Silicon Image Reports Record Revenue and Net Income for Q4 2006

• Full Year 2006 Revenue Increased 39 Percent
• Silicon Image Expects Sequential Revenue Growth to Resume in the June Quarter and 2007 Revenue of $340 to $360 Million Stock Buy Back Plan Authorized

SUNNYVALE, Calif., Feb. 8, 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 fourth quarter and fiscal year ended Dec. 31, 2006. Silicon Image also announced that its Board of Directors has authorized a stock repurchase program. The company intends, from time to time, as business conditions warrant, to purchase up to $100 million of common stock over the next three years, on the open market. Purchases may be increased, decreased or discontinued at any time without prior notice.

Fourth Quarter 2006 Financial Highlights

• Record fourth quarter 2006 revenue of $87.0 million, including $66.3 million in product and $20.7 million in licensing revenue. Fourth quarter licensing revenue included $11.8 million of royalty revenue from the Settlement and License Agreement with Genesis Microchip, Inc., which was announced on Dec. 21, 2006, of which $10.6 million related to royalties earned prior to the fourth quarter of 2006. Total fourth quarter revenue increased 41.7 percent compared with the same quarter of 2005 and 11.0 percent compared with the prior quarter.

• Fourth quarter gross margins of 61.6 percent compared with 58.0 percent in the fourth quarter of 2005 and 58.2 percent in the prior quarter. Gross margins for the fourth quarter of 2006 when adjusted for the $10.6 million of Genesis royalties from earlier periods and excluding stock compensation were 57.3 percent compared with 58.1 percent in the fourth quarter of 2005 and 59.2 percent in the prior quarter.

• Record fourth quarter GAAP net income of $26.3 million, or $0.29 per diluted share. In comparison, GAAP net income for the fourth quarter of 2005 was $12.6 million, or $0.15 per diluted share. GAAP net income for the prior quarter was $8.0 million, or $0.09 per diluted share.

• Non-GAAP net income for the fourth quarter of 2006 was $18.3 million, or $0.21 per diluted share. In comparison, non-GAAP net income for the fourth quarter of 2005 was $13.8 million, or $0.16 per diluted share. Non-GAAP net income for the prior quarter was $21.4 million, or $0.24 per diluted share.

2006 Growth Fueled by HDMI

Total revenue for 2006 was $295.0 million, increasing 38.9 percent from $212.4 million for 2005. Year-over-year growth in revenue associated with sales into consumer electronic markets, the company’s largest category, was largely driven by the expanding adoption of High-Definition Multimedia Interface™ (HDMI™) by digital TV (DTV) manufacturers.

Net income on a GAAP basis for 2006 totaled approximately $42.5 million, or $0.49 per diluted share. Net income on a GAAP basis for 2005, totaled approximately $49.5 million, or $0.59 per diluted share.

Net income on a non-GAAP basis for 2006 totaled approximately $68.9 million, or $0.79 per diluted share. Net income on a non-GAAP basis for 2005, totaled approximately $46.2 million, or $0.55 per diluted share. A reconciliation of GAAP to non-GAAP income is included in the summary financial information attached to this press release.

Cash and short-term investments increased by $99.1 million to approximately $250.6 million or $2.81 per share on a diluted basis at the end of fourth quarter 2006, compared with $151.6 million at the end of 2005.

“2006 was a banner year in revenue and profitability for Silicon Image,” said Steve Tirado, president and CEO. “While we expect a seasonally soft March quarter, I am looking forward to another year of solid revenue growth for Silicon Image. 

“I am encouraged by customer response to our expanded product line of recently introduced chips, including a family of HDMI input processor switches, and second generation SteelVine storage processors,” said Tirado  “Our 2007 design wins with many of the top-tier consumer electronics manufacturers, growing momentum for our industry-first HDMI 1.3 products, HDMI’s expanding CE adoption and penetration into PC market, and increased usage of eSATA for storage products position us to resume sequential growth in the June quarter.

“Looking beyond 2007,” Tirado continued, “our recent strategic activities to acquire additional and complementary IP and engineering talent, we believe, will accelerate and enhance our position to serve our top-tier customers with leading-edge DTV, connectivity and storage products.”

Recent Highlights

• Strengthened IP Portfolio, Engineering Resources and SoC Design Capabilities:

• Acquired in Jan. 2007 for a net $13.6 million in an all cash transaction from Infineon Technologies AG, sci-worx GmbH (now Silicon Image Germany), a leading intellectual property (IP) and design service provider specializing in multimedia, communications, and networking applications. Silicon Image Germany has approximately 172 employees, more than 80 percent of whom are engineers. The acquisition brings Silicon Image core competencies in and derives revenues from more than 50 IP products in the area of video/image processing, wireline communications, security and bus interfaces.

• Signed a cross licensing agreement in Feb. 2007 with Sunplus Technology Co., Ltd. to license the use of, and the right to further develop advanced IP for video processors and DTV products. Silicon Image will pay Sunplus $40 million upon delivery and completion of certain milestones. The Sunplus IP, along with the engineering talent and IP recently acquired in the sci-worx transaction, is expected to further enhance and accelerate Silicon Image’s ability to provide top-tier consumer electronics customers with a full line of integrated circuits, ranging from industry-leading discrete HDMI chips, new integrated front-end DTV input processors and fully-integrated System-on-a-Chip (SoC) DTV products that advance a new architecture for premium HD content access throughout the home and mobile environment.

• Expanded product line:

• A new series of integrated HDTV input processors, including the SiI9153 and SiI9155, which support multiple HDMI 1.3 ports with video resolutions of up to 1080p at 60Hz and 36 bits-per-pixel color depth and legacy analog video inputs for DTVs. These new processors allow consumers to enjoy the highest quality content on their HDTVs transmitted by a new generation of consumer products, such as the Sony PlayStation 3™ or Samsung’s BD-P1200 Blu-ray Disc player. In addition, Silicon Image’s input processors support the new, lossless compressed digital audio formats available in HDMI 1.3: Dolby® TrueHD and DTS-HD Master Audio™, as well as other HDMI-supported audio formats, including high-bandwidth uncompressed digital audio and compressed formats such as Dolby® Digital, DTS and Super Audio CD (SACD).

• A new family of HDMI 1.3 switches, including the SiI9181 and SiI9185. The new, cost-effective HDMI 1.3 switches enable multiple HDMI source devices to connect to HDTVs with frequency of operation up to 225 megahertz (MHz), allowing consumers to enjoy Deep Color™ content.

• A new mid-range HDMI 1.2 transmitter solution: the new SiI9034 extends Silicon Image’s broad line of advanced HDMI transmitters that includes the world's best-selling HDMI transmitter, the SiI9030, and the high-end SiI9134. The SiI9034 is intended for use in set-top boxes (STBs), DVD recorders and DVD players.

• SteelVine™ SiI5733, the first storage processor with content security enabled by automatic drive locking. The SiI5733 gives HDTV, digital video recorder, STB and PC motherboard manufacturers a cost-effective storage solution that is simple, scalable, reliable and secure. The processor, part of the second generation of SteelVine processors, offers advanced storage capabilities including automatic drive locking, drive cascading for dynamic capacity expansion, RAID 0, RAID 1 and two multi-RAID modes, SAFE33 and SAFE50, without requiring any software, drivers or special user knowledge.

• HDMI continues to gain traction:

• Total number of companies having adopted HDMI now total over 500, up approximately 200 firms from one year ago, including more than 100 companies in China. In November, 2006 the market research firm In-Stat projected an estimated 63 million HDMI-enabled devices were shipped worldwide in 2006 and that another 130 million such devices would be shipped in 2007.
• The Consumer Electronics Association awarded HDMI Licensing, LLC, on behalf of the HDMI Founders, its International CES Innovations 2007 Design and Engineering Awards Honoree for the HDMI 1.3 specification. Products considered for this prestigious award program are judged by a preeminent panel of independent industrial designers, engineers and members of the trade press to honor outstanding design and engineering in cutting-edge CE products. The HDMI Founders include Hitachi, Matsushita (Panasonic), Philips, Silicon Image, Sony, Thomson and Toshiba.
• The introduction of Microsoft’s new operating system in Jan. 2007, Vista, with its content digital rights management requirements, has generated increased interest by PC manufacturers in HDMI connectivity. More than 50 HDMI PC products are currently available, including nearly two dozen desktop and notebook PCs, families of HDMI PC monitors from major manufacturers and a broad range of motherboards and graphics cards with HDMI outputs.
• Simplay Labs, LLC, a wholly-owned subsidiary of Silicon Image, has authorized more than 125 products to use the Simplay HD™ logo, indicating that these products have undergone testing related to the HDMI and High-bandwidth Digital Content Protection (HDCP) specifications, as well as compatibility testing with a suite of other devices that have been Simplay HD verified.
• Simplay Labs opened its first European test center providing local support to European CE manufacturers. Simplay Labs also operates test centers in North America and in Asia.

Outlook

Silicon Image expects

• Revenue for the full year 2007 to range between $340 million and $360 million driven by higher licensing, new products and wider HDMI penetration.

• Revenue for the first quarter ending March 31, 2007 to range between $68 million and $72 million, a decrease of approximately 6 to 11 percent compared with the fourth quarter of 2006, after adjusting for the Settlement and License Agreement with Genesis Microchip, Inc.

Financial Tables

Click here to read financial tables

Conference Call

The company will host a conference call to discuss these financial results today at 2:00 p.m. Pacific Time. The call will be broadcast over the Internet and can be accessed on the investor relations section of the company's website at www.siliconimage.com. Alternately, the call can be accessed by dialing 719-457-2692 and entering pass code 8996437. A replay of the conference call will be available until midnight Pacific Time, on Feb. 22, 2007. To access the replay, dial 719-457-0820 or 888-203-1112, and enter pass code 8996437. A replay of the web cast of the call will also be available on the investor relations section of the company's website at www.siliconimage.com until midnight Pacific Time, on Feb. 22, 2007.

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.