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UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, D.C.
    20549
     Form 10-K
  ANNUAL REPORT PURSUANT TO
    SECTION 13 OR 15(d)  OF THE SECURITIES EXCHANGE ACT OF
    1934
  For the fiscal year ended December 31, 2005
  Commission file number
    000-26887
     Silicon Image, Inc. (Exact name of
    registrant as specified in its charter)
  Delaware

77-0396307(State of
    incorporation)

(IRS employer identification
    number)   1060 East Arques Avenue
    Sunnyvale, CA 94085 (Address of principal
    executive offices and zip code)
  (Registrants telephone number, including area code)(408) 616-4000
  Securities registered pursuant to section 12(g) of the
    Act:
    Common Stock, $0.001 par value
     o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K o
  Rule 12b-2
 o þ o
  Rule 12b-2 o þ
      Form 10-K.




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##### 



TABLE OF
    CONTENTS
  
  PagePART IItem 1

Business


4Item 1A

Risk Factors


20Item 1B

Unresolved Staff
    Comments


38Item 2

Properties


38Item 3

Legal
    Proceedings


38Item 4

Submission of
    Matters to a Vote of Securities Holders


39PART IIItem 5

Market for
    Registrants Common Equity, Related Stockholder Matters and
    Issuer Purchases of Equity Securities


39Item 6

Selected Financial
    Data


41Item 7

Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


42Item 7A

Quantitative and
    Qualitative Disclosures About Market Risk


55Item 8

Financial
    Statements and Supplementary Data


56Item 9

Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


56Item 9A

Controls and
    Procedures


56Item 9B

Other
    Information


60PART IIIItem 10

Directors and
    Executive Officers of the Registrant


60Item 11

Executive
    Compensation


60Item 12

Security Ownership
    of Certain Beneficial Owners and Management and Related
    Stockholder Matters


60Item 13

Certain
    Relationships and Related Transactions


60Item 14

Principal
    Accountant Fees and Services


60PART IVItem 15

Exhibits and
    Financial Statement Schedules


60Signatures


91Index to Exhibits
    Filed Together with this Annual Report


92EXHIBIT 10.03EXHIBIT 10.04EXHIBIT 10.35EXHIBIT 21.01EXHIBIT 23.01EXHIBIT 23.02EXHIBIT 31.01EXHIBIT 31.02EXHIBIT 32.01EXHIBIT 32.02




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This Annual Report on
    Form 10-K
    contains forward-looking statements within the meaning of
    Section 21E of the Securities Exchange Act of 1934 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
    Annual Report on
    Form 10-K
    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 Annual Report on
    Form 10-K
    are identified by words such as believes,
    anticipates, expects,
    intends, may, will,
    can, should, could,
    estimate, based on, intended,
    would, projected, forecasted
    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 statements. We undertake no obligation to
    publicly release the results of any updates or revisions to
    these forward-looking statements that may be made to reflect
    events or circumstances occurring subsequent to the filing of
    this
    Form 10-K
    with the Securities and Exchange Commission (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 us 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.
 3




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PART I  Item 1.
    Business    first-to-market, tm tm
      point-to-point add-in-card tm tm on-a-chip
  tm tm
 4




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tm tm tm
  Markets
    and Customers
      Products
     5




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Consumer
    Electronics
    ®
      PanelLink HDMI Transmitters.
  PanelLink
    HDMI Transmitters
  HDMI


Maximum

MaximumProduct

Outputs


Resolution

Bandwidth

Target ApplicationsSiI 9030


1


1080p

5 Gbps

DVD players, DVD recorders, A/V
    receivers, set-top boxes, PVRs, D-VHS playersSiI 9190


1


720p/1080i

2.58 Gbps

HDTV digital set-top boxes, DVD
    and D-VHS players, A/V receivers   PanelLink HDMI Receivers.
  PanelLink
    HDMI Receivers
  HDMI


Maximum

MaximumProduct

Inputs


Resolution

Bandwidth

Target ApplicationsSiI 9011


1


1080p

5 Gbps

DTVs, plasma TVs, LCD TVs,
    projectorsSiI 9021


2


1080p

5 Gbps

DTVs, plasma TVs, LCD TVs,
    projectorsSiI 9023


2


1080p

5 Gbps

DTVs, plasma TVs, LCD TVs,
    projectorsSiI 9031


2


1080p

5 Gbps

A/V receivers, plasma TVs, LCD
    TVs, DTVsSiI 9033


2


1080p

5 Gbps

A/V receivers, plasma TVs, LCD
    TVs, DTVsSiI 9993


1


720p/1080i

2.58 Gbps

DTVs, plasma displays, LCD TVs,
    projectors  6




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Digital Video Processors.
  Digital
    Video Processors
  Product

Key Features

Target ApplicationsSiI 504

Horizontal scaler,
    3-D motion
    adaptive deinterlacer, 2:2 & 3:2 inverse pull-down

Progressive scan DVD players,
    DTVs, LCD TVs, projectors   PCs and
    Displays
      PanelLink DVI Transmitters.
  PanelLink
    DVI Transmitters
  MaximumProduct

Maximum Resolution

Bandwidth

Target ApplicationsSiI 1362

UXGA (1600 × 1200 pixels)

5 Gbps

PC motherboards, notebook PCsSiI 1364

UXGA (1600 × 1200 pixels)

5 Gbps

Intel SDVO ADD2 cardsSiI 1160

UXGA (1600 × 1200 pixels)

5 Gbps

Internal display interfaces,
    embedded/specialty applicationsSiI 1172

QXGA (2048 × 1536 pixels)

6.8 Gbps

Desktop PC motherboards and
    add-inboards, notebook PCsSiI 1162

UXGA (1600 × 1200 pixels)

5 Gbps

Desktop PC motherboards and add-in
    boards, notebook PCsSiI 178

QXGA (dual link) (2048 × 1536
    pixels)

10 Gbps

Desktop PC motherboards and add-in
    boards that support Dual-Link DVISiI 164

UXGA (1600 × 1200 pixels)

5 Gbps

Desktop PC motherboards and add-in
    boards, notebook PCsSiI 1178

QXGA (dual link) (2048 × 1536
    pixels)

10 Gbps

Desktop PC motherboards and add-in
    boards that support Dual-Link DVISiI 1390

UXGA (1600 × 1200 pixels)

5 Gbps

Desktop PC motherboards &
    notebook PCs  that support HDMI and DVI using SDVO chipsetSiI 1930

UXGA (1600 × 1200 pixels)

5 Gbps

Desktop PC add-boards &
    notebook PCs  that support HDMI and DVI using discrete GPU   PanelLink DVI Receivers.
 7




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PanelLink
    DVI Receivers
  Maximum

MaximumProduct

Resolution

Bandwidth

Target ApplicationsSiI 1169

UXGA (1600 × 1200 pixels)

5 Gbps

LCD monitors, data, video and
    multimedia projectors, plasma displaysSiI 1171

QXGA (2048 × 1536 pixels)

6.8 Gbps

LCD monitors, data, video and
    multimedia projectors, plasma displaysSiI 1161

UXGA (1600 × 1200 pixels)

5 Gbps

LCD monitors, data, video and
    multimedia projectors, plasma displaysSiI 1151

SXGA (1280 × 1024 pixels)

3.36 Gbps

LCD monitors, data, video and
    multimedia projectors, plasma displaysSiI 163B

QXGA (2048 × 1536 pixels)

10 Gbps

Desktop monitors that support
    Dual-Link DVISiI 141B

High-refresh XGA(1024 × 768
    pixels)

2.58 Gbps

Flat panel displays, projectors,
    embedded/specialty/retail and industrial, LCD panels   PanelLink DVI Controllers.
  PanelLink
    DVI Controllers
  Maximum

MaximumProduct

Resolution

Bandwidth

Key Features

Target ApplicationsSiI 863

SXGA+(1400 × 1050 pixels)

3.36 Gbps

LVDS Tx, scaling, on-screen
    display, power management, gamma correction, dithering

Flat panel displays, plasmas,
    projectors, embedded/ specialty/retail and industrialSiI 861

SXGA+(1400 × 1050 pixels)

3.36 Gbps

HDCP, LVDS Tx, scaling on-screen
    display, power management, gamma correction, dithering

LCD and flat panel displaysSiI 859

SXGA+(1400 × 1050 pixels)

3.36 Gbps

HDCP, scaling, on- screen display,
    power management, gamma correction, dithering

LCD micro displays  8




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Intelligent Panel Controllers.
  Intelligent
    Panel Controllers
  Maximum

MaximumProduct

Resolution

Bandwidth

Key Features

Target ApplicationsSiI 1257

WUXGA

165 MHz

PanelLink receiver TTL LCD timing
    controller

LCDs for flat panel displaysSiI 263

UXGA

140 MHz

PanelLink receiver RSDSLCD timing
    controller

LCDs for flat panel displaysSiI 253

SXGA

140 MHz

PanelLink receiver TTL LCD timing
    controller

LCDs for flat panel displaysSiI 215A

WXGA (1280 × 768 pixels)

85 MHz

1 channel LVDS input interface,
    RSDS output

LCDs for notebook PCs and flat
    panel displays   Storage
    system-on-a-chip
  (e-SATA)
  tm
 9




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SteelVine Storage Reference Systems. 5-drive 2-drive
  SteelVine
    Storage Reference Systems
  Key Features

Target ApplicationsSV2000

5-drive external SATA-II array
    with SteelVine processor with flexible storage virtualization
    capabilities

Video editing, consumer
    electronics and digital media storage in the homeSV1000

2-drive external SATA-II array
    with SteelVine processor with flexible storage virtualization
    capabilities

Home data storage, media data
    storage, SMB applications, video editingSV-HBA-3124-2(4)

2 & 4-external port
    PCI-X-to-SATA-II
    host bus adapter

Video editing, consumer
    electronics and digital media storage in the home   SteelVine
    Storage ICs
  Key Features

Target ApplicationsSil 4723

2-drive SteelVine IC with 3Gb/s
    Serial ATA host link and support for up to 2 SATA devices

Consumer storage applications for
    PC and CE markets.Sil 4726

5-drive Steelvine IC with 3Gb/s
    Serial ATA host link and support for up to 5 SATA devices

Consumer storage applications for
    PC and CE markets.       SATALink
    Serial ATA Host Controllers and Device Bridges.
    SATALink
    Serial ATA Controllers and Device Bridges
  Number ofProduct

Ports


Key Features

Target ApplicationsSiI 3132


2


Single chip, dual-channel,
    PCI-Express-to-3Gb/s
    SATA-II host controller,
    SATARAIDtmsoftware, 1st Party DMA, hot plug, ATAPI, port multiplier with
    FIS-based switching, variable output strengths for backplane
    support, Supports up to 3Gb/s per channel.

PC motherboards, server
    motherboards,
    add-in-cards,
    embedded applications 10




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Number ofProduct

Ports


Key Features

Target ApplicationsSiI 3124-2


4


Single chip, quad-channel,
    PCI-X-to-3Gb/s
    SATA-II host controller,
    SATARAIDtmsoftware, 1st Party DMA, hot plug, ATAPI support, port
    multiplier support with FIS-based switching, variable output
    strengths for backplane support, Supports up to 3Gb/s per
    channel.

Server motherboards, server
    add-in-cards,
    host bus adapters, RAID subsystems, embedded applicationsSiI 3124-1


4


Single-chip, quad-channel,
    PCI-X-to-1.5Gb/s
    SATA-I host controller,
    SATARAIDtmsoftware, 1st Party DMA, hot plug, ATAPI support, port
    multiplier support with FIS-based switching, variable output
    strengths for backplane support, Supports up to 1.5Gb/s per
    channel.

Server motherboards, server
    add-in-cards,
    host bus adapters, RAID subsystems, embedded applicationsSiI 3114


4


Single-chip, quad-channel,
    PCI-to-1.5Gb/s
    SATA-I host controller,
    SATARAIDtmsoftware, hot plug, ATAPI support, variable output strengths for
    backplane support

PC motherboards, PC
    add-in-cards,
    server motherboards, host bus adapters, RAID subsystems,
    embedded applicationsSiI 3512E


2


Single-chip, dual-channel, low
    pin-count
    PCI-to-1.5Gb/s
    SATA-I host controller,
    SATARAIDtmsoftware, hot plug

PC motherboards, PC
    add-in-cards,
    server motherboards, host bus adapters, RAID subsystems,
    embedded applicationsSiI 3112


2


Single chip, dual-channel,
    PCI-to-1.5Gb/s
    SATA-I host controller,
    SATARAIDtmsoftware, hot plug, ATAPI support

PC motherboards, RAID or non-RAID
    disk controller add-in cards, storage and embedded systemsSiI 3811


1


1.5Gb/s Serial
    ATA-to-Parallel
    ATA device bridge, ATAPI support

Notebook and PC motherboards,
    ATAPI devicesSiI 3611


1


1.5Gb/s Serial
    ATA-to-Parallel
    ATA device bridge, ATAPI support

Optical and hard disk drives,
    storage systems, add-in cards, ATAPI devices   Parallel ATA Controller.
  Parallel
    ATA Controllers
  Product

Key Feature

Target ApplicationsSiI 0680

Ultra ATA/133
    PCI-to-ATA
    host Controller

PC Motherboards, PC
    add-in-cards,
    server motherboards, host bus adapters, embedded applications  11




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Fibre Channel SerDes.
  Fibre
    Channel SerDes
  Number ofProduct

Ports


Key Features

Target ApplicationsSiI 2024


4


2.125G Quad channel, Fibre Channel
    SerDes, 1.8V core

HBAs, switches, routersSiI 2022


2


2.125G Single channel, Fibre
    Channel SerDes, 3.3V core

HBAs, switches, routersSiI 2020A


1


2.125G Single channel, Fibre
    Channel SerDes, 2.5V core

HBAs, switches, routers   Promotion
    of Industry Standards
    High-Definition
    Multimedia Interface (HDMI)
  tm
  ®
         12




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Pay-TV Pay-TV
  High-bandwidth
    Digital Content Protection (HDCP)
   13




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DVD
    Copy Control Association
    Digital
    Visual Interface (DVI)
    
    define, establish and support the DVI specification, an industry
    specification for sending video data between a computer and a
    digital display;
    encourage broad industry adoption of the DVI specification, in
    part by creating an implementers forum that others may
    join in order to receive information and by providing support
    for the DVI specification;
    invite third parties to enter into a Participants
    Agreement in order to consult on the content, feasibility and
    other aspects of the DVI specification.      Serial
    ATA Working Group
        Incits
    T-13 Committee
   14




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UDI
    Working Group
      Silicon
    Image Technology
  Multi-Layer
    Systems Approach to Solving High-Speed Interconnect
    Problems
      ® ®
  PanelLink
    HDMI
     15




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Research
    and Development
      Sales and
    Marketing
      Manufacturing
  Wafer
    Fabrication
   16




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Assembly
    and Test
      Quality
    Assurance
    Intellectual
    Property
   17




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18




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Competition
  time-to-market,
    
    Analog Solutions.  Display systems still
    predominantly employ an analog interface. Improvements to analog
    interface display solutions may slow the adoption of all-digital
    display systems. We compete with analog solution vendors such as
    Analog Devices, Genesis Microchip, MRT and a number of
    Taiwan-based companies.
    DVI-Compliant Solutions.  We believe that over
    time, the DVI specification will become widely adopted in the
    digital display industry and attract additional market entrants.
    We believe the following companies have developed or announced
    intentions to develop DVI-compliant solutions: Analog Devices,
    ATI Technologies, Broadcom, Chrontel, Conexant, Genesis
    Microchip, MRT, National Semiconductor, nVidia, Pixelworks, SIS,
    Smart ASIC, ST Microelectronics, Texas Instruments and Thine.
    Dual-Interface Solutions.  The following
    companies have developed, or announced intentions to develop,
    products that connect to both analog and digital host systems,
    also known as a dual-interface solution: Genesis Microchip,
    Macronix, MRT, Philips Semiconductor, Pixelworks and a number of
    Taiwan-based companies.
    Other Digital Interface Solutions.  Texas
    Instruments, Thine, and National Semiconductor offer proprietary
    digital interface solutions based on LVDS, or low voltage
    differential signaling technology. LVDS technology has gained
    broad market acceptance in notebook PCs, and has gained some
    adoption with PC and display manufacturers for use outside of
    the notebook PC market.     19




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Employees
    Available
    Information
  www.siliconimage.com. Form 10-K, Form 10-Q, Form 8-K
 Item 1A.  Risk
    Factors  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.
  We
    operate in rapidly evolving markets, which makes it difficult to
    evaluate our future prospects.
   20




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mid-to-late tm
  We
    have a history of losses and may not sustain
    profitability.
    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 digital-ready PCs and displays,
    consumer electronics 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;
    the cost of components for our products and prices charged by
    the third parties who manufacture, assemble and test our
    products;
    fluctuations in the price of our common stock, which drive a
    substantial portion of our non-cash stock compensation
    expense; and
    the nature and extent of litigation activities, particularly
    relating to our patent infringement suit against Genesis
    Microchip and any subsequent legal proceedings related to the
    matters raised in that suit, and a class action lawsuit against
    us that was initiated in early 2005.  and/or
 21




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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 PC, storage and CE, which may involve additional
    research and development, marketing or other costs and expenses;
    our ability to close 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.    The
    licensing component of our business strategy increases business
    risk and volatility.
   22




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We
    face intense competition in our markets, which may lead to
    reduced revenue from sales of our products and increased
    losses.
      Our
    success depends in part on demand for our new SteelVine storage
    products.
    Our
    success depends in part on the success of our new integrated
    HDMI DTV products.
    Demand
    for our consumer electronics products is dependent on the
    adoption and widespread use of the HDMI
    specification.
  ®
 23




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over-the-air
      Our
    success depends in part on strategic
    relationships.
      We do
    not have long-term commitments from our customers and we
    allocate resources based on our estimates of customer
    demand.
   24




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Our
    lengthy sales cycle can result in a delay between incurring
    expenses and generating revenue, which could harm our operating
    results.
    We
    depend on a few key customers and the loss of any of them could
    significantly reduce our revenue.
  and/or
  
    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; 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; 25




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
    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.  build-up
    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 evolving
    standards, including enhancements or modifications to existing
    standards such as DVI, HDCP, SATA I and SATA II, and HDMI;
    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 and achievement of high
    manufacturing yields and low cost testing;
    market acceptance of new products; and
    market acceptance of new architectures like SteelVine.   26




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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;
    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.    The
    cyclical nature of the semiconductor industry may create
    constrictions in our foundry, test and assembly
    capacity.
    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; 27




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
    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.  and/or
  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.
        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.
   28




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##### Table of Contents




    difficulties in managing from afar;
    political and economic instability, including international
    tension in Iraq, Korea and the China Strait and lack of normal
    diplomatic relationships between the United States and Taiwan;
    less developed infrastructures in newly industrializing
    countries;
    susceptibility of foreign areas to terrorist attacks;
    susceptibility to interruptions of travel, including those due
    to international tensions (including the war in and occupation
    of Iraq), medical issues such as the SARS and Avian Flu
    epidemics (particularly affecting the Asian markets we serve),
    and the financial instability and bankruptcy of major air
    carriers;
    bias against foreign, especially American, companies;
    difficulties in collecting accounts receivable;
    expense and difficulties in protecting our intellectual property
    in foreign jurisdictions;
    difficulties in complying with multiple, conflicting and
    changing laws and regulations, including export requirements,
    tariffs, import duties, visa restrictions, environmental laws
    and other barriers;
    exposure to possible litigation or claims in foreign
    jurisdictions; and
    competition from foreign-based suppliers and the existence of
    protectionist laws and business practices that favor these
    suppliers, such as withholding taxes on payments made to us.    The
    success of our business depends upon our ability to adequately
    protect our intellectual property.
  and/or
 29




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##### Table of Contents



Our
    participation in the Digital Display Working Group requires us
    to license some of our intellectual property for free, which may
    make it easier for others to compete with us in the DVI PC
    market.
    
    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.    Our
    participation as a founder in the working group developing HDMI
    requires us to license some of our intellectual property, which
    may make it easier for others to compete with us in the
    market.
  ®
    
    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.    Our
    success depends on managing our relationship with
    Intel.
    
    Intel and we have been parties to business cooperation
    agreements;
    Intel and we are parties to a patent cross-license;
    Intel and we worked together to develop HDCP;
    an Intel subsidiary has the exclusive right to license HDCP, of
    which we are a licensee;
    Intel and we were two of the promoters of the Digital Display
    Working Group (DDWG); 30




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##### Table of Contents




    Intel and we are two of the promoters of the Unified Display
    Interface Working Group;
    Intel is a promoter of the serial ATA 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 serial ATA by making them 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 Fibre Channel, serial ATA, 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.    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
    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.
     31




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##### Table of Contents



Rule 10b-5
  We are
    currently engaged in intellectual property litigation that is
    time-consuming and expensive to prosecute. 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.
         32




---



##### Table of Contents




    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.    We
    have entered into, and may again be required to enter into,
    patent or other intellectual property
    cross-licenses.
  and/or
  We
    must attract and retain qualified personnel to be successful,
    and competition for qualified personnel is increasing in our
    market.
    Share Based Payments
 33




---



##### Table of Contents



and/or
  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.
    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, Ahmad Ghaemmaghami was appointed as interim
    executive vice president of operations.
    In October 2005, John LeMoncheck, then vice president, consumer
    electronics and PC/display, left Silicon Image. 34




---



##### Table of Contents




    In October 2005, John Shin was appointed as interim vice
    president, consumer electronics and PC/display and subsequently
    became VP of Worldwide Engineering consolidating all engineering
    within his organization.
    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, Peter Rado was appointed as vice president of
    worldwide operations and quality.
    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.    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.    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 35




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##### Table of Contents



customers, foundries or ASE and resulted in reduced purchases of
    our products or shortages in our product supply.  Changes
    in environmental rules and regulations could increase our costs
    and reduce our revenue.
    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. 36




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##### Table of Contents



Continued
    terrorist attacks or war could lead to further economic
    instability and adversely affect our operations, results of
    operations and stock price.
    We
    indemnify certain of our licensing customers against
    infringement.
    If we
    are unable to successfully address the material weakness in our
    internal controls as described in Item 9A in this Annual
    Report on
    Form 10-K,
    our ability to report our financial results on a timely and
    accurate basis may be adversely affected.
  Form 10-K
  Form 10-K.
 37




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##### Table of Contents



Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties    Item 3.
    Legal
    Proceedings         38




---



##### Table of Contents



Rule 10b-5
        Item 4.
    Submission
    of Matters to a Vote of Securities Holders   PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities    High


Low2005Fourth Quarter

$
10.27


$
7.06Third Quarter


12.25



8.89Second Quarter


12.40



9.50First Quarter


16.55



9.262004Fourth Quarter

$
17.86


$
12.00Third Quarter


13.10



10.14Second Quarter


14.00



9.44First Quarter


12.45



7.51  39




---



##### Table of Contents



40




---



##### Table of Contents



Item 6.
    Selected
    Financial Data  Form 10-K.
  Year Ended
    December 31,2005


2004


2003


2002


2001(In thousands, except employees
    and per share data)Statements of Operations
    Data:Revenue

$
212,399


$
173,159


$
103,525


$
81,539


$
51,966Cost of revenue(1)


83,105



68,614



47,192



39,299



25,342Gross margin


129,294



104,545



56,333



42,240



26,624% of revenue


60.9
%


60.4
%


54.4
%


51.8
%


51.2
%Research and development(2)

$
44,860


$
61,459


$
43,386


$
40,205


$
34,816% of revenue


21.1
%


35.5
%


41.9
%


49.3
%


67.0
%Selling, general and
    administrative(3)

$
31,984


$
42,702


$
23,095


$
27,010


$
23,382% of revenue


15.1
%


24.7
%


22.3
%


33.1
%


45.0
%Income (loss) from operations

$
51,572


$
(961
)

$
(17,719
)

$
(40,850
)

$
(78,530
)Net income (loss)

$
49,549


$
(324
)

$
(12,810
)

$
(40,092
)

$
(76,108
)Net income (loss) per share:Basic

$
0.63


$



$
(0.18
)

$
(0.62
)

$
(1.32
)Weighted average
    shares  basic


79,254



75,081



69,412



64,283



57,790Diluted

$
0.59


$



$
(0.18
)

$
(0.62
)

$
(1.32
)Weighted average
    shares  diluted


83,957



75,081



69,412



64,283



57,790Consolidated Balance Sheet and
    Other Data as of Year End:Cash, cash equivalents and
    short-term investments

$
151,562


$
93,520


$
37,254


$
35,833


$
41,218Working capital


152,204



97,107



37,674



27,787



36,179Total assets


233,021



154,908



87,742



77,616



90,162Tangible assets


219,415



140,204



71,693



64,595



68,534Long-term debt obligations


6,867















819Total stockholders equity


176,546



122,079



62,393



48,170



67,324Tangible net book value

$
162,940


$
107,375


$
46,344


$
35,149


$
45,696Regular full-time employees


384



337



250



249



266(1) Includes stock
    compensation expense (benefit)

$
(1,383
)

$
2,777


$
583


$
1,189


$
279(2) Includes stock
    compensation expense (benefit)


(3,851
)


16,647



6,863



7,396



9,343(3) Includes stock
    compensation expense (benefit)


(3,297
)


13,359



2,542



2,522



2,768  41




---



##### Table of Contents



Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Overview
           42




---



##### Table of Contents



tm tm
  tm
 43




---



##### Table of Contents



Commitments,
    Contingencies and Concentrations
      Critical
    Accounting Policies
    Revenue
    recognition
     44




---



##### Table of Contents



period-to-period
  Allowance
    for Doubtful Accounts
    Inventories
  first-in
 45




---



##### Table of Contents



Goodwill
    and intangible assets
  Goodwill and Other
    Intangible Assets
  Deferred
    Tax Assets
    Accrued
    Liabilities
      Stock-Based
    Compensation Expense
   46




---



##### Table of Contents



Legal
    Matters
    Recent
    Accounting Pronouncements
  Exchanges
    of Nonmonetary Assets,
  Share-Based Payment
  Accounting Changes and Error Corrections Reporting Accounting Changes in
    Interim Financial Statement  An Amendment of APB
    Opinion No. 28.
   47




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##### Table of Contents



Inventory Costs, an amendment of
    ARB No. 43 Chapter 4. Inventory
    Pricing
  Reclassifications
    Annual
    Results of Operations
  REVENUE
  2005


Change


2004


Change


2003(Dollars in thousands)Consumer Electronics

$
108,712



52.3
%

$
71,377



177.1%


$
25,762Personal Computer


49,212



19.4
%


41,223



24.3%



33,163Storage Products


35,999



(9.4
)%


39,750



30.7%



30,410Total product revenue

$
193,923



27.3
%

$
152,350



70.5%


$
89,335Percentage of total revenue


91.3
%






88.0
%






86.3
%Development, licensing and
    royalties

$
18,476



(11.2
)%

$
20,809



46.6%


$
14,190Percentage of total revenue


8.7
%






12.0
%






13.7
%Total revenue

$
212,399



22.7
%

$
173,159



67.3%


$
103,525     2005


Change


2004


Change


2003(Dollars in thousands)Consumer Electronics

$
118,578



40.2
%

$
84,604



153.9%


$
33,326Personal Computer


50,484



21.4
%


41,585



15.2%



36,108Storage Products


43,337



(7.7
)%


46,970



37.8%



34,091Total revenue

$
212,399



22.7
%

$
173,159



67.3%


$
103,525    48




---



##### Table of Contents



COST
    OF REVENUE AND GROSS MARGIN
  2005


Change


2004


Change


2003(Dollars in thousands)Cost of revenue(1)

$
83,105



21.1%


$
68,614



45.4%


$
47,192Gross margin

$
129,294



23.7%


$
104,545



85.6%


$
56,333Percentage of total revenue


60.9
%






60.4
%






54.4
%(1) Includes stock
    compensation expense (benefit)

$
(1,383
)





$
2,777






$
583      49




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##### Table of Contents



OPERATING
    EXPENSES
  2005


Change


2004


Change


2003(Dollars in thousands)Research and development(1)

$
44,860



(27.0
)%

$
61,459



41.7
%

$
43,386Percentage of total revenue


21.1
%






35.5
%






41.9
%Selling, general and
    administrative(2)

$
31,984



(25.1
)%

$
42,702



84.9
%

$
23,095Percentage of total revenue


15.1
%






24.7
%






22.3
%Total stock compensation expense
    (benefit) (incl. amount from COGS)

$
(8,531
)


(126.0
)%

$
32,783



228.2
%

$
9,988Percentage of total revenue


(4.0
)%






18.9
%






9.6
%Amortization of intangible assets

$
1,098



(18.4
)%

$
1,345



21.9
%

$
1,103Restructuring expense (recovery)


(220
)


(100.0
)%






(100.0
)%


986In-process research and development






0.0
%






(100.0
)%


5,482Gain on escrow settlement, net






0.0
%






(100.0
)%


4,618Interest income and other, net


3,410



374.9
%


718



146.7
%


291Gain on investment security


1,297



40.1
%


926



100.0
%


(1) Includes stock
    compensation expense (benefit)


(3,851
)






16,647







6,863(2) Includes stock
    compensation expense (benefit)


(3,297
)






13,359







2,542   Research and Development.
  Selling, General and Administrative.
  Stock Compensation.
 50




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##### Table of Contents



Amortization of Goodwill and Intangible
    Assets.
  In-process Research and
    Development.
  Transwarp Networks, Inc. (TWN).
  Impairment of Intangible Assets.
  Restructuring.
   51




---



##### Table of Contents



Severance


Leasedand Benefits


Facilities


TotalBalance as of December 31,
    2002

$
138


$
2,598


$
2,7362003 provision


986







986Cash payments


(441
)


(760
)


(1,201
)Non-cash activity


(646
)






(646
)Balance as of December 31,
    2003


37



1,838



1,875Cash payments


(5
)


(834
)


(839
)Balance as of December 31,
    2004


32



1,004



1,036Cash payments






(759
)


(759
)Adjustment related to lease
    modification






(220
)


(220
)Non-cash activity


(32
)






(32
)Balance as of December 31,
    2005

$



$
25


$
25   Interest Income.
  Interest Expense and Other Net.
  Gain on investment security.
  Provision for Income Taxes.
    Gain on escrow settlement, net.
  Earnings per share. Form 10-K
 52




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##### Table of Contents



Form 10-K.
  Liquidity
    and Capital Resources
  2005


Change


2004


Change


2003(Dollars in thousands)Cash and cash equivalents

$
77,877


$
54,597


$
23,280


$
5,346


$
17,934Short term investments


73,685



3,445



70,240



50,920



19,320Total cash, cash equivalents and
    short term investments

$
151,562


$
58,042


$
93,520


$
56,266


$
37,254Percentage of total assets


65.0
%






60.4
%






42.5
%Total current assets

$
201,812


$
71,876


$
129,936


$
66,913


$
63,023Total current liabilities


(49,608
)


(16,779
)


(32,829
)


(7,480
)


(25,349
)Working capital

$
152,204


$
55,097


$
97,107


$
59,433


$
37,674Cash provided by (used in)
    operating activities

$
55,620


$
19,174


$
36,446


$
39,339


$
(2,893
)Cash used in investing activities


(12,189
)


40,951



(53,140
)


(49,793
)


(3,347
)Cash provided by financing
    activities


11,166



(10,874
)


22,040



12,779



9,261Net increase in cash and cash
    equivalents

$
54,597


$
49,251


$
5,346


$
2,325


$
3,021     Operating
    activities
           53




---



##### Table of Contents



Investing
    and financing activities
      Debt and
    Lease Obligations
               54




---



##### Table of Contents



Payments Due inLess Than








More ThanTotal


1 Year


1-3 Years


3-5 Years


5 YearsContractual
    Obligations:Capital lease obligations

$
260


$
260


$



$



$
Operating lease obligations


11,325



3,494



5,486



2,345



Inventory and other purchase
    commitments


19,462



19,462











Minimum royalty obligations to a
    related party


200



100



100







Total

$
31,247


$
23,316


$
5,586


$
2,345


$
       Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk  Fixed
    Income Investments
    0.5%

1.0%


1.5%$
388

$
776


$
1,163     Market
    Price
   55




---



##### Table of Contents



Foreign
    Currency Exchange Risk
    Item 8.
    Financial
    Statements and Supplementary Data    Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Evaluation
    of Disclosure Controls and Procedures
  Rule 13a-15(e) Form 10-K,
  Rule 13a-15(b)
  Managements
    Report on Internal Control over Financial Reporting
  Rule 13a-15(f)
  
    pertain to the maintenance of records that, in reasonable
    detail, accurately and fairly reflect the transactions and
    dispositions of our assets; 56




---



##### Table of Contents




    provide reasonable assurance that transactions are recorded as
    necessary to permit preparation of financial statements in
    accordance with generally accepted accounting principles, and
    that receipts and expenditures are being made only in accordance
    with authorizations of our management and directors; and
    provide reasonable assurance regarding prevention or timely
    detection of unauthorized acquisition, use or disposition of our
    assets that could have a material effect on the financial
    statements.      Internal Control  Integrated
    Framework.
    Changes
    in Internal Control Over Financial Reporting
  Form 10-Q
         57




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm
    Internal Control  Integrated Framework
          
    The Company lacked appropriate controls related to accounting
    for income taxes. Specifically, the controls designed by the
    Company to correctly compute the excess tax benefit relating to
    stock options exercised did not operate effectively. This
    resulted in the Company recording a material adjustment in the
    2005 financial statements that affected the provision for income
    taxes and stockholders equity.   58




---



##### Table of Contents



Internal Control  Integrated Framework Internal Control  Integrated Framework
         59




---



##### Table of Contents



Item 9B.
    Other
    Information   PART III  Item 10.
    Directors
    and Executive Officers of the Registrant    Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters    Item 13.
    Certain
    Relationships and Related Transactions    Item 14.
    Principal
    Accountant Fees and Services   PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules    Financial Statements:
  PageConsolidated
    Balance Sheets at December 31, 2005 and December 31,
    2004


62Consolidated
    Statements of Operations for the three years ended
    December 31, 2005


63Consolidated
    Statements of Stockholders Equity for the three years
    ended December 31, 2005


64Consolidated
    Statements of Cash Flows for the three years ended
    December 31, 2005


65Notes to
    Consolidated Financial Statements


66Unaudited Selected
    Quarterly Financial Data for the two years ended
    December 31, 2005


88Report of Deloitte
    & Touche LLP, Independent Registered Public Accounting
    Firm


89Report of
    PricewaterhouseCoopers LLP, Independent Registered Public
    Accounting Firm


90  60




---



##### Table of Contents



Financial Statement Schedules
    Exhibits.
  Form 10-K.
 61




---



##### Table of Contents



SILICON
    IMAGE, INC.
  CONSOLIDATED BALANCE SHEETS
  December 31,2005


2004(In thousands, except share and
    per share amounts)ASSETSCurrent Assets:Cash and cash equivalents

$
77,877


$
23,280Short-term investments


73,685



70,240Accounts receivable, net of
    allowances for doubtful accounts of $417 in 2005 and $745 in 2004


30,141



19,417Inventories


17,072



13,926Prepaid expenses and other current
    assets


3,037



3,073Total current assets


201,812



129,936Property and equipment, net


9,613



9,494Goodwill


13,021



13,021Intangible assets, net


585



1,683Other assets


7,990



774Total assets

$
233,021


$
154,908LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable

$
13,372


$
6,833Accrued liabilities


13,952



13,418Deferred license revenue


8,283



2,127Debt obligations and capital leases


230



489Deferred margin on sales to
    distributors


13,771



9,962Total current liabilities


49,608



32,829Other Long-term liabilities


6,867



Total liabilities


56,475



32,829Commitments and contingencies
    (Notes 6 and 9)Stockholders Equity:Convertible preferred stock, par
    value $0.001; 5,000,000 shares authorized; no shares issued
    or outstanding






Common stock, par value $0.001;
    150,000,000 shares authorized; shares issued and
    outstanding: 80,491,557  2005 and
    78,131,604  2004


80



78Additional paid-in capital


307,149



299,744Unearned compensation


(6,742
)


(7,632
)Accumulated deficit


(123,429
)


(172,978
)Accumulated other comprehensive
    income (loss)


(512
)


2,867Total stockholders equity


176,546



122,079Total liabilities and
    stockholders equity

$
233,021


$
154,908    62




---



##### Table of Contents



SILICON
    IMAGE, INC.
  CONSOLIDATED STATEMENTS OF OPERATIONS
  Year Ended
    December 31,2005


2004


2003(In thousands, except per share
    amounts)Revenue:Product

$
193,923


$
152,350


$
89,335Development, licensing and
    royalties


18,476



20,809



14,190Total revenue

$
212,399


$
173,159


$
103,525Cost of revenue and operating
    expenses:Cost of revenue(1)


83,105



68,614



47,192Research and development(2)


44,860



61,459



43,386Selling, general and
    administrative(3)


31,984



42,702



23,095Amortization of intangible assets


1,098



1,345



1,103In-process research and development










5,482Restructuring expense (recovery)


(220
)






986Total cost of revenue and
    operating expenses


160,827



174,120



121,244Income (loss) from operations


51,572



(961
)


(17,719
)Gain on escrow settlement, net










4,618Interest income


3,605



945



498Interest expense and other, net


(195
)


(227
)


(207
)Gain on investment security


1,297



926



Income (loss) before provision for
    income taxes


56,279



683



(12,810
)Provision for income taxes


6,730



1,007



Net income (loss)

$
49,549


$
(324
)

$
(12,810
)Net income (loss) per
    share  basic

$
0.63


$
(0.00
)

$
(0.18
)Net income (loss) per
    share  diluted

$
0.59


$
(0.00
)

$
(0.18
)Weighted average
    shares  basic


79,254



75,081



69,412Weighted average
    shares  diluted


83,957



75,081



69,412(1) Includes stock compensation
    expense (benefit)

$
(1,383
)

$
2,777


$
583(2) Includes stock compensation
    expense (benefit)


(3,851
)


16,647



6,863(3) Includes stock compensation
    expense (benefit)


(3,297
)


13,359



2,542    63




---



##### Table of Contents



SILICON
    IMAGE, INC.
  CONSOLIDATED STATEMENTS OF STOCKHOLDERS
    EQUITY
  Notes








AccumulatedAdditional


Receivable








OtherCommon Stock


Paid-In


from


Unearned


Accumulated


ComprehensiveShares


Amount


Capital


Stockholders


Compensation


Deficit


Income (Loss)


Total(In thousands)Balance at December 31,
    2002


66,640


$
67


$
214,459


$
(109
)

$
(6,403
)

$
(159,844
)

$



$
48,170Net loss






















(12,810
)






(12,810
)Net issuances of common stock


3,488



3



9,223



















9,226Common stock issued for ESPP


613







2,263



















2,263Common stock issued for
    acquisitions (Note 2)


2,576



2



9,491



















9,493Stock reacquired pursuant to
    settlement (Note 2)


(950
)






(4,692
)


















(4,692
)Compensation expense for option
    modification










646



















646Repayments of note receivable














109















109Unearned compensation










4,606







(4,606
)










Stock compensation expense










7,175







2,813











9,988Balance at December 31,
    2003


72,367



72



243,171







(8,196
)


(172,654
)






62,393Net loss






















(324
)






(324
)Unrealized net gain on
    available-for-sale
    investments


























2,867



2,867Total comprehensive income






























2,543Net issuances of common stock


5,140



5



20,998



















21,003Common stock issued for ESPP


616



1



2,720



















2,721Common stock issued for acquisitions


9



























Compensation expense for option
    modification










1,527



















1,527Tax benefit from employee stock
    transactions










636



















636Stock compensation expense










30,692







564











31,256Balance at December 31,
    2004


78,132



78



299,744







(7,632
)


(172,978
)


2,867



122,079Net income






















49,549







49,549Foreign currency translation
    adjustments


























(22
)


(22
)Unrealized net loss on
    available-for-sale
    investments


























(3,357
)


(3,357
)Total comprehensive income






























46,170Net issuances of common stock


1,787



2



7,584



















7,586Common stock issued for ESPP


716







3,840



















3,840Restricted common stock repurchased


(143
)






(1
)


















(1
)Tax benefit from employee stock
    transactions










5,403



















5,403Stock compensation benefit










(9,421
)






890










$
(8,531
)Balance at December 31,
    2005


80,492


$
80


$
307,149


$



$
(6,742
)

$
(123,429
)

$
(512
)

$
176,546    64




---



##### Table of Contents



SILICON
    IMAGE, INC.
  CONSOLIDATED STATEMENTS OF CASH FLOWS
  Year Ended
    December 31,2005


2004


2003(In thousands)Cash flows from operating
    activities:Net income (loss)

$
49,549


$
(324
)

$
(12,810
)Adjustments to reconcile net income
    (loss) to cash provided by (used in) operating activities:Depreciation and amortization


6,108



4,903



4,734Provision for doubtful accounts


194



75



151Stock compensation expense (benefit)


(8,531
)


32,783



9,988Amortization of intangible assets


1,098



1,345



1,103Amortization of investment premium


469







In-process research and development










5,482Impairment of goodwill and
    intangible assets










Non-cash restructuring










646Non-cash gain on escrow settlement,
    before cash costs










(4,692
)Gain on investment security


(1,297
)


(926
)


Tax benefit from employee stock
    transactions


5,403



636



Loss on sale of investments


45







Loss on disposal of property and
    equipment


148







Changes in assets and liabilities,
    net of amounts acquired:Accounts receivable


(10,918
)


(6,738
)


(1,316
)Inventories


(3,146
)


(3,614
)


(3,011
)Prepaid expenses and other assets


(313
)


115



(851
)Accounts payable


6,539



391



(3,904
)Accrued liabilities and deferred
    license revenue


6,463



5,112



(1,554
)Deferred margin on sales to
    distributors


3,809



2,688



3,141Cash provided by (used in)
    operating activities


55,620



36,446



(2,893
)Cash flows from investing
    activities:Purchases of short-term investments


(94,561
)


(75,109
)


(23,000
)Proceeds from sales of short-term
    investments


86,349



27,932



24,600Proceeds from sale of investment
    security


2,171







Purchases of property and equipment


(6,169
)


(5,963
)


(5,096
)Proceeds from sale of property and
    equipment


21







Cash acquired in business
    combination, net of acquisition costs










149Cash used in investing activities


(12,189
)


(53,140
)


(3,347
)Cash flows from financing
    activities:Proceeds from issuances of common
    stock


11,426



23,724



11,489Net repayments of
    stockholders notes receivable










109Repayments of debt and capital
    lease obligations


(259
)


(1,684
)


(2,467
)Repurchase of restricted stock


(1
)






Refund of security deposits on
    leasing arrangements










130Cash provided by financing
    activities


11,166



22,040



9,261Net increase in cash and cash
    equivalents


54,597



5,346



3,021Cash and cash
    equivalents  beginning of period


23,280



17,934



14,913Cash and cash
    equivalents  end of period

$
77,877


$
23,280


$
17,934Supplemental cash flow
    information:Acquisitions of property and
    equipment under capital lease arrangements

$



$
441


$
383Cash payments for interest

$
34


$
54


$
140Stock and options issued with the
    TransWarp acquisition

$



$



$
14,371Cash payments for taxes

$
946


$
310


$
Unrealized net gain (loss) on
    available-for-sale
    securities

$
(3,357
)

$
3,743


$
Accrued property and equipment
    purchases

$
227


$



$
Foreign currency translation
    adjustments

$
(22
)

$



$
Reimbursable tenant improvements

$



$
582


$
Increase in restricted cash and
    related long-term liability associated with ongoing litigation

$
6,867


$



$
    65




---



##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  NOTE 1 
    THE
    COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES  The
    Company
    period-to-period
  Basis
    of presentation
    Reclassifications
    Revenue
    recognition
       66




---



##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  end-of-life
    period-to-period
  Allowance
    for Doubtful Accounts
    67




---



##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Year Ended December
    31,2005


2004


2003In thousandsBalance at January 1

$
745


$
670


$
519Provision for doubtful accounts


194



75



151Write offs


(522
)






Balance at December 31

$
417


$
745


$
670   Inventories
  first-in
    Long-lived
    assets
    Accounting for the Impairment or Disposal of Long-Lived
    Assets.
    Goodwill
    and intangible assets
  Goodwill and Other Intangible Assets
 68




---



##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          December 31, 2005


December 31, 2004Estimated

Gross Carrying


Accumulated


Gross Carrying


AccumulatedUseful Lives

Amount


Amortization


Amount


AmortizationIntangible assets subject to
    amortization:Acquired technology


36-48 months


$
1,780


$
(1,348
)

$
1,780


$
(863
)Non-compete agreement


36 months



1,849



(1,696
)


1,849



(1,083
)$
3,629


$
(3,044
)

$
3,629


$
(1,946
)Intangible assets not subject
    to amortization:Goodwill





$
13,021


$



$
13,021


$
     2006

$
5082007


77$
585   Income
    taxes
   69




---



##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Accrued
    liabilities
    Guarantees,
    Indemnifications and Warranty Liabilities
      Year EndedDecember 31,2005


2004


2003(In thousands)Balance at January 1

$
351


$
271


$
223Provision for warranties issued
    during the period


273



300



630Cash and other settlements made
    during the period


(242
)


(220
)


(582
)Balance at December 31

$
382


$
351


$
271   Stock-based
    compensation
  Accounting for Stock
    Issued to Employees Accounting for Stock-Based
    Compensation  Transition and Disclosure (an
    amendment to FASB Statement No. 123).
  fair-value-based
   70




---



##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Pro
    forma Net Income (Loss)
    Year Ended
    December 31,2005


2004


2003Net income
    (loss)  as reported

$
49,549


$
(324
)

$
(12,810
)Stock compensation cost (benefit)
    included in net income (loss) as reported, net of tax


(6,578
)


27,218



7,078Stock compensation expense
    determined using fair value method, net of tax


(15,117
)


(22,769
)


(21,019
)Pro forma net income (loss)

$
27,854


$
4,125


$
(26,751
)Basic net income (loss) per
    share  pro forma

$
0.35


$
0.05


$
(0.39
)Diluted net income (loss) per
    share  pro forma

$
0.33


$
0.05


$
(0.39
)Basic net income (loss) per
    share  as reported

$
0.63


$
0.00


$
(0.18
)Diluted net income (loss) per
    share  as reported

$
0.59


$
0.00


$
(0.18
)   Cash
    and cash equivalents and short-term investments
  available-for-sale
    Gross


GrossCarrying


Unrealized


Unrealized


EstimatedValue


Gain


Loss


Fair ValueClassified as current
    assets:Cash

$
7,929


$



$



$
7,929Cash equivalents:Money market funds


11,399











11,399Commercial paper


58,529



20







58,549Total cash equivalents


69,928



20







69,948Total cash and cash equivalents


77,857



20







77,877Short-term investments:Corporate notes and bonds

$
32,095


$
2


$
(295
)

$
31,802Asset-backed securities


26,154







(107
)


26,047United States government agencies


15,946







(110
)


15,836Total short-term investments


74,195



2



(512
)


73,685Total cash and cash equivalents
    and short-term investments

$
152,052


$
22


$
(512
)

$
151,562  71




---



##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Gross


GrossCarrying


Unrealized


Unrealized


EstimatedValue


Gain


Loss


Fair ValueClassified as current
    assets:Cash

$
9,592


$



$



$
9,592Cash equivalents:Money market funds


6,201











6,201Commercial paper


7,486



1







7,487Total cash equivalents


13,687



1







13,688Total cash and cash equivalents


23,279



1







23,280Short-term investments:Corporate notes and bonds


29,824







(106
)


29,718Asset-backed securities


5,250







(11
)


5,239United States government agencies


31,374



1



(79
)


31,296Marketable equity securities*






3,987







3,987Total short-term investments


66,448



3,988



(196
)


70,240Total cash and cash equivalents
    and short-term investments

$
89,727


$
3,989


$
(196
)

$
93,520     *
    
    Unrealized gain on marketable equity security represents our
    investment in Leadis, Inc. as more fully described in
    Note 10. This unrealized gain includes approximately
    $926,000 that was recorded through the consolidated statement of
    operations as it relates to a derivative financial instrument,
    and the remainder in the amount of approximately
    $3.1 million is included in accumulated other comprehensive
    income as of December 31, 2004. See Note 10 regarding
    the sale of this investment.  other-than-temporary
  Concentration
    of credit risk
   72




---



##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Advertising
    and Research and Development
    Accumulated
    other comprehensive income (loss)
    Net
    income (loss) per share
    Year Ended
    December 31,2005


2004


2003Numerator:Net income (loss)

$
49,549


$
(324
)

$
(12,810
)Denominator:Weighted average shares of common
    stock outstanding


79,466



75,733



70,042Less: unvested common shares
    subject to repurchase


(212
)


(652
)


(630
)Weighted average
    shares  basic


79,254



75,081



69,412Dilutive common stock options


4,491







Unvested common stock shares
    subject to repurchase


212







Weighted average
    shares  diluted


83,957



75,081



69,412Net income (loss) per
    share  basic


0.63



(0.00
)


(0.18
)Net income (loss) per
    share  diluted


0.59



(0.00
)


(0.18
)    73




---



##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Recent
    accounting pronouncements
  Exchanges of Nonmonetary Assets
  Share-Based Payment
  Accounting Changes and Error Corrections Accounting Changes Reporting
    Accounting Changes in Interim Financial
    Statement  An Amendment of APB Opinion
    No. 28.
  NOTE 2 
    GAIN ON
    ESCROW SETTLEMENT     74




---



##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     NOTE 3 
    ASSET
    IMPAIRMENT AND RESTRUCTURING ACTIVITIES        Severance


Leasedand Benefits


Facilities


TotalBalance as of December 31,
    2002

$
138


$
2,598


$
2,7362003 provision


986







986Cash payments


(441
)


(760
)


(1,201
)Non-cash activity


(646
)






(646
)Balance as of December 31,
    2003


37



1,838



1,875Cash payments


(5
)


(834
)


(839
)Balance as of December 31,
    2004


32



1,004



1,036Cash payments






(759
)


(759
)Adjustment related to lease
    modification






(220
)


(220
)Non-cash activity


(32
)






(32
)Balance as of December 31,
    2005

$



$
25


$
25    75




---



##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   NOTE 4 
    CONSOLIDATED
    BALANCE SHEET COMPONENTS  December 31,2005


2004(In thousands)Inventories:Raw materials

$
3,123


$
3,089Work in process


4,511



2,372Finished goods


9,438



8,465$
17,072


$
13,926Property and
    equipment:Computers and software

$
16,669


$
14,641Equipment


16,601



12,820Furniture and fixtures


2,259



2,17835,529



29,639Less: accumulated depreciation


(25,916
)


(20,145
)$
9,613


$
9,494     December 31,2005


2004(In thousands)Accrued liabilities:Accrued payroll and related
    expenses

$
4,738


$
6,473Restructuring accrual (see
    Note 3)


25



1,036Accrued legal fees


490



910Warranty accrual (see Note 1)


382



351Bonus accrual


2,615



3,122Other accrued liabilities


5,702



1,526$
13,952


$
13,418  76




---



##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   NOTE 5 
    INCOME
    TAXES    Years Ended
    December 31,2005


2004


2003Current:Federal

$
701


$
636


$
State


13







Foreign


613



371



1,327



1,007



Charge in lieu of taxes


5,403



Total provision for taxes

$
6,730


$
1,007


$
       Years Ended
    December 31,2005


2004


2003Tax provision (benefit) at federal
    statutory rate

$
19,751


$
239


$
(4,355
)Nondeductible expenses


70



471



3,690Tax losses not utilized (utilized)


(19,821
)


(710
)


665Changes in valuation allowance
    related to employee stock transactions


5,403







Alternative minimum taxes


701



636



State taxes


13







Foreign taxes


613



371



Tax provision

$
6,730


$
1,007


$
  77




---



##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     December 31,2005


2004Net operating losses carryforward

$
23,666


$
35,099Stock based compensation


4,888



13,386Tax credits


16,898



11,482Inventory valuation


1,285



2,833Capitalized research and
    development


2,873



5,117Other items not currently
    deductible


2,663



3,68752,273



71,604Less: valuation allowance


(52,273
)


(71,604
)$



$
         NOTE 6 
    DEBT,
    LEASE AND OTHER OBLIGATIONS     78




---



##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
               Payments Due inLess Than








More ThanTotal


1 Year


1-3 Years


3-5 Years


5 YearsContractual
    Obligations:Capital lease obligations

$
260


$
260


$



$



$
Operating lease obligations


11,325



3,494



5,486



2,345



Minimum royalty obligations due to
    a related party


200



100



100







Total

$
11,785


$
3,854


$
5,586


$
2,345


$
     NOTE 7 
    STOCKHOLDERS
    EQUITY  1999
    Equity Incentive Plan (the 1999 Plan)
   79




---



##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          Non-plan
    options
   80




---



##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Option
    Data
    Number of Option Shares
    OutstandingWeightedOptions Available for Future
    Issuance





Non-Stockholder





Average1995 and


Non-Stockholder Approved Plans
    from Acquisitions





Stockholder


Approved





Exercise1999


CMD


SCL


TWN





Approved


Plans from


Non-





Price perPlans


Plan


Plan


Plan


Total


Plan


Acquisitions


Plan*


Total


ShareAt December 31, 2002


1,186



268



77







1,531



12,084



5,913



1,904



19,901


$
3.96Authorized


3,332















3,332



















Assumed














162



162







632







632



1.27Granted


(3,596
)


(787
)


(167
)


(64
)


(4,614
)


3,596



1,147



625



5,368



5.86Canceled


1,058



670



239







1,967



(1,058
)


(957
)


(234
)


(2,249
)


3.73Exercised






















(1,399
)


(1,752
)


(340
)


(3,491
)


2.64At December 31, 2003


1,980



151



149



98



2,378



13,223



4,983



1,955



20,161



4.63Authorized


3,618















3,618



















Granted


(5,264
)


(189
)


(264
)


(43
)


(5,760
)


5,264



496



1,700



7,460



12.85Canceled


1,145



124



169







1,438



(1,145
)


(293
)






(1,438
)


5.67Exercised






















(3,255
)


(1,162
)


(719
)


(5,136
)


4.09At December 31, 2004


1,479



86



54



55



1,674



14,087



4,024



2,936



21,047



7.61Authorized


3,907















3,907



















Granted


(4,587
)


(152
)


(68
)


(36
)


(4,843
)


4,587



256







4,843



11.31Canceled


1,576



93



30



18



1,717



(1,576
)


(141
)


(1,702
)


(3,419
)


12.40Exercised






















(962
)


(501
)


(324
)


(1,787
)


4.24At December 31, 2005


2,375



27



16



37



2,455



16,136



3,638



910



20,684


$
7.98     *
    
    primarily used as inducements for new officers   81




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##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Options Outstanding


Options ExercisableWeighted


Weighted





WeightedAverage


Average





AverageNumber of


Exercise


Remaining


Number of


ExerciseRanges of Exercise
    Prices

Shares


Price


Contractual Life


Shares


Price(In thousands)





(In years)


(In thousands)$ 0.06 - $ 1.80


2,239


$
1.12



5.54



2,020


$
1.12$ 1.90 - $ 4.42


2,361



3.44



5.46



2,096



3.37$ 4.44 - $ 5.63


3,218



5.21



3.90



2,363



5.42$ 5.77 - $ 6.23


2,584



6.16



7.06



1,315



6.15$ 6.26 - $ 9.15


2,479



7.96



8.82



818



7.84$ 9.16 - $10.81


2,074



9.95



8.71



446



9.97$10.85 - $12.86


2,268



12.11



8.65



681



12.19$12.90 - $16.75


2,545



15.00



7.82



1,034



15.69$16.79 - $17.86


916



17.02



8.90



258



17.0120,684


$
7.98



6.94



11,031


$
6.34     Year EndedDecember 31,2005


2004


2003Expected life (years)


5.00



5.00



5.00Risk-free interest rate


4.23
%


3.40
%


3.30
%Dividend yield










Expected volatility


90
%


90
%


90
%   Stock
    Option Exchange (Repricing)
    Employee
    Stock Purchase Plan
   82




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##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Year EndedDecember 31,2005


2004


2003Expected life (years)


1.22



1.32



1.42Risk-free interest rate


3.7
%


1.2
%


1.5
%Dividend yield










Expected volatility


59
%


85
%


90
%   Option
    Grants to Non-employees
  non-employees
    NOTE 8 
    SEGMENT
    AND GEOGRAPHIC INFORMATION  Disclosures about Segments of an
    Enterprise and Related Information
    Year Ended
    December 31,2005


2004


2003Taiwan

$
53,579


$
42,715


$
35,534Japan


46,170



34,620



15,980United States


54,593



48,391



27,259Hong Kong


6,819



5,243



6,025Korea


20,663



8,015



4,871Other


30,575



34,175



13,856$
212,399


$
173,159


$
103,525  83




---



##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Year Ended
    December 31,2005


2004


2003Consumer Electronics

$
108,712


$
71,377


$
25,762Personal Computers


49,212



41,223



33,163Storage products


35,999



39,750



30,410Development, licensing and
    royalties


18,476



20,809



14,190$
212,399


$
173,159


$
103,525     Year Ended
    December 31,2005


2004


2003Consumer Electronics

$
118,578


$
84,604


$
33,326Personal Computers


50,484



41,585



36,108Storage products


43,337



46,970



34,091$
212,399


$
173,159


$
103,525         NOTE 9 
    LEGAL
    PROCEEDINGS     84




---



##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
       Rule 10b-5
       85




---



##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   NOTE 10 
    GAIN ON
    EQUITY INVESTMENT  lock-up lock-up
    NOTE 11 
    RELATED
    PARTY TRANSACTIONS           86




---



##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
           NOTE 12
     SUBSEQUENT EVENT
   87




---



##### Table of Contents



UNAUDITED
    SELECTED QUARTERLY FINANCIAL DATA    Three Months EndedMar 31


Jun 30


Sep 30


Dec 31(In thousands, except per share
    amounts)2005Total revenue

$
44,320


$
50,721


$
56,002


$
61,356Gross margin(1)


28,815



29,734



35,134



35,611Income from operations(2)


16,466



8,684



14,797



11,625Net income


16,633



10,460



9,903



12,553Net income per
    share  basic

$
0.21


$
0.13


$
0.12


$
0.16Net income per
    share  diluted

$
0.19


$
0.12


$
0.11


$
0.15Weighted average
    shares  basic


78,307



78,981



79,736



80,315Weighted average
    shares  diluted


83,963



83,928



84,051



84,0422004Total revenue

$
35,858


$
43,361


$
47,868


$
46,072Gross margin(3)


21,343



25,666



29,664



27,872Income (loss) from operations(4)


(7,627
)


(1,101
)


8,099



(332
)Net income (loss)


(7,860
)


(262
)


7,877



(79
)Net income (loss) per
    share  basic

$
(0.11
)

$



$
0.11


$
Net income (loss) per
    share  diluted

$
(0.11
)

$



$
0.09


$
Weighted average
    shares  basic


72,328



73,352



74,976



76,774Weighted average
    shares  diluted


72,328



73,352



85,890



76,774     (1) Includes stock compensation
    expense (benefit)

$
(1,196
)

$
41


$
(252
)

$
24(2) Includes stock compensation
    expense (benefit)

$
(9,327
)

$
1,302


$
(1,447
)

$
941(3) Includes stock compensation
    expense (benefit)

$
1,152


$
849


$
(110
)

$
886(4) Includes stock compensation
    expense

$
12,068


$
9,132


$
1,527


$
10,056  88




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM          Internal
    Control  Integrated Framework
       89




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM      
 90




---



##### Table of Contents



SIGNATURES      By:
    /s/  STEVE
    TIRADO    Chief Executive Officer
    (Principal Executive Officer)
      Signature

Title

Date/s/  Steve
    TiradoSteve
    Tirado

Director, President and Chief
    Executive Officer (Principal Executive Officer)

March 16, 2006/s/  Robert
    R. FreemanRobert
    R. Freeman

Chief Financial Officer (Principal
    Financial Officer)

March 16, 2006/s/  William
    GeorgeWilliam
    George

Director

March 16, 2006/s/  Peter
    HaneltPeter
    Hanelt

Director

March 16, 2006/s/  John
    HodgeJohn
    Hodge

Director

March 16, 2006/s/  David
    A. HodgesDavid
    A. Hodges

Director

March 16, 2006/s/  Masood
    JabbarMasood
    Jabbar

Director

March 16, 2006/s/  William
    RaduchelWilliam
    Raduchel

Director

March 16, 2006  91




---



##### Table of Contents



INDEX TO
    EXHIBITS  Number

Title3
.01

Second Amended and Restated
    Certificate of Incorporation of the Registrant (Incorporated by
    reference from Exhibit 3.03 of the Registrants
    Registration Statement on
    Form S-1
    (File
    No. 333-83665),
    as amended, declared effective by the Securities and Exchange
    Commission on October 5, 1999 (the
    Form S-1)).3
.02

Restated Bylaws of the Registrant
    (Incorporated by reference from Exhibit 3.01 of the
    Form 8-K
    filed by the Registrant on February 4, 2005).3
.03

Certificate of Amendment of Second
    Amended and Restated Certificate of Incorporation of the
    Registrant (Incorporated by reference from Exhibit 3.04 of
    the
    Form 10-Q
    filed by Registrant on August 14, 2001).4
.01

Form of Specimen Certificate for
    Registrants common stock (Incorporated by reference from
    Exhibit 4.01 of the
    Form S-1).4
.02

Third Amended and Restated
    Investors Rights Agreement dated July 29, 1998, as amended
    October 15, 1999 (Incorporated by reference from
    Exhibit 4.04 of the
    Form S-1).10
.01**

Form of Indemnity Agreement
    entered into between the Registrant and certain of its directors
    and officers. (Incorporated by reference from Exhibit 10.01
    of the
    Form 10-K
    filed by the Registrant on March 15, 2004).10
.02**

1995 Equity Incentive Plan, as
    amended through July 20, 1999, and related forms of stock
    option agreements and stock option exercise agreements
    (Incorporated by reference from Exhibit 10.02 of the
    Form S-1).10
.03**

1999 Equity Incentive Plan, as
    amended (including Sub-Plan for UK employees), and related
    forms of notice of grant of stock options, stock option
    agreement, stock option exercise notice and joint election (for
    UK employees).10
.04**

1999 Employee Stock Purchase Plan
    (including Sub-Plan for UK employees) and related
    enrollment forms, subscription agreements, notice of suspension,
    notice of withdrawal and joint election (for UK employees).10
.05**

Amended and Restated Severance
    Agreement with David Lee dated August 15, 1997
    (Incorporated by reference from Exhibit 10.07 of the
    Form S-1).10
.06*

Business Cooperation Agreement
    dated September 16, 1998 between Intel Corporation and the
    Registrant, as amended October 30, 1998 (Incorporated by
    reference from Exhibit 10.12 of the
    Form S-1).10
.07*

Patent License Agreement dated
    September 16, 1998 between Intel Corporation and the
    Registrant (Incorporated by reference from Exhibit 10.13 of
    the
    Form S-1).10
.08

Digital Visual Interface
    Specification Revision 1.0 Promoters Agreement dated
    January 8, 1999 (Incorporated by reference from
    Exhibit 10.14 of the
    Form S-1).10
.09**

Form of Nonqualified Stock Option
    Agreement entered into between Registrant and its officers
    (Incorporated by reference from Exhibit 10.21 of the
    Form S-1).10
.10**

Amendment No. 1 to Amended
    and Restated Severance Agreement with David Lee dated
    January 23, 2000 (Incorporated by reference from
    Exhibit 10.26 of the
    Form 10-K
    filed by the Registrant on March 30, 2000).10
.11**

Amendment No. 2 to Amended
    and Restated Severance Agreement with David Lee dated
    March 29, 2001 (Incorporated by reference from
    Exhibit 10.31 of the
    Form 10-Q
    filed by the Registrant on May 15, 2001).10
.12**

Non-Plan Stock Option Agreement
    between Jaime Garcia-Meza and the Registrant dated April 5,
    2001 (Incorporated by reference from Exhibit 10.34 of the
    Form 10-Q
    filed by the Registrant on May 15, 2001).10
.13**

CMD Technology Inc. 1991 Stock
    Option Plan and related form of Incentive Stock Option Agreement
    (Incorporated by reference from Exhibit 4.05 of the
    Form S-8
    filed by the Registrant on June 26, 2001). 92




---



##### Table of Contents



Number

Title10
.14**

CMD Technology Inc. 1999 Stock
    Incentive Plan, as amended, and related form of Stock Option
    Agreement (Incorporated by reference from Exhibit 10.35 of
    the
    Form 10-Q
    filed by the Registrant on November 14, 2001).10
.15**

Silicon Communication Lab, Inc.
    1999 Stock Option Plan, as amended, and related form of Stock
    Option Agreement (Incorporated by reference from
    Exhibit 10.35 of the
    Form 10-Q
    filed by the Registrant on November  14, 2001).10
.16**

Non-Plan Stock Option Agreement
    between Hyun Jong Shin and the Registrant dated November 6,
    2001. (Incorporated by reference from Exhibit 10.42 of the
    Form 10-K
    filed by the Registrant on March 29, 2002).10
.17

Lease Agreement dated
    April 20, 2000 between LBA-VF III, LLC and CMD
    Technology (Incorporated by reference from Exhibit 10.43 of
    the
    Form 10-Q
    filed by the Registrant on May 15, 2002).10
.18

Lease Agreement dated
    December 12, 2002 between iSTAR Sunnyvale Partners, L.P.
    and the Registrant. (Incorporated by reference from
    Exhibit 10.44 of the
    Form 10-K
    filed by the Registrant on March 27, 2003)10
.19**

TransWarp Networks, Inc. 2002
    Stock Option/Stock Issuance Plan (Incorporated by reference from
    Exhibit 4.06 of the
    Form S-8
    filed by the Registrant on May 23, 2003).10
.20**

Employment Offer Letter between J.
    Duane Northcutt and the Registrant dated February 19, 2002.
    (Incorporated by reference from Exhibit 10.27 of the
    Form 10-K
    filed by the Registrant on March 15, 2005).10
.21**

Employment Offer Letter between
    Robert Valiton and the Registrant dated April 17, 2004
    (Incorporated by reference from Exhibit 10.01 of the
    Form 10-Q
    filed by the Registrant on August 9, 2004).10
.22**

Employment Offer Letter between
    Patrick Reutens and the Registrant dated September 20, 2004
    (Incorporated by reference from Exhibit 10.2 of the
    Form 10-Q
    filed by the Registrant on November 8, 2004).10
.23**

Employment Offer Letter between
    Steve Tirado and the Registrant dated January 24, 2005
    (Incorporated by reference from Exhibit 10.36 of the
    Form 10-K
    filed by the Registrant on March 15, 2005).10
.24**

Employment Offer Letter between
    Darrel Slack and the Registrant dated April 19, 2005
    (Incorporated by reference from Exhibit 10.01 of the
    Form 8-K
    filed by the Registrant on April 25, 2005).10
.25**

Employment Offer Letter between
    Jaime Garcia-Meza and the Registrant dated February 8, 2005
    (Incorporated by reference from Exhibit 10.37 of the
    Form 10-K
    filed by the Registrant on March 15, 2005).10
.26**

Director Compensation Plan
    (Incorporated by reference from Exhibit 10.01 of the
    Form 10-Q
    filed by the Registrant on May 10, 2005).10
.27**

Letter Agreement between Dale
    Brown and the Registrant dated April 22, 2005 (Incorporated
    by reference from Exhibit 10.02 of the
    Form 10-Q
    filed by the Registrant on May 10, 2005).10
.28*

Business Cooperation Agreement
    dated April 26, 2005 between Intel Corporation and the
    Registrant (Incorporated by reference from Exhibit 10.01 of
    the
    Form 10-Q
    filed by the Registrant on August 9, 2005).10
.29*

Unified Display Interface
    Specification Promoters Agreement dated April 26, 2005
    among Intel Corporation, National Semiconductor Company and the
    Registrant (Incorporated by reference from Exhibit 10.02 of
    the
    Form 10-Q
    filed by the Registrant on August 9, 2005).10
.30**

Silicon Image, Inc. Bonus Plan for
    Fiscal Year 2005, as amended (Incorporated by reference from
    Exhibit 10.01 of the
    Form 8-K
    filed by the Registrant on July 25, 2005).10
.31**

Silicon Image, Inc. Sales
    Incentive Plan for Vice President of Worldwide Sales for Fiscal
    Year 2005 (Incorporated by reference from Exhibit 10.02 of
    the
    Form 8-K
    filed by the Registrant on May 4, 2005).10
.32**

Employment Offer Letter between
    Robert Freeman and the Registrant dated November 8, 2005
    (Incorporated by reference from Exhibit 10.01 of the
    Form 8-K
    filed by the Registrant on November 14, 2005). 93




---



##### Table of Contents



Number

Title10
.33**

Silicon Image, Inc. Bonus Plan for
    Fiscal Year 2006 (Incorporated by reference from
    Exhibit 10.01 of the
    Form 8-K
    filed by the Registrant on February 17, 2006).10
.34**

Silicon Image, Inc. Sales
    Incentive Plan for Vice President of Worldwide Sales for Fiscal
    Year 2006 (Incorporated by reference from Exhibit 10.02 of
    the
    Form 8-K
    filed by the Registrant on February 17, 2006).10
.35*/**

Consulting Agreement between
    David Lee and the Registrant dated March 15, 2006.21
.01

Subsidiaries of the Registrant.23
.01

Consent of Deloitte &
    Touche LLP.23
.02

Consent of PricewaterhouseCoopers
    LLP.24
.01

Power of Attorney (included on
    signature page).31
.01

Certification of Chief Executive
    Officer pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002.31
.02

Certification of Chief Financial
    Officer pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002.32
.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 2002.32
.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.     *
    
    Confidential treatment has been requested with respect to
    certain portions of this exhibit. Omitted portions have been
    filed separately with the Securities and Exchange Commission.**
    
    This exhibit is a management contract or compensatory plan or
    arrangement.***
    
    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. 94