Silicon Image Reports Second Quarter Results

SUNNYVALE, Calif., Aug. 2, 2007 -- Silicon Image, Inc. (NASDAQ: SIMG), a leader in semiconductors for the secure storage, distribution and presentation of high-definition content, today reported financial results for its fiscal year 2007 second quarter.

Financial Highlights

-- Second quarter 2007 revenue totaled $79.8 million. Product revenue accounted for 82.6 percent of the total revenue in the second quarter. Development, licensing and royalty revenue accounted for 17.4 percent of the total revenue in the second quarter. Total second quarter revenue increased 13.0 percent compared with the same quarter of 2006 and increased 15.4 percent compared with the prior quarter.

-- GAAP total gross margin for the second quarter of 2007 totaled $42.8 million, or 53.7 percent of total revenue, compared with $40.8 million, or 57.8 percent of total revenue in the same quarter of 2006 and $38.4 million, or 55.5 percent of total revenue in the prior quarter.

-- GAAP product gross margin for the second quarter totaled $30.3 million, or 46.0 percent of product revenue, compared with $32.2 million, or 52.2 percent of product revenue in the same quarter of 2006 and $27.6 million, or 49.5 percent of product revenue in the prior quarter.

-- Non-GAAP total gross margin for the second quarter of 2007 totaled $43.3 million, or 54.3 percent of second quarter 2007 total revenue. In comparison, non-GAAP gross margin for the same quarter of 2006 was $41.3 million, or 58.6 percent of second quarter 2006 total revenue. Non-GAAP gross margin for the prior quarter was $38.7 million, or 56.0 percent of prior quarter total revenue. A reconciliation of GAAP to non-GAAP gross margin is included in the summary financial information attached to this press release.

-- Non-GAAP product gross margin for the second quarter totaled $30.8 million, or 46.7 percent of product revenue, compared with $32.7 million, or 53.0 percent of product revenue in the same quarter of 2006 and $27.9 million, or 50.1 percent of product revenue in the prior quarter. A reconciliation of GAAP to non-GAAP product gross margin is included in the summary financial information attached to this press release.

-- GAAP second quarter 2007 net income totaled $4.4 million, or $0.05 per basic and diluted share. In comparison, GAAP net income for the same quarter of 2006 was $5.8 million, or $0.07 per basic and diluted share. GAAP net income for the prior quarter was $2.9 million, or $0.03 per basic and diluted share.

-- Non-GAAP net income for the second quarter of 2007 totaled $8.5 million, or $0.10 per basic and diluted share. In comparison, non-GAAP net income for the same quarter of 2006 was $16.3 million, or $0.20 and $0.19 per basic and diluted share, respectively. Non-GAAP net income for the prior quarter was $6.3 million, or $0.07 per basic and diluted share. A reconciliation of GAAP to non-GAAP net income is included in the summary financial information attached to this press release.

-- Cash and short-term investments at the end of the second quarter were approximately $203.0 million.

-- Silicon Image purchased 3.75 million shares or $31.1 million of its common stock at an average price of $8.30 per share, including commissions, pursuant to the company’s previously announced $100 million stock repurchase program.

-- Silicon Image also announced that the Securities and Exchange Commission has completed its investigation into Silicon Image’s option granting practices without recommending that any enforcement action be taken against the company. 

New Products and Higher iHigherhLicensing Drive Revenue Growth

Silicon Image’s revenue growth in the second quarter was driven primarily by increased product and licensing revenue associated with the expanding use of the High-Definition Multimedia Interface™ (HDMI™), particularly in consumer electronics. Silicon Image’s largest business, consumer electronics, accounted for approximately three-quarters of the company’s second quarter revenue and increased 27.3 percent over the same period one year ago and increased 25.2 percent compared with the prior quarter. Silicon Image’s products and licensed intellectual property are used in a variety of consumer electronics products, including digital still cameras, HD camcorders, audio/video receivers, DVD devices, including Blu-ray Disc and HD DVD devices, game consoles, set-top boxes and digital televisions.

“We experienced solid revenue growth and better-than-expected overall margin performance in the second quarter, both of which came in above our guidance range,” said Steve Tirado, Silicon Image’s president and chief executive officer. “During the June quarter, product sales in each of our three product groups increased sequentially. Within our largest product category, consumer electronics, we doubled sales of our HDMI 1.3 products, which included shipping the first million units of our recently introduced integrated input processors.”

Silicon Image’s Simplay HD program continued to gain momentum from major manufacturers, retailers and service providers. Consumer electronics and PC manufacturers have submitted more than 160 products to this program in order to verify compliance with the HDMI standard and to test compatibility of their products with other HDMI tested products.

“Our licensing revenues, were particularly strong in the first half of 2007 and we will be focusing on additional licensing opportunities in future quarters to boost overall gross margins and operating margins. We expect to introduce a new category of analog products into the market during the second half of 2007 that will provide new opportunities for future licensing revenue and improvements to overall operating margins,” said Tirado.

Outlook

“Based upon our current visibility, we expect to see another quarter of double-digit growth in our unit demand. We also expect to see average selling price pressures begin to moderate given our expected product mix with a focus on product margin improvements in the second half of 2007. We believe that our second half 2007 product gross margin will experience a modest improvement relative to our second quarter 2007 product gross margin,” said Tirado.

Revenue for the third quarter is expected to range between $81 million and $87 million. 

-- Revenue for the full fiscal year 2007 is expected to range between $305 million to $315 million; down from the company’s prior guidance range of $325 million to $345 million. The new guidance represents a revenue growth rate for the full year of 3 percent to 7 percent over Silicon Image’s 2006 GAAP revenue of $295.0 million and 6 percent to 9 percent over the company’s 2006 non-GAAP revenue of $287.9 million.

-- GAAP and non-GAAP gross margin is expected to range between 50 percent and 53 percent.

-- GAAP operating expenses are expected to range between $37 million to $39 million.

-- Non-GAAP operating expenses are expected to range between $31 million to $33 million.

Use of Non-GAAP Financial Information

Silicon Image reports gross profit, total and product gross margins, operating expenses, net income and basic and diluted net income per share in accordance with GAAP and supplementally on a non-GAAP basis for informational purposes only. Silicon Image believes that non-GAAP reporting, giving effect to the adjustments shown in the attached reconciliation, provides meaningful information and therefore uses non-GAAP reporting to supplement its GAAP reporting and internally in evaluating operations, managing and monitoring performance, and determining bonus compensation. Silicon Image has chosen to provide this supplemental information to investors, analysts and other interested parties to enable them to perform additional analyses of our operating results and to illustrate the results of operations giving effect to such non-GAAP adjustments. For instance, management excludes the stock-based compensation expense when reviewing our cost of revenue and operating expenses because it is unrelated to our ongoing business operations, and because it does not consider this expense to be relevant to an assessment of our ongoing operations. The non-GAAP financial information presented herein should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP.

Conference Call

Silicon Image will also host a conference call to discuss its financial results at 2:00 p.m. Pacific Time on August 2, 2007. To access the conference call, dial 719-457-2679 and enter pass code 6723774. A replay of the conference call will be available until midnight Pacific Time, August 16, 2007. To access the replay, dial 719-457-0820 or 888-203-1112, and enter pass code 6723774. A webcast of the call will also be available on the investor relations’ site located at http://www.siliconimage.com.

Financial Tables

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About Silicon Image, Inc.

Headquartered in Sunnyvale, Calif., Silicon Image, Inc. is a leader in driving the architecture and semiconductor implementations for the secure storage, distribution and presentation of high-definition content in the consumer electronics and personal computing markets. Silicon Image creates and drives industry standards for digital content delivery such as DVI, HDMI™ and Serial ATA (SATA), leveraging partnerships with global leaders in the consumer electronics and personal computing markets to meet the growing digital content needs of consumers worldwide. With a proven track record of improving cross-product interoperability, Silicon Image has shipped more than 100 million HDMI/HDCP and DVI/HDCP semiconductor solutions and offers one of the most robust and comprehensively tested technology platforms in the consumer electronics industry through the Simplay HD™ Testing Program of Simplay Labs. Simplay Labs, LLC, a wholly-owned subsidiary of Silicon Image, is a leading provider of testing technologies, tools and services for high-definition consumer electronics devices such as HDTVs, set-top boxes, audio/video receivers and DVD players, helping manufacturers to achieve compatibility and deliver the highest-quality HDTV experience to consumers. Silicon Image is the leading provider of semiconductor intellectual property solutions for high-definition multimedia and data storage applications. For more information, please visit www.siliconimage.com.