Silicom Ltd.
Conflict Minerals Report
For the Year Ended December 31, 2022
This report for the year ended December 31, 2022 is presented to comply with Section 13(p) of the Securities Exchange Act of 1934 and Rule 13p-1 (the "Rule") and Form SD thereunder. The Rule was adopted by the Securities and Exchange Commission ("SEC") to implement reporting and disclosure requirements related to conflict minerals as directed by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 ("Dodd-Frank Act"). These requirements apply to registrants whatever the geographic origin of the conflict minerals and whether or not they fund armed conflict.
Design of Conflict Minerals Due Diligence Program
The design of our conflict minerals due diligence program is in conformity with the Organization for Economic Co-operation and Development Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas, Second Edition, and related Supplements on Tin, Tantalum and Tungsten and on Gold (collectively, "OECD Guidance"), specifically as it relates to our position in the minerals supply chain as a "downstream" purchaser. We designed our due diligence program, management and measures to conform in all material respects with the framework OECD Guidance.
Description of Performed Conflict Minerals Due Diligence Program
| (i) | Maintaining of Strong Company Management Systems |
a.
| | Silicom has adopted and committed to a Conflict Minerals policy for minerals originating from conflict-affected and high-risk areas. More information about Silicom's Conflict Minerals policy can be found in the RCOI section above.
Our management system includes a Conflict Minerals Qualification Team overseen by the Chief Financial Officer of the Company and run under the supervision of the Company's VP QA & Engineering, and includes a team of subject matter experts from relevant functions including Operations and Purchasing. Senior management is briefed about the results of our due diligence efforts on a regular basis.
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| b. | | In 2019 Silicom became a member of the Responsible Minerals Initiative ("RMI") (formerly the Conflict Free Sourcing Initiative, or CFSI), as a member we participate in all RMI activities such as smelters audits and other activities.
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c.
| | Silicom has implemented a supply chain system of controls and transparency through the use of due diligence software provided by third party software supplier.
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d.
| | In the process of engaging with new manufacturers and suppliers, Silicom requests that such suppliers provide it with complete and valid CMRTs as a condition for Silicom's engagement with such manufacturers and suppliers.
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e.
| | Silicom conducts trainings to suppliers and manufacturers from whom it purchases components used in its products, assists suppliers and manufacturers in educating their own suppliers, by informing them on the Rule, referring suppliers and manufacturers to the RMI website and online training materials and providing Silicom's Conflict Minerals policy and due diligence procedures.
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f.
| | Silicom documents and maintains a record maintenance mechanism to ensure the retaining of relevant documentation in an electronic database for at least 5 years.
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g.
| | Silicom encourages employees, suppliers and manufacturers and stakeholders to report any concerns relating to its conflict minerals program by contacting Silicom on its Conflict Minerals page: http://www.silicom-usa.com/conflict-minerals/. |
| (ii) | Identification and Assessment of Risk in the Supply Chain |
Suppliers and manufacturers (including smelters and refiners) of products which include Conflict Minerals which are "necessary to the functionality of the products" were identified through our CMRT analysis.
We identified two primary risks in our supply chain: (1) not receiving on time and accurate information from the suppliers and manufacturers; and (2) reliance on suppliers and manufacturers who are not conflict-free while pursuing our goal of becoming a conflict free company. This assessment assisted us to segment our suppliers and manufacturers into three risk levels (high, medium and low), on which we based our risk strategy.
We conducted a survey of our active suppliers and manufacturers using the template developed by RMI, known as the Conflict Minerals Reporting Template ("CMRT"). Suppliers and manufacturers were requested to use version 6.1 of the CMRT, or newer versions.
| (iii) | Design and Implementation of a Strategy to Respond to Identified Risks |
| | We performed reviews of suppliers and manufacturers, smelters, and refiners that could be sourcing or processing Conflict Minerals from the Covered Countries, which could not be from recycled or scrap sources.
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| b. | As part of our risk based approach, we decided to focus our risk management actions on suppliers and manufacturers with a spending volume of over US$ 1,000 in 2022. We requested smelter information from all of our direct suppliers and manufacturers, and prioritized suppliers and manufacturers with a spending volume of over US$ 1,000. In cases where prioritized suppliers and manufacturers did not respond to our initial requests, we attempted to contact them several additional times in order to obtain the necessary information from them.
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| | We monitored and tracked suppliers and manufacturers (as described in RCOI section above), smelters and/or refiners identified as not meeting the requirements (or that defined themselves as "Unknown" or "Undeterminable" or "Sourced from DRC") set forth in our Conflict Minerals Sourcing Policy or contractual requirements to determine their progress in meeting those requirements.
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| d. | New suppliers and manufacturers were required to complete RMI declarations in order to qualify as approved suppliers and manufacturers by us.
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| | We provided periodic progress reports to our senior management relating to our risk mitigation efforts.
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| | In general, supply chain due diligence is a dynamic process and requires on-going risk monitoring. This process is performed twice a year and an updated CMRT is released after completion of each due diligence cycle.
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| g. | | Follow up letters were sent to high and medium risk suppliers and manufacturers who were identified as having non-compliant smelters in their supply chain. Non-responsive suppliers and manufacturers were reminded to send their responses several times by e-mails and, if they remained non-responsive thereafter, such suppliers and manufacturers were personally approached by our Sustainability Team or by our Purchasing Team and warned that if they remain non-responsive despite our continued attempts to receive their responses, they will be removed from our approved suppliers and manufacturers list. In cases where such suppliers and manufacturers remained non-responsive nonetheless, we removed them from our approved suppliers and manufacturers list. |
| (iv) | Carry out Independent Third-Party Audit of Smelter/Refiner’s Due Diligence Practices |
We encourage our suppliers and manufacturers to purchase from RMI Compliant Smelters, and we rely on the RMI compliant and active smelters list, which is available on the RMI website.
| (v) | Report on Supply Chain Due Diligence |
This Report is available on our website at http://www.silicom-usa.com/conflict-minerals/. This Report is being filed to the SEC and is also available on the SEC's EDGAR database at www.sec.gov.
Results of our Assessment
As a downstream purchaser of conflict minerals, our due diligence measures can provide only reasonable, not absolute, assurance regarding the source and chain of custody of the necessary conflict minerals. Our due diligence processes are based on the necessity of seeking data from our direct suppliers and manufacturers and those suppliers and manufacturers seeking similar information within their supply chains to identify the original sources of the necessary conflict minerals. We also gather required CMRT information from websites of suppliers and manufacturers where conflict minerals reports were available. We also rely, to a large extent, on information collected and provided by independent third-party audit programs. Such sources of information may yield inaccurate or incomplete information and may be subject to fraud because the information gathered from our suppliers and manufacturers is not on a continuous, real-time basis.
Supplier Chain Survey Responses
Silicom contacted 202 suppliers and manufacturers, and the response rate achieved was over 99.9% in cost of purchased goods.
The Sustainability Team directly contacted Silicom's suppliers and manufacturers in order to collect CMRTs. Following the efforts of the Sustainability Team, 181 suppliers and manufacturers delivered satisfactory CMRTs. For the purposes hereof, Silicom considers CMRT to be satisfactory if they do not include any deficiencies or discrepancies and comply, in form and in substance, with the terms governing the RMI, such as blank rows, scope not matching PN list, inclusion of irrelevant information, etc.
12 of the 202 suppliers and manufacturers delivered CMRTs with invalid supplier submissions, like incorrect smelter names or invalid CID identification numbers. Following our requests for improved CMRTs, we received satisfactory CMRTs submissions from all such suppliers and manufacturers.
75 suppliers and manufacturers were classified as "Not from DRC" – suppliers and manufacturers who reported that they were sourcing minerals from countries other than the Covered Countries.
57 suppliers and manufacturers were classified as "DRC conflict free" – suppliers and manufacturers who reported that the 3TG minerals used in the products provided to Silicom originate from Covered Countries but the smelters are approved by the RMI
19 suppliers and manufacturers were classified as "DRC not conflict free" – suppliers and manufacturers who reported that the 3TG minerals used in the products provided to Silicom originate from Covered Countries and the smelters are not approved by the RMI.
23 suppliers and manufacturers were classified as "Free no 3TG" – suppliers and manufacturers who reported that 3TG minerals are not necessary for the functionality or production of the products provided to Silicom.
9 suppliers and manufacturers were classified as "Undetermined not from DRC" – suppliers and manufacturers who reported that the 3TG used in the products supplied to Silicom do not originate from Covered Countries but since they have not yet concluded their due diligence process, their determination and responses are not yet final and may vary. Consequently, our due diligence for these suppliers and manufacturers is still ongoing.
10 suppliers and manufacturers were classified as "Undetermined from DRC" – suppliers and manufacturers who reported that the 3TG used in the products supplied to Silicom originate from Covered Countries and the smelters are approved by the RMI program, but they have not yet concluded their due diligence process so their determination and responses are not yet final and may vary. Consequently, our due diligence for these suppliers and manufacturers is still ongoing.
Of the193 suppliers and manufacturers that delivered satisfactory CMRTs:
94 suppliers and manufacturers provided data at a "Company" level;
27 suppliers and manufacturers provided data at a "User defined" level; and
72 suppliers and manufacturers provided data at a "Product" level.
As we are attentive to market requests, we asked several of these suppliers and manufacturers to provide data at a "Company" level as well as at a "Product" level, and such suppliers and manufacturers provided the data at both levels.
Below is a summary of the country of origin information collected as a result of our RCOI efforts.
| Conflict Mineral | Countries of origin and other sources may include the following |
| Gold | Andorra, Australia, Austria, Belgium, Brazil, Canada, Chile, China, Colombia, Czech Republic, France, Germany, Ghana, India, Indonesia, Italy, Japan, Kazakhstan, Korea, Republic, Kyrgyzstan, Lithuania, Malaysia, Mauritania, Mexico, Netherlands, New Zealand, Norway, Philippines, Poland, Russian Federation, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Taiwan, Province of China, Thailand, Turkey, Uganda, United Arab Emirates, United States of America, Uzbekistan. |
| Tantalum | Japan, United States, Brazil, India, Estonia, Russian Federation, Kazakhstan, Mexico, Thailand, Germany, Northern Macedonia, China. |
| Tungsten | Japan, United States, Vietnam, Austria, Germany, Russian Federation, Philippines, Brazil, Korea, Taiwan, China Province. |
| Tin | China, United States of America, Indonesia, Japan, Bolivia (Florin State), Brazil, Poland, Malaysia, Peru, Thailand, Taiwan, Philippines, Vietnam, Belgium, Spain, Rwanda, Myanmar, India, Russian Federation. |
Smelters and refiners verified as conflict free (compliant) or in the audit process:
| Tin | 68 of 88 (77)% |
| Tantalum | 36 of 39 (92)% |
| Tungsten | 40 of 50 (80)% |
| Gold | 107 of 172 (62)% |
| Total | 251 of 349 (72)% |
A number of the smelters and refiners detailed above provided more than one necessary conflict mineral.
List of the facilities which, to the extent known, processed the necessary conflict minerals used in our products can be found in Appendix 1.
Continuous Improvement Efforts to Mitigate Risks
During the reporting period for the calendar year ending December 31, 2022, we are continuing to engage in the diligence process described above.
We intend to follow up with high risk non-responsive or non-compliant suppliers and manufacturers, work with suppliers and manufacturers to educate them on conflict minerals sourcing, contact selected smelters and refiners that have not received a "conflict free" designation and more. In the event that any of our suppliers and manufacturers do not cooperate with us and do not respond to our efforts in a satisfactory manner, we will disqualify them and remove them from our approved suppliers and manufacturers list.
In the event that we continue to engage with suppliers and manufacturers who have not completed their RCOI process, we will ask such suppliers and manufacturers to complete the process and become conflict free at a company or product level as a condition to our continued engagement with them.
In addition, being attentive to the market and to our customers, we are currently in the process of qualifying our line of products as "conflict free" by, among other things, requesting from all of our direct suppliers and manufacturers to qualify the goods supplied by them to Silicom as "Conflict Free", replacing, where possible and appropriate, non-compliant suppliers and manufacturers with compliant ones and removal of non-compliant vendors from our approved vendors list.
Appendix 1
List of smelters used in Silicom's products:
