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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, 2007
 Commission file number
    000-26887
       Silicon Image, Inc.
 (Exact name of registrant as
    specified in its charter)
  Delaware(State of
    incorporation)

77-0396307(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(b) of the
    Act:
 Common Stock, $0.001 par value per share
  Securities registered pursuant to section 12(g) of the
    Act:
 None
      o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K o
  Rule 12b-2
  Large accelerated
    filer þ

Accelerated
    filer o

Non-accelerated
    filer o
    (Do not check if a smaller reporting company)

Smaller reporting
    company o   Rule 12b-2 o þ
      Form 10-K.




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##### 





TABLE OF
    CONTENTS
   
 PagePART IItem 1


Business


3Item 1A


Risk Factors


13Item 1B


Unresolved Staff Comments


31Item 2


Properties


31Item 3


Legal Proceedings


31Item 4


Submission of Matters to a Vote of Securities
    Holders


33PART IIItem 5


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


33Item 6


Selected Financial Data


35Item 7


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


37Item 7A


Quantitative and Qualitative Disclosures About
    Market Risk


52Item 8


Financial Statements and Supplementary Data


53Item 9


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


53Item 9A


Controls and Procedures


53Item 9B


Other Information


56PART IIIItem 10


Directors, Executive Officers and Corporate
    Governance


56Item 11


Executive Compensation


56Item 12


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


56Item 13


Certain Relationships and Related Transactions
    and Director Independence


56Item 14


Principal Accountant Fees and Services


56PART IVItem 15


Exhibits and Financial Statement Schedules


57Signatures


90Index to Exhibits Filed Together with this
    Annual Report


91EXHIBIT 10.39EXHIBIT 10.40EXHIBIT 21.01EXHIBIT 23.01EXHIBIT 31.01EXHIBIT 31.02EXHIBIT 32.01EXHIBIT 32.02   2




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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.
 PART I  Item 1.
    Business  General
      tm tm
   3




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www.SiliconImage.com. Form 10-K. Form 10-K Form 10-Q Form 8-K
  Strategy
      High-Definition
    Multimedia Interface (HDMI)
    first-to-market
 4




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High-bandwidth
    Digital Content Protection (HDCP)
    Digital
    Visual Interface (DVI)
    Serial
    Advanced Technology Attachment (SATA)
    Recent
    Strategic Transactions
   5




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Products
    and Services
    Year Ended December 31,2007


2006


2005Consumer electronics

$
204,077


$
167,877


$
108,712Personal computers


40,441



49,399



49,212Storage


25,182



33,098



35,999Development, licensing and royalties


50,803



44,584



18,476$
320,503


$
294,958


$
212,399   Consumer
    Electronics
  tm
  DTV
  best-in-class ® tm
      Mobile
    Devices
  tm
 6




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tm
  VastLane HDMI Transmitters.
  VastLane HDMI Receivers.
    HDMI

Maximum

Maximum

MaximumProduct

Type

Ports

Resolution

Color Depth

Bandwidth

Target ApplicationsSiI9011

VastLane HDMI Receiver


1



1080p



24 bits/pixel


5 Gbps

LCD TVs, plasma TVs, projection TVsSiI9023

VastLane HDMI Receiver


2



1080p



24 bits/pixel


5 Gbps

LCD TVs, plasma TVs, projection TVsSiI9025

VastLane HDMI Receiver


2



1080p



24 bits/pixel


5 Gbps

LCD TVs, plasma TVs, projection TVsSiI9125

VastLane HDMI Receiver


2



1080p



36 bits/pixel


6.75 Gbps

LCD TVs, plasma TVs, projection TVsSiI9135

VastLane HDMI Receiver


2



1080p



36 bits/pixel


6.75 Gbps

A/V ReceiversSiI9030

VastLane HDMI Transmitter


1



1080p



24 bits/pixel


5 Gbps

DVD players/recorders, STBsSiI9132

VastLane HDMI Transmitter


1



1080p



36 bits/pixel


6.75 Gbps

Game consolesSiI9134

VastLane HDMI Transmitter


1



1080p



36 bits/pixel


6.75 Gbps

DVD players/recorders, STBs, A/V receivers   PC
        Product

Type

Target Applications

Other FeaturesSiI164

VastLane DVI
    Transmitter

Desktop PCs (motherboards, add-in
    boards) Notebook PCs

   I(2)C interface
   3.3V or 1.0-1.8V interface
   De-skewing option 7




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Product

Type

Target Applications

Other FeaturesSiI1162

VastLane DVI

PC motherboards, graphic boards,

   I2C interfaceTransmitter   3.0-3.6V notebook PCs or 1.0-1.9V interface
   De-skewing option
   BIOS and driver compatible with SiI 164SiI1362A

VastLane DVI
    Transmitter

PC motherboards, notebook PCs

   I2C interface   Supports Intel SDVO technology
   Cable distance support greater than 10 metersSiI1392

VastLane DVI
    Transmitter

Notebook and Desktop PCs
    (motherboards, add-in boards)

   SDVO interface
   HDMI 1.2 output
   HDCP   Storage
    system-on-a-chip e-SATA
  tm
  SteelVine Storage Controllers
  SteelVine Bridges
  SteelVine Storage Processors
 8




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Product

Categories

Key Features

Target ApplicationsSiI5723,
    Sil4726
    Sil5744
    Sil3726

eSATA Storage Processors.

2-drive
    SteelVine IC with 3Gb/s Serial ATA and USB 2.0 host link and
    support for up to 2 SATA devices. Also supports drive cascading,
    RAID 0, 1 and drive spanning

Consumer storage applications for PC and CE markets.SiI3124A

SATA Controllers

Single chip, quad-channel, PCI/PCI-X-to-3Gb/s SATA- Gen II
host controller,
SATARAIDtm
software, 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 applicationsSiI3512, 3114

SATA Controllers

Single-chip, PCI-to-1.5Gb/s SATA-Gen I host controller,
SATARAIDtm
software, hot RAID plug, ATAPI support, variable output
strengths for backplane support

PC motherboards, PC add-in-cards, server motherboards, host bus
    adapters, subsystems, embedded applicationsSiI3132,  3531

SATA Controllers

Single-chip, PCI Express-to-3.0Gb/s SATA Gen-II host controller,
SATARAIDtm
software, hot plug, ATAPI support, port multiplier with FIS
based switching, variable output strengths for backplane support

PC motherboards, PC add-in-cards, server motherboards, host bus
    adapters, RAID subsystems, embedded applicationsSiI3811

SATA Device Bridge

1.5Gb/s SATA-to-PATA device bridge, ATAPI support

Notebook and PC motherboards, ATAPI devicesSiI0680

PATA Controller

Ultra ATA/133 PCI-to-ATA host Controller

PC Motherboards, PC add-in-cards, server motherboards, host bus
    adapters, embedded applications   Simplay
    Labs, LLC
    set-up,
 9




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HDMI
    Licensing, LLC
      Markets
    and Customers
      Research
    and Development
     10




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Sales and
    Marketing
    Manufacturing
  Wafer
    Fabrication
      Assembly
    and Test
      Quality
    Assurance
   11




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Competition
  time-to-market,
  CE
    PC
    Storage
      Employees
   12




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Item 1A.
    Risk
    Factors  A description of the risk factors associated with our
    business is set forth below. You should carefully consider the
    following risk factors, together with all other information
    contained or incorporated by reference in this filing, before
    you decide to purchase shares of our common stock. These factors
    could cause our future results to differ materially from those
    expressed in or implied by forward-looking statements made by
    us. Additional risks and uncertainties not presently known to us
    or that we currently deem immaterial may also harm our business.
    The trading price of our common stock could decline due to any
    of these risks and you may lose all or part of your
    investment.
  Our
    annual and quarterly operating results may fluctuate
    significantly and are difficult to predict.
    
    the growth, evolution and rate of adoption of industry standards
    for our key markets, including consumer electronics,
    digital-ready PCs and displays and storage devices and systems;
    the fact that our licensing revenue is heavily dependent on a
    few key licensing transactions being completed for any given
    period, the timing of which is not always predictable and is
    especially susceptible to delay beyond the period in which
    completion is expected and our concentrated dependence on a few
    licensees in any period for substantial portions of our expected
    licensing revenue and profits;
    the fact that our licensing revenue has been uneven and
    unpredictable over time and is expected to continue to be uneven
    and unpredictable for the foreseeable future, resulting in
    considerable fluctuation in the amount of revenue recognized in
    a particular quarter;
    competitive pressures, such as the ability of competitors to
    successfully introduce products that are more cost-effective or
    that offer greater functionality than our products, including
    integration into their products of functionality offered by our
    products, the prices set by competitors for their products and
    the potential for alliances, combinations, mergers and
    acquisitions among our competitors;
    average selling prices of our products, which are influenced by
    competition and technological advancements, among other factors;
    government regulations regarding the timing and extent to which
    digital content must be made available to consumers;
    the availability of other semiconductors or other key components
    that are required to produce a complete solution for the
    customer; usually, we supply one of many necessary
    components; and
    the cost of components for our products and prices charged by
    the third parties who manufacture, assemble and test our
    products.  and/or
  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; 13




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
    our ability to successfully manage our business in multiple
    markets such as CE, PC and storage, which may involve additional
    research and development, marketing or other costs and expenses;
    our ability to enter into licensing deals when expected and make
    timely deliverables and milestones on which recognition of
    revenue often depends;
    our ability to engineer customer solutions that adhere to
    industry standards in a timely and cost-effective manner;
    our ability to achieve acceptable manufacturing yields and
    develop automated test programs within a reasonable time frame
    for our new products;
    our ability to manage joint ventures and projects, design
    services and our supply chain partners;
    our ability to monitor the activities of our licensees to ensure
    compliance with license restrictions and remittance of royalties;
    our ability to structure our organization to enable achievement
    of our operating objectives and to meet the needs of our
    customers and markets;
    the success of the distribution and partner channels through
    which we choose to sell our products and
    our ability to manage expenses and inventory levels; and
    our ability to successfully maintain certain structural and
    various compliance activities in support of our global structure
    which in the long run, will result in certain operational
    benefits as well as achieve an overall lower tax rate.    Our
    business may be significantly impacted by a downturn in the
    economy
    The
    licensing component of our business strategy increases business
    risk and volatility.
   14




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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.
      We
    operate in rapidly evolving markets, which makes it difficult to
    evaluate our future prospects.
    Our
    success depends on demand for our new products.
   15




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Demand
    for our HDMI based products is dependent on continued adoption
    and widespread implementation of the HDMI
    specification.
        Pay-TV Pay-TV
   16




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We
    will have difficulty selling our products if customers do not
    design our products into their product offerings or if our
    customers product offerings are not commercially
    successful.
    Our
    products typically have lengthy sales cycles. A customer may
    decide to cancel or change its product plans, which could cause
    us to lose anticipated sales. In addition, our average product
    life cycles tend to be short and, as a result, we may hold
    excess or obsolete inventory that could adversely affect our
    operating results.
     17




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Our
    customer may not purchase anticipated levels of products, which
    can result in increased inventory levels
    We
    depend on a few key customers and the loss of any of them could
    significantly reduce our revenue.
    
    one or more of our customers, including distributors, becomes
    insolvent or goes out of business;
    one or more of our key customers or distributors significantly
    reduces, delays or cancels orders; and/or
    one or more significant customers selects products manufactured
    by one of our competitors for inclusion in their future product
    generations.    We
    sell our products through distributors, which limits our direct
    interaction with our customers, therefore reducing our ability
    to forecast sales and increasing the complexity of our
    business.
    
    manage a more complex supply chain;
    monitor and manage the level of inventory of our products at
    each distributor;
    estimate the impact of credits, return rights, price protection
    and unsold inventory at distributors; and
    monitor the financial condition and credit-worthiness of our
    distributors, many of which are located outside of the United
    States and the majority of which are not publicly traded.  build-up
   18




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Our
    success depends on the development and introduction of new
    products, which we may not be able to do in a timely manner
    because the process of developing high-speed semiconductor
    products is complex and costly.
    
    accurate prediction of market requirements and the establishment
    of market standards and the evolution of existing standards,
    including enhancements or modifications to existing standards
    such as HDMI, HDCP, DVI, SATA I and SATA II;
    identification of customer needs where we can apply our
    innovation and skills to create new standards or areas for
    product differentiation that improve our overall competitiveness
    either in an existing market or in a new market;
    development of advanced technologies and capabilities and new
    products that satisfy customer requirements;
    competitors and customers integration of the
    functionality of our products into their products, which puts
    pressure on us to continue to develop and introduce new products
    with new functionality;
    timely completion and introduction of new product designs;
    management of product life cycles;
    use of leading-edge foundry processes, when use of such
    processes are required and achievement of high manufacturing
    yields and low cost testing;
    market acceptance of new products; and
    market acceptance of new architectures such as our input
    processors.   19




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There
    are risks to our global strategy
    We
    have made acquisitions in the past and may make acquisitions in
    the future, if advisable and these acquisitions involve numerous
    risks.
    
    difficulty and increased costs in assimilating employees,
    including our possible inability to keep and retain key
    employees of the acquired business;
    disruption of our ongoing business;
    discovery of undisclosed liabilities of the acquired companies
    and legal disputes with founders or shareholders of acquired
    companies;
    inability to successfully incorporate acquired technology and
    operations into our business and maintain uniform standards,
    controls, policies and procedures;
    inability to commercialize acquired technology; and
    the need to take impairment charges or write-downs with respect
    to acquired assets.    Our
    acquisition of sci-worx GmbH exposes us to a variety of
    risks.
    Industry
    cycles may strain our management and resources.
    
    improve operational and financial systems;
    train and manage our employee base;
    successfully integrate operations and employees of businesses we
    acquire or have acquired; 20




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
    attract, develop, motivate and retain qualified personnel with
    relevant experience; and
    adjust spending levels according to prevailing market conditions.    The
    cyclical nature of the semiconductor industry may create
    constrictions in our foundry, test and assembly
    capacity.
    We
    depend on third-party sub-contractors to manufacture, assemble
    and test nearly all of our products, which reduce our control
    over the production process.
    
    reduced control over delivery schedules, quality assurance,
    manufacturing yields and production costs;
    lack of guaranteed production capacity or product supply,
    potentially resulting in higher inventory levels;
    lack of availability of, or delayed access to, next-generation
    or key process technologies; and
    limitations on our ability to transition to alternate sources if
    services are unavailable from primary suppliers.  and/or
 21




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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.
    
    political, social and economic instability;
    exposure to different business practices and legal standards,
    particularly with respect to intellectual property;
    natural disasters and public health emergencies;
    nationalization of business and blocking of cash flows;
    trade and travel restrictions
    the imposition of governmental controls and restrictions;
    burdens of complying with a variety of foreign laws;
    import and export license requirements and restrictions of the
    United States and each other country in which we operate;
    unexpected changes in regulatory requirements;
    foreign technical standards;
    changes in taxation and tariffs;
    difficulties in staffing and managing international operations; 22




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
    fluctuations in currency exchange rates;
    difficulties in collecting receivables from foreign entities or
    delayed revenue recognition;
    expense and difficulties in protecting our intellectual property
    in foreign jurisdictions;
    exposure to possible litigation or claims in foreign
    jurisdictions; and
    potentially adverse tax consequences.    The
    success of our business depends upon our ability to adequately
    protect our intellectual property.
  and/or
  Our
    participation in working groups for the development and
    promotion of industry standards in our target markets, including
    the Digital Visual Interface and HDMI specifications, requires
    us to license some of our intellectual property for free or
    under specified terms and conditions, which may make it easier
    for others to compete with us in such markets.
    
    we must license for free specific elements of our intellectual
    property to others for use in implementing the DVI
    specification; and we may license additional intellectual
    property for free as the DDWG promotes enhancements to the DVI
    specification and , 23




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
    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.    and/or and/or
  Our
    success depends in part on our relationships with Sunplus and
    other strategic partners.
    Our
    success depends on managing our relationship with
    Intel.
    
    Intel and Silicon Image have been parties to business
    cooperation agreements;
    Intel and Silicon Image are parties to a patent cross-license;
    Intel and Silicon Image worked together to develop HDCP;
    an Intel subsidiary has the exclusive right to license HDCP, of
    which we are a licensee;
    Intel and Silicon Image were two of the promoters of the DDWG;
    Intel is a promoter of the SATA working group, of which we are a
    contributor;
    Intel is a supplier to us and a customer for our products; 24




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
    we believe that Intel has the market presence to drive adoption
    of SATA by making it widely available in its chipsets and
    motherboards, which could affect demand for our products;
    we believe that Intel has the market presence to affect adoption
    of HDMI by either endorsing complementary technology or
    promulgating a competing standard, which could affect demand for
    our products;
    Intel may potentially integrate the functionality of our
    products, including SATA, DVI, or HDMI into its own chips and
    chipsets, thereby displacing demand for some of our products;
    Intel may design new technologies that would require us to
    re-design our products for compatibility, thus increasing our
    R&D expense and reducing our revenue;
    Intels technology, including its 845G chipset, may lower
    barriers to entry for other parties who may enter the market and
    compete with us; and
    Intel may enter into or continue relationships with our
    competitors that can put us at a relative disadvantage.    We
    have granted Intel rights with respect to our intellectual
    property, which could allow Intel to develop products that
    compete with ours or otherwise reduce the value of our
    intellectual property.
    We may
    become engaged in additional intellectual property litigation
    that could be time-consuming, may be expensive to prosecute or
    defend and could adversely affect our ability to sell our
    product.
     25




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
    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
    indemnify certain of our licensing customers against
    infringement.
    We
    must attract and retain qualified personnel to be successful and
    competition for qualified personnel is increasing in our
    market.
   26




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Share Based Payment
  We had
    a material weakness in internal control over financial reporting
    in 2005 which was remediated in 2006. We cannot assure you that
    additional material weaknesses will not be identified in the
    future. If our internal control over financial reporting or
    disclosure controls and procedures are not effective, there may
    be errors in our financial statements that could require a
    restatement or our filings may not be timely and investors may
    lose confidence in our reported financial information, which
    could lead to a decline in our stock price.
  Form 10-K.
       27




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We
    have experienced transitions in our management team, our board
    of directors and our independent registered public accounting
    firm in the past and may continue to do so in the
    future.
    
    In January 2005, Steve Laub (who replaced David Lee in November
    2004) resigned from the positions of chief executive
    officer and president and from the board of directors, Steve
    Tirado was appointed as chief executive officer and president
    and to the board as well and Chris Paisley was appointed
    chairman of the board of directors.
    In February 2005, Jaime Garcia-Meza was appointed as vice
    president of our storage business.
    In April 2005, Robert C. Gargus retired from the position of
    chief financial officer and Darrel Slack was appointed as his
    successor.
    In April 2005, four of our then independent outside directors,
    David Courtney (chairman of the audit committee), Keith
    McAuliffe, Chris Paisley (chairman of the board) and Richard
    Sanquini, resigned from our board of directors and board
    committees.
    In April 2005, Darrel Slack, our then chief financial officer,
    was elected to our board of directors.
    In May 2005, Masood Jabbar and Peter Hanelt were elected to our
    board of directors.
    In June 2005, David Lee did not stand for re-election as a
    director at our annual meeting of stockholders and accordingly,
    Dr. Lee resigned from our board of directors.
    In June 2005, PricewaterhouseCoopers LLP resigned as our
    independent registered public accounting firm. In July 2005, we
    appointed Deloitte & Touche LLP as our new independent
    registered public accounting firm.
    In August 2005, Darrel Slack began a personal leave of absence.
    In August 2005, Dale Brown resigned from the positions of chief
    accounting officer and corporate controller.
    In August 2005, Robert Freeman was appointed as interim chief
    financial officer and chief accounting officer.
    In September 2005, Darrel Slack resigned from the position of
    chief financial officer and from our board of directors and the
    board of directors of HDMI Licensing, LLC, our wholly-owned
    subsidiary.
    In October 2005, William George was elected to our board of
    directors.
    In October 2005, Robert Bagheri resigned from the position of
    executive vice president of operations.
    In October 2005, John LeMoncheck, then vice president, consumer
    electronics and PC/display, left Silicon Image.
    In October 2005, John Shin was appointed as interim vice
    president, consumer electronics and PC/display businesses and
    served in that position until February 2006. Mr. Shin
    serves as vice president of engineering and has held that
    position since October 2003.
    In November 2005, Robert Freemans position changed from
    interim chief financial officer to chief financial officer.
    In December 2005, William Raduchel was elected to our board of
    directors.
    In January 2006, Dale Zimmerman was appointed as our vice
    president of worldwide marketing. 28




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
    In February 2006, John Hodge was elected to our board of
    directors.
    In September 2006, Patrick Reutens resigned from the position of
    chief legal officer.
    In January 2007, Edward Lopez was appointed as our chief legal
    officer.
    In February 2007, David Hodges advised our board of directors
    that he decided to retire and he did not stand for reelection to
    our board of directors when his term expired at our 2007 Annual
    Meeting of Stockholders.
    In April 2007, Robert R. Freeman, announced his intention to
    retire from his position as Chief Financial Officer.
    In April 2007, Rob Valiton resigned from his position as vice
    president of worldwide sales and Sal Cobar was appointed as his
    successor.
    In July 2007, Paul Dal Santo was appointed as Chief Operating
    Officer.
    In October 2007, Robert Freeman resigned from his position as
    chief financial officer and Harold Covert was appointed as his
    successor.    We
    have been and may continue to become the target of securities
    class action suits and derivative suits which could result in
    substantial costs and divert management attention and
    resources.
      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.
   29




---



##### Table of Contents




    an earthquake or other disaster in the San Francisco Bay
    Area or the Los Angeles area damaged our facilities or disrupted
    the supply of water or electricity to our headquarters or our
    Irvine facility;
    an earthquake, typhoon or other disaster in Taiwan or Japan
    resulted in shortages of water, electricity or transportation,
    limiting the production capacity of our outside foundries or the
    ability of ASE to provide assembly and test services;
    an earthquake, typhoon or other disaster in Taiwan or Japan
    damaged the facilities or equipment of our customers and
    distributors, resulting in reduced purchases of our
    products; or
    an earthquake, typhoon or other disaster in Taiwan or Japan
    disrupted the operations of suppliers to our Taiwanese or
    Japanese customers, outside foundries or ASE, which in turn
    disrupted the operations of these customers, foundries or ASE
    and resulted in reduced purchases of our products or shortages
    in our product supply.  Terrorist
    attacks or war could lead to economic instability and adversely
    affect our operations, results of operations and stock
    price.
    Changes
    in environmental rules and regulations could increase our costs
    and reduce our revenue.
    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; 30




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##### Table of Contents




    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.    Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties      Item 3.
    Legal
    Proceedings   31




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##### Table of Contents



Rule 10b-5
    06-0256
 32




---



##### Table of Contents



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


Low2007Fourth Quarter

$
6.72


$
4.29Third Quarter


8.70



4.86Second Quarter


9.31



7.86First Quarter


13.55



8.132006Fourth Quarter

$
14.52


$
10.96Third Quarter


12.99



8.64Second Quarter


12.17



8.21First Quarter


11.87



9.45        33




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##### Table of Contents



34




---



##### Table of Contents



Item 6.
    Selected
    Financial Data  Form 10-K.
  Year Ended December 31,2007

2006

2005

2004

2003(In thousands, except employees and per share data)Statements of Operations Data:Revenue(4)

$
320,503


$
294,958


$
212,399


$
173,159


$
103,525Cost of revenue(1)(4)


140,443



121,247



83,105



68,614



47,192Gross margin


180,060



173,711



129,294



104,545



56,333% of revenue


56.2
%


58.9
%


60.9
%


60.4
%


54.4
%Research and development(2)

$
77,994


$
63,598


$
44,860


$
61,459


$
43,386% of revenue


24.3
%


21.6
%


21.1
%


35.5
%


41.9
%Selling, general and administrative(3)

$
70,340


$
67,597


$
31,438


$
42,183


$
20,943% of revenue


21.9
%


22.9
%


14.8
%


24.4
%


20.2
%Income (loss) from operations(4)

$
28,155


$
47,252


$
51,572


$
(961
)

$
(17,719
)Net income (loss)(4)

$
19,001


$
42,465


$
49,549


$
(324
)

$
(12,810
)Net income (loss) per share:Basic(4)

$
0.22


$
0.51


$
0.63


$
0.00


$
(0.18
)Diluted(4)

$
0.22


$
0.49


$
0.59


$
0.00


$
(0.18
)Weighted average shares  basic


85,557



82,787



79,254



75,081



69,412Weighted average shares  diluted


87,388



86,791



83,957



75,081



69,412Consolidated Balance Sheet andOther Data as of Year End:Cash and cash equivalents

$
137,822


$
81,921


$
77,877


$
23,280


$
17,934Short-term investments

$
111,889


$
168,724


$
73,685


$
70,240


$
19,320Working capital


223,688



262,080



152,204



97,107



37,674Total assets


412,948



380,231



233,021



154,908



87,742Other long-term liabilities


13,910



538



6,867







Total stockholders equity


313,847



305,222



176,546



122,079



62,393Regular full-time employees


635



442



384



337



250(1) Includes stock-based compensation expense (benefit)

$
1,597


$
2,427


$
(1,383
)

$
2,777


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


8,411



11,108



(3,851
)


16,647



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


9,442



13,696



(3,297
)


13,359



2,542  35




---



##### Table of Contents



(4)
    
    Revenue for 2007 includes approximately $6.7 million of
    product revenue and cost of revenue includes approximately
    $2.6 million related to distributor sales for the month of
    December 2007. Historically, the Company had deferred the
    recognition of sell-through revenue from distributor sales for
    the third month of a quarter until the following quarter due to
    the unavailability of reliable sell-through information in a
    timely manner. As a result of improved business processes, the
    Company was able to eliminate this delay beginning with the
    fourth quarter of 2007, resulting in fiscal year 2007 revenue
    including an additional month of product revenue from
    distributor sales in December 2007. This one-time effect of the
    inclusion of an additional month of revenue for fiscal year 2007
    is an increase to net income by approximately $2.6 million
    and an increase to net income per share, basic and diluted, by
    approximately $0.03  Share-Based Payment Accounting for Stock Issued to
    Employees.
   36




---



##### Table of Contents



Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Overview
    tm
      tm
    Critical
    Accounting Policies
   37




---



##### Table of Contents



Revenue
    recognition
  Revenue
    Recognition
    end-of-life
     38




---



##### Table of Contents



EITF 00-21, Revenue Arrangements with Multiple Deliverables
    agreed-upon period-to-period trued-up true-up
  SOP 81-1 Accounting for Performance of Construction-Type and
    Certain Production-Type Contracts percentage-of-completion labor-hours percentage-of-completion
  Stock-based
    compensation
  Accounting for Stock Issued to Employees
  Share-Based Payment
 39




---



##### Table of Contents



Transition Election to Accounting for
    the Tax Effects of Share-Based Payment Awards.
  Cash
    Equivalents and Short-Term Investments
  Accounting for Certain Investments in Debt and
    Equity Securities SFAS No. 115-1, The Meaning of Other-Than-Temporary Impairment and Its
    Application to Certain Investments. No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its
    Application to Certain Investments
  yield-at-cost
  Statement of Cash Flows.
    Allowance
    for Doubtful Accounts
   40




---



##### Table of Contents



Inventories
  first-in
    Long-lived
    assets
    Accounting for the Impairment or Disposal of Long-Lived
    Assets.
    Goodwill
    and intangible assets
   41




---



##### Table of Contents



Advertising
    and Research and Development
    Income
    Taxes
    Deferred
    tax assets
  Accounting for Income Taxes. Accounting for
    Uncertainty in Income Taxes  an Interpretation of
    FASB Statement No. 109
   42




---



##### Table of Contents



Accrued
    liabilities
    Guarantees,
    Indemnifications and Warranty Liabilities
      Accumulated
    other comprehensive income (loss)
  available-for-sale available-for-sale
  Commitments,
    Contingencies and Concentrations
      Recent
    accounting pronouncements
  Fair Value Measurements
 43




---



##### Table of Contents



The
    Fair Value Option for Financial Assets and Financial Liabilities
    Annual
    Results of Operations
    2007


Change


2006


Change


2005(Dollars in thousands)Consumer electronics

$
204,077



21.6
%

$
167,877



54.4
%

$
108,712Personal computer


40,441



(18.1
)%


49,399



0.4
%


49,212Storage


25,182



(23.9
)%


33,098



(8.1
)%


35,999Total product revenue

$
269,700



7.7
%

$
250,374



29.1
%

$
193,923Percentage of total revenue


84.1
%






84.9
%






91.3
%Development, licensing and royalties

$
50,803



13.9
%

$
44,584



141.3
%

$
18,476Percentage of total revenue


15.9
%






15.1
%






8.7
%Total revenue

$
320,503



8.7
%

$
294,958



38.9
%

$
212,399     2007


Change


2006


Change


2005(Dollars in thousands)Consumer Electronics

$
241,047



23.8
%

$
194,721



64.2
%

$
118,578Personal Computer


46,925



(20.1
)%


58,761



16.4
%


50,484Storage Products


32,531



(21.6
)%


41,476



(4.3
)%


43,337Total revenue

$
320,503



8.7
%

$
294,958



38.9
%

$
212,399    44




---



##### Table of Contents



45




---



##### Table of Contents



COST
    OF REVENUE AND GROSS MARGIN
  2007


Change


2006


Change


2005(Dollars in thousands)Cost of revenue(1)

$
140,443



15.8
%

$
121,247



45.9
%

$
83,105Total gross margin

$
180,060



3.7
%

$
173,711



34.4
%

$
129,294Gross margin as a percentage of total revenue


56.2
%






58.9
%






60.9
%(1) Includes stock-based compensation expense (benefit)

$
1,597






$
2,427






$
(1,383
)       Share-Based
    Payment Accounting for Stock Issued to Employees
 46




---



##### Table of Contents



OPERATING
    EXPENSES
  Research and Development

2007


Change


2006


Change


2005(Dollars in thousands)Research and development(1)

$
77,994



22.6
%

$
63,598



41.8
%

$
44,860Percentage of total revenue


24.3
%






21.6
%






21.1
%(1) Includes stock-based compensation expense (benefit)


8,411







11,108







(3,851
)   Research and development (R&D).
  Share-Based Payment Accounting for Stock Issued to Employees
  Selling, General and Administrative

2007


Change


2006


Change


2005(Dollars in thousands)Selling, general and administrative(2)

$
70,340



4.1
%

$
67,597



115.0
%

$
31,438Percentage of total revenue


21.9
%






22.9
%






14.8
%(2) Includes stock-based compensation expense (benefit)


9,442







13,696







(3,297
)   Selling, general and
    administrative(SG&A).
  Share-Based Payment Accounting for Stock Issued to
    Employees
  Amortization of Intangible Assets

2007

Change

2006

Change

2005(Dollars in thousands)Amortization of intangible assets

$
3,549



598.6
%

$
508



(53.7
)%

$
1,098Percentage of total revenue


1.1
%






0.2
%






0.5
%   Amortization of intangible assets.
 47




---



##### Table of Contents



Patent Assertion Costs (Reimbursement), Net

2007

Change

2006

Change

2005(Dollars in thousands)Patent assertion costs (reimbursement), net

$
22



(100.4
)%

$
(5,244
)


(1708.6
)%

$
326Percentage of total revenue


0.0
%






(1.8
)%






0.2
%   Patent assertion costs (reimbursement),
    net.
  Interest Income and Other, Net

2007

Change

2006

Change

2005(Dollars in thousands)Interest income and other, net

$
11,397



23.8
%

$
9,205



169.9
%

$
3,410Percentage of total revenue


3.6
%






3.1
%






1.6
%   Interest income.
  Other expenses, net.
  Provision for Income Taxes

2007

Change

2006

Change

2005(Dollars in thousands)Provision for income taxes

$
20,551



46.9
%

$
13,992



107.9
%

$
6,730Percentage of total revenue


6.4
%






4.7
%






3.2
%   Provision for Income Taxes.
   48




---



##### Table of Contents



Liquidity
    and Capital Resources
  2007


Change


2006


Change


2005(Dollars in thousands)Cash and cash equivalents

$
137,822


$
55,901


$
81,921


$
4,044


$
77,877Short-term investments


111,889



(56,835
)


168,724



95,039



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

$
249,711


$
(934
)

$
250,645


$
99,083


$
151,562Percentage of total assets


60.5
%






65.9
%






65.0
%Total current assets

$
308,879


$
(27,672
)

$
336,551


$
134,739


$
201,812Total current liabilities


(85,191
)


(10,720
)


(74,471
)


(24,863
)


(49,608
)Working capital

$
223,688


$
(38,392
)

$
262,080


$
109,876


$
152,204Cash provided by (used in) operating activities

$
67,143


$
21,140


$
46,003


$
(9,617
)

$
55,620Cash provided by (used in) investing activities


11,816



112,463



(100,647
)


(88,458
)


(12,189
)Cash provided by (used in) financing activities


(23,172
)


(81,841
)


58,669



47,503



11,166Effect of exchange rate changes on cash & cash
    equivalents


114



95



19



19



Net increase in cash and cash equivalents

$
55,901


$
51,857


$
4,044


$
(50,553
)

$
54,597     Operating
    Activities
     49




---



##### Table of Contents



Investing
    Activities
    Financing
    Activities
    Cash
    requirements and commitments
      
    Commitments  We have approximately $43.2 million
    in commitments for fiscal years including and beyond 2008 as
    disclosed in the contractual obligations table below.
    We paid approximately $62.0 million in February 2008, to
    repurchase common stock, under an accelerated stock repurchase
    program, as part of a previously announced $100 million
    stock repurchase program authorized in February 2007.
    Additionally, our Board of Directors has authorized a new stock
    repurchase program for the repurchase, in the open market from
    time to time as business conditions warrant, of up to
    $100 million of the companys common stock over a
    three-year period commencing upon the completion of the
    aforementioned accelerated stock repurchase program. 50




---



##### Table of Contents



Debt and
    Lease Obligations
            Payments Due InLess than








More thanTotal


1 Year


1-3 Years


3-5 Years


5 YearsContractual Obligations:Software license commitments

$
29,482


$
21,763


$
7,719


$



$
Operating lease obligations


9,456



3,754



4,568



1,134



Inventory purchase commitments


4,238



4,238











Total

$
43,176


$
29,755


$
12,287


$
1,134


$
   Accounting for Uncertainty in Income
    Taxes
  Long-term
    liquidity
   51




---



##### Table of Contents



Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk  Interest
    Rate Risk
    0.5%

1.0%

1.5%$171,000

$343,000

$515,000     0.5%

1.0%

1.5%$626,000

$1,253,000

$1,879,000       Foreign
    Currency Exchange Risk
   52




---



##### Table of Contents



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;
    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. 53




---



##### Table of Contents



Changes
    in Internal Control Over Financial Reporting
   54




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  
  Internal Control  Integrated Framework
        Internal Control  Integrated Framework
    DELOITTE &
    TOUCHE LLP
    55




---



##### Table of Contents



Item 9B.
    Other
    Information   PART III  Item 10.
    Directors,
    Executive Officers and Corporate Governance    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 and Director
    Independence    Item 14.
    Principal
    Accountant Fees and Services   56




---



##### 



PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules    Financial Statements:
   
 PageConsolidated Balance Sheets at December 31,
    2007 and December 31, 2006


58Consolidated Statements of Income for the three
    years ended December 31, 2007


59Consolidated Statements of Stockholders
    Equity for the three years ended December 31, 2007


60Consolidated Statements of Cash Flows for the
    three years ended December 31, 2007


61Notes to the Consolidated Financial Statements


62Unaudited Selected Quarterly Financial Data for
    the two years ended December 31, 2007


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


89    Financial Statement Schedules
    Exhibits.
  Form 10-K.
 57




---



##### Table of Contents



SILICON
    IMAGE, INC.
  CONSOLIDATED
    BALANCE SHEETS
  December 31,2007


2006(In thousands, except share and per share amounts)ASSETSCurrent Assets:Cash and cash equivalents

$
137,822


$
81,921Short-term investments


111,889



168,724Accounts receivable, net of allowances for doubtful accounts of
    $1,565 on December 31, 2007 and $235 on December 31,
    2006


21,254



39,931Inventory


20,198



28,287Prepaid expenses and other current assets


13,732



4,895Deferred income taxes


3,984



12,793Total current assets


308,879



336,551Property and equipment, net


24,191



18,431Goodwill


19,210



13,021Intangible assets, net


39,269



78Deferred income taxes, non-current


19,978



10,580Other assets


1,421



1,570Total assets

$
412,948


$
380,231LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable

$
17,892


$
14,187Accrued and other liabilities


36,996



37,308Deferred license revenue


3,860



5,264Deferred margin on sales to distributors


26,443



17,712Total current liabilities


85,191



74,471Other long-term liabilities


13,910



538Total liabilities


99,101



75,009Commitments and contingencies (Notes 4 and 7)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:
    84,313,316  2007 and 86,484,628  2006


90



87Additional paid-in capital


418,796



386,258Treasury stock


(38,096
)


Accumulated deficit


(67,093
)


(80,964
)Accumulated other comprehensive loss


150



(159
)Total stockholders equity


313,847



305,222Total liabilities and stockholders equity

$
412,948


$
380,231    58




---



##### Table of Contents



SILICON
    IMAGE, INC.
  CONSOLIDATED
    STATEMENTS OF INCOME
  Year Ended December 31,2007


2006


2005(In thousands, except per share amounts)Revenue:Product(4)

$
269,700


$
250,374


$
193,923Development, licensing and royalties


50,803



44,584



18,476Total revenue


320,503



294,958



212,399Cost of revenue and operating expenses:Cost of revenue(1)(4)


140,443



121,247



83,105Research and development(2)


77,994



63,598



44,860Selling, general and administrative(3)


70,340



67,597



31,438Amortization of intangible assets


3,549



508



1,098Patent assertion costs (reimbursement), net


22



(5,244
)


326Total cost of revenue and operating expenses


292,348



247,706



160,827Income from operations


28,155



47,252



51,572Interest income


11,346



9,438



3,605Other income (expenses), net


51



(233
)


(195
)Gain on investment security










1,297Income before provision for income taxes


39,552



56,457



56,279Provision for income taxes


20,551



13,992



6,730Net income(4)

$
19,001


$
42,465


$
49,549Net income per share  basic(4)

$
0.22


$
0.51


$
0.63Net income per share  diluted(4)

$
0.22


$
0.49


$
0.59Weighted average shares  basic


85,557



82,787



79,254Weighted average shares  diluted


87,388



86,791



83,957     (1) Includes stock-based compensation expense (benefit)

$
1,597


$
2,427


$
(1,383
)(2) Includes stock-based compensation expense (benefit)


8,411



11,108



(3,851
)(3) Includes stock-based compensation expense (benefit)


9,442



13,696



(3,297
)   (4)
    
    Revenue for 2007 includes approximately $6.7 million of
    product revenue and cost of revenue includes approximately
    $2.6 million related to distributor sales for the month of
    December 2007. Historically, the Company had deferred the
    recognition of sell-through revenue from distributor sales for
    the third month of a quarter until the following quarter due to
    the unavailability of reliable sell-through information in a
    timely manner. As a result of improved business processes, the
    Company was able to eliminate this delay beginning with the
    fourth quarter of 2007, resulting in fiscal year 2007 revenue
    including an additional month of product revenue from
    distributor sales in December 2007. This one-time effect of the
    inclusion of an additional month of revenue for fiscal year 2007
    is an increase to net income by approximately $2.6 million
    and an increase to net income per share, basic and diluted, by
    approximately $0.03.   59




---



##### Table of Contents



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











OtherCommon Stock


Paid-in


Treasury


Unearned


Accumulated


Comprehensive(in thousands)

Shares


Amount


Capital


Stock


Compensation


Deficit


Income (Loss)


TotalBalance 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, net of tax


























(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 equity based compensation plans










5,403



















5,403Stock-based compensation benefit










(9,421
)






890











(8,531
)Balance at December 31, 2005


80,492



80



307,149







(6,742
)


(123,429
)


(512
)


176,546Net income






















42,465







42,465Unrealized net gain on available-for-sale investments, net of tax


























334



334Foreign currency translation adjustments


























19



19Total comprehensive income






























42,818Net issuances of common stock


5,571



6



31,120



















31,126Common stock issued for ESPP


421



1



3,916



















3,917Elimination of unearned compensation in connection with
    FAS 123(R) adoption










(6,742
)






6,742











Tax benefit from equity based compensation plans










23,584



















23,584Stock-based compensation expense










27,231



















27,231Balance at December 31, 2006


86,484



87



386,258











(80,964
)


(159
)


305,222Net income






















19,001







19,001Unrealized net gain on available-for-sale investments, net of tax


























204



204Foreign currency translation adjustments, net of tax


























105



105Total comprehensive income






























19,310Effect of FIN 48 adoption on retained earnings






















(5,130
)






(5,130
)Net issuances of common stock


2,324



2



9,358



















9,360Common stock issued for ESPP


505



1



3,548



















3,549Tax benefit from equity based compensation plans










182



















182Repurchase of common stock


(5,000
)










(38,096
)














(38,096
)Stock-based compensation expense










19,450



















19,450Balance at December 31, 2007


84,313


$
90


$
418,796


$
(38,096
)

$



$
(67,093
)

$
150


$
313,847    60




---



##### Table of Contents



SILICON
    IMAGE, INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Year Ended December 31,2007


2006


2005(In thousands)Cash flows from operating activities:Net income

$
19,001


$
42,465


$
49,549Adjustments to reconcile net income to cash provided by
    operating activities:Depreciation


9,464



7,108



6,108Provision for doubtful accounts


334



215



194Stock-based compensation expense (benefit)


19,450



27,231



(8,531
)Amortization of intangible assets


3,549



508



1,098Amortization/(Accretion) of investment premium/(discount)


(524
)


(869
)


469Gain on investment security










(1,297
)Tax benefit from employee based compensation plans


182



23,584



5,403Excess tax benefits from employee stock transactions


(2,543
)


(23,856
)


Realized loss on sale of investments


18



82



45Unrealized loss on derivative transactions






41



Loss on disposal of property and equipment


1,270



15



148Changes in assets and liabilities, net of amounts acquired:Accounts receivable


21,430



(10,005
)


(10,918
)Inventories


8,280



(11,215
)


(3,146
)Prepaid expenses and other assets


(7,999
)


(1,824
)


(313
)Deferred income taxes


1,195



(23,279
)


Accounts payable


1,857



(453
)


6,539Accrued liabilities


(14,227
)


22,200



307Deferred revenue


(2,325
)


(3,019
)


6,156Deferred patent infringement proceeds






(6,867
)


Deferred margin on sales to distributors


8,731



3,941



3,809Cash provided by operating activities


67,143



46,003



55,620Cash flows from investing activities:Purchases of short-term investments


(79,473
)


(240,308
)


(94,561
)Proceeds from sales of short-term investments


137,135



146,273



86,349Proceeds from sale of investment security










2,171Purchases of property and equipment


(13,388
)


(13,479
)


(6,169
)Purchases of intangibles


(18,750
)






Business combination, net of cash acquired


(13,751
)






Proceeds from sale of property and equipment


43







21Release of restriction on cash received in conjunction with
    resolution of litigation






6,867



Cash provided by (used in) investing activities


11,816



(100,647
)


(12,189
)Cash flows from financing activities:Proceeds from issuances of common stock


12,909



35,043



11,426Repayments of debt and capital lease obligations






(230
)


(259
)Repurchase of restricted stock










(1
)Payments to acquire treasury stock


(38,096
)






Payments for financing in connection with purchase of software


(528
)






Excess tax benefits from employee stock transactions


2,543



23,856



Cash provided by (used in) financing activities


(23,172
)


58,669



11,166Effect of exchange rate changes on cash and cash equivalents


114



19



Net increase in cash and cash equivalents


55,901



4,044



54,597Cash and cash equivalents  beginning of period


81,921



77,877



23,280Cash and cash equivalents  end of period

$
137,822


$
81,921


$
77,877Supplemental cash flow information:Cash payments for interest

$
35


$
10


$
34Cash payments for taxes

$
36,316


$
1,316


$
946Unrealized net gain (loss) on available-for-sale securities

$
204


$
334


$
(3,357
)Property and equipment received and accrued

$
1,566


$
2,462


$
227Intangibles purchased not paid for

$
21,250


$
420



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

$



$



$
6,867    61




---



##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  NOTE 1 
    THE
    COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES  The
    Company
  tm
  Basis
    of presentation
    Revenue
    recognition
  Revenue
    Recognition
     62




---



##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      EITF 00-21, Revenue Arrangements with Multiple Deliverables
    agreed-upon trued-up true-up
  SOP 81-1 Accounting for Performance
 63




---



##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  of Construction-Type and Certain Production-Type
    Contracts labor-hours
  Stock-based
    compensation
  Accounting for Stock Issued to Employees
  Share-Based Payment Transition Election to Accounting for
    the Tax Effects of Share-Based Payment Awards.
  Cash
    Equivalents and Short-Term Investments
  Accounting for Certain Investments in Debt and
    Equity Securities SFAS No. 115-1, The Meaning of Other-Than-Temporary Impairment and Its
    Application to Certain Investments. No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its
    Application to Certain Investments
 64




---



##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    yield-at-cost
  Statement of Cash Flows.
    Allowance
    for Doubtful Accounts
    2007


2006


2005(In thousands)Balance at January 1

$
235


$
417


$
745Provision for doubtful accounts


1,868



215



194Write offs/recoveries


(538
)


(397
)


(522
)Balance at December 31

$
1,565


$
235


$
417   Inventories
  first-in
   65




---



##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Long-lived
    assets
    Accounting for the Impairment or Disposal of Long-Lived
    Assets.
    Goodwill
    and intangible assets
    Income
    Taxes
   66




---



##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Deferred
    tax assets
  Accounting for Income Taxes. Accounting for
    Uncertainty in Income Taxes  an Interpretation of
    FASB Statement No. 109
    Accrued
    liabilities
    Guarantees,
    Indemnifications and Warranty Liabilities
      2007


2006


2005(In thousands)Balance at January 1

$
60


$
382


$
351Provision for warranties issued during the period


21



30



273Reduction to pre-existing warranties






(314
)


Cash and other settlements made during the period


(19
)


(38
)


(242
)Balance at December 31

$
62


$
60


$
382  67




---



##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Foreign
    Currency
  Foreign Currency Translation.
  Advertising
    and Research and Development
    Net
    income per share
    Year Ended December 31,2007


2006


2005Numerator:Net income(1)

$
19,001


$
42,465


$
49,549Denominator:Weighted average shares of common stock outstanding


85,557



82,787



79,466Less: unvested shares of common stock subject to repurchase










(212
)Weighted average shares  basic


85,557



82,787



79,254Dilutive common stock options


1,831



4,004



4,491Unvested shares of common stock subject to repurchase










212Weighted average shares  diluted


87,388



86,791



83,957Net income per share  basic(1)

$
0.22


$
0.51


$
0.63Net income per share  diluted(1)

$
0.22


$
0.49


$
0.59     (1)
    
    Revenue for 2007 includes approximately $6.7 million of
    product revenue and cost of revenue of approximately
    $2.6 million related to distributor sales for the month of
    December. Historically, the Company has deferred the recognition
    of sell-through revenue from distributor sales for the third
    month of a quarter until the following quarter due to the
    unavailability of reliable sell-through information in a timely
    manner. As a result of improved business processes, the Company
    has been able to eliminate this delay beginning with the fourth
    quarter of 68




---



##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  2007, resulting in fiscal year 2007 revenue including an
    additional month of product revenue from distributor sales in
    December. This one time effect of the inclusion of an additional
    month of revenue for fiscal year 2007 is an increase to net
    income by approximately $2.6 million and an increase to net
    income per share, basic and diluted, by approximately $0.03.    Recent
    accounting pronouncements
  Fair Value Measurements
  The
    Fair Value Option for Financial Assets and Financial Liabilities
   69




---



##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  NOTE 2 
    CONSOLIDATED
    BALANCE SHEET COMPONENTS    Gross


GrossBook


Unrealized


Unrealized


MarketValue


Gain


Loss


Value(in thousands)Classified as current assets:Cash

$
60,657


$



$



$
60,657Cash equivalents:Money market funds


59,732











59,732Commercial paper


17,427



7



(1
)


17,433Total cash equivalents


77,159



7



(1
)


77,165Total cash and cash equivalents


137,816



7



(1
)


137,822Short-term investments:Corporate securities

$
73,077



56



(40
)

$
73,093Asset-backed securities


30,635



24



(70
)


30,589United States government agencies


6,603



102







6,705Certificate of deposit


1,500



2







1,502Total short-term investments


111,815



184



(110
)


111,889Total cash and cash equivalents and short-term investments

$
249,631


$
191


$
(111
)

$
249,711     Less than 12 monthsGross unrealizedMarket Value


losses(In thousands)Commercial paper

$
16,438



(1
)Corporate notes and bonds


14,145



(40
)Asset backed securities


6,761



(70
)$
37,334


$
(111
)  70




---



##### Table of Contents



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


Amortized cost(In thousands)Contractual maturityLess than 1 year

$
79,969


$
80,0201-5 years


47,851



47,7225-10 years






More than 10 years






Total

$
127,820


$
127,742     Gross


GrossBook


Unrealized


Unrealized


MarketValue


Gain


Loss


Value(In thousands)Classified as current assets:Cash

$
30,895


$



$



$
30,895Cash equivalents:Money market funds


51,026











51,026Commercial paper














Total cash equivalents


51,026











51,026Total cash and cash equivalents


81,921











81,921Short-term investments:Corporate notes and bonds

$
60,837



16



(199
)

$
60,654Asset-backed securities


87,764



8



(60
)


87,712United States government agencies


2,494



1







2,495Mortgage backed securities


17,879







(16
)


17,863Total short-term investments


168,974



25



(275
)


168,724Total cash and cash equivalents and short-term investments

$
250,895


$
25


$
(275
)

$
250,645  71




---



##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2007


2006(In thousands)Inventories:Raw materials

$
3,132


$
7,908Work in process


2,719



2,712Finished goods


14,347



17,667$
20,198


$
28,287Property and equipment:Computers and software

$
29,950


$
22,432Equipment


28,188



25,836Furniture and fixtures


4,061



3,06862,199



51,336Less: accumulated depreciation


(38,008
)


(32,905
)$
24,191


$
18,431     December 31, 2007


December 31, 2006Gross





GrossEstimated


Carrying


Accumulated


Carrying


AccumulatedUseful Lives


Amount


Amortization


Amount


Amortization(In thousands)Intangible assets subject to amortization:Core/Developed technology


24-48 months


$
970


$
(374
)






Customer relationships


24-48 months



810



(323
)






Contractual backlog


9-12 months



1,360



(1,360
)






Acquired technology-Sunplus


84 months



39,600



(1,414
)






Acquired technology


36-48 months



1,780


$
(1,780
)

$
1,780


$
(1,702
)Non-compete agreement


36 months



1,849



(1,849
)


1,849



(1,849
)$
46,369


$
(7,100
)

$
3,629


$
(3,551
)Intangible assets not subject to amortization:Goodwill





$
19,210






$
13,021    72




---



##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2008

$
6,3492009


5,8892010


5,8022011


5,6522012


5,6522013


5,6522014


4,273$
39,269       December 31,2007


2006(In thousands)Accrued liabilities:Accrued payroll and related expenses

$
5,586


$
4,921Accrued legal fees


970



1,022Warranty accrual


62



60Bonus accrual


176



8,718Accrued income taxes






12,683Software and IP commitments


18,034



529Accrued and other liabilities


12,168



9,375$
36,996


$
37,308   NOTE 3 
    INCOME
    TAXES    Year Ended December 31,2007


2006


2005(In thousands)Income (loss) before provision for income taxes:U.S.

$
54,785


$
121,577


$
55,977Non U.S.


(15,233
)


(65,120
)


302Total income before provision for income taxes

$
39,552


$
56,457


$
56,279   73




---



##### Table of Contents



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

2007


2006


2005(In thousands)Current:Federal

$
16,590


$
12,130


$
701State


733



205



13Foreign


2,961



1,352



61320,284



13,687



1,327Deferred:Federal


358



(14,573
)


State


158



(8,706
)


Foreign


(431
)






Total deferred


85



(23,279
)


Charge in lieu of taxes attributable to employee stock plans


182



23,584



5,403Total provision for income taxes

$
20,551


$
13,992


$
6,730     Year Ended December 31,2007


2006


2005Tax provision at federal statutory rate

$
13,843


$
19,760


$
19,751State income taxes


786



644



13Foreign income and withholding taxes


2,827



1,361



613U.S. federal losses utilized






(18,471
)


(19,821
)Changes in valuation allowance related to employee stock
    transactions






14,333



5,403Foreign unbenefited losses


5,077



22,811



Impact of valuation allowance release






(24,779
)


Tax credits


(3,084
)


(3,277
)


Stock-based compensation


954



1,526



Alternative minimum taxes










701Non-deductible expenses


79



84



70Other


69







Tax provision

$
20,551


$
13,992


$
6,730    74




---



##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2007


2006Net operating loss carryforwards

$
670


$
200Stock-based compensation


11,135



8,930Accruals and other reserves


1,704



2,820Depreciable and amortizable items


3,920



1,818Tax credits


3,928



6,103Inventory valuation






2,171Capitalized research and development


792



1,245Other items not currently deductible


1,813



8623,962



23,373Less: valuation allowance






Net deferred tax assets

$
23,962


$
23,373Reported as:Deferred income taxes

$
3,984


$
12,793Deferred income taxes, non-current


19,978



10,580Net deferred taxes

$
23,962


$
23,373      75




---



##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2007Balance as of January 1

$
14,405Tax Positions related to the current period:Gross increase


10,775Gross decrease


Tax positions related to prior periodsGross increase


163Gross decrease


(4,624
)Settlements


Lapse of statute of limitations


Balance as of December 31

$
20,719          76




---



##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  NOTE 4 
    DEBT,
    LEASE AND OTHER OBLIGATIONS    Payments Due InLess than








More thanTotal


1 Year


1-3 Years


3-5 Years


5 YearsContractual Obligations:Software license commitments

$
29,482


$
21,763


$
7,719


$



$
Operating lease obligations


9,456



3,754



4,568



1,134



Inventory purchase commitments


4,238



4,238











Total

$
43,176


$
29,755


$
12,287


$
1,134


$
   Accounting for Uncertainty in Income
    Taxes
    NOTE 5 
    STOCKHOLDERS
    EQUITY  1995
    Equity Incentive Plan (the 1995 Plan)
    1999
    Equity Incentive Plan (the 1999 Plan)
     77




---



##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Non-plan
    options
    Determining
    Fair Value
  Valuation and amortization method
  Expected Term
  Expected Volatility
  Risk-Free Interest Rate
  Expected Dividend
  Years Ended December 31,2007


2006


2005Employee stock option plans:Expected life in years


4.9



5.0



5.0Expected volatility


72.1
%


86.4
%


90.0
%Risk-free interest rate


4.5
%


4.7
%


4.2
%Expected dividends


none



none



noneWeighted average grant date fair value

$
5.36


$
7.47


$
8.14Employee Stock Purchase Plan:Expected life in years


0.5



1.3



1.2Expected volatility


51.2
%


58.0
%


59.0
%Risk-free interest rate


5.1
%


4.9
%


3.7
%Expected dividends


none



none



noneWeighted average grant date fair value

$
2.06


$
4.41


$
4.73  78




---



##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Stock-based
    compensation expense
    Year Ended December 31,2007


2006


2005Cost of sales

$
1,597


$
2,427


$
(1,383
)Research and development


8,411



11,108



(3,851
)Selling, general and administrative


9,442



13,696



(3,297
)Income tax effect


(5,758
)


(8,757
)


3,473$
13,692


$
18,474


$
(5,058
)          79




---



##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Stock
    Options and Awards Activity
    Options Available for Future Issuance





Number of Option SharesNon-Stockholder








Outstanding





Weighted


WeightedApproved Plans








Non-Stockholder





Average


Average1995 and


From Acquisitions





Stockholder


Approved





Exercise


Remaining


Aggregate1999


CMD


SCL


TWN





Approved


Plans From


Non-





Price per


Contractual


IntrinsicPlans


Plan


Plan


Plan


Total


Plan


Acquisitions


Plan*


Total


Share


Terms in Years


ValueAt 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



7.98Authorized


4,025















4,025















Granted


(2,539
)














(2,539
)


2,539











2,539



10.67Canceled


1,253



69



32



44



1,398



(1,253
)


(145
)






(1,398
)


10.97Exercised






















(3,979
)


(1,213
)


(379
)


(5,571
)


5.59At December 31, 2006


5,114



96



48



81



5,339



13,443



2,280



531



16,254


$
8.95Authorized


4,324















4,324















Granted


(3,723
)














(3,723
)


3,723











3,723



8.69Canceled


3,528



17



50



26



3,621



(3,528
)


(94
)






(3,622
)


12.01Exercised






















(1,635
)


(489
)


(201
)


(2,325
)


4.03At December 31, 2007


9,243



113



98



107



9,561



12,003



1,697



330



14,030


$
8.92



6.75


$
3,576Vested and expected to vest at December 31, 2007


































12,960


$
8.87



6.59


$
3,576Exercisable at December 31, 2007


































8,057


$
8.33



5.53


$
3,574     *
    
    primarily used as inducements for new officers     80




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##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Pro-forma
    Disclosures
  Accounting for Stock-Based
    Compensation, Transition and Disclosure
  Year EndedDecember 31, 2005Net income (loss)  as reported

$
49,549Stock-based employee compensation expense (benefit) included in
    net income (loss) as reported, net of taxes for 2005


(6,578
)Stock-based employee compensation expense determined under fair
    value based method for all awards, net of taxes for 2005


(15,117
)Pro forma net income

$
27,854Basic net income (loss) per share- pro forma

$
0.35Diluted net income (loss) per share- pro forma

$
0.33Basic net income (loss) per share- as reported

$
0.63Diluted net income (loss) per share- as reported

$
0.59       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)$ 0.25 - $ 4.06


1,582


$
2.29



3.41



1,581


$
2.29$ 4.17 - $ 5.85


1,543



5.16



7.61



625



4.68$ 5.93 - $ 6.99


1,410



6.23



4.93



1,305



6.23$ 7.00 - $ 9.15


1,483



8.11



7.11



745



8.12$ 9.16 - $ 9.27


1,638



9.27



9.01



41



9.22$ 9.32 - $ 9.96


1,589



9.78



6.65



974



9.77$ 9.99 - $11.24


1,446



10.59



7.42



813



10.55$11.25 - $13.32


1,437



12.32



7.57



719



12.13$13.33 - $16.79


1,378



14.54



7.03



846



14.46$17.01 - $17.01


524



17.01



6.55



408



17.01$ 0.25 - $17.01


14,030


$
8.92



6.75



8,057


$
8.33   Employee
    Stock Purchase Plan
   81




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##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Option
    Grants to Non-employees
      NOTE 6 
    SEGMENT
    AND GEOGRAPHIC INFORMATION  Disclosures about Segments of an Enterprise and Related
    Information
 82




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##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2007


2006


2005Taiwan

$
53,608


$
59,865


$
53,579Japan


113,107



103,140



46,170United States


64,610



63,253



54,593Hong Kong


20,809



11,293



6,819Korea


17,607



20,867



20,663Europe


25,965



18,496



12,268Other


24,797



18,044



18,307$
320,503


$
294,958


$
212,399     Year Ended December 31,2007


2006


2005Consumer electronics

$
204,077


$
167,877


$
108,712Personal computers


40,441



49,399



49,212Storage


25,182



33,098



35,999Development, licensing and royalties


50,803



44,584



18,476$
320,503


$
294,958


$
212,399     Year Ended December 31,2007


2006


2005Consumer electronics

$
241,047


$
194,721


$
118,578Personal computers


46,925



58,761



50,484Storage


32,531



41,476



43,337$
320,503


$
294,958


$
212,399     December 31, 2007Long-lived assets:US


70,051Germany


10,855Other foreign countries


1,764Total


82,670      83




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##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    NOTE 7 
    LEGAL
    PROCEEDINGS      Rule 10b-5
   84




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##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    06-0256
        NOTE 8 
    STOCK
    REPURCHASE (in thousands, except per share amount)
  Total Numberof Shares


Value of SharesPurchased as


that may yet beTotal Number of


Average Price Paid


Part of Publicly


Purchased UnderPeriod

Shares Purchased


per Share


Announced Plans


the PlanRepurchases from May 8, 2007 through December 31, 2007


5,000


$
7.33



5,000


$
61,905    85




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##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      NOTE 9 
    RELATED
    PARTY TRANSACTIONS    NOTE 10  BUSINESS
    ACQUISITION
        January 3, 2007Cash

$
2,015Accounts receivable, net of allowances for doubtful accounts


2,598Unbilled accounts receivable


1,077Inventories, net


191Other current assets


661Property and equipment, net


1,583Other long-term assets


38Deferred tax assets


1,910Accounts payable


(548
)Accrued liabilities


(1,210
)Other current liabilities


(1,509
)Net tangible assets acquired

$
6,806  86




---



##### Table of Contents



SILICON
    IMAGE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Net tangible assets acquired

$
6,806Goodwill


6,189Others


41Intangible assets and other:Core developed technology


970Customer relationships


810Contractual backlog


1,36016,176Direct acquisition costs


(410
)Purchase price

$
15,766   NOTE 11 
    LICENSE
    OF SUNPLUS INTELLECTUAL PROPERTY AND RELATED REVENUE
    TRANSACTION    Goodwill and Other Intangibles
 87




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##### Table of Contents



UNAUDITED
    SELECTED QUARTERLY FINANCIAL DATA    Three Months EndedMar 31


Jun 30


Sep 30


Dec 31(In thousands, except per share amounts)2007Total revenue(5)

$
69,119


$
79,771


$
86,282


$
85,331Gross margin(1)(5)


38,361



42,833



48,782



50,084Income from operations(2)(5)


3,407



6,120



10,926



7,702Net income


2,916



4,372



4,110



7,603Net income per share  basic(5)

$
0.03


$
0.05


$
0.05


$
0.09Net income per share  diluted(5)

$
0.03


$
0.05


$
0.05


$
0.09Weighted average shares  basic


86,825



86,737



84,489



84,218Weighted average shares  diluted


89,549



88,817



85,937



85,2282006Total revenue

$
59,099


$
70,579


$
78,327


$
86,953Gross margin(3)


33,751



40,794



45,606



53,560Income from operations(4)


2,450



8,974



11,190



24,638Net income


2,352



5,798



8,042



26,273Net income per share  basic

$
0.03


$
0.07


$
0.10


$
0.31Net income per share  diluted

$
0.03


$
0.07


$
0.09


$
0.29Weighted average shares  basic


80,986



81,562



83,439



85,618Weighted average shares  diluted


85,398



85,628



87,433



89,113     (1) Includes stock-based compensation expense

$
346


$
443


$
421


$
387(2) Includes stock-based compensation expense

$
3,686


$
4,743


$
4,912


$
4,512(3) Includes stock-based compensation expense

$
628


$
554


$
772


$
473(4) Includes stock-based compensation expense

$
7,283


$
6,551


$
8,626


$
4,771   (5)
    
    Revenue for 2007 includes approximately $6.7 million of
    product revenue and cost of revenue includes approximately
    $2.6 million related to distributor sales for the month of
    December 2007. Historically, the Company had deferred the
    recognition of sell-through revenue from distributor sales for
    the third month of a quarter until the following quarter due to
    the unavailability of reliable sell-through information in a
    timely manner. As a result of improved business processes, the
    Company was able to eliminate this delay beginning with the
    fourth quarter of 2007, resulting in fiscal year 2007 revenue
    including an additional month of product revenue from
    distributor sales in December 2007. This one-time effect of the
    inclusion of an additional month of revenue for the fourth
    quarter of 2007 is an increase to net income by approximately
    $2.6 million and an increase to net income per share, basic
    and diluted, by approximately $0.03.   88




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM           Accounting for Uncertainty
    in Income Taxes  an Interpretation of FASB
    No. 109. Share-Based Payment.
  Internal Control  Integrated Framework
  DELOITTE &
    TOUCHE LLP
    89




---



##### Table of Contents



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

Title

Date/s/  Steve
    TiradoSteve
    Tirado

President and Chief Executive Officer (Principal Executive
    Officer)

February 27, 2008/s/  Harold
    CovertHarold
    Covert

Chief Financial Officer
    (Principal Financial Officer)

February 27, 2008/s/  William
    GeorgeWilliam
    George

Director

February 27, 2008/s/  Peter
    HaneltPeter
    Hanelt

Director

February 27, 2008/s/  John
    HodgeJohn
    Hodge

Director

February 27, 2008/s/  Masood
    JabbarMasood
    Jabbar

Director

February 27, 2008/s/  William
    RaduchelWilliam
    Raduchel

Director

February 27, 2008  90




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##### Table of Contents



INDEX TO
    EXHIBITS  3
.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).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) (Incorporated by reference
    from Exhibit 10.03 of the
    Form 10-K
    filed by the Registrant on March 16, 2006).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) (Incorporated by reference from
    Exhibit 10.03 of the
    Form 10-Q
    filed by the Registrant on August 8, 2007).10
.05

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
.06

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
.07

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
.08*

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
.09*

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).10
.10*

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
.11*

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
.12*

Non-Plan Stock Option Agreement between Hyun Jong Shin (John
    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
.13

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
.14*

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). 91




---



##### Table of Contents



10
.15*

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
.16*

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
.17*

Employment Offer Letter between Shin Hyun Jong (John Shin) and
    the Registrant dated August 20, 2001. (Incorporated by
    reference from Exhibit 10.19 of the
    Form 10-K
    filed by the Registrant on March 1, 2007).10
.18*

Employment Offer Letter between Dale Zimmerman and the
    Registrant dated January 10, 2005. (Incorporated by
    reference from Exhibit 10.20 of the
    Form 10-K
    filed by the Registrant on March 1, 2007).10
.19*

Director Compensation Plan (Incorporated by reference from
    Exhibit 10.01 of the
    Form 10-Q
    filed by the Registrant on May 10, 2005).10
.20

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
.21

Lease dated September 22, 2005 between Jeronimo Technology
    Partners, LLC and the Registrant. (Incorporated by reference
    from Exhibit 10.23 of the
    Form 10-K
    filed by the Registrant on March 1, 2007).10
.22/*

Consulting Agreement between David Lee and the Registrant dated
    March 15, 2006. (Incorporated by reference to
    Exhibit 10.03 to our current report on
    Form 8-K
    filed March 16, 2006.10
.23

First Amendment to Lease dated July 23, 2003 between iStar
    Sunnyvale Partners, L.P. and the Registrant. (Incorporated by
    reference from Exhibit 10.28 of the
    Form 10-K
    filed by the Registrant on March 1, 2007).10
.24

Second Amendment to Lease dated February 17, 2004 between
    iStar Sunnyvale Partners, L.P. and the Registrant. (Incorporated
    by reference from Exhibit 10.29 of the
    Form 10-K
    filed by the Registrant on March 1, 2007).10
.25

Third Amendment to Lease dated June 1, 2004 between iStar
    Sunnyvale Partners, L.P. and the Registrant. (Incorporated by
    reference from Exhibit 10.30 of the
    Form 10-K
    filed by the Registrant on March 1, 2007).10
.26

Fourth Amendment to Lease dated May 10, 2006 between iStar
    Sunnyvale Partners, L.P. and the Registrant. (Incorporated by
    reference from Exhibit 10.31 of the
    Form 10-K
    filed by the Registrant on March 1, 2007).10
.27*

Employment Offer Letter between Edward Lopez and the Registrant
    dated December 23, 2006. (Incorporated by reference from
    Exhibit 10.34 of the
    Form 10-K
    filed by the Registrant on March 1, 2007).10
.28

Settlement and License Agreement between the Registrant and
    Genesis Microchip Inc. dated December 21, 2006.
    (Incorporated by reference from Exhibit 10.35 of the
    Form 10-K
    filed by the Registrant on March 1, 2007).10
.29***

Sale and Purchase Agreement dated January 2, 2007 by and
    among the Registrant, Infineon Technologies AG and sci-worx GmbH
    (Incorporated by reference from Exhibit 10.01 to the
    Form 8-K
    filed by the Registrant on January 8, 2007).10
.30

Video Processor Design License Agreement with Sunplus Technology
    Co., Ltd. (Incorporated by reference to Exhibit 10.02 to
    our Quarterly Report on
    Form 10-Q
    filed May 7, 2007)10
.31*

Employment Offer Letter between Noland Granberry and the
    Registrant dated February 14, 2006 (incorporated by
    reference to Exhibit 10.04 to our Quarterly Report on
    Form 10-K
    filed May 7, 2007).10
.32*

Employment Offer Letter between Sal Cobar and the Registrant
    dated April 19, 2007. (Incorporated by reference to
    Exhibit 10.01 to our Quarterly Report on
    Form 10-Q
    filed August 8, 2007)10
.33*

Silicon Image, Inc. Sales Compensation Plan for Vice President
    of Worldwide Sales for Fiscal Year 2007 (Incorporated by
    reference to Exhibit 10.02 to our Quarterly Report on
    Form 10-Q
    filed August 8, 2007) 92




---



##### Table of Contents



10
.34*

ESPP 1999 Plan Document including UK Sub-Plan As Amended
    (Incorporated by reference to Exhibit 10.03 to our
    Quarterly Report on
    Form 10-Q
    filed August 8, 2007)10
.35*

Employment offer letter with Paul Dal Santo dated July 23,
    2007 (Incorporated by reference to Exhibit 10.01 to the
    Registrants current report on
    Form 8-K
    filed on August 20, 2007).10
.36*

Amendment No. 1 to Transitional Employment and Separation
    Agreement between Robert Freeman and the Registrant dated
    August 23, 2007 (Incorporated by reference to
    Exhibit 10.01 to the Registrants current report on
    Form 8-K
    filed on August 24, 2007).10
.37*

Employment offer letter with Harold Covert dated October 2,
    2007 (Incorporated by reference to Exhibit 10.01 to the
    Registrants current report on
    Form 8-K
    filed on October 5, 2007).10
.38*

Form of Change of Control Retention Agreement. (Incorporated by
    reference to Exhibit 10.01 to the Registrants current
    report on
    Form 8-K
    filed on December 19, 2007).10
.39

Accelerated Stock Repurchase Agreement dated February 13,
    2008 between Credit Suisse International and the Registrant.10
.40*

1999 Equity Incentive Plan, as amended and restated
    December 14, 2007.21
.01

Subsidiaries of the Registrant.23
.01

Consent of Deloitte & Touche LLP.31
.01

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

Certification of Principal Financial Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.32
.01**

Certification of Principal 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 Principal 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.***
    
    Schedules and exhibits have been omitted pursuant to
    Item 601(b)(2) of
    Regulation S-K.
    The Registrant hereby undertakes to furnish supplementally
    copies of any of the omitted schedules and exhibits upon request
    by the Securities and Exchange Commission. 93