##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For
the transition period from
                 to              .
 Commission file number: 000-26887
 Silicon Image, Inc.
  Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    77-0396307
(I.R.S. Employer Identification No.)
 1060 East Arques Avenue
Sunnyvale, California 94085
 (408) 616-4000
 þ o
  þ o o o
  o þ




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##### 



Silicon Image, Inc.
Form 10-Q for the quarter ended March 31, 2008
 Table of Contents
 Part I Financial Information (Unaudited)
    
    
    3Item 1 Financial Statements
    
    
    3Condensed Consolidated Balance Sheets as of March 31, 2008 and December 31, 2007
    
    
    3Condensed Consolidated Statements of Operations for the three months ended March 31, 2008 and 2007
    
    
    4Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2008 and 2007
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 3 Quantitative and Qualitative Disclosures About Market Risk
    
    
    24Item 4 Controls and Procedures
    
    
    24Part II Other Information
    
    
    26Item 1 Legal Proceedings
    
    
    26Item 1A Risk Factors
    
    
    26Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    44Item 3 Defaults Upon Senior Securities
    
    
    44Item 4 Submission of Matters to a Vote of Security Holders
    
    
    44Item 5 Other Information
    
    
    44Item 6 Exhibits
    
    
    45Signatures
    
    
    46EXHIBIT 10.01EXHIBIT 31.01EXHIBIT 31.02EXHIBIT 32.01EXHIBIT 32.02
  2




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##### Table of Contents



Part I. Financial Information
 
 Item 1. Financial Statements
 Silicon Image, Inc.
 
 Condensed Consolidated Balance Sheets
 (in thousands)
 (unaudited)
 March 31, 2008
    
    
    December 31, 2007AssetsCurrent Assets:Cash and cash equivalents
    
    $
    125,504
    
    
    $
    137,822Short-term investments
    
    
    68,910
    
    
    
    111,889Accounts
receivable, net of allowances for doubtful accounts $1,605 at March 31, 2008 and $1,565 at December 31, 2007
    
    
    27,011
    
    
    
    21,254Inventories, net
    
    
    14,116
    
    
    
    20,198Prepaid expenses and other current assets
    
    
    11,966
    
    
    
    13,732Deferred income taxes
    
    
    4,147
    
    
    
    3,984Total current assets
    
    
    251,654
    
    
    
    308,879Property and equipment, net
    
    
    24,574
    
    
    
    24,191Goodwill
    
    
    19,210
    
    
    
    19,210Intangible assets, net
    
    
    37,682
    
    
    
    39,269Deferred income taxes, non-current
    
    
    20,589
    
    
    
    19,978Other assets
    
    
    1,605
    
    
    
    1,421Total assets
    
    $
    355,314
    
    
    $
    412,948Liabilities and Stockholders EquityCurrent Liabilities:Accounts payable
    
    $
    18,395
    
    
    $
    17,892Accrued and other liabilities
    
    
    38,972
    
    
    
    36,996Deferred license revenue
    
    
    4,971
    
    
    
    3,860Deferred margin on sales to distributors
    
    
    25,460
    
    
    
    26,443Total current liabilities
    
    
    87,798
    
    
    
    85,191Other long-term liabilities
    
    
    10,818
    
    
    
    13,910Total liabilities
    
    
    98,616
    
    
    
    99,101Commitments and contingencies (See Note 9)Stockholders Equity:Common stock
    
    
    91
    
    
    
    90Treasury stock and receivable
    
    
    (100,096
    )
    
    
    (38,096
    )Additional paid-in capital
    
    
    424,007
    
    
    
    418,796Accumulated deficit
    
    
    (67,655
    )
    
    
    (67,093
    )Accumulated
other comprehensive income
    
    
    351
    
    
    
    150Total stockholders equity
    
    
    256,698
    
    
    
    313,847Total liabilities and stockholders equity
    
    $
    355,314
    
    
    $
    412,948
  3




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##### Table of Contents



Silicon Image, Inc.
 
 Condensed Consolidated Statements of Operations
 (in thousands, except per share amounts)
 (unaudited)
 Three Months Ended March 31,2008
    
    
    2007Revenue:Product
    
    $
    57,187
    
    
    $
    56,339Development, licensing and royalties
    
    
    9,926
    
    
    
    12,780Total revenue
    
    
    67,113
    
    
    
    69,119Cost of revenue and operating expenses:Cost of revenue (1)
    
    
    28,137
    
    
    
    30,758Research and development (2)
    
    
    21,542
    
    
    
    17,195Selling, general and administrative (3)
    
    
    18,318
    
    
    
    17,144Amortization of intangible assets
    
    
    1,587
    
    
    
    615Total cost of revenue and operating expenses
    
    
    69,584
    
    
    
    65,712Income (loss) from operations
    
    
    (2,471
    )
    
    
    3,407Interest income and other, net
    
    
    1,916
    
    
    
    3,026Income (loss) before provision for income taxes
    
    
    (555
    )
    
    
    6,433Provision for income taxes
    
    
    7
    
    
    
    3,517Net income (loss)
    
    $
    (562
    )
    
    $
    2,916Net income (loss) per share  basic and diluted
    
    $
    (0.01
    )
    
    $
    0.03Weighted average shares  basic
    
    
    80,987
    
    
    
    86,825Weighted average shares  diluted
    
    
    80,987
    
    
    
    89,549
 
 (1) Includes stock-based compensation expense
    
    $
    350
    
    
    $
    346(2) Includes stock-based compensation expense
    
    
    1,234
    
    
    
    2,308(3) Includes stock-based compensation expense
    
    
    2,439
    
    
    
    1,378
  4




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Silicon Image, Inc.
 
 Condensed Consolidated Statements of Cash Flows
 (in thousands)
 (unaudited)
 Three Months Ended March 31,2008
    
    
    2007Cash flows from operating activities:Net income (loss)
    
    $
    (562
    )
    
    $
    2,916Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:Depreciation
    
    
    2,722
    
    
    
    2,266Amortization of intangible assets
    
    
    1,587
    
    
    
    615Provision for doubtful accounts
    
    
    265
    
    
    
    892Stock-based compensation expense
    
    
    4,023
    
    
    
    4,032Income tax deficiency from employee based compensation plans
    
    
    (647
    )
    
    
    (179
    )Excess tax benefit from employee stock transactions
    
    
    (42
    )
    
    
    (385
    )Other
    
    
    (85
    )
    
    
    (122
    )Changes in assets and liabilities:Accounts receivable
    
    
    (6,022
    )
    
    
    9,487Inventories
    
    
    6,082
    
    
    
    3,927Prepaid expenses and other assets
    
    
    1,582
    
    
    
    (4,463
    )Deferred income taxes
    
    
    (774
    )
    
    
    438Accounts payable
    
    
    199
    
    
    
    (3,816
    )Accrued and other liabilities
    
    
    (1,327
    )
    
    
    (17,574
    )Deferred revenue
    
    
    1,111
    
    
    
    (2,719
    )Deferred margin on sales to distributors
    
    
    (983
    )
    
    
    (1,863
    )Cash provided by (used in) operating activities
    
    
    7,129
    
    
    
    (6,548
    )Cash flows from investing activities:Purchases of short-term investments
    
    
    (75,134
    )
    
    
    (18,657
    )Proceeds from sales of short-term investments
    
    
    118,265
    
    
    
    42,232Business acquisition, net of cash acquired
    
    
    
    
    
    
    (13,751
    )Purchase of intellectual property
    
    
    
    
    
    
    (10,000
    )Purchases of property and equipment
    
    
    (2,597
    )
    
    
    (1,973
    )Cash provided by (used in) investing activities
    
    
    40,534
    
    
    
    (2,149
    )Cash flows from financing activities:Proceeds from issuances of common stock, net
    
    
    1,838
    
    
    
    5,038Excess tax benefits from employee stock transactions
    
    
    42
    
    
    
    385Repurchase of common stock
    
    
    (62,000
    )
    
    
    Cash provided by (used in) financing activities
    
    
    (60,120
    )
    
    
    5,423Effect of exchange rate changes on cash and cash equivalents
    
    
    139
    
    
    
    2Net decrease in cash and cash equivalents
    
    
    (12,318
    )
    
    
    (3,272
    )Cash and cash equivalents  beginning of period
    
    
    137,822
    
    
    
    81,921Cash and cash equivalents  end of period
    
    $
    125,504
    
    
    $
    78,649Supplemental cash flow information:Cash payment for income taxes, net of refunds
    
    
    222
    
    
    
    15,509Unrealized gain/(loss) on short-term investments
    
    
    57
    
    
    
    (105
    )Property and equipment purchased but not paid for
    
    
    515
    
    
    
    2,175
  5




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Silicon Image, Inc.
 
 Notes to Condensed Consolidated Financial Statements
 March 31, 2008
 (unaudited)
 1. Basis of Presentation
   2. Recent Accounting Pronouncements
   3. Significant Accounting Policies
   6




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Financial Instruments
  Statement of Cash
Flows
         7




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4. Stock-Based Compensation
  Valuation and Expense Information Under SFAS 123(R)
   Three Months Ended March 31,2008
    
    2007Employee stock option plans:Expected life in years
    
    
    4.8
    
    
    
    4.9Expected volatility
    
    
    65.6
    %
    
    
    75.2
    %Risk-free interest rate
    
    
    2.6
    %
    
    
    4.6
    %Expected dividends
    
    none
    
    noneWeighted average fair value
    
    $
    2.48
    
    
    $
    6.35Employee Stock Purchase Plan:Expected life in years
    
    
    0.5
    
    
    
    0.5Expected volatility
    
    
    78.1
    %
    
    
    51.0
    %Risk-free interest rate
    
    
    3.5
    %
    
    
    5.2
    %Expected dividends
    
    none
    
    noneWeighted average fair value
    
    $
    1.63
    
    
    $
    3.62
  8




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##### Table of Contents



Stock Options Activity
  Weighted AverageNumber of
    
    
    Weighted Average
    
    
    Remaining Contractual
    
    
    AggregateShares
    
    
    Exercise Price
    
    
    Term in Years
    
    
    Intrinsic ValueOutstanding at December 31, 2007
    
    
    14,030
    
    
    $
    8.92
    
    
    
    6.75
    
    
    $
    3,576Granted
    
    
    915
    
    
    
    4.45Exercised
    
    
    (81
    )
    
    
    1.61Forfeitures and cancellations
    
    
    (421
    )
    
    
    10.05Outstanding at March 31, 2008
    
    
    14,443
    
    
    $
    8.64
    
    
    
    6.88
    
    
    $
    4,822Vested and expected to vest at March 31, 2008
    
    
    13,250
    
    
    $
    8.67
    
    
    
    6.71
    
    
    $
    4,689Exercisable at March 31, 2008
    
    
    8,567
    
    
    $
    8.54
    
    
    
    5.78
    
    
    $
    4,287
  Restricted Stock Units
    Weighted
AverageNumber of
    
    
    Remaining Contractual
    
    
    AggregateShares
    
    
    Term in Years
    
    
    Intrinsic ValueOutstanding at December
31, 2007
    
    
    Granted
    
    
    3,643Exercised
    
    
    Forfeitures
and cancellations
    
    
    (6
    )Outstanding at March 31, 2008
    
    
    3,637
    
    
    
    1.96
    
    
    $
    18,222Vested and
expected to vest at March 31, 2008
    
    
    2,742
    
    
    
    1.95
    
    
    $
    13,737Exercisable at March 31, 2008
    
    
    
    
    
    
    
    
    
    
    
  9




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Stock-based Compensation Expense
  Three Months EndedMarch 31, 2008
    
    
    March 31, 2007Cost of sales
    
    $
    350
    
    
    $
    346Research and development
    
    
    1,234
    
    
    
    2,308Selling, general and administrative
    
    
    2,439
    
    
    
    1,378$
    4,023
    
    
    $
    4,032
 5. Stock Repurchase Program
    SharesrepurchasedCumulative balance at December 31, 2007
    
    
    5,000Repurchase of common stock in February 2008
    
    
    7,692Repurchase of common stock in March 2008
    
    
    3,846Cumulative balance at March 31, 2008
    
    
    16,538
  6. Comprehensive Income (loss)
  Three Months Ended March 31,2008
    
    
    2007Net income (loss)
    
    $
    (562
    )
    
    $
    2,916Change in unrealized value of investments
    
    
    57
    
    
    
    (105
    )Foreign currency translation adjustments
    
    
    144
    
    
    
    Total comprehensive income (loss)
    
    $
    (361
    )
    
    $
    2,811
 10




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7. Net Income (loss) Per Share
  Three Months Ended March 31,2008
    
    
    2007Net income (loss)
    
    $
    (562
    )
    
    $
    2,916Weighted average shares  basic
    
    
    80,987
    
    
    
    86,825Weighted average shares  diluted
    
    
    80,987
    
    
    
    89,549Net income (loss) per share  basic and diluted
    
    $
    (0.01
    )
    
    $
    0.03
  Three Months Ended March 31,2008
    
    
    2007Weighted-average common shares for basic net income (loss) per share
    
    
    80,987
    
    
    
    86,825Weighted-average dilutive stock options outstanding under the treasury stock method
    
    
    
    
    
    
    2,724Total
    
    
    80,987
    
    
    
    89,549
 8. Balance Sheet Components
 March 31, 2008
    
    
    December 31, 2007(in thousands)Inventories:Raw materials
    
    $
    2,012
    
    
    $
    3,132Work in process
    
    
    1,899
    
    
    
    2,719Finished goods
    
    
    10,205
    
    
    
    14,347Total inventories
    
    $
    14,116
    
    
    $
    20,198Property and
equipment:Computers and software
    
    $
    31,519
    
    
    $
    29,950Equipment
    
    
    29,603
    
    
    
    28,188Furniture and fixtures
    
    
    4,154
    
    
    
    4,06165,276
    
    
    
    62,199Less: accumulated depreciation
    
    
    (40,702
    )
    
    
    (38,008
    )Total property and equipment, net
    
    $
    24,574
    
    
    $
    24,191Accrued and
other liabilities:Accrued payroll and related expenses
    
    $
    5,713
    
    
    $
    5,586Accrued legal fees
    
    
    1,719
    
    
    
    970Payable related to intangibles acquired
    
    
    19,375
    
    
    
    17,500Other accrued liabilities
    
    
    12,165
    
    
    
    12,940Total
accrued and other liabilities
    
    $
    38,972
    
    
    $
    36,996
 11




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9. Commitments and Contingencies
 Legal Proceedings
      12




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Guarantees
  Contractual Obligations and Off-Balance Sheet Arrangements
  Contractual obligations
    
    Total
    
    
    Less than 1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    More than 5 yearsOperating lease obligations
    
    $
    8,894
    
    
    $
    3,702
    
    
    $
    4,583
    
    
    $
    609
    
    
    $
    Inventory purchase obligations
    
    
    6,736
    
    
    
    6,736
    
    
    
    
    
    
    
    
    
    
    
    Intangibles purchase commitments
    
    
    29,453
    
    
    
    25,473
    
    
    
    3,980
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    45,083
    
    
    $
    35,911
    
    
    $
    8,563
    
    
    $
    609
    
    
    $
    
 Accounting for
Uncertainty in Income Taxes
 13




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10. Customer and Geographic Information
   Three Months Ended March 31,2008
    
    
    2007Japan
    
    $
    19,286
    
    
    $
    24,082United States
    
    
    13,311
    
    
    
    13,381Taiwan
    
    
    12,147
    
    
    
    12,246Europe
    
    
    8,162
    
    
    
    6,975Korea
    
    
    3,869
    
    
    
    3,883Hong Kong
    
    
    5,467
    
    
    
    2,609Other
    
    
    4,871
    
    
    
    5,943Total revenue
    
    $
    67,113
    
    
    $
    69,119
  Three Months Ended March 31,2008
    
    
    2007Product revenue
    
    $
    57,187
    
    
    $
    56,339Development, licensing and royalty revenue
    
    
    9,926
    
    
    
    12,780Total revenue
    
    $
    67,113
    
    
    $
    69,119
 Three Months Ended March 31,2008
    
    
    2007Consumer Electronics (1)
    
    $
    49,535
    
    
    $
    50,298Personal Computer (1)
    
    
    11,169
    
    
    
    9,822Storage (1)
    
    
    6,409
    
    
    
    8,999Total revenue
    
    $
    67,113
    
    
    $
    69,119
 
 (1)
    
    Includes development, licensing and royalty revenue Three Months Ended March 31,2008
    
    
    2007Consumer Electronics
    
    $
    42,452
    
    
    $
    42,242Personal Computer
    
    
    10,007
    
    
    
    8,449Storage
    
    
    4,728
    
    
    
    5,648Development, licensing and royalty revenue
    
    
    9,926
    
    
    
    12,780Total revenue
    
    $
    67,113
    
    
    $
    69,119
  14




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March 31,
    
    
    December 31,2008
    
    
    2007Long-lived assets
US
    
    $
    68,565
    
    
    $
    70,051Germany
    
    
    10,983
    
    
    
    10,855Other foreign countries
    
    
    1,918
    
    
    
    1,764Total
    
    $
    81,466
    
    
    $
    82,670
 11. Provision for Income Taxes
     15




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12. Investment in Intellectual Property
  Goodwill and Other Intangibles
 13. Fair Value Measurements
     Fair value measurements using
    
    
    Assets(dollars In thousands)
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    at fair valueCash and cash equivalents and Short-term investments
    
    $
    94,903
    
    
    $
    85,784
    
    
    $
    
    
    
    $
    180,687Total
    
    $
    94,903
    
    
    $
    85,784
    
    
    $
    
    
    
    $
    180,687
  
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 This report contains forward-looking statements within the meaning of Section 21E of the
Exchange Act and Section 27A of the Securities Act of 1933. These forward-looking statements
involve a number of risks and uncertainties, including those identified in the section of this Form
10-Q entitled Factors Affecting Future Results, that may cause actual results to differ
materially from those discussed in, or implied by, such forward-looking statements. Forward-looking
statements within this Form 10-Q are identified by words such as believes, anticipates,
expects, intends, estimates, may, will and variations of such words and other similar
expressions. However, these words are not the only means of identifying such statements. In
addition, any statements that refer to expectations, projections or other characterizations of
future events or circumstances are forward-looking
 16




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statements. We undertake no obligation to
publicly release the results of any revisions to these forward-looking statements that may be made
to reflect events or circumstances occurring subsequent to the filing of this Form 10-Q with the
SEC. Our actual
results could differ materially from those anticipated in, or implied by, forward-looking
statements as a result of various factors, including the risks outlined elsewhere in this report.
Readers are urged to carefully review and consider the various disclosures made by Silicon Image,
Inc. in this report and in our other reports filed with the SEC that attempt to advise interested
parties of the risks and factors that may affect our business.
 Silicon Image and Simplay HD are trademarks, registered trademarks or service marks of Silicon
Image, Inc. in the United States and other countries. HDMI and High-Definition Multimedia
Interface are trademarks or registered trademarks of HDMI Licensing, LLC in the United States and
other countries, and are used under license from HDMI Licensing, LLC. All other trademarks and
registered trademarks are the property of their respective owners.
 Overview
   tm tm
   17




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www.SiliconImage.com.
 Concentrations
   Critical Accounting Policies
  Results of Operations
 REVENUE
 Three months ended March 31,2008
    
    
    2007
    
    
    Change(dollars in thousands)Product revenue
    
    $
    57,187
    
    
    $
    56,339
    
    
    
    1.5
    %Development,
licensing and royalty revenue
    
    
    9,926
    
    
    
    12,780
    
    
    
    -22.3
    %Total revenue
    
    $
    67,113
    
    
    $
    69,119
    
    
    
    -2.9
    %
 18




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Three months ended March 31,2008
    
    
    2007
    
    
    Change(dollars in thousands)Consumer Electronics (1)
    
    $
    49,535
    
    
    $
    50,298
    
    
    
    -1.5
    %Personal Computers (1)
    
    
    11,169
    
    
    
    9,822
    
    
    
    13.7
    %Storage (1)
    
    
    6,409
    
    
    
    8,999
    
    
    
    -28.8
    %Total revenue
    
    $
    67,113
    
    
    $
    69,119
    
    
    
    -2.9
    %
 
 (1)
    
    Includes development, licensing and royalty revenue Three months ended March 31,2008
    
    
    2007
    
    
    Change(dollars in thousands)Consumer Electronics
    
    $
    42,452
    
    
    $
    42,242
    
    
    
    0.5
    %Personal Computers
    
    
    10,007
    
    
    
    8,449
    
    
    
    18.4
    %Storage
    
    
    4,728
    
    
    
    5,648
    
    
    
    -16.3
    %Development, licensing and royalty revenue
    
    
    9,926
    
    
    
    12,780
    
    
    
    -22.3
    %Total revenue
    
    $
    67,113
    
    
    $
    69,119
    
    
    
    -2.9
    %
    COST OF REVENUE AND GROSS PROFIT
 Three months ended March 31,2008
    
    2007
    
    Change(dollars in thousands)Cost of revenue (1)
    
    $
    28,137
    
    
    $
    30,758
    
    
    
    -8.5
    %Total gross profit
    
    $
    38,976
    
    
    $
    38,361
    
    
    
    1.6
    %Gross profit margin
    
    
    58.1
    %
    
    
    55.5
    %(1)     Includes
stock-based compensation expense
    
    $
    350
    
    
    $
    346
  19




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##### Table of Contents



OPERATING EXPENSES
 Three months ended March 31,2008
    
    2007
    
    Change(dollars in thousands)Research and development (1)
    
    $
    21,542
    
    
    $
    17,195
    
    
    
    25.3
    %Percentage of total revenue
    
    
    32.1
    %
    
    
    24.9
    %(1) Includes stock-based compensation expense
    
    $
    1,234
    
    
    $
    2,308
 Research and Development (R&D).
 Three months ended March 31,2008
    
    2007
    
    Change(dollars in thousands)Selling, general and administrative (1)
    
    $
    18,318
    
    
    $
    17,144
    
    
    
    6.8
    %Percentage of total revenue
    
    
    27.3
    %
    
    
    24.8
    %(1) Includes stock-based compensation expense
    
    $
    2,439
    
    
    $
    1,378
 Selling, General and Administrative (SG&A)
 Three months ended March 31,2008
    
    2007
    
    Change(dollars in thousands)Amortization of intangible assets
    
    $
    1,587
    
    
    $
    615
    
    
    
    158.0
    %Percentage of total revenue
    
    
    2.4
    %
    
    
    0.9
    %
 Amortization of Intangible Assets.
 Three months ended March 31,2008
    
    2007
    
    Change(dollars in thousands)Interest income and other, net
    
    $
    1,916
    
    
    $
    3,026
    
    
    
    -36.7
    %Percentage of total revenue
    
    
    2.9
    %
    
    
    4.4
    %
 20




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##### Table of Contents



Interest Income and other, net.
 Three months ended March 31,2008
    
    2007
    
    Change(dollars in thousands)Provision for income taxes
    
    $
    7
    
    
    $
    3,517
    
    
    
    -99.8
    %Percentage of total revenue
    
    
    0.0
    %
    
    
    5.1
    %
 Provision for Income Taxes.
   Recent Accounting Pronouncements
  LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
  21




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Cash and Cash Equivalents and Investments
 Three months ended March 31,2008
    
    
    2007
    
    
    Change(dollars in thousands)Total cash, cash equivalents and short-term investments
    
    $
    194,414
    
    
    $
    224,025
    
    
    
    -13.2
    %Cash provided by (used in) operating activities
    
    $
    7,129
    
    
    $
    (6,548
    )
    
    
    -208.9
    %Cash provided by (used in) in investing activities
    
    
    40,534
    
    
    
    (2,149
    )
    
    
    -1986.2
    %Cash provided by (used in) financing activities
    
    
    (60,120
    )
    
    
    5,423
    
    
    
    -1208.6
    %Effect of exchange rate changes on cash & cash equivalents
    
    
    139
    
    
    
    2
    
    
    
    6850.0
    %Net decrease in cash and cash
equivalents
    
    $
    (12,318
    )
    
    $
    (3,272
    )
    
    
    276.5
    %
  Accounts Receivable, Net.
 March 31,
    
    December 31,2008
    
    2007
    
    Change(dollars in thousands)Accounts receivable, net
    
    $
    27,011
    
    
    $
    21,254
    
    
    
    27.1
    %
  Inventory.
 March 31,
    
    December 31,2008
    
    2007
    
    Change(dollars in thousands)Inventory
    
    $
    14,116
    
    
    $
    20,198
    
    
    
    -30.1
    %
  22




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##### Table of Contents



Fair Value Measurement
          Fair value measurements using
    
    
    Assets(dollars In thousands)
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    at fair valueCash and cash equivalents and Short-term investments
    
    $
    94,903
    
    
    $
    85,784
    
    
    $
    
    
    
    $
    180,687Total
    
    $
    94,903
    
    
    $
    85,784
    
    
    $
    
    
    
    $
    180,687
  23




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##### Table of Contents



Commitments and Contractual Obligations
   Liquidity and Capital Resource Requirements
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
 Interest Rate Risk
  0.5%
    
    1.0%
    
    1.5%$290,000
    
    $590,000
    
    $880,000
 Foreign Currency Exchange Risk
  
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  24




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##### Table of Contents



Changes in Internal Control over Financial Reporting
  25




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##### Table of Contents



Part II. Other Information
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
 A description of the risk factors associated with our business is set forth below. You should
carefully consider the following risk factors, together with all other information contained or
incorporated by reference in this filing, before you decide to purchase shares of our common stock.
These factors could cause our future results to differ materially from those expressed in or
implied by forward-looking statements made by us. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also harm our business. The trading price of
our common stock could decline due to any of these risks and you may lose all or part of your
investment.
 Our annual and quarterly operating results may fluctuate significantly and are difficult to
predict.
  
    
    the growth, evolution and rate of adoption of industry standards for our key markets,
including consumer electronics, digital-ready PCs and displays and storage devices and
systems;
    
    the fact that our licensing revenue is heavily dependent on a few key licensing
transactions being completed for any given period, the timing of which is not always
predictable and is especially susceptible to delay beyond the period in which completion is
expected and our concentrated dependence on a few licensees in any period for substantial
portions of our expected licensing revenue and profits;
    
    the fact that our licensing revenue has been uneven and unpredictable over time and is
expected to continue to be uneven and unpredictable for the foreseeable future, resulting in
considerable fluctuation in the amount of revenue recognized in a particular quarter;
    
    competitive pressures, such as the ability of competitors to successfully introduce
products that are more cost-effective or that offer greater functionality than our products,
including integration into their products of functionality offered by our products, the
prices set by competitors for their products and the potential for alliances, combinations,
mergers and acquisitions among our competitors;
    
    average selling prices of our products, which are influenced by competition and
technological advancements, among other factors;
    
    government regulations regarding the timing and extent to which digital content must be
made available to consumers;
    
    the availability of other semiconductors or other key components that are required to
produce a complete solution for the customer; usually, we supply one of many necessary
components; and
    
    the cost of components for our products and prices charged by the third parties who
manufacture, assemble and test our products.
  26




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##### Table of Contents



Our future annual and quarterly operating results are highly dependent upon how well we manage our
business.
  
    
    our ability to manage product introductions and transitions, develop necessary sales and
marketing channels and manage other matters necessary to enter new market segments;
    
    our ability to successfully manage our business in multiple markets such as CE, PC and
storage, which may involve additional research and development, marketing or other costs and
expenses;
    
    our ability to enter into licensing deals when expected and make timely deliverables and
milestones on which recognition of revenue often depends;
    
    our ability to engineer customer solutions that adhere to industry standards in a timely
and cost-effective manner;
    
    our ability to achieve acceptable manufacturing yields and develop automated test
programs within a reasonable time frame for our new products;
    
    our ability to manage joint ventures and projects, design services and our supply chain
partners;
    
    our ability to monitor the activities of our licensees to ensure compliance with license
restrictions and remittance of royalties;
    
    our ability to structure our organization to enable achievement of our operating
objectives and to meet the needs of our customers and markets;
    
    the success of the distribution and partner channels through which we choose to sell our
products and
    
    our ability to manage expenses and inventory levels; and
    
    our ability to successfully maintain certain structural and various compliance activities
in support of our global structure which in the long run, will result in certain operational
benefits as well as achieve an overall lower tax rate.
  Our business may be significantly impacted by a downturn in the economy.
  The licensing component of our business strategy increases business risk and volatility.
  27




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##### Table of Contents



We face intense competition in our markets, which may lead to reduced revenue from sales of our
products and increased losses.
   We operate in rapidly evolving markets, which makes it difficult to evaluate our future prospects.
  28




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##### Table of Contents



Our success depends on demand for our new products.
  Demand for our HDMI based products is dependent on continued adoption and widespread
implementation of the HDMI specification.
      29




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##### Table of Contents



We will have difficulty selling our products if customers do not design our products into their
product offerings or if our customers product offerings are not commercially successful.
  Our products typically have lengthy sales cycles. A customer may decide to cancel or change its
product plans, which could cause us to lose anticipated sales. In addition, our average product
life cycles tend to be short and, as a result, we may hold excess or obsolete inventory that could
adversely affect our operating results.
   Our customer may not purchase anticipated levels of products, which can result in increased
inventory levels
  30




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##### Table of Contents



We depend on a few key customers and the loss of any of them could significantly reduce our
revenue.
  
    
    one or more of our customers, including distributors, becomes insolvent or goes out of
business;
    
    one or more of our key customers or distributors significantly reduces, delays or cancels
orders; and/or
    
    one or more significant customers selects products manufactured by one of our competitors
for inclusion in their future product generations.
  We sell our products through distributors, which limits our direct interaction with our customers,
therefore reducing our ability to forecast sales and increasing the complexity of our business.
  
    
    manage a more complex supply chain;
    
    monitor and manage the level of inventory of our products at each distributor;
    
    estimate the impact of credits, return rights, price protection and unsold inventory at
distributors; and
    
    monitor the financial condition and credit-worthiness of our distributors, many of which
are located outside of the United States and the majority of which are not publicly traded.
   Our success depends on the development and introduction of new products, which we may not be able
to do in a timely manner because the process of developing high-speed semiconductor products is
complex and costly.
  
    
    accurate prediction of market requirements and the establishment of market standards and
the evolution of existing standards, including enhancements or modifications to existing
standards such as HDMI, HDCP, DVI, SATA I and SATA II;
 31




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##### Table of Contents




    
    identification of customer needs where we can apply our innovation and skills to create
new standards or areas for product differentiation that improve our overall competitiveness
either in an existing market or in a new market;
    
    development of advanced technologies and capabilities and new products that satisfy
customer requirements;
    
    competitors and customers integration of the functionality of our products into their
products, which puts pressure on us to continue to develop and introduce new products with
new functionality;
    
    timely completion and introduction of new product designs;
    
    management of product life cycles;
    
    use of leading-edge foundry processes, when use of such processes are required and
achievement of high manufacturing yields and low cost testing;
    
    market acceptance of new products; and
    
    market acceptance of new architectures such as our input processors.
  There are risks to our global strategy
  We have made acquisitions in the past and may make acquisitions in the future, if advisable and
these acquisitions involve numerous risks.
  
    
    difficulty and increased costs in assimilating employees, including our possible
inability to keep and retain key employees of the acquired business;
 32




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##### Table of Contents




    
    disruption of our ongoing business;
    
    discovery of undisclosed liabilities of the acquired companies and legal disputes with
founders or shareholders of acquired companies;
    
    inability to successfully incorporate acquired technology and operations into our
business and maintain uniform standards, controls, policies and procedures;
    
    inability to commercialize acquired technology; and
    
    the need to take impairment charges or write-downs with respect to acquired assets.
  Our acquisition of sci-worx GmbH exposes us to a variety of risks.
  Industry cycles may strain our management and resources.
  
    
    improve operational and financial systems;
    
    train and manage our employee base;
    
    successfully integrate operations and employees of businesses we acquire or have
acquired;
    
    attract, develop, motivate and retain qualified personnel with relevant experience; and
    
    adjust spending levels according to prevailing market conditions.
  The cyclical nature of the semiconductor industry may create constrictions in our foundry, test
and assembly capacity.
  33




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##### Table of Contents



We depend on third-party sub-contractors to manufacture, assemble and test nearly all of our
products, which reduce our control over the production process.
  
    
    reduced control over delivery schedules, quality assurance, manufacturing yields and
production costs;
    
    lack of guaranteed production capacity or product supply, potentially resulting in higher
inventory levels;
    
    lack of availability of, or delayed access to, next-generation or key process
technologies; and
    
    limitations on our ability to transition to alternate sources if services are unavailable
from primary suppliers.
  The complex nature of our production process, which can reduce yields and prevent identification
of problems until well into the production cycle or, in some cases, after the product has been
shipped.
    34




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##### Table of Contents



We face foreign business, political and economic risks because a majority of our products and our
customers products are manufactured and sold outside of the United States.
  
    
    political, social and economic instability;
    
    exposure to different business practices and legal standards, particularly with respect
to intellectual property;
    
    natural disasters and public health emergencies;
    
    nationalization of business and blocking of cash flows;
    
    trade and travel restrictions
    
    the imposition of governmental controls and restrictions;
    
    burdens of complying with a variety of foreign laws;
    
    import and export license requirements and restrictions of the United States and each
other country in which we operate;
    
    unexpected changes in regulatory requirements;
    
    foreign technical standards;
    
    changes in taxation and tariffs;
    
    difficulties in staffing and managing international operations;
    
    fluctuations in currency exchange rates;
    
    difficulties in collecting receivables from foreign entities or delayed revenue
recognition;
    
    expense and difficulties in protecting our intellectual property in foreign
jurisdictions;
    
    exposure to possible litigation or claims in foreign jurisdictions; and
    
    potentially adverse tax consequences.
  35




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##### Table of Contents



The success of our business depends upon our ability to adequately protect our intellectual
property.
  Our participation in working groups for the development and promotion of industry standards in our
target markets, including the Digital Visual Interface and HDMI specifications, requires us to
license some of our intellectual property for free or under specified terms and conditions, which
may make it easier for others to compete with us in such markets.
  
    
    we must license for free specific elements of our intellectual property to others for use
in implementing the DVI specification; and we may license additional intellectual property
for free as the DDWG promotes enhancements to the DVI specification
and ,
    
    we must license specific elements of our intellectual property to others for use in
implementing the HDMI specification and we may license additional intellectual property as
the HDMI founders group promotes enhancements to the HDMI specification.
   36




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##### Table of Contents



Our success depends in part on our relationships with Sunplus and other strategic partners.
  Our success depends on managing our relationship with Intel.
  
    
    Intel and Silicon Image have been parties to business cooperation agreements;
    
    Intel and Silicon Image are parties to a patent cross-license;
    
    Intel and Silicon Image worked together to develop HDCP;
    
    an Intel subsidiary has the exclusive right to license HDCP, of which we are a licensee;
    
    Intel and Silicon Image were two of the promoters of the DDWG;
    
    Intel is a promoter of the SATA working group, of which we are a contributor;
    
    Intel is a supplier to us and a customer for our products;
    
    we believe that Intel has the market presence to drive adoption of SATA by making it
widely available in its chipsets and motherboards, which could affect demand for our
products;
    
    we believe that Intel has the market presence to affect adoption of HDMI by either
endorsing complementary technology or promulgating a competing standard, which could affect
demand for our products;
    
    Intel may potentially integrate the functionality of our products, including SATA, DVI,
or HDMI into its own chips and chipsets, thereby displacing demand for some of our products;
    
    Intel may design new technologies that would require us to re-design our products for
compatibility, thus increasing our R&D expense and reducing our revenue;
    
    Intels technology, including its 845G chipset, may lower barriers to entry for other
parties who may enter the market and compete with us; and
    
    Intel may enter into or continue relationships with our competitors that can put us at a
relative disadvantage.
  37




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##### Table of Contents



We have granted Intel rights with respect to our intellectual property, which could allow Intel to
develop products that compete with ours or otherwise reduce the value of our intellectual
property.
  We may become engaged in additional intellectual property litigation that could be time-consuming,
may be expensive to prosecute or defend and could adversely affect our ability to sell our
product.
    
    
    stop selling products or using technology that contains the allegedly infringing
intellectual property;
    
    attempt to obtain a license to the relevant intellectual property, which license may not
be available on reasonable terms or at all; and
    
    attempt to redesign products that contain the allegedly infringing intellectual property.
 
 38




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##### Table of Contents



We have entered into and may again be required to enter into, patent or other intellectual
property cross-licenses.
  We indemnify certain of our licensing customers against infringement.
  We must attract and retain qualified personnel to be successful and competition for qualified
personnel is increasing in our market.
  Share
Based Payment
 We had a material weakness in internal control over financial reporting in 2005 which was
remediated in 2006. We cannot assure you that additional material weaknesses will not be
identified in the future. If our internal control over financial reporting or disclosure controls
and procedures are not effective, there may be errors in our financial statements that could
require a restatement or our filings may not be timely and investors may lose confidence in our
reported financial information, which could lead to a decline in our stock price.
  39




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We have experienced transitions in our management team, our board of directors and our independent
registered public accounting firm in the past and may continue to do so in the future.
  
    
    In January 2005, Steve Laub (who replaced David Lee in November 2004) resigned from the
positions of chief executive officer and president and from the board of directors, Steve
Tirado was appointed as chief executive officer and president and to the board as well and
Chris Paisley was appointed chairman of the board of directors.
    
    In February 2005, Jaime Garcia-Meza was appointed as vice president of our storage
business.
    
    In April 2005, Robert C. Gargus retired from the position of chief financial officer and
Darrel Slack was appointed as his successor.
    
    In April 2005, four of our then independent outside directors, David Courtney (chairman
of the audit committee), Keith McAuliffe, Chris Paisley (chairman of the board) and Richard
Sanquini, resigned from our board of directors and board committees.
    
    In April 2005, Darrel Slack, our then chief financial officer, was elected to our board
of directors.
    
    In May 2005, Masood Jabbar and Peter Hanelt were elected to our board of directors.
    
    In June 2005, David Lee did not stand for re-election as a director at our annual meeting
of stockholders and accordingly, Dr. Lee resigned from our board of directors.
    
    In June 2005, PricewaterhouseCoopers LLP resigned as our independent registered public
accounting firm. In July 2005, we appointed Deloitte & Touche LLP as our new independent
registered public accounting firm.
    
    In August 2005, Darrel Slack began a personal leave of absence.
    
    In August 2005, Dale Brown resigned from the positions of chief accounting officer and
corporate controller.
 40




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##### Table of Contents




    
    In August 2005, Robert Freeman was appointed as interim chief financial officer and chief
accounting officer.
    
    In September 2005, Darrel Slack resigned from the position of chief financial officer and
from our board of directors and the board of directors of HDMI Licensing, LLC, our
wholly-owned subsidiary.
    
    In October 2005, William George was elected to our board of directors.
    
    In October 2005, Robert Bagheri resigned from the position of executive vice president of
operations.
    
    In October 2005, John LeMoncheck, then vice president, consumer electronics and
PC/display, left Silicon Image.
    
    In October 2005, John Shin was appointed as interim vice president, consumer electronics
and PC/display businesses and served in that position until February 2006. Mr. Shin serves
as vice president of engineering and has held that position since October 2003.
    
    In November 2005, Robert Freemans position changed from interim chief financial officer
to chief financial officer.
    
    In December 2005, William Raduchel was elected to our board of directors.
    
    In January 2006, Dale Zimmerman was appointed as our vice president of worldwide
marketing.
    
    In February 2006, John Hodge was elected to our board of directors.
    
    In September 2006, Patrick Reutens resigned from the position of chief legal officer.
    
    In January 2007, Edward Lopez was appointed as our chief legal officer.
    
    In February 2007, David Hodges advised our board of directors that he decided to retire
and he did not stand for reelection to our board of directors when his term expired at our
2007 Annual Meeting of Stockholders.
    
    In April 2007, Robert R. Freeman, announced his intention to retire from his position as
Chief Financial Officer.
    
    In April 2007, Rob Valiton resigned from his position as vice president of worldwide
sales and Sal Cobar was appointed as his successor.
    
    In July 2007, Paul Dal Santo was appointed as Chief Operating Officer.
    
    In October 2007, Robert Freeman resigned from his position as chief financial officer and
Harold Covert was appointed as his successor.
  We have been and may continue to become the target of securities class action suits and derivative
suits which could result in substantial costs and divert management attention and resources.
  41




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##### Table of Contents



Our operations and the operations of our significant customers, third-party wafer foundries and
third-party assembly and test subcontractors are located in areas susceptible to natural
disasters.
   
    
    an earthquake or other disaster in the San Francisco Bay Area or the Los Angeles area
damaged our facilities or disrupted the supply of water or electricity to our headquarters
or our Irvine facility;
    
    an earthquake, typhoon or other disaster in Taiwan or Japan resulted in shortages of
water, electricity or transportation, limiting the production capacity of our outside
foundries or the ability of ASE to provide assembly and test services;
    
    an earthquake, typhoon or other disaster in Taiwan or Japan damaged the facilities or
equipment of our customers and distributors, resulting in reduced purchases of our
products; or
    
    an earthquake, typhoon or other disaster in Taiwan or Japan disrupted the operations of
suppliers to our Taiwanese or Japanese customers, outside foundries or ASE, which in turn
disrupted the operations of these customers, foundries or ASE and resulted in reduced
purchases of our products or shortages in our product supply.
 Terrorist attacks or war could lead to economic instability and adversely affect our operations,
results of operations and stock price.
  Changes in environmental rules and regulations could increase our costs and reduce our revenue.
  42




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##### Table of Contents



Provisions of our charter documents and Delaware law could prevent or delay a change in control
and may reduce the market price of our common stock.
  
    
    authorizing the issuance of preferred stock without stockholder approval;
    
    providing for a classified board of directors with staggered, three-year terms;
    
    requiring advance notice of stockholder nominations for the board of directors;
    
    providing the board of directors the opportunity to expand the number of directors
without notice to stockholders;
    
    prohibiting cumulative voting in the election of directors;
    
    requiring super-majority voting to amend some provisions of our certificate of
incorporation and bylaws;
    
    limiting the persons who may call special meetings of stockholders; and
    
    prohibiting stockholder actions by written consent.
  The price of our stock fluctuates substantially and may continue to do so.
  
    
    actual or anticipated changes in our operating results;
    
    changes in expectations of our future financial performance;
    
    changes in market valuations of comparable companies in our markets;
    
    changes in market valuations or expectations of future financial performance of our
vendors or customers;
    
    changes in our key executives and technical personnel; and
    
    announcements by us or our competitors of significant technical innovations, design wins,
contracts, standards or acquisitions.
  43




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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds (in thousands, except per share
amounts)
    Total Number of
    
    Approximate dollarShares Purchased as
    
    value of shares that mayTotal number of
    
    Part of Publicly
    
    yet be purchased underPeriod
    
    shares purchased
    
    Announced Plans
    
    the planRepurchases
in February 2008
    
    
    7,692
    
    
    
    7,692
    
    
    $
    30,996Repurchases
in March 2008
    
    
    3,846
    
    
    
    3,846
    
    
    $
    13,265
    
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  44




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##### Table of Contents



Item 6. Exhibits
  10.01
    
    Silicon Image, Inc. Sales
Compensation Plan for Vice President of Worldwide Sales for Fiscal
Year 2008.10.02
    
    Accelerated Stock Repurchase Agreement dated February 13, 2008 between Credit Suisse
International and the Registrant. (Incorporated by reference to Exhibit 10.39 to the
Registrants current report on Form 10-K filed on February 27, 2007).10.03
    
    Notice of Grant of Restricted Stock Units (For U.S. Participants). (Incorporated by
reference to Exhibit 10.01 to the Registrants current report on Form 8-K filed on
February 27, 2007).31.01
    
    Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 200231.02
    
    Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 200232.01**
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.02**
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 **
    
    This exhibit is being furnished, rather than filed, and shall not be deemed incorporated by
reference into any filing of the registrant, in accordance with Item 601 of Regulation S-K. 45




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##### Table of Contents



Signatures
  Dated: April 25, 2008
    Silicon Image, Inc./s/ Harold CovertHarold CovertChief Financial Officer (Principal Financial Officer) 46




---



##### Table of Contents



Exhibit Index
 10.01
    
    Silicon Image, Inc. Sales
Compensation Plan for Vice President of Worldwide Sales for Fiscal
Year 2008.10.02
    
    Accelerated Stock Repurchase Agreement dated February 13, 2008 between Credit Suisse
International and the Registrant. (Incorporated by reference to Exhibit 10.39 to the
Registrants current report on Form 10-K filed on February 27, 2007).10.03
    
    Notice of Grant of Restricted Stock Units (For U.S. Participants). (Incorporated by
reference to Exhibit 10.01 to the Registrants current report on Form 8-K filed on
February 27, 2007).31.01
    
    Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 200231.02
    
    Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 200232.01**
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.02**
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 **
    
    This exhibit is being furnished, rather than filed, and shall not be deemed incorporated by
reference into any filing of the registrant, in accordance with Item 601 of Regulation S-K.