cash and Cash Equivalents

	December 31
	2019		2020
	US$ thousands
Cash		13,382		19,477
Cash equivalents *		3,087		1,199
		16,469		20,676

* Comprised mainly of deposits in banks as at December 31, 2019 and 2020 carrying a weighted average interest rate of 1.04% and 0.84%, respectively.

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Marketable Securities

12 Months Ended

Dec. 31, 2020

Investments, Debt and Equity Securities [Abstract]

Marketable Securities

Note 5 - Marketable Securities

The Company's investment in marketable securities as of December 31, 2019 and 2020 are classified as ''held-to-maturity'' and consist of the following:

	Amortized cost basis**		Gross unrealized holding gains		Gross unrealized holding (losses)			Aggregate fair value*
	US$ thousands
At December 31, 2020
Held to maturity:
Corporate debt securities and government debt securities
Current		35,445		265		(102	)		35,608
Non-Current		15,365		339		-			15,704
		50,810		604		(102	)		51,312
At December 31, 2019
Held to maturity:
Corporate debt securities and government debt securities
Current		14,170		24		(97	)		14,097
Non-Current		46,955		408		(112	)		47,251
		61,125		432		(209	)		61,348

*	Fair value is being determined using quoted market prices in active markets (Level 2).
**	Including accrued interest in the amount of US$ 538 thousand and US$ 412 thousand as of December 31, 2019 and 2020, respectively.
	The accrued interest is presented as part of other receivables on the balance sheet.

Activity in marketable securities in 2020	US$ thousands
Balance at January 1, 2020		61,125
Purchases of marketable securities		6,558
Discount on marketable securities, net		(244	)
Proceeds from maturity of marketable securities		(16,629	)
Balance at December 31, 2020		50,810

F - 26

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 5 - Marketable Securities (Cont’d)

The following table summarizes the gross unrealized losses on investment securities for which other-than-temporary impairments have not been recognized and the fair value of those securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2020:

	Less than 12 months					12 months or more					Total
Held to maturity:	Unrealized Losses			Fair value		Unrealized Losses			Fair value		Unrealized Losses			Fair value
Corporate debt securities and government debt securities		(2	)		1,105		(100	)		6,770		(102	)		7,875

The unrealized losses on the investments were caused by changes in interest rate. The Company has the ability and intent to hold these investments until maturity and it is more likely than not that the Company will not be required to sell any of the securities before recovery; therefore these investments are not considered other than temporarily impaired.

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Other Receivables

12 Months Ended

Dec. 31, 2020

Receivables [Abstract]

Other Receivables

Note 6 - Other Receivables

	December 31
	2019		2020
	US$ thousands
Advances to suppliers		805		618
Government authorities		2,758		3,668
Prepaid expense		553		477
Other receivables		848		1,363
		4,964		6,126

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Inventories

12 Months Ended

Dec. 31, 2020

Inventory Disclosure [Abstract]

Inventories

Note 7 - Inventories

	December 31
	2019		2020
	US$ thousands
Raw materials and components		20,986		29,362
Products in process		7,137		10,041
Finished products		8,368		8,247
		36,491		47,650

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Property, Plant and Equipment, Net

12 Months Ended

Dec. 31, 2020

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment, Net

Note 8 - Property, Plant and Equipment, Net

	December 31
	2019			2020
	US$ thousands
Machinery and equipment		13,374			15,494
Office furniture and equipment		924			991
Leasehold improvements		2,528			2,884
Property, plant and equipment		16,826			19,369
Accumulated depreciation		(13,252	)		(15,259	)
Property, Plant and equipment, net		3,574			4,110

Depreciation expense for the years ended December 31, 2018, 2019 and 2020 were US$ 2,190 thousand, US$ 1,731 thousand and US$ 2,000 thousand, respectively.

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Intangible Assets

12 Months Ended

Dec. 31, 2020

Intangible Assets, Net (Excluding Goodwill) [Abstract]

Intangible Assets

Note 9 - Intangible Assets

			December 31
			2019		2020
	Useful life		US$ thousands
Original cost:
Capitalization of software development costs		3		1,946		2,983
Licenses		3		106		556
				2,052		3,539
Accumulated amortization:
Capitalization of software development costs				274		2,163
Licenses				60		206
				334		2,369
Intangible assets, net:
Capitalization of software development costs				1,672		820
Licenses				46		350
				1,718		1,170

Amortization expense for the years ended December 31, 2018, 2019 and 2020 were US$ 1,103 thousand, US$ 266 thousand and US$ 378 thousand, respectively. The company recorded an impairment charge of US$ 1,657 thousand in the year ended December 31, 2020, for software that will no longer be utilized by the company and the asset value and accumulated amortization were written off. The impairment was recorded in cost of sales.

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Leases

12 Months Ended

Dec. 31, 2020

Leases [Abstract]

Leases

Note 10 - Leases

A.The components of operating lease cost for the year ended December 31, 2020 and 2019 were as follows:

	Year ended December 31
	2019		2020
	US$ thousands
Operating lease costs		1,494		1,623
Variable lease payments not included in the lease liability		2		3
Short-term lease cost		287		285
Total operating lease cost		1,783		1,911

B.Supplemental cash flow information related to operating leases was as follows:

	Year ended December 31
	2019		2020
	US$ thousands
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases		1,541		1,601
Right-of-use assets obtained in exchange for lease obligations (non-cash):
Operating leases		1,524		7,201

C.Supplemental balance sheet information related to operating leases was as follows:

	December 31
	2019		2020
	US$ thousands
Operating leases:
Operating leases right-of-use		3,783		9,913
Current operating lease liabilities		1,090		1,813
Non-current operating lease liabilities		2,693		8,282
Total operating lease liabilities		3,783		10,095

F - 30

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 10 - Leases (cont’d)

C.Supplemental balance sheet information related to operating leases was as follows (cont’d):

	December 31
	2019			2020
	US$ thousands
Weighted average remaining lease term (years)		4.8			8.2
Weighted average discount rate		3.3	%		2.4	%

D.Future minimum lease payments under non-cancellable leases as of December 31, 2020 were as follows:  

	December 31, 2020
	US$ thousands
2021		1,743
2022		1,575
2023		1,426
2024		1,161
After 2025		4,934
Total operating lease payments		10,839
Less: imputed interest		(744	)
Present value of lease liabilities		10,095

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Assets Held and Liability for Employees' Severance Benefits

12 Months Ended

Dec. 31, 2020

Retirement Benefits [Abstract]

Assets Held and Liability for Employees' Severance Benefits

Note 11 - Assets Held and Liability for Employees' Severance Benefits

A.Under Israeli law and labor agreements, Silicom is required to make severance payments to retired or dismissed employees and to employees leaving employment in certain other circumstances.

In respect of the liability to the employees, individual insurance policies are purchased and deposits are made with recognized severance pay funds.

The liability for severance pay is calculated on the basis of the latest salary paid to each employee multiplied by the number of years of employment. The liability is covered by the amounts deposited including accumulated income thereon as well as by the unfunded provision.

B.According to Section 14 to the Severance Pay Law ("Section 14") the payment of monthly deposits by a company into recognized severance and pension funds or insurance policies releases it from any additional severance obligation to the employees that have entered into agreements with the company pursuant to such Section 14. Commencing July 1, 2008, the Company has entered into agreements with a majority of its employees in order to implement Section 14. Therefore, as of that date, the payment of monthly deposits by the Company into recognized severance and pension funds or insurance policies releases it from any additional severance obligation to those employees that have entered into such agreements and therefore the Company incurs no additional liability since that date with respect to such employees. Amounts accumulated in the pension funds or insurance policies pursuant to Section 14 are not supervised or administrated by the Company and therefore neither such amounts nor the corresponding accrual are reflected in the balance sheet.

C.Consequently, the assets held for employees' severance benefits reported on the balance sheet, in respect of deposits for those employees who have signed agreements pursuant to Section 14, represent the redemption value of deposits made through June 30, 2008. The liability for employee severance benefits, with respect to those employees, represents the liability of the Company for employees' severance benefits as of June 30, 2008.

As a result of the implementation of Section 14, as described above, the liability with respect to those employees is calculated on the basis of number of years of employment as of June 30, 2008, multiplied by the latest salary paid. The liability is covered by the amounts deposited, including accumulated income thereon, as well as by the unfunded provision. Such liability will be removed, either upon termination of employment or retirement.

D.Expenses recorded with respect to employees' severance payments for the years ended December 31, 2018, 2019 and 2020 were US$ 605 thousand, US$ 929 thousand and US$ 986 thousand, respectively.

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Shareholders' Equity

12 Months Ended

Dec. 31, 2020

Stockholders' Equity Note [Abstract]

Shareholders' Equity

Note 12 - Shareholders' Equity

Capital and reserves

On May 2, 2019, the Company's Board of Directors authorized and began implementation of a one-year share repurchase plan to repurchase up to $15 million of the Company's ordinary shares. On April 30, 2020 the Company's Board of Directors authorized another one-year share repurchase plan allowing the Company to invest up to $15 million to repurchase its ordinary shares. This plan has began as the previously announced $15 million one-year share repurchase plan was completed. Repurchases may be made in the open market and will be in accordance with applicable securities laws and regulations. The timing and amount of each repurchase transaction may depend on a variety of factors. The share repurchase plan does not obligate the Company to acquire any specific number of ordinary shares and may be suspended or terminated at any time at management’s discretion.

Share based compensation

A.On October 21, 2013 the Board resolved to adopt the Global Share Incentive Plan (2013) (the "2013 Plan") and to reserve up to 500,000 ordinary shares for issuance under the 2013 Plan to employees, directors, officers and consultants of the Company or of any subsidiary or affiliate of the Company. In January 2018, our Board approved the increase of the number of ordinary shares reserved for issuance under the 2013 Plan by 600,000 additional ordinary shares. Grants under the 2013 Plan, whether as options, restricted stock units, restricted stock or other equity based awards, including their terms, are subject to the Board of Directors' approval. Grants to directors and certain other officers are generally subject to the approvals of the Compensation Committee as well as Board of Directors, and grants to directors or a CEO (and under certain circumstances certain other officers) will also have to be approved by the Shareholders.

B.Options or RSUs granted to Israeli residents may be granted under Section 102 of the Israeli Income Tax Ordinance pursuant to which the awards of options, or the ordinary shares issued upon their exercise, must be deposited with a trustee for at least two years following the date of grant. Under Section 102, any tax payable by an employee from the grant or exercise of the awards is deferred until the transfer of the awards or ordinary shares by the trustee to the employee or upon the sale of the awards or ordinary shares.

Capital gains on awards granted under the plans are subjected to tax of 25% to be paid by the employee, and the Company is not entitled to a tax deduction.

Gains which are not capital gains on awards under the plans are subjected to regular tax rates on individuals, and the Company is entitled to a tax deduction for such gains.

F - 33

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 12 - Shareholders' Equity (cont'd)

Share based compensation (cont'd)

C.During 2017 and 2020, the Company granted 78,000 and 86,000 RSUs respectively to certain of its directors, employees and consultants under the 2013 Plan. In relation to those grants:

1.The vesting period of the RSUs ranges between 2 to 3 years from the date of grant.

2.The fair value of RSUs is estimated based on the market value of the Company’s stock on the date of grant, less an estimate of dividends that will not accrue to RSUs holders prior to vesting.

3.The Company recognizes compensation expenses on these RSUs based on estimated grant date fair value, with the following assumptions:

	2017			2020
Expected dividend yield		2.68	%		0	%
Termination rate		1.74	%		1.58	%

F - 34

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 12 - Shareholders' Equity (cont'd)

Share based compensation (cont'd)

D.On June 8, 2016, the Company granted, in the aggregate, 93,660 options to certain of its directors and employees under the 2013 Plan. In relation to this grant:

1.The exercise price for the options (per ordinary share) was US$ 28.38 and the Option expiration date was the earlier to occur of: (a) June 8, 2024; and (b) the closing price of the shares falling below US$ 14.19 at any time after the date of grant. The options vest and become exercisable on the second anniversary of the date of grant.

2.The Company recognizes compensation expenses on these options based on estimated grant date fair value using the Binomial option-pricing model with the following assumptions:

Average Risk-free interest rate (a)	1.58	%
Expected dividend yield	2.42	%
Average expected volatility (b)	47.90	%
Termination rate	9	%
Suboptimal factor (c)	3.32

(a)	Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant.
(b)	Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market.
(c)	Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies.

F - 35

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 12 - Shareholders' Equity (cont'd)

Share based compensation (cont'd)

E.On January 30, 2017, the Company granted, in the aggregate, 119,925 options to certain of its directors and employees under the 2013 Plan. In relation to this grant:

1.The exercise price for the options (per ordinary share) was US$ 39.62 and the Option expiration date was the earlier to occur of: (a) January 30, 2025; and (b) the closing price of the shares falling below US$ 19.81 at any time after the date of grant. The options vest and become exercisable on the second anniversary of the date of grant.

2.The Company recognizes compensation expenses on these options based on estimated grant date fair value using the Binomial option-pricing model with the following assumptions:

Average Risk-free interest rate (a)	2.35	%
Expected dividend yield	2.42	%
Average expected volatility (b)	43.71	%
Termination rate	9	%
Suboptimal factor (c)	3.28

(a)	Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant.
(b)	Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market.
(c)	Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies.

F - 36

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 12 - Shareholders' Equity (cont'd)

Share based compensation (cont'd)

F.On April 30, 2018, the Company granted, in the aggregate, 137,010 options to certain of its directors and employees under the 2013 Plan. In relation to this grant:

1.The exercise price for the options (per ordinary share) was US$ 36.11 and the Option expiration date was the earlier to occur of: (a) April 30, 2026; and (b) the closing price of the shares falling below US$ 18.06 at any time after the date of grant. The options vest and become exercisable on the second anniversary of the date of grant.

2.The Company recognizes compensation expenses on these options based on estimated grant date fair value using the Binomial option-pricing model with the following assumptions:

Average Risk-free interest rate (a)	2.92	%
Expected dividend yield	0.0	%
Average expected volatility (b)	45.13	%
Termination rate	9	%
Suboptimal factor (c)	3.2

(a)	Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant.
(b)	Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market.
(c)	Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies.

F - 37

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 12 - Shareholders' Equity (cont'd)

Share based compensation (cont'd)

G.On January 31, 2019, the Company granted, in the aggregate, 141,928 options to certain of its directors and employees under the 2013 Plan. In relation to this grant:

1.The exercise price for the options (per ordinary share) was US$ 33.83 and the Option expiration date was the earlier to occur of: (a) January 31, 2027; and (b) the closing price of the shares falling below US$ 16.92 at any time after the date of grant. The options vest and become exercisable on the second anniversary of the date of grant.

2.The Company recognizes compensation expenses on these options based on estimated grant date fair value using the Binomial option-pricing model with the following assumptions:

Average Risk-free interest rate (a)	2.55	%
Expected dividend yield	0.0	%
Average expected volatility (b)	44.62	%
Termination rate	9	%
Suboptimal factor (c)	3.18

(a)	Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant.
(b)	Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market.
(c)	Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies.

F - 38

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 12 - Shareholders' Equity (cont'd)

Share based compensation (cont'd)

H.On June 8, 2020, the Company granted, in the aggregate, 148,426 options to certain of its directors and employees under the 2013 Plan. In relation to this grant:

3.The exercise price for the options (per ordinary share) was US$ 32.54 and the Option expiration date was the earlier to occur of: (a) June 8, 2028; and (b) the closing price of the shares falling below US$ 16.27 at any time after the date of grant. The options vest and become exercisable on the second anniversary of the date of grant.

4.The Company recognizes compensation expenses on these options based on estimated grant date fair value using the Binomial option-pricing model with the following assumptions:

Average Risk-free interest rate (a)	0.75	%
Expected dividend yield	0.0	%
Average expected volatility (b)	45.29	%
Termination rate	9	%
Suboptimal factor (c)	3.16

(a)	Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant.
(b)	Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market.
(c)	Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies.

F - 39

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 12 - Shareholders' Equity (cont'd)

Share based compensation (cont'd)

I.The following table summarizes information regarding stock options as at December 31, 2020:

	Options outstanding					Options exercisable
				Weighted average				Weighted average
				remaining				remaining
Exercise price		Number		contractual life		Number		contractual life
US$		of options		(in years)		of options		(in years)
26.91			19,332		2.6		19,332		2.6
33.27			19,706		5.3		19,706		5.3
28.38			68,649		3.4		68,649		3.4
39.62			101,004		4.1		101,004		4.1
36.11			114,090		5.3		114,090		5.3
33.83			125,674		6.1		-		-
32.54			141,592		7.4		-		-
			590,047				322,781

The aggregate intrinsic value of options outstanding as of December 31, 2019 and 2020 is US$ 593 thousand and US$ 4,589 thousand, respectively.

The aggregate intrinsic value of options exercisable as of December 31, 2019 and 2020 is US$ 593 thousand and US$ 2,263 thousand, respectively.

The total intrinsic value of options exercised during the year ended December 31, 2019 and 2020, is US$ 28 thousand and US$ 240 thousand, respectively.

F - 40

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 12 - Shareholders' Equity (cont'd)

Share based compensation (cont'd)

J.The stock option activity under the abovementioned plans is as follows:

	Number of options			Weighted average exercise price		Weighted average grant date fair value
				US$		US$
Balance at January 1, 2018		249,911
Granted		137,010			36.11		14.71
Exercised		(9,674	)		28.02		9.94
Forfeited		(11,752	)		36.73		13.05
Balance at December 31, 2018		365,495
Granted		141,928			33.83		13.35
Exercised		(5,500	)		28.09		10.03
Forfeited		(36,676	)		35.88		13.50
Balance at December 31, 2019		465,247
Granted		148,426			32.54		14.82
Exercised		(12,357	)		22.38		8.63
Forfeited		(11,269	)		33.93		14.56
Balance at December 31, 2020		590,047
Exercisable at December 31, 2020		322,781

F - 41

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 12 - Shareholders' Equity (cont'd)

Share based compensation (cont'd)

K.The Restricted Share Units activity under the abovementioned plans is as follows:

	Number of Restricted Share Units			Weighted average grant date fair value
				US$
Balance at January 1, 2018 and December 31, 2018		78,000
Vested		(39,000	)		35.36
Balance at December 31, 2019		39,000
Granted		86,000			35.33
Vested		(39,000	)		34.43
Balance at December 31, 2020		86,000

The aggregate intrinsic value of RSUs outstanding as of December 31, 2019 and December 31, 2020 is US$ 1,297 thousand and US$ 3,599 thousand, respectively.

F - 42

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 12 - Shareholders' Equity (cont'd)

Share based compensation (cont'd)

L.During 2018, 2019 and 2020, the Company recorded share-based compensation expenses. The following summarizes the allocation of the stock-based compensation expenses:

	Year ended December 31
	2018		2019		2020
	US$ thousands
Cost of sales		372		437		535
Research and development costs		953		900		959
Selling and marketing expenses		569		493		602
General and administrative expenses		530		525		615
		2,424		2,355		2,711

As of December 31, 2020, there were US$ 3,616 thousand of unrecognized compensation costs related to outstanding stock options and RSUs to be recognized over a weighted average period of 1.73 years.

The total tax benefit recognized in the consolidated statements of operations related to share based compensation expenses amounted to US$ 67 thousand for the year ended December 31, 2020.

XML

Geographic areas and major customers

12 Months Ended

Dec. 31, 2020

Geographic areas and major customers [Abstract]

Geographic areas and major customers

Note 13 - Geographic areas and major customers

A.Information on sales by geographic distribution:

The Company has one operating segment.

Sales are attributed to geographic distribution based on the location of the customer.

	Year ended December 31
	2018		2019		2020
	US$ thousands
North America		108,024		77,161		65,142
Europe		21,038		20,956		35,570
Asia-Pacific		4,691		7,123		6,686
		133,753		105,240		107,398

B.Sales to single customers exceeding 10% of sales (US$ thousands):

	Year ended December 31
	2018		2019		2020
	US$ thousands
Customer "A"		305		2,428		13,468
Customer "B"		-		-		13,328
Customer "C"		18,855		17,107		12,278
Customer "D"		14,506		11,030		4,225
Customer "E"		14,220		121		44

F - 44

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 13 - Geographic areas and major customers (cont'd)

C.Information on Long-Lived Assets - Property, Plant and Equipment and ROU assets by geographic areas:

The following table presents the locations of the Company’s long-lived assets as of December 31, 2019 and 2020:

	Year ended December 31
	2019		2020
	US$ thousands
North America		1,189	1,081
Europe		198	189
Israel		5,970	12,753
		7,357	14,023

XML

Financial Income (Expenses), Net

12 Months Ended

Dec. 31, 2020

Other Income and Expenses [Abstract]

Financial Income (Expenses), Net

Note 14 - Financial Income (Expenses), Net

	Year ended December 31
	2018			2019			2020
	US$ thousands
Interest income		840			2,295			2,197
Discount on marketable securities, net		(32	)		(144	)		(244	)
Exchange rate differences, net		208			(357	)		(748	)
Bank charges		(93	)		(148	)		(171	)
		923			1,646			1,034

XML

Taxes on Income

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Taxes on Income

Note 15 - Taxes on Income

A.Measurement of results for tax purposes under the Israeli Income Tax Regulations (Rules for Maintaining Accounting Records of Foreign Invested Companies and Certain Partnerships and Determining Their Taxable Income) - 1986

As a "foreign invested company" (as defined in the Israeli Law for the Encouragement of Capital Investments-1959), the taxable income or loss and the tax basis of assets and liabilities of the Company’s Israeli operations are denominated in US Dollars.

B.Corporate tax rate in Israel

The regular corporate tax rate applied to taxable income of Israeli companies is 23% (as from 2018 onwards).

C.Tax benefits under the Israeli Law for the Encouragement of Capital Investments, 1959 (hereinafter - the "Law")

1.On December 29, 2010 the Knesset approved the Economic Policy Law for 2011-2012, which includes an amendment to the Law for the Encouragement of Capital Investments – 1959 (hereinafter – "the Amendment to the Law"). The Amendment to the Law is effective from January 1, 2011 and its provisions will apply to preferred income derived or accrued in 2011 and thereafter by a Preferred Company, per the definition of these terms in the Amendment to the Law.

Companies can choose to not be included in the scope of the Amendment to the Law and to stay in the scope of the law before its amendment until the end of the benefits period.

Under the Amendment to the Law, upon an irrevocable election made by a company, a uniform corporate tax rate will apply to all preferred income of such company. The Company elected to apply the uniform corporate tax rate as of 2014. From 2017 onwards, the uniform tax rate is to be 7.5% in areas in Israel designated as Development Zone A and 16% elsewhere in Israel. The company has two facilities in Israel of which one of them is located in Development Zone A. The profits of these Preferred Companies will be freely distributable as dividends, subject to a withholding tax of 20% (or a lower rate under an applicable tax treaty).

Should the Company derive income from sources other than the Preferred Company, such income will be taxable at the regular corporate tax rates for the applicable year.

F - 47

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 15 - Taxes on Income (cont’d)

C.Tax benefits under the Israeli Law for the Encouragement of Capital Investments, 1959 (hereinafter - the "Law") (cont'd)

On December 29, 2016 the Israeli Parliament (the "Knesset") enacted the "Economic Efficiency Law (Legislative Amendments for Achieving Budget Objectives in the Years 2017 and 2018) – 2016" in which the Law was also amended (hereinafter: “the Amendment”). The Amendment added new tax benefit tracks for a “preferred technological enterprise” and a “special preferred technological enterprise” which award reduced tax rates to a technological industrial enterprise for the purpose of encouraging activity relating to the development of qualifying intangible assets.

The benefits will be awarded to a “preferred company” that has a “preferred technological enterprise” or a “special preferred technological enterprise” with respect to taxable “preferred technological income” per its definition in the Law.

Preferred technological income that meets the conditions required in the law, will be subject to a reduced corporate tax rate of 12%, and if the preferred technological enterprise is located in "Development Area A" in Israel - to a reduced tax rate of 7.5%. A company that owns a special preferred technological enterprise will be subject to a reduced corporate tax rate of 6% regardless of the development area in which the enterprise is located. The Amendment is effective as from January 1, 2017.

On June 14, 2017 the Knesset Finance Committee approved "Encouragement of Capital Investment Regulations (Preferred Technological Income and Capital Gain of Technological Enterprise) – 2017" (hereinafter: “the Regulations”), which provides rules for applying the “preferred technological enterprise” and “special preferred technological enterprise” tax benefit tracks, including the Nexus formula that provides the mechanism for allocating the technological income eligible for the benefits.

Should the Company derive income from sources other than the “preferred technological enterprise”, such income will be taxable at the "Preferred Company" tax rate (for manufacturing activity in Israel) or regular corporate tax rates for the applicable year.

As a result of the aforesaid legislation, starting 2021 the Company is expected to implement the “preferred technological enterprise” tax benefit track; however, the transition to this tax benefit track is not expected to significantly change the Company's effective tax rate and the deferred tax liabilities and deferred tax assets that were recognized.

F - 48

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 15 - Taxes on Income (cont’d)

C.Tax benefits under the Israeli Law for the Encouragement of Capital Investments, 1959 (hereinafter - the "Law") (cont'd)

2.In the event of distribution by the Company of dividends out of its retained earnings that were generated prior to the 2014 tax year and were tax exempt under the "Approved Enterprise" or "Benefited Enterprise" status, the Company would be subjected to a maximum of 25% corporate tax on the amount distributed, and a further 15% withholding tax would be deducted from the amounts distributed to the shareholders.

Out of the Company’s retained earnings as of December 31, 2020, approximately US$ 54,303 thousand are tax-exempt, under our previous "Approved Enterprise" and "Benefited Enterprise" status. If such tax-exempt income is distributed as a dividend (including a liquidation dividend), it would be taxed at the regular corporate tax rate applicable to such profits (subject to a maximum rate of 25%) and an income tax liability of up to approximately US$ 13,576 thousand would be incurred as of December 31, 2020. The Company anticipates that any future dividends distributed pursuant to its dividend policy, will be distributed from income sources which will not impose additional tax liabilities on the Company. The Company intends to reinvest its tax-exempt income. Accordingly, no deferred tax liability has been recognized for income attributable to the Company’s previous "Approved Enterprise" or "Benefited Enterprise" status. If the Company was to declare a dividend from its tax-exempt income, an income tax expense would be recognized in the period a dividend is declared.

F - 49

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 15 - Taxes on Income (cont’d)

D.Taxation of the subsidiaries

1.The subsidiary Silicom Inc. files tax returns with US federal tax authorities and with state tax authorities in the states of New Jersey, California, Virginia, New York, New Mexico, Tennessee, Texas and Illinois.

The federal corporate income tax rate is 21%.

2.The subsidiary Silicom Denmark is taxed according to the tax laws in Denmark.

3.The Company has not provided for Israeli income and foreign withholding taxes on US$ 8,702 thousand of its non-Israeli subsidiaries' undistributed earnings as of December 31, 2020. The earnings could become subject to tax if earnings are remitted or deemed remitted as dividends or upon sale of a subsidiary.

The Company currently has no plans to repatriate those funds and intends to indefinitely reinvest them in its non-Israeli operations. The unrecognized deferred tax liability associated with these temporary differences was approximately US$ 1,188 thousand at December 31, 2020.

4.As of December 31, 2020, the net operating loss carry-forwards of the Companys’ subsidiaries for tax purposes amounted to approximately US$ 300 thousand. These losses are available to offset any future taxable income.

E.Tax assessments

1.For the Israeli jurisdiction the Company has final tax assessments for all years up to and including the tax year ended December 31, 2015.

2.For the US federal jurisdiction, Silicom Inc. has final tax assessments for all years up to and including the tax year ended December 31, 2016. For the New Jersey and California state jurisdictions, Silicom Inc. has final tax assessments for all years up to and including the tax year ended December 31, 2015. For the Virginia, Tennessee, New York and New Mexico state jurisdictions, Silicom Inc. has final tax assessments for all years up to and including the tax year ended December 31, 2017. For the Texas state jurisdiction, Silicom Inc. has open tax assessments for the years 2018 through 2020. For the Illinois state jurisdiction, Silicom Inc. has open tax assessment for the year 2020.

3.For the Danish jurisdiction, Silicom Denmark has final tax assessments for all years up to and including the tax year ended December 31, 2015.

F - 50

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 15 - Taxes on Income (cont’d)

F.Income before income taxes and income taxes expense (benefit) included in the consolidated statements of operations

	Year ended December 31
	2018			2019			2020
	US$ thousands
Income before income taxes:
Israel		14,703			9,339			5,565
Foreign jurisdictions		2,871			2,520			1,717
		17,574			11,859			7,282
Current taxes:
Israel		2,400			1,732			1,260
Foreign jurisdictions		831			611			506
		3,231			2,343			1,766
Current tax (benefits) expenses relating to prior years:
Israel		(73	)		(17	)		50
Foreign jurisdictions		(226	)		(4	)		(198	)
		(299	)		(21	)		(148	)
Deferred taxes:
Israel		(106	)		(904	)		8
Foreign jurisdictions		111			205			(69	)
		5			(699	)		(61	)
Income tax expense		2,937			1,623			1,557

F - 51

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 15 - Taxes on Income (cont’d)

G.Deferred tax assets and liabilities

The tax effects of significant items comprising the Company’s deferred tax assets and liabilities are as follows:  

	December 31			December 31
	2019			2020
	US$ thousands			US$ thousands
Deferred tax assets:
Accrued employee benefits		327			368
Research and development costs		1,597			1,859
Operating loss carryforwards		196			66
Property, plant and equipment		31			-
Share based compensation		374			365
Intangible assets		347			287
Operating lease liabilities		-			1,121
Other		-			1
Total deferred tax assets		2,872			4,067
Deferred tax liabilities:
Intangible assets		(397	)		(203	)
Goodwill		(879	)		(1,089	)
Operating leases right-of-use, net		-			(1,100	)
Other		(3	)		(21	)
Total deferred tax liabilities		(1,279	)		(2,413	)
Net deferred tax assets		1,593			1,654
In Israel		1,798			1,790
Foreign jurisdictions		(205	)		(136	)
Net deferred tax assets		1,593			1,654
Non-current deferred tax assets		1,798			1,790
Non-current deferred tax liabilities		(205	)		(136	)

F - 52

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 15 - Taxes on Income (cont’d)

H.Reconciliation of the statutory tax expense to actual tax expense

	Year ended December 31
	2018			2019			2020
	US$ thousands
Income before income taxes		17,574			11,859			7,282
Statutory tax rate in Israel		23.0	%		23.0	%		23.0	%
		4,042			2,728			1,675
Increase (decrease) in taxes resulting from:
Non-deductible operating expenses		295			417			508
Prior years adjustments		(299	)		(21	)		(148	)
Tax effect due to
"Preferred Enterprise" status*		(1,398	)		(1,099	)		(714	)
Statutory rate differential		176			18			105
Changes in tax rate		-			7			181
Creation of deferred taxes for tax losses and benefits from previous years for which deferred taxes were not created in the past		-			(476	)		-
Other		121			49			(50	)
Income tax expense		2,937			1,623			1,557

* The effect of the benefit resulting from the "Preferred Enterprise" status on net earnings per ordinary share is as follows:

	Year ended December 31
	2018		2019		2020
Basic		0.19		0.15		0.10
Diluted		0.18		0.15		0.10

F - 53

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 15 - Taxes on Income (cont’d)

I.Accounting for uncertainty in income taxes

The accounting literature clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The standards prescribe a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. It also requires significant judgment in determining what constitutes an individual tax position as well as assessing the outcome of each tax position.

During 2018, 2019 and 2020 the Company and its subsidiaries did not have any significant unrecognized tax benefits and thus, no related interest and penalties were accrued.

In addition, the Company and its subsidiaries do not expect that the amount of unrecognized tax benefits will change significantly within the next twelve months.

XML

Subsequent Events

12 Months Ended

Dec. 31, 2020

Subsequent Events [Abstract]

Subsequent Events

Note 16 - Subsequent Events

(1)In January 2021, the Company’s compensation committee and board of directors, respectively, have approved the grant of a total of 137,759 options under the Global Share Incentive Plan (2013), of which options granted to directors and office holders are subject to the approval of the Annual General Meeting, which is currently scheduled to convene no later than June 2021, as prescribed under the Israeli Companies Law, 1999 and the Company's Amended and Restated Articles of Association.

(2)Pursuant to the share repurchase plan approved on April 30, 2020, the Company has purchased 49,555 shares of the Company's ordinary shares subsequent to December 31, 2020 and through March 5, 2021 for a total cost of US$ 2,257 thousand inclusive of transaction costs.

XML

Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2020

Accounting Policies [Abstract]

Financial statements in US dollars

A.Financial statements in US dollars

Substantially all sales of the Company are made outside of Israel (see Note 13A regarding geographical distribution), in US dollars ("dollars"). Most purchases of materials and components, and a significant part of the marketing costs are made or incurred, primarily in dollars. Therefore, the dollar is the currency that represents the principal economic environment in which the Company operates and is thus its functional currency.

Transactions and monetary balances in other currencies are translated into the functional currency using the current exchange rate.

All exchange gains and losses from remeasurement of monetary balance sheet items denominated in non-dollar currencies are reflected in earnings when they arise.

Basis of presentation

B.Basis of presentation

The accompanying consolidated financial statements have been prepared with accounting principles generally accepted in the United States of America and include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Estimates and assumptions

C.Estimates and assumptions

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include revenue recognition over time, income taxes, inventories, marketable securities, goodwill, intangible assets and share-based compensation.

Business combinations

D.Business combinations

The Company accounts for business combination in accordance with ASC No. 805, "Business Combinations". ASC No. 805 requires recognition of assets acquired and liabilities assumed at the acquisition date, measured at their fair values as of that date. Any excess of the fair value of net assets acquired over purchase price and any subsequent changes in estimated contingencies are to be recorded in the consolidated statements of operations.

Cash and cash equivalents

E.Cash and cash equivalents

The Company considers highly liquid investments with original maturities of three months or less from the date of deposit to be cash equivalents.

Short-term bank deposits

F.Short-term bank deposits

Short term bank deposits consist of bank deposits with original maturities of more than three months and up to twelve months. As of December 31, 2020, the Company's short-term bank deposits consist of bank deposits in US dollars carrying a weighted average interest rate of 2.05%.

These short-term bank deposits are held with a major Israeli bank, and their use and withdrawal are not subject to any restrictions.

Marketable securities

G.Marketable securities

The Company classifies its marketable securities as held-to-maturity as they are debt securities in which the Company has the intent and ability to hold to maturity. Held-to-maturity (HTM) debt securities are recorded at amortized cost adjusted for the amortization or accretion of premiums or discounts.

Premiums and discounts on debt securities are amortized or accreted over the life of the related held-to-maturity security as an adjustment to yield using the effective interest method. Such amortization and accretion are included in the "Financial income, net" line item in the consolidated statements of operations.

F - 12

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 2 - Summary of significant Accounting Policies (cont’d)

G.Marketable securities (cont’d)

When other-than-temporary impairment has occurred, the amount of the other-than-temporary impairment recognized in earnings depends on whether the Company intends to sell the security or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss.

A decline in the market value of HTM security below cost that is deemed to be other than temporary results in an impairment to reduce the carrying amount to fair value. To determine whether an impairment is other than temporary, the Company considers all available information relevant to the collectibility of the security, including past events, current conditions, and reasonable and supportable forecasts when developing estimate of cash flows expected to be collected. Evidence considered in this assessment includes the reasons for the impairment, the severity and duration of the impairment, changes in value subsequent to year end, forecasted performance of the investee, and the general market condition in the geographic area or industry the investee operates in.

If the Company intends to sell the security or it is more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss, the other-than-temporary impairment is recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If the Company does not intend to sell the security and it is not more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss, the other-than-temporary impairment is separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings.

Trade accounts receivable, net

H.Trade accounts receivable, net

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Amounts collected on trade accounts receivable are included in net cash provided by operating activities in the consolidated statements of cash flows. The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management considers historical losses adjusted to take into account current market conditions and its customers’ financial condition, the amount of receivables in dispute, and the current receivables aging and current payment patterns.

As of December 31, 2019 and 2020, the provision for doubtful accounts receivable amounted to US$ 20 thousand.

Inventories

I.Inventories

Inventories are stated at the lower of cost and net realizable value. Cost is determined using the "weighted average-cost" method.

The Company writes down obsolete or slow moving inventory to its net realizable value.

Assets held for employees' severance benefits

J.Assets held for employees’ severance benefits

Assets held for employees’ severance benefits represent contributions to severance pay funds and cash surrender value of insurance policies. The assets are recorded at their current cash redemption value.

Property, plant and equipment

K.Property, plant and equipment

Property, plant and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated on the straight-line basis over the estimated useful life of the assets at the following annual rates:

	%
Machinery and equipment	15 - 33
Office furniture and equipment	6 - 33
Leasehold improvements	*

* Over the shorter term of the lease or the useful life of the asset

Goodwill and other intangible assets

L.Goodwill and other intangible assets

Goodwill reflects the excess of the purchase price of business acquired over the fair value of net assets acquired. Goodwill is not amortized but instead is tested for impairment at least annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.

The Company operates in one operating segment and this segment comprises one reporting unit.

Goodwill is reviewed for impairment at least annually in accordance with ASC 350, Intangibles—Goodwill and Other. ASC 350 provides an entity the option to perform a qualitative assessment to determine whether it is more likely than-not that the fair value of a reporting unit is less than its carrying amount prior to performing the two-step goodwill impairment test. If this is the case, the two-step goodwill impairment test is required. If it is more likely than-not that the fair value of a reporting unit is greater than its carrying amount, the two-step goodwill impairment test is not required.

If the two-step goodwill impairment test is required, first, the fair value of the reporting unit is compared with its carrying amount (including goodwill). If the fair value of the reporting unit is less than its carrying amount, an indication of goodwill impairment exists for the reporting unit and the entity must perform step two of the impairment test (measurement). Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation and the residual fair value after this allocation is the implied fair value of the reporting unit goodwill. If the fair value of the reporting unit exceeds its carrying amount, step two does not need to be performed. During the year ended December 31, 2020, no impairments were found and therefore no impairment losses were recorded.

F - 14

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 2 - Summary of significant Accounting Policies (cont’d)

L.Goodwill and other intangible assets (cont’d)

Intangible assets that are not considered to have an indefinite useful life are amortized over their estimated useful lives in proportion to the economic benefits realized. This accounting policy results in amortization of such intangible assets in the straight-line method.

Impairment of long-lived assets

M.Impairment of long-lived assets

In accordance with Impairment or Disposal of long-lived assets Subsections of FASB ASC Subtopic 360-10, Property, Plant, and Equipment – Overall. Long-lived assets, such as property, plant, equipment and purchased intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or an asset group to be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third party independent appraisals, as considered necessary.

Leases

N.Leases

In February 2016, the FASB established Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02. The guidance establishes a right-of-use model ("ROU") that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. The Company determines if an arrangement is or contains a lease at contract inception.

The Company adopted the new accounting standard ASC 842 "Leases" and all the related amendments on January 1, 2019.  

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

As of December 31, 2020, all of the company's leases are operating leases.

On the commencement date, the lease payments shall include variable lease payments that depend on an index (such as the Consumer Price Index), initially measured using the index at the commencement date. The Company does not remeasure the lease liability for changes in future lease payments arising from changes in an index unless the lease liability is remeasured for another reason. Therefore, after initial recognition, such variable lease payments are recognized in profit or loss as they are incurred.

Variable payments that depends on use of the underlying asset are not included in the lease payments. Such variable payments are recognized in profit or loss in the period in which the event or condition that triggers the payment occurs.

Upon initial recognition, the Company recognizes a liability at the present value of the lease payments to be made over the lease term, and concurrently recognizes a ROU asset at the same amount of the liability, adjusted for any prepaid lease payments.

The Company’s incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments, the lease term and the effect on that rate of designating specific collateral with a value equal to the unpaid lease payments for that lease.

After lease commencement, the Company measures the lease liability at the present value of the remaining lease payments using the discount rate determined at lease commencement (as long as the discount rate hasn’t been updated as a result of a reassessment event). The Company subsequently measures the ROU asset at the present value of the remaining lease payments, adjusted for the remaining balance of any cumulative prepaid or accrued rent if the lease payments are uneven throughout the lease term.

The Company's lease agreements have remaining lease terms up to 10 years. Some of these agreements include options to extend the leases for up to 5 years and some include options to terminate the leases immediately. Some of our vehicle lease agreements include rental payments based on the actual usage of the vehicles and other lease agreements include rental payments adjusted periodically for inflation. The agreements related to leases in Israel are in Israeli Shekel ("ILS") or in ILS, linked to the Israeli Consumer Price Index or to the US Dollars. The agreements related to leases in the USA are in US Dollars and the agreements related to leases in Denmark are in Danish Krone ("DKK"). The Company's lease agreements do not contain any residual value guarantees. See Note 10.

Revenue recognition

O.Revenue recognition

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers, a new accounting standard related to revenue recognition. ASC 606 supersedes nearly all U.S. GAAP on revenue recognition and eliminated industry-specific guidance. The underlying principle of ASC 606 is to recognize revenue when a customer obtains control of the promised goods at an amount that reflects the consideration that is expected to be received in exchange for those goods. It also requires increased disclosures including the nature, amount, timing, and uncertainty of revenues and cash flows related to contracts with customers. The Company adopted ASC 606 at the beginning of the first quarter of fiscal year 2018 and implemented new accounting policies and internal controls necessary to support the requirements of ASC 606.

The Company derives revenues primarily from the sale of networking and data infrastructure solutions.

The Company recognizes revenue upon transfer of control of the promised goods in a contract with a customer in an amount that reflects the consideration the Company expects to receive in exchange for those products. Transfer of control occurs once the customer has the contractual right to use the product, generally upon shipment or once delivery and risk of loss has transferred to the customer. The Company accounts for a contract with customer when it has approval and commitment from both parties, the rights of the parties and payment terms are identified, the contract has commercial substance and collectability of consideration is probable. The Company identifies separated contractual performance obligations and evaluates each distinct performance obligation within a contract, whether it is satisfied at a point in time or over time. Revenue is recognized over time for sales of goods manufactured to unique customer specifications, in which the Company’s performance does not create an asset with an alternative use to the Company and the Company has an enforceable right to payment for performance completed to date if the customer were to terminate the contract. Revenue recognized over time is measured by the costs incurred to date relative to the estimated total direct costs to fulfill each contract. Incurred costs represent work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, materials and overhead.

Revenue is allocated among performance obligations in a manner that reflects the consideration that the Company expects to be entitled to for the promised goods based on standalone selling prices (SSP). SSP are estimated for each distinct performance obligation and judgment may be required in their determination. The best evidence of SSP is the observable price of the product when the Company sell the goods separately in similar circumstances and to similar customers.

Research and development costs

P.Research and development costs

Capitalization of software development costs related to programmable components incorporated into the Company's products, are charged to expense until technological feasibility has been established for the product. Once technological feasibility is established, all software costs are capitalized until the product is available for general release to customers. Judgment is required in determining when technological feasibility of a product is established. The company has determined that technological feasibility for its software components of hardware products is reached after all high-risk development issues have been resolved through coding and testing. Amortization begins once the software is ready for its intended use, generally based on the pattern in which the economic benefits will be consumed. The amortization of these costs is included in cost of revenue over the estimated life of the products. Other costs incurred in the research and development of the Company’s products are expensed as incurred.

Allowance for product warranty

Q.Allowance for product warranty

The Company grants service warranties related to certain products to end-users. The Company estimates its obligation for such warranties to be immaterial on the basis of historical experience. Accordingly, these financial statements do not include an accrual for warranty obligations.

Treasury shares

R.Treasury shares

Treasury shares are recorded at cost and presented as a reduction of shareholders' equity.

Income taxes

S.Income taxes

Deferred taxes are accounted for under the asset and liability method based on the estimated future tax effects of temporary differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases, and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are presented as non-current assets and liabilities and measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statements of operations in the period that includes the enactment date. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured as the largest amount that is greater than 50 percent likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

Share-based compensation

T.Share-based compensation

The Company recognizes compensation expense based on estimated grant date fair value in accordance with ASC Topic 718, Compensation -Stock Compensation as follows:

When portions of an award vest in increments during the requisite service period (graded-vesting award), the Company’s accounting policy is to recognize compensation cost for the award over the requisite service period for each separately vesting portion of the award.

Basic and diluted earnings per share

U.Basic and diluted earnings per share

Basic income per ordinary share is calculated by dividing the net income attributable to ordinary shares, by the weighted average number of ordinary shares outstanding. Diluted income per ordinary share calculation is similar to basic income per ordinary share except that the weighted average of common shares outstanding is increased to include outstanding potential common shares during the period if dilutive. Potential common shares arise from stock options and RSUs, and the dilutive effect is reflected by the application of the treasury stock method.

The following table summarizes information related to the computation of basic and diluted income per ordinary share for the years indicated.

	Year ended December 31
	2018		2019		2020
Net income attributable to ordinary shares (US$ thousands)		14,637		10,236		5,725
Weighted average number of ordinary shares outstanding used in basic income per ordinary share calculation		7,552,094		7,520,389		7,118,244
Add assumed exercise of outstanding dilutive potential ordinary shares		105,236		52,228		38,519
Weighted average number of ordinary shares outstanding used in diluted income per ordinary share calculation		7,657,330		7,572,617		7,156,763
Basic income per ordinary shares (US$)		1.938		1.361		0.804
Diluted income per ordinary shares (US$)		1.912		1.352		0.800
Weighted average number of shares related to options and RSUs excluded from the diluted earnings per share calculation because of anti-dilutive effect		171,086		351,610		180,916

Comprehensive Income

V.Comprehensive Income

For the years ended December 31, 2018, 2019 and 2020, comprehensive income equals net income.

Fair Value Measurements

W.Fair Value Measurements

The Company's financial instruments consist mainly of cash and cash equivalents, marketable securities, trade and other receivables and trade accounts payable. The carrying amounts of these financial instruments, except for marketable securities, approximate their fair value because of the short maturity of these investments. The fair value of marketable securities is presented in Note 5 to these consolidated financial statements. Assets held for severance benefits are recorded at their current cash redemption value.

The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.

Concentrations of risks

X.Concentrations of risks

(1)​Credit risk

Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist principally of cash and cash equivalents, short-term bank deposits, marketable securities, trade receivables and assets held for employees’ severance benefits. Cash and cash equivalents balances of the Company, which are subject to credit risk, consist of cash accounts held with major financial institutions. Short-term bank deposits balances of the Company, which are subject to credit risk, consist of short-term bank deposits held with a major Israeli Bank. Marketable securities consist of held to maturity marketable securities issued by highly rated corporations. As of December 31, 2019 and 2020, the ratings of the securities in the Company's portfolio was at least A- and BBB+ respectively. Nonetheless, these investments are subject to general credit and counterparty risks (such as that the counterparty to a financial instrument fails to meet its contractual obligations). The Company closely monitors extensions of credit and has never experienced significant credit losses.

On January 1, 2020, the Company adopted ASU 2016-13 (Topic 326) Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments, as further clarified by the Financial Accounting Standards Board (the "FASB") through the issuance of additional related ASUs, which requires the measurement and recognition of current expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model, which requires the use of forward-looking information to calculate credit loss estimates. The Company adopted the standard under the modified retrospective approach. Upon adoption, the standard did not have a material impact on the Consolidated Financial Statements. We continue to monitor the financial implications of the COVID-19 pandemic on expected credit losses.

(2)​Significant customers

The Company's top three customers accounted for approximately 36% of its revenues in 2020. The Company expects that a small number of customers will continue to account for a significant portion of its revenues for the foreseeable future. See Note 13.

Liabilities for loss contingencies

Y.Liabilities for loss contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.

Recent Accounting Pronouncements

Z.Recent Accounting Pronouncements

(1)In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, which removes certain exceptions for: recognizing deferred taxes for investments, performing intraperiod tax allocation and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. This ASU is effective for annual periods in fiscal years beginning after December 15, 2020. The Company does not expect the adoption of ASU 2019-12 to have a material impact on its consolidated balance sheets, results of operations, cash flows or presentation thereof.

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Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2020

Accounting Policies [Abstract]

Depreciation of Property, Plant and Equipment

Property, plant and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated on the straight-line basis over the estimated useful life of the assets at the following annual rates:

	%
Machinery and equipment	15 - 33
Office furniture and equipment	6 - 33
Leasehold improvements	*

* Over the shorter term of the lease or the useful life of the asset

Computation of Basic and Diluted Income Per Ordinary Share

The following table summarizes information related to the computation of basic and diluted income per ordinary share for the years indicated.

	Year ended December 31
	2018		2019		2020
Net income attributable to ordinary shares (US$ thousands)		14,637		10,236		5,725
Weighted average number of ordinary shares outstanding used in basic income per ordinary share calculation		7,552,094		7,520,389		7,118,244
Add assumed exercise of outstanding dilutive potential ordinary shares		105,236		52,228		38,519
Weighted average number of ordinary shares outstanding used in diluted income per ordinary share calculation		7,657,330		7,572,617		7,156,763
Basic income per ordinary shares (US$)		1.938		1.361		0.804
Diluted income per ordinary shares (US$)		1.912		1.352		0.800
Weighted average number of shares related to options and RSUs excluded from the diluted earnings per share calculation because of anti-dilutive effect		171,086		351,610		180,916

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Cash and Cash Equivalents (Tables)

12 Months Ended

Dec. 31, 2020

Cash and Cash Equivalents [Abstract]

Schedule of Cash and Cash Equivalents

	December 31
	2019		2020
	US$ thousands
Cash		13,382		19,477
Cash equivalents *		3,087		1,199
		16,469		20,676

* Comprised mainly of deposits in banks as at December 31, 2019 and 2020 carrying a weighted average interest rate of 1.04% and 0.84%, respectively.

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Marketable Securities (Tables)

12 Months Ended

Dec. 31, 2020

Investments, Debt and Equity Securities [Abstract]

Held-to-Maturity Securities

The Company's investment in marketable securities as of December 31, 2019 and 2020 are classified as ''held-to-maturity'' and consist of the following:

	Amortized cost basis**		Gross unrealized holding gains		Gross unrealized holding (losses)			Aggregate fair value*
	US$ thousands
At December 31, 2020
Held to maturity:
Corporate debt securities and government debt securities
Current		35,445		265		(102	)		35,608
Non-Current		15,365		339		-			15,704
		50,810		604		(102	)		51,312
At December 31, 2019
Held to maturity:
Corporate debt securities and government debt securities
Current		14,170		24		(97	)		14,097
Non-Current		46,955		408		(112	)		47,251
		61,125		432		(209	)		61,348

*	Fair value is being determined using quoted market prices in active markets (Level 2).
**	Including accrued interest in the amount of US$ 538 thousand and US$ 412 thousand as of December 31, 2019 and 2020, respectively.
	The accrued interest is presented as part of other receivables on the balance sheet.

Schedule of Reconciliation of Marketable Securities

Activity in marketable securities in 2020	US$ thousands
Balance at January 1, 2020		61,125
Purchases of marketable securities		6,558
Discount on marketable securities, net		(244	)
Proceeds from maturity of marketable securities		(16,629	)
Balance at December 31, 2020		50,810

Summary of Investment Securities in an Unrealized Loss Position

The following table summarizes the gross unrealized losses on investment securities for which other-than-temporary impairments have not been recognized and the fair value of those securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2020:

	Less than 12 months					12 months or more					Total
Held to maturity:	Unrealized Losses			Fair value		Unrealized Losses			Fair value		Unrealized Losses			Fair value
Corporate debt securities and government debt securities		(2	)		1,105		(100	)		6,770		(102	)		7,875

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Other Receivables (Tables)

12 Months Ended

Dec. 31, 2020

Receivables [Abstract]

Schedule of Other Receivables

	December 31
	2019		2020
	US$ thousands
Advances to suppliers		805		618
Government authorities		2,758		3,668
Prepaid expense		553		477
Other receivables		848		1,363
		4,964		6,126

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Inventories (Tables)

12 Months Ended

Dec. 31, 2020

Inventory Disclosure [Abstract]

Summary of Inventories

	December 31
	2019		2020
	US$ thousands
Raw materials and components		20,986		29,362
Products in process		7,137		10,041
Finished products		8,368		8,247
		36,491		47,650

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Property, Plant and Equipment, Net (Tables)

12 Months Ended

Dec. 31, 2020

Property, Plant and Equipment [Abstract]

Summary of Property, Plant and Equipment, Net

	December 31
	2019			2020
	US$ thousands
Machinery and equipment		13,374			15,494
Office furniture and equipment		924			991
Leasehold improvements		2,528			2,884
Property, plant and equipment		16,826			19,369
Accumulated depreciation		(13,252	)		(15,259	)
Property, Plant and equipment, net		3,574			4,110

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Intangible Assets (Tables)

12 Months Ended

Dec. 31, 2020

Intangible Assets, Net (Excluding Goodwill) [Abstract]

Schedule of Net Intangible Assets

			December 31
			2019		2020
	Useful life		US$ thousands
Original cost:
Capitalization of software development costs		3		1,946		2,983
Licenses		3		106		556
				2,052		3,539
Accumulated amortization:
Capitalization of software development costs				274		2,163
Licenses				60		206
				334		2,369
Intangible assets, net:
Capitalization of software development costs				1,672		820
Licenses				46		350
				1,718		1,170

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Leases (Tables)

12 Months Ended

Dec. 31, 2020

Leases [Abstract]

Schedule of Operating Lease Cost

A.The components of operating lease cost for the year ended December 31, 2020 and 2019 were as follows:

	Year ended December 31
	2019		2020
	US$ thousands
Operating lease costs		1,494		1,623
Variable lease payments not included in the lease liability		2		3
Short-term lease cost		287		285
Total operating lease cost		1,783		1,911

Schedule of Supplemental Cash Flow Information Operating Lease

B.Supplemental cash flow information related to operating leases was as follows:

	Year ended December 31
	2019		2020
	US$ thousands
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases		1,541		1,601
Right-of-use assets obtained in exchange for lease obligations (non-cash):
Operating leases		1,524		7,201

Schedule of Supplemental Balance Sheet Information Operating Lease

C.Supplemental balance sheet information related to operating leases was as follows:

	December 31
	2019		2020
	US$ thousands
Operating leases:
Operating leases right-of-use		3,783		9,913
Current operating lease liabilities		1,090		1,813
Non-current operating lease liabilities		2,693		8,282
Total operating lease liabilities		3,783		10,095

Schedule of Additional Information Related to Operating Leases

	December 31
	2019			2020
	US$ thousands
Weighted average remaining lease term (years)		4.8			8.2
Weighted average discount rate		3.3	%		2.4	%

Schedule of Future Minimum Lease Payments

D.Future minimum lease payments under non-cancellable leases as of December 31, 2020 were as follows:  

	December 31, 2020
	US$ thousands
2021		1,743
2022		1,575
2023		1,426
2024		1,161
After 2025		4,934
Total operating lease payments		10,839
Less: imputed interest		(744	)
Present value of lease liabilities		10,095

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Shareholders' Equity (Tables)

12 Months Ended

Dec. 31, 2020

Stockholders' Equity Note [Abstract]

Schedule of assumptions used in estimation of grant date fair value of RSUs

3.The Company recognizes compensation expenses on these RSUs based on estimated grant date fair value, with the following assumptions:

	2017			2020
Expected dividend yield		2.68	%		0	%
Termination rate		1.74	%		1.58	%

Schedule of assumptions used in estimation of grant date fair value of options

2.The Company recognizes compensation expenses on these options based on estimated grant date fair value using the Binomial option-pricing model with the following assumptions:

Average Risk-free interest rate (a)	1.58	%
Expected dividend yield	2.42	%
Average expected volatility (b)	47.90	%
Termination rate	9	%
Suboptimal factor (c)	3.32

(a)	Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant.
(b)	Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market.
(c)	Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies.

2.The Company recognizes compensation expenses on these options based on estimated grant date fair value using the Binomial option-pricing model with the following assumptions:

Average Risk-free interest rate (a)	2.35	%
Expected dividend yield	2.42	%
Average expected volatility (b)	43.71	%
Termination rate	9	%
Suboptimal factor (c)	3.28

(a)	Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant.
(b)	Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market.
(c)	Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies.

2.The Company recognizes compensation expenses on these options based on estimated grant date fair value using the Binomial option-pricing model with the following assumptions:

Average Risk-free interest rate (a)	2.92	%
Expected dividend yield	0.0	%
Average expected volatility (b)	45.13	%
Termination rate	9	%
Suboptimal factor (c)	3.2

(a)	Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant.
(b)	Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market.
(c)	Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies.

2.The Company recognizes compensation expenses on these options based on estimated grant date fair value using the Binomial option-pricing model with the following assumptions:

Average Risk-free interest rate (a)	2.55	%
Expected dividend yield	0.0	%
Average expected volatility (b)	44.62	%
Termination rate	9	%
Suboptimal factor (c)	3.18

(a)	Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant.
(b)	Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market.
(c)	Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies.

4.The Company recognizes compensation expenses on these options based on estimated grant date fair value using the Binomial option-pricing model with the following assumptions:

Average Risk-free interest rate (a)	0.75	%
Expected dividend yield	0.0	%
Average expected volatility (b)	45.29	%
Termination rate	9	%
Suboptimal factor (c)	3.16

(a)	Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant.
(b)	Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market.
(c)	Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies.

Stock Option Summary

I.The following table summarizes information regarding stock options as at December 31, 2020:

	Options outstanding					Options exercisable
				Weighted average				Weighted average
				remaining				remaining
Exercise price		Number		contractual life		Number		contractual life
US$		of options		(in years)		of options		(in years)
26.91			19,332		2.6		19,332		2.6
33.27			19,706		5.3		19,706		5.3
28.38			68,649		3.4		68,649		3.4
39.62			101,004		4.1		101,004		4.1
36.11			114,090		5.3		114,090		5.3
33.83			125,674		6.1		-		-
32.54			141,592		7.4		-		-
			590,047				322,781

Stock Option Activity

J.The stock option activity under the abovementioned plans is as follows:

	Number of options			Weighted average exercise price		Weighted average grant date fair value
				US$		US$
Balance at January 1, 2018		249,911
Granted		137,010			36.11		14.71
Exercised		(9,674	)		28.02		9.94
Forfeited		(11,752	)		36.73		13.05
Balance at December 31, 2018		365,495
Granted		141,928			33.83		13.35
Exercised		(5,500	)		28.09		10.03
Forfeited		(36,676	)		35.88		13.50
Balance at December 31, 2019		465,247
Granted		148,426			32.54		14.82
Exercised		(12,357	)		22.38		8.63
Forfeited		(11,269	)		33.93		14.56
Balance at December 31, 2020		590,047
Exercisable at December 31, 2020		322,781

Schedule of Restricted Share Units activity

K.The Restricted Share Units activity under the abovementioned plans is as follows:

	Number of Restricted Share Units			Weighted average grant date fair value
				US$
Balance at January 1, 2018 and December 31, 2018		78,000
Vested		(39,000	)		35.36
Balance at December 31, 2019		39,000
Granted		86,000			35.33
Vested		(39,000	)		34.43
Balance at December 31, 2020		86,000

Summary of Allocation of the Stock-Based Compensation Expenses

L.During 2018, 2019 and 2020, the Company recorded share-based compensation expenses. The following summarizes the allocation of the stock-based compensation expenses:

	Year ended December 31
	2018		2019		2020
	US$ thousands
Cost of sales		372		437		535
Research and development costs		953		900		959
Selling and marketing expenses		569		493		602
General and administrative expenses		530		525		615
		2,424		2,355		2,711

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Geographic areas and major customers (Tables)

12 Months Ended

Dec. 31, 2020

Geographic areas and major customers [Abstract]

Sales by Geographic Region

Sales are attributed to geographic distribution based on the location of the customer.

	Year ended December 31
	2018		2019		2020
	US$ thousands
North America		108,024		77,161		65,142
Europe		21,038		20,956		35,570
Asia-Pacific		4,691		7,123		6,686
		133,753		105,240		107,398

Sales to Single Customers Exceeding 10% of Sales

B.Sales to single customers exceeding 10% of sales (US$ thousands):

	Year ended December 31
	2018		2019		2020
	US$ thousands
Customer "A"		305		2,428		13,468
Customer "B"		-		-		13,328
Customer "C"		18,855		17,107		12,278
Customer "D"		14,506		11,030		4,225
Customer "E"		14,220		121		44

Schedule of Locations of Company's Long Lived Assets - Property, Plant and Equipment

The following table presents the locations of the Company’s long-lived assets as of December 31, 2019 and 2020:

	Year ended December 31
	2019		2020
	US$ thousands
North America		1,189	1,081
Europe		198	189
Israel		5,970	12,753
		7,357	14,023

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Financial Income (Expenses), Net (Tables)

12 Months Ended

Dec. 31, 2020

Other Income and Expenses [Abstract]

Financial Income (Expenses), Net

	Year ended December 31
	2018			2019			2020
	US$ thousands
Interest income		840			2,295			2,197
Discount on marketable securities, net		(32	)		(144	)		(244	)
Exchange rate differences, net		208			(357	)		(748	)
Bank charges		(93	)		(148	)		(171	)
		923			1,646			1,034

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Taxes on Income (Tables)

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Before Income Taxes and Income Taxes Expense (Benefit) Included in The Consolidated Statements of Operations

F.Income before income taxes and income taxes expense (benefit) included in the consolidated statements of operations

	Year ended December 31
	2018			2019			2020
	US$ thousands
Income before income taxes:
Israel		14,703			9,339			5,565
Foreign jurisdictions		2,871			2,520			1,717
		17,574			11,859			7,282
Current taxes:
Israel		2,400			1,732			1,260
Foreign jurisdictions		831			611			506
		3,231			2,343			1,766
Current tax (benefits) expenses relating to prior years:
Israel		(73	)		(17	)		50
Foreign jurisdictions		(226	)		(4	)		(198	)
		(299	)		(21	)		(148	)
Deferred taxes:
Israel		(106	)		(904	)		8
Foreign jurisdictions		111			205			(69	)
		5			(699	)		(61	)
Income tax expense		2,937			1,623			1,557

Deferred Tax Assets and Liabilities

The tax effects of significant items comprising the Company’s deferred tax assets and liabilities are as follows:  

	December 31			December 31
	2019			2020
	US$ thousands			US$ thousands
Deferred tax assets:
Accrued employee benefits		327			368
Research and development costs		1,597			1,859
Operating loss carryforwards		196			66
Property, plant and equipment		31			-
Share based compensation		374			365
Intangible assets		347			287
Operating lease liabilities		-			1,121
Other		-			1
Total deferred tax assets		2,872			4,067
Deferred tax liabilities:
Intangible assets		(397	)		(203	)
Goodwill		(879	)		(1,089	)
Operating leases right-of-use, net		-			(1,100	)
Other		(3	)		(21	)
Total deferred tax liabilities		(1,279	)		(2,413	)
Net deferred tax assets		1,593			1,654
In Israel		1,798			1,790
Foreign jurisdictions		(205	)		(136	)
Net deferred tax assets		1,593			1,654
Non-current deferred tax assets		1,798			1,790
Non-current deferred tax liabilities		(205	)		(136	)

Reconciliation of the Statutory Tax Expense to Actual Tax Expense

H.Reconciliation of the statutory tax expense to actual tax expense

	Year ended December 31
	2018			2019			2020
	US$ thousands
Income before income taxes		17,574			11,859			7,282
Statutory tax rate in Israel		23.0	%		23.0	%		23.0	%
		4,042			2,728			1,675
Increase (decrease) in taxes resulting from:
Non-deductible operating expenses		295			417			508
Prior years adjustments		(299	)		(21	)		(148	)
Tax effect due to
"Preferred Enterprise" status*		(1,398	)		(1,099	)		(714	)
Statutory rate differential		176			18			105
Changes in tax rate		-			7			181
Creation of deferred taxes for tax losses and benefits from previous years for which deferred taxes were not created in the past		-			(476	)		-
Other		121			49			(50	)
Income tax expense		2,937			1,623			1,557

* The effect of the benefit resulting from the "Preferred Enterprise" status on net earnings per ordinary share is as follows:

Schedule of Effect of the Benefit Resulting From the "Preferred Enterprise" Status on Net Earnings Per Ordinary Share

	Year ended December 31
	2018		2019		2020
Basic		0.19		0.15		0.10
Diluted		0.18		0.15		0.10

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Summary of Significant Accounting Policies (Narrative) (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2020 USD ($) item Customers	Dec. 31, 2019 USD ($)
Accounting Policies [Abstract]
Provision for doubtful accounts | $	$ 20	$ 20
Number of major customers | Customers	3
Percentage of revenue contributed by major customers	36.00%
Number of operating segments	1
Number of reporting units	1
Weighted average interest rate	2.05%
Remaining lease terms	10 years
Options to extend leases	5 years

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Summary of Significant Accounting Policies (Depreciation of Property, Plant and Equipment) (Details)	12 Months Ended
	Dec. 31, 2020
Machinery and equipment [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Straight-line depreciation rate	15.00%
Machinery and equipment [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Straight-line depreciation rate	33.00%
Office Furniture and Equipment [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Straight-line depreciation rate	6.00%
Office Furniture and Equipment [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Straight-line depreciation rate	33.00%
Leasehold Improvements [Member]
Property, Plant and Equipment [Line Items]
Straight-line depreciation rate		[1]

[1] Over the shorter term of the lease or the useful life of the asset

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Summary of Significant Accounting Policies (Computation of Basic and Diluted Income Per Ordinary Share) (Details) - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
Accounting Policies [Abstract]
Net income attributable to ordinary shares (US$ thousands)	$ 5,725	$ 10,236	$ 14,637
Weighted average number of ordinary shares outstanding used in basic income per ordinary share calculation	7,118,244	7,520,389	7,552,094
Add assumed exercise of outstanding dilutive potential ordinary shares	38,519	52,228	105,236
Weighted average number of ordinary shares outstanding used in diluted income per ordinary share calculation	7,156,763	7,572,617	7,657,330
Basic income per ordinary shares (US$)	$ 0.804	$ 1.361	$ 1.938
Diluted income per ordinary shares (US$)	$ 0.800	$ 1.352	$ 1.912
Weighted average number of shares related to options and RSUs excluded from the diluted earnings per share calculation because of anti-dilutive effect	180,916	351,610	171,086

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Acquisitions (Details) - USD ($) $ in Thousands			1 Months Ended
	Oct. 28, 2015	Dec. 10, 2014	Apr. 15, 2016	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2015
Business Acquisition [Line Items]
Purchase price allocated to goodwill				$ 25,561	$ 25,561
Silicom Denmark [Member]
Business Acquisition [Line Items]
Aggregate purchase price in cash		$ 10,161
Contingent consideration		$ 4,683
Total obligation the company paid						$ 1,463
Percentage of contingent consideration paid in cash						90.00%
Percentage of contingent consideration paid in options to ordinary shares						10.00%
Aggregate options granted			22,795
ADI Engineering, Inc. [Member]
Business Acquisition [Line Items]
Aggregate purchase price in cash	$ 10,000
Contingent consideration	7,802
Total purchase price	17,802
Purchase price allocated to tangible assets	222
Purchase price allocated to intangibles assets	4,261
Purchase price allocated to goodwill	$ 13,319

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Cash and Cash Equivalents (Details) - USD ($) $ in Thousands		12 Months Ended
		Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Cash and Cash Equivalents [Abstract]
Cash		$ 19,477	$ 13,382
Cash equivalents	[1]	1,199	3,087
Cash and cash equivalents		$ 20,676	$ 16,469	$ 26,808	$ 17,021
Weighted average interest rate of cash on deposit		0.84%	1.04%

[1] Comprised mainly of deposits in banks as at December 31, 2019 and 2020 carrying a weighted average interest rate of 1.04% and 0.84%, respectively.

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Marketable Securities (Held-To-Maturity Securities) (Details) - USD ($) $ in Thousands		Dec. 31, 2020	Dec. 31, 2019
Schedule of Held-to-maturity Securities [Line Items]
Aggregate fair value	[1]	$ 51,312	$ 61,348
Gross unrealized holding gains		604	432
Gross unrealized holding (losses)		(102)	(209)
Amortized cost basis	[2]	50,810	61,125
Accrued interest on securities		412	538
Current [Member]
Schedule of Held-to-maturity Securities [Line Items]
Aggregate fair value	[1]	35,608	14,097
Gross unrealized holding gains		265	24
Gross unrealized holding (losses)		(102)	(97)
Amortized cost basis	[2]	35,445	14,170
Non Current [Member]
Schedule of Held-to-maturity Securities [Line Items]
Aggregate fair value	[1]	15,704	47,251
Gross unrealized holding gains		339	408
Gross unrealized holding (losses)			(112)
Amortized cost basis	[2]	$ 15,365	$ 46,955

[1] Fair value is being determined using quoted market prices in active markets (Level 2).

[2] Including accrued interest in the amount of US$ 538 thousand and US$ 412 thousand as of December 31, 2019 and 2020, respectively.

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Marketable Securities (Schedule of Reconciliation of Marketable Securities) (Details) - USD ($) $ in Thousands		12 Months Ended
		Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
Investments, Debt and Equity Securities [Abstract]
Balance	[1]	$ 61,125
Purchases of marketable securities		6,558	$ 15,604	$ 41,670
Discount on marketable securities, net		(244)	(144)	(32)
Proceeds from maturity of marketable securities		(16,629)	(1,997)	$ (7,750)
Balance	[1]	$ 50,810	$ 61,125

[1] Including accrued interest in the amount of US$ 538 thousand and US$ 412 thousand as of December 31, 2019 and 2020, respectively.

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Marketable Securities (Summary of Investment Securities in an Unrealized Loss Position) (Details) $ in Thousands	Dec. 31, 2020 USD ($)
Investments, Debt and Equity Securities [Abstract]
Unrealized Losses, Less than 12 months	$ (2)
Unrealized Losses, 12 months or more	(100)
Unrealized Losses, Total	(102)
Fair value, Less than 12 months	1,105
Fair value, 12 months or more	6,770
Fair value, Total	$ 7,875

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Other Receivables (Details) - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019
Receivables [Abstract]
Advances to suppliers	$ 618	$ 805
Government authorities	3,668	2,758
Prepaid expense	477	553
Other receivables	1,363	848
Total other receivables	$ 6,126	$ 4,964

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Inventories (Details) - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019
Inventory Disclosure [Abstract]
Raw materials and components	$ 29,362	$ 20,986
Products in process	10,041	7,137
Finished products	8,247	8,368
Inventories	$ 47,650	$ 36,491

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Property, Plant and Equipment, Net (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
Property, Plant and Equipment [Line Items]
Property, plant and equipment	$ 19,369	$ 16,826
Accumulated depreciation	(15,259)	(13,252)
Property, Plant and equipment, net	4,110	3,574
Depreciation	2,000	1,731	$ 2,190
Machinery and equipment [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment	15,494	13,374
Office Furniture and Equipment [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment	991	924
Leasehold Improvements [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment	$ 2,884	$ 2,528

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Intangible Assets (Schedule of net intangible assets) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
Finite-Lived Intangible Assets [Line Items]
Original cost	$ 3,539	$ 2,052
Accumulated amortization	2,369	334
Intangible assets, Net	1,170	1,718
Amortization expense	378	266	$ 1,103
Impairment charge	1,657
Capitalization of software development costs [Member]
Finite-Lived Intangible Assets [Line Items]
Original cost	2,983	1,946
Accumulated amortization	2,163	274
Intangible assets, Net	$ 820	1,672
Useful life	3 years
Licenses [Member]
Finite-Lived Intangible Assets [Line Items]
Original cost	$ 556	106
Accumulated amortization	206	60
Intangible assets, Net	$ 350	$ 46
Useful life	3 years

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Leases (Schedule of Operating Lease Cost) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Leases [Abstract]
Operating lease costs	$ 1,623	$ 1,494
Variable lease payments not included in the lease liability	3	2
Short-term lease cost	285	287
Total operating lease cost	$ 1,911	$ 1,783

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Leases (Schedule of Supplemental Cash Flow Information Operating Lease) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Leases [Abstract]
Operating cash flows from operating leases	$ 1,601	$ 1,541
Right-of-use assets obtained in exchange for lease obligations (non-cash):
Operating leases	$ 7,201	$ 1,524

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Leases (Schedule of Supplemental Balance Sheet Information Operating Lease) (Details) - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019
Operating leases:
Operating leases right-of-use	$ 9,913	$ 3,783
Current operating lease liabilities	1,813	1,090
Non-current operating lease liabilities	8,282	2,693
Total operating lease liabilities	$ 10,095	$ 3,783
Weighted average remaining lease term Operating leases	8 years 2 months 12 days	4 years 9 months 18 days
Weighted average discount rate Operating leases	2.40%	3.30%

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Leases (Schedule of Future Minimum Lease Payments) (Details) - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019
Leases [Abstract]
Year one	$ 1,743
Year two	1,575
Year three	1,426
Year four	1,161
Thereafter	4,934
Total operating lease payments	10,839
Less: imputed interest	(744)
Total operating lease liabilities	$ 10,095	$ 3,783

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Assets Held and Liability for Employees' Severance Benefits (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
Retirement Benefits [Abstract]
Severance costs	$ 986	$ 929	$ 605

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Shareholders' Equity (Share Option Plan) (Details) - USD ($) $ in Millions	1 Months Ended	12 Months Ended
	Jan. 31, 2018	Dec. 31, 2020	Apr. 30, 2020	May 02, 2019	Oct. 21, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Capital gains tax		25.00%
Value of shares authorized under one-year share repurchase plan				$ 15
Share Option Plan 2013 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares authorized					500,000
Additional shares authorized	600,000
Board of Directors [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Value of shares authorized under one-year share repurchase plan			$ 15

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Shareholders' Equity (RSUs Granted in 2017 and 2020) (Narrative) (Details) - Restricted Share Units [Member] - shares	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2017
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
RSUs grant	86,000	78,000
Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period from date of grant	2 years	2 years
Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period from date of grant	3 years	3 years

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Shareholders' Equity (Stock Options Granted in 2017 and 202020) (Narrative) (Details) - $ / shares			1 Months Ended			12 Months Ended
	Jun. 08, 2020	Jun. 08, 2016	Jan. 31, 2019	Apr. 30, 2018	Jan. 30, 2017	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exercise price of options						$ 32.54	$ 33.83	$ 36.11
Share Option Plan 2013 [Member] | 28.38 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options granted		93,660
Exercise price of options		$ 28.38
Expiration date		Jun. 08, 2024
Closing price to determine expiration date		$ 14.19
Share Option Plan 2013 [Member] | 39.62 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options granted					119,925
Exercise price of options					$ 39.62
Expiration date					Jan. 30, 2025
Closing price to determine expiration date					$ 19.81
Share Option Plan 2013 [Member] | 36.11 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options granted				137,010
Exercise price of options				$ 36.11
Expiration date				Apr. 30, 2026
Closing price to determine expiration date				$ 18.06
Share Option Plan 2013 [Member] | 33.83 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options granted			141,928
Exercise price of options			$ 33.83
Expiration date			Jan. 31, 2027
Closing price to determine expiration date			$ 16.92
Share Option Plan 2013 [Member] | $32.54 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options granted	148,426
Exercise price of options	$ 32.54
Expiration date	Jun. 08, 2028
Closing price to determine expiration date	$ 16.27

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Shareholders' Equity (Fair Value Assumptions) (Details) - item			1 Months Ended				12 Months Ended
		Jun. 08, 2016	Jul. 08, 2020	Jan. 31, 2019	Apr. 30, 2018	Jan. 30, 2017	Dec. 31, 2020	Dec. 31, 2017
Restricted Share Units [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected dividend yield							0.00%	2.68%
Termination rate							1.58%	1.74%
$28.38 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Average risk-free interest rate	[1]	1.58%
Expected dividend yield		2.42%
Average expected volatility	[2]	47.90%
Termination rate		9.00%
Suboptimal factor	[3]	3.32
$39.62 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Average risk-free interest rate	[1]					2.35%
Expected dividend yield						2.42%
Average expected volatility	[2]					43.71%
Termination rate						9.00%
Suboptimal factor	[3]					3.28
36.11 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Average risk-free interest rate	[1]				2.92%
Expected dividend yield					0.00%
Average expected volatility	[2]				45.13%
Termination rate					9.00%
Suboptimal factor	[3]				3.2
$32.54 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Average risk-free interest rate	[1]		0.75%
Expected dividend yield			0.00%
Average expected volatility	[2]		45.29%
Termination rate			9.00%
Suboptimal factor	[3]		3.16
Share Option Plan 2013 [Member] | 33.83 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Average risk-free interest rate	[1]			2.55%
Expected dividend yield				0.00%
Average expected volatility	[2]			44.62%
Termination rate				9.00%
Suboptimal factor	[3]			3.18

[1] Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant.

[2] Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market.

[3] Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies.

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Shareholders' Equity (Stock Option Summary) (Details) - $ / shares	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options outstanding, number of options	590,047	465,247	365,495	249,911
Options exercisable, number of options	322,781
$26.91 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exercise price US$	$ 26.91
Options outstanding, number of options	19,332
Options outstanding, weighted average remaining contractual life (in years)	2 years 7 months 6 days
Options exercisable, number of options	19,332
Options exercisable, weighted average remaining contractual life (in years)	2 years 7 months 6 days
33.27 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exercise price US$	$ 33.27
Options outstanding, number of options	19,706
Options outstanding, weighted average remaining contractual life (in years)	5 years 3 months 18 days
Options exercisable, number of options	19,706
Options exercisable, weighted average remaining contractual life (in years)	5 years 3 months 18 days
28.38 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exercise price US$	$ 28.38
Options outstanding, number of options	68,649
Options outstanding, weighted average remaining contractual life (in years)	3 years 4 months 24 days
Options exercisable, number of options	68,649
Options exercisable, weighted average remaining contractual life (in years)	3 years 4 months 24 days
39.62 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exercise price US$	$ 39.62
Options outstanding, number of options	101,004
Options outstanding, weighted average remaining contractual life (in years)	4 years 1 month 6 days
Options exercisable, number of options	101,004
Options exercisable, weighted average remaining contractual life (in years)	4 years 1 month 6 days
36.11 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exercise price US$	$ 36.11
Options outstanding, number of options	114,090
Options outstanding, weighted average remaining contractual life (in years)	5 years 3 months 18 days
Options exercisable, number of options	114,090
Options exercisable, weighted average remaining contractual life (in years)	5 years 3 months 18 days
33.83 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exercise price US$	$ 33.83
Options outstanding, number of options	125,674
Options outstanding, weighted average remaining contractual life (in years)	6 years 1 month 6 days
Options exercisable, number of options
32.54 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exercise price US$	$ 32.54
Options outstanding, number of options	141,592
Options outstanding, weighted average remaining contractual life (in years)	7 years 4 months 24 days
Options exercisable, number of options

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Shareholders' Equity (Intrinsic Value of Stock Options) (Narrative) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Stockholders' Equity Note [Abstract]
Aggregate intrinsic value of options outstanding	$ 4,589	$ 593
Aggregate intrinsic value of options exercisable	2,263	593
Total intrinsic value of options exercised	$ 240	$ 28

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Shareholders' Equity (Stock Option Activity) (Details) - $ / shares	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
Stockholders' Equity Note [Abstract]
Options, beginning balance	465,247	365,495	249,911
Options, granted	148,426	141,928	137,010
Options, exercised	(12,357)	(5,500)	(9,674)
Options, forfeited	(11,269)	(36,676)	(11,752)
Options, ending balance	590,047	465,247	365,495
Options, exercisable	322,781
Weighted average exercise price, granted	$ 32.54	$ 33.83	$ 36.11
Weighted average exercise price, exercised	22.38	28.09	28.02
Weighted average exercise price, forfeited	33.93	35.88	36.73
Weighted average grant date fair value, granted	14.82	13.35	14.71
Weighted average grant date fair value, exercised	8.63	10.03	9.94
Weighted average grant date fair value, forfeited	$ 14.56	$ 13.50	$ 13.05

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Shareholders' Equity (Schedule Of Restricted Share Units Activity) (Details) - Restricted Share Units [Member] - $ / shares	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2017
Number of Restricted Share Units
Restricted Share Units, beginning balance	39,000	78,000
Restricted Share Units, granted	86,000		78,000
Restricted Share Units, vested	(39,000)	(39,000)
Restricted Share Units, ending balance	86,000	39,000
Weighted average grant date fair value
Weighted average grant date fair value, granted	$ 35.33
Weighted average grant date fair value, vested	$ 34.43	$ 35.36

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Shareholders' Equity (Intrinsic Value of Restricted Share Units) (Narrative) (Details) - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019
Restricted Share Units [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Aggregate intrinsic value of RSUs outstanding	$ 3,599	$ 1,297

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Shareholders' Equity (Summary of Allocation of Stock-Based Compensation Expenses) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	$ 2,711	$ 2,355	$ 2,424
Unrecognized compensation costs related to outstanding stock options and RSUs	$ 3,616
Unrecognized compensation costs related to outstanding stock options and RSUs, period for recognition	1 year 8 months 23 days
Tax benefit recognized in the consolidated statements of operations related to share based compensation expenses	$ 67
Cost Of Sales [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	535	437	372
Research And Development Expense [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	959	900	953
Selling And Marketing Expense [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	602	493	569
General And Administrative Expense [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	$ 615	$ 525	$ 530

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Geographic areas and major customers (Sales By Geographic Region) (Details) - USD ($) $ in Thousands		12 Months Ended
		Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
Revenues from External Customers and Long-Lived Assets [Line Items]
Sales attributable based on geographic location	[1]	$ 107,398	$ 105,240	$ 133,753
North America [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Sales attributable based on geographic location		65,142	77,161	108,024
Europe [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Sales attributable based on geographic location		35,570	20,956	21,038
Asia Pacific [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Sales attributable based on geographic location		$ 6,686	$ 7,123	$ 4,691

[1] Including sales to related parties in the amount of US$ 1,063 thousand, US$ 0 thousand and US$ 0 thousand in 2018, 2019 and 2020, respectively.

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Geographic areas and major customers (Sales to Single Customers Exceeding 10% of Sales) (Details) - USD ($) $ in Thousands		12 Months Ended
		Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
Revenue, Major Customer [Line Items]
Sales	[1]	$ 107,398	$ 105,240	$ 133,753
Customer A [Member]
Revenue, Major Customer [Line Items]
Sales		13,468	2,428	305
Customer B [Member]
Revenue, Major Customer [Line Items]
Sales		13,328
Customer C [Member]
Revenue, Major Customer [Line Items]
Sales		12,278	17,107	18,855
Customer D [Member]
Revenue, Major Customer [Line Items]
Sales		4,225	11,030	14,506
Customer E [Member]
Revenue, Major Customer [Line Items]
Sales		$ 44	$ 121	$ 14,220

[1] Including sales to related parties in the amount of US$ 1,063 thousand, US$ 0 thousand and US$ 0 thousand in 2018, 2019 and 2020, respectively.

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Geographic areas and major customers (Schedule of Locations of Company's Long Lived Assets) (Details) - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019
Revenues from External Customers and Long-Lived Assets [Line Items]
Long lived assets	$ 14,023	$ 7,357
North America [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Long lived assets	1,081	1,189
Europe [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Long lived assets	189	198
Israel [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Long lived assets	$ 12,753	$ 5,970

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Financial Income (Expenses), Net (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
Other Income and Expenses [Abstract]
Interest income	$ 2,197	$ 2,295	$ 840
Discount on marketable securities, net	(244)	(144)	(32)
Exchange rate differences, net	(748)	(357)	208
Bank charges	(171)	(148)	(93)
Financial income, net	$ 1,034	$ 1,646	$ 923

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Taxes on Income (Narrative) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
Income Tax Disclosure [Line Items]
Tax rate	23.00%	23.00%	23.00%
Federal corporate income tax rate	21.00%
Corporate tax on cash dividends distributed from exempted profits	25.00%
Withholding tax deduction from cash dividends distributed from benefited profits	20.00%
Non-Israeli subsidiaries' undistributed earnings for which Company has not provided for Israeli income and foreign withholding taxes	$ 8,702
Assumed deferred tax liability attributable to taxable temporary differences from non-Israeli subsidiaries'' undistributed earnings	1,188
Net operating loss carry-forwards	$ 300
Preferred Enterprise [Member]
Income Tax Disclosure [Line Items]
Reduction in corporate tax rate	12.00%
Preferred Enterprise [Member] | Development Area A [Member]
Income Tax Disclosure [Line Items]
Corporate statutory tax rate on 2017 and thereafter	7.50%
Corporate statutory tax rate on 2016	7.50%
Reduction in corporate tax rate	7.50%
Preferred Enterprise [Member] | Rest Of Country [Member]
Income Tax Disclosure [Line Items]
Corporate statutory tax rate on 2016 and thereafter	16.00%
Reduction in corporate tax rate	6.00%
Israel Tax Reform [Member]
Income Tax Disclosure [Line Items]
Corporate statutory tax rate on 2018 and thereafter	23.00%
Corporate statutory tax rate on 2016	25.00%
Beneficial Enterprise [Member]
Income Tax Disclosure [Line Items]
Tax exemption	$ 54,303
Assumed income tax liability	$ 13,576

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Taxes on Income (Income Before Income Taxes and Income Taxes Expense (Benefit) Included in the Consolidated Statements of Operations) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
Income Tax Disclosure [Abstract]
Income before income taxes, Israel	$ 5,565	$ 9,339	$ 14,703
Income before income taxes, foreign jurisdictions	1,717	2,520	2,871
Income before income taxes	7,282	11,859	17,574
Current taxes, Israel	1,260	1,732	2,400
Current taxes, foreign jurisdictions	506	611	831
Current taxes	1,766	2,343	3,231
Current tax (benefits) expenses relating to prior years, Israel	50	(17)	(73)
Current tax (benefits) expenses relating to prior years, foreign jurisdictions	(198)	(4)	(226)
Current tax (benefits) expenses relating to prior years	(148)	(21)	(299)
Deferred taxes, Israel	8	(904)	(106)
Deferred taxes, foreign jurisdictions	(69)	205	111
Deferred taxes	(61)	(699)	5
Income tax expense	$ 1,557	$ 1,623	$ 2,937

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Taxes on Income (Deferred Tax Assets and Liabilities) (Details) - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019
Deferred tax assets:
Accrued employee benefits	$ 368	$ 327
Research and development costs	1,859	1,597
Operating loss carryforwards	66	196
Property, plant and equipment		31
Share based compensation	365	374
Intangible assets	287	347
Operating lease liabilities	1,121
Other	1
Total deferred tax assets	4,067	2,872
Deferred tax liabilities:
Intangible assets	(203)	(397)
Goodwill	(1,089)	(879)
Operating leases right-of-use, net	(1,100)
Other	(21)	(3)
Total deferred tax liabilities	(2,413)	(1,279)
Net deferred tax assets	1,654	1,593
In Israel	1,790	1,798
Foreign jurisdictions	(136)	(205)
Net deferred tax assets	1,654	1,593
Non-current deferred tax assets	1,790	1,798
Non-current deferred tax liabilities	$ (136)	$ (205)

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Taxes on Income (Reconciliation of Statutory Tax Expense To Actual Tax Expense) (Details) - USD ($) $ / shares in Units, $ in Thousands		12 Months Ended
		Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
Income before income taxes		$ 7,282	$ 11,859	$ 17,574
Statutory tax rate in Israel		23.00%	23.00%	23.00%
Computed expected tax		$ 1,675	$ 2,728	$ 4,042
Non-deductible operating expenses		508	417	295
Prior years adjustments		(148)	(21)	(299)
Tax effect due to "Preferred Enterprise" status	[1]	(714)	(1,099)	(1,398)
Statutory rate differential		105	18	176
Changes in tax rate		181	7
Creation of deferred taxes for tax losses and benefits from previous years for which deferred taxes were not created in the past			(476)
Other		(50)	49	121
Income tax expense		$ 1,557	$ 1,623	$ 2,937
Basic		$ 0.804	$ 1.361	$ 1.938
Diluted		0.800	1.352	1.912
Preferred Enterprise - Effect on Net Earnings Per Ordinary Share [Member]
Basic		0.10	0.15	0.19
Diluted		$ 0.10	$ 0.15	$ 0.18

[1] The effect of the benefit resulting from the "Preferred Enterprise" status on net earnings per ordinary share is as follows:

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Subsequent Events (Details) - USD ($) $ in Thousands	1 Months Ended	2 Months Ended	12 Months Ended
	Jan. 31, 2021	Mar. 05, 2021	Dec. 31, 2020	Dec. 31, 2019
Subsequent Event [Line Items]
Ordinary shares repurchased value			$ 16,798	$ 7,971
Subsequent Event [Member]
Subsequent Event [Line Items]
Ordinary shares repurchased		49,555
Ordinary shares repurchased value		$ 2,257
Global Share Incentive Plan (2013) [Member] | Subsequent Event [Member]
Subsequent Event [Line Items]
Options approved for grant during period not yet issued	137,759