Silicon Image Reports Fourth Quarter 2007 Results; Announces Accelerated Stock Repurchase Program
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Silicon Image Reports Fourth Quarter 2007 Results; Announces Accelerated Stock Repurchase Program

SUNNYVALE, Calif., Feb. 7 /PRNewswire-FirstCall/ -- Silicon Image, Inc. (NASDAQ: SIMG), a leader in semiconductors for the secure storage, distribution and presentation of high-definition content, today reported financial results for its fourth quarter and its year ended Dec. 31, 2007.

Revenue for the fourth quarter ended Dec. 31, 2007 was $85.3 million, compared to $86.3 million for the third quarter ended Sept. 30, 2007 and $87.0 million for the fourth quarter of 2006. Revenue for the fourth quarter of 2007 included $6.7 million of product revenue from distributor sales during the month of December. Historically, the company has deferred the recognition of sell-through revenue from distributor sales during the third month of a quarter until the following quarter because of the lack of information sufficient to recognize such revenue. As a result of improved business processes, the company has been able to eliminate this delay in revenue recognition beginning with the fourth quarter of 2007. Therefore, 2007 fourth quarter revenue includes an additional month of product revenue from distributor sales in December. Fourth quarter 2006 revenue includes $10.6 million related to royalties earned prior to the fourth quarter of 2006 associated with the Settlement and License Agreement with Genesis Microchip, Inc.

Revenue for 2007 totaled $320.5 million, compared with $295.0 million for 2006.

GAAP net income for the fourth quarter of 2007 was $7.6 million, or $0.09 per diluted share, compared to $4.1 million, or $0.05 per diluted share, for the third quarter and $26.3 million, or $0.29 per diluted share, for the fourth quarter of 2006.

Non-GAAP net income for the fourth quarter of 2007 was $9.5 million, or $0.11 per diluted share, compared to $8.3 million, or $0.10 per diluted share, for the third quarter and $18.3 million, or $0.21 per diluted share, for the fourth quarter of 2006. Non-GAAP net income excludes stock-based compensation expense, amortization of intangible assets, impact of the one-time change in distributor sell-through revenue in 2007 and certain items related to the Settlement and License Agreement with Genesis Microchip, Inc. in 2006.

GAAP net income for 2007 was $19.0 million, or $0.22 per diluted share, compared to $42.5 million, or $0.49 per diluted share for 2006. For 2007, the company incurred income tax expenses of $20.5 million compared to $14.0 million in 2006. This increase in income tax expenses reduced earnings per diluted share by $0.07 in 2007. The remaining difference between 2007 and 2006 diluted earning per share essentially relates to higher research and development expense from the acquisition of sci-worx completed in Jan. 2007.

2007 non-GAAP net income was $32.7 million, or $0.37 per diluted share, compared to $68.9 million, or $0.79 per diluted share, for 2006. Non-GAAP net income excludes stock-based compensation expense, amortization of intangible assets, and the impact of the one-time change in distributor sell-through revenue in 2007 and certain items related to the Settlement and License Agreement with Genesis Microchip, Inc., in 2006.

A reconciliation of GAAP and non-GAAP items is provided in a table immediately following the Condensed Consolidated Statement of Income.

Silicon Image also announced that its Board of Directors has authorized the company to move forward with an accelerated stock repurchase program for the repurchase of $62 million of the company's common stock. Upon completion of the accelerated stock repurchase program, the company expects to conclude its previously announced $100 million stock repurchase program which was authorized in February 2007. The company expects to enter into an agreement effectuating this accelerated stock repurchase program by Feb. 15, 2008.

The company also announced that its 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. Purchases under this program may be increased, decreased or discontinued at any time without prior notice.

"We completed 2007 with 24 percent revenue growth in our consumer electronics business, our largest business line, and achieved a 57 percent gross margin overall which is consistent with our long term model of 55 to 57 percent," said Steve Tirado, Silicon Image's president and chief executive officer. "As we move forward into 2008, which is a product transition year for Silicon Image, we expect gross margin to stay within our long term model. We are focused on new product design wins with major customers interested in the recently announced MHL or Mobile High Definition Link and our first generation Personal Entertainment Network products. These efforts are expected to produce revenue growth in 2009."

Financial Outlook

Based upon Silicon Image's current visibility into the seasonally soft first quarter, the following is the financial outlook for Q1, 2008:

    -- Revenue $61 million - $63 million
    -- Gross margin 55% - 57%
    -- GAAP operating expenses $41 million - $42 million
    -- Non-GAAP operating expenses $34 million - $35 million
    -- Tax rate 42% - 44%

Given that 2008 is a product transition year for Silicon Image, the following is the full year financial outlook for 2008:

    -- Revenue $270 million - $290 million
    -- Gross margin 55% - 57%
    -- GAAP operating expenses $166 million - $168 million
    -- Non-GAAP operating expenses $138 million - $140 million
    -- Tax rate 42% - 44%

Use of Non-GAAP Financial Information

Silicon Image presents and discusses gross margins, operating expenses, net income and basic and diluted net income per share in accordance with Generally Accepted Accounting Principles (GAAP) and on a non-GAAP basis for informational purposes only. Silicon Image believes that non-GAAP reporting, giving effect to the adjustments shown in the attached reconciliation, provides meaningful information and therefore uses non-GAAP reporting to supplement its GAAP reporting and internally in evaluating operations, managing and monitoring performance, and determining bonus compensation. Further, Silicon Image uses non-GAAP information as certain non-cash charges such as amortization of intangibles and stock based compensation do not reflect the cash operating results of the business. Silicon Image has chosen to provide this supplemental information to investors, analysts and other interested parties to enable them to perform additional analyses of its operating results and to illustrate the results of operations giving effect to such non-GAAP adjustments. The non-GAAP financial information presented herein should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP.

Conference Call

Silicon Image will release its fourth quarter and full-year financial results for 2007 after the market closes on Feb. 7, 2008. The company will host an investor conference call and web cast that event at 2:00 p.m. Pacific Time on the same day. To access the conference call, dial 719-325-4796 and enter pass code 7119394. The webcast will be accessible on Silicon Image's investor relations website at http://www.siliconimage.com. A replay of the conference call will be available until midnight Pacific Time, Feb. 21, 2008. To access the replay, dial 719- 457-0820 or 888-203-1112, and enter pass code 7119394.

About Silicon Image, Inc.

Silicon Image, Inc. is a global leader in driving the architecture and semiconductor implementation for the secure storage, distribution and presentation of high-definition content in the consumer electronics, personal computing, and mobile device markets. With a rich history of technology innovation that includes creating industry standards such as SATA, DVI and HDMI, Silicon Image partners with the world's leading entertainment creators and electronics manufacturers to deliver digital HD content to consumers anytime, anywhere, on any device. Silicon Image is also a leading provider of semiconductor intellectual property solutions for high-definition multimedia and data storage applications. Additionally, Simplay Labs, LLC, a wholly-owned subsidiary of Silicon Image, offers robust testing tools, technologies, support services, consulting and product certification to electronics manufacturers to maximize performance, interoperability and ensure the highest-quality HD experience to consumers. With engineering, sales and customer support facilities located throughout North America, Asia and Europe, Silicon Image (NASDAQ: SIMG) is globally headquartered in Sunnyvale, California. For more information, please visit http://www.SiliconImage.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of federal securities laws and regulations. These forward-looking statements include, but are not limited to, statements related to improvements in Silicon Image's business processes, Silicon Image's future operating results, including revenue, gross margins, operating expenses and tax rates in the first quarter and full fiscal year 2008, customer design wins and future growth opportunities, the implementation of the company's accelerated stock repurchase program within the time frame indicated and the effectuation of the company's new stock repurchase program. These forward-looking statements involve risks and uncertainties, including the company's ability to maintain its improved business processes, the company ability to enter into an agreement with a counterparty to implement its accelerated stock repurchase program, the company's ability to generate sufficient resources to effectuate its new stock repurchase program and other risks and uncertainties described from time to time in Silicon Image's filings with the Securities and Exchange Commission (SEC). These risks and uncertainties could cause the actual results to differ materially from those anticipated by these forward-looking statements. In addition, see the Risk Factors section of the most recent Form 10-K or Form 10-Q filed by Silicon Image with the SEC. Silicon Image assumes no obligation to update any forward-looking information contained in this press release.

NOTE: Silicon Image and Simplay HD are trademarks, registered trademarks or service marks of Silicon Image, Inc. in the United States and other countries. HDMI(TM) and High-Definition Multimedia Interface are trademarks or registered trademarks of HDMI Licensing, LLC in the United States and other countries, and are used under license from HDMI Licensing, LLC. All other trademarks and registered trademarks are the property of their respective owners.


                             SILICON IMAGE, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF INCOME

    (In thousands, except
     per share amounts)
    (unaudited)

                                   Three Months Ended      Twelve Months Ended
                             December  September  December     December 31,
                             31, 2007   30, 2007  31, 2006    2007      2006
    Revenue:
      Product                 $73,986   $74,173   $66,278  $269,700  $250,374
      Development, licensing
       and royalties           11,345    12,109    20,675    50,803    44,584
         Total revenue         85,331    86,282    86,953   320,503   294,958
    Cost of revenue and
     operating expenses:
      Cost of revenue (1)      35,247    37,500    33,393   140,443   121,247
      Research and
       development (2)         21,285    20,489    15,987    77,994    63,598
      Selling, general and
       administrative (3)      19,240    16,827    18,226    70,340    67,597
      Amortization of
       intangible assets        1,857       540        78     3,549       508
      Reimbursement of patent
       assertion costs, net         -         -    (5,369)       22    (5,244)
         Total cost of revenue
           and operating
           expenses            77,629    75,356    62,315   292,348   247,706
    Income from operations      7,702    10,926    24,638    28,155    47,252
    Interest income and
     other, net                 2,779     2,302     3,024    11,397     9,205
    Income before provision
     for income taxes          10,481    13,228    27,662    39,552    56,457
    Provision for income taxes  2,872     9,118     1,389    20,545    13,992
    Net income                 $7,609    $4,110   $26,273   $19,007   $42,465

    Net income per share -
     basic                      $0.09     $0.05     $0.31     $0.22     $0.51
    Net income per share -
     diluted                    $0.09     $0.05     $0.29     $0.22     $0.49
    Weighted average shares -
     basic                     84,218    84,489    85,618    85,557    82,787
    Weighted average shares -
     diluted                   85,228    85,937    89,113    87,388    86,791

    (1) Includes stock
     compensation expense        $387      $421      $473    $1,597    $2,427
    (2) Includes stock
     compensation expense       1,866     2,181     1,715     8,411    11,108
    (3) Includes stock
     compensation expense       2,646     2,731     2,583     9,442    13,696




                             SILICON IMAGE, INC.
            GAAP NET INCOME TO NON-GAAP NET INCOME RECONCILIATION

                                      Three Months Ended       Twelve Months
                                December  September  December      Ended
    (In thousands, except          31,       30,       31,      December 31,
     per share amounts)           2007      2007      2006     2007     2006
    (unaudited)
    GAAP Net income              $7,609    $4,110   $26,273  $19,007  $42,465

    Non-GAAP adjustments:
    Stock-based compensation
     expense (1)                  4,899     5,333     4,771   19,450   27,231
    Amortization of intangible
     assets (2)                   1,857       540        78    3,549      508
    Adjustments related to
     Genesis Settlement (3)           -         -   (13,831)       -  (11,113)
    Adjustments related to
     change in recognition of
     distributor revenue (4)     (4,105)        -         -   (4,105)       -
    Non-GAAP Net income before
     tax adjustments             10,260     9,983    17,291   37,901   59,091

    Income tax effects on
     above adjustments             (713)   (1,712)   (3,469)  (5,232)  (6,356)
    Tax benefit from employee
     stock transactions (5)           -         -     4,467        -   16,181
    Non-GAAP net income          $9,547    $8,271   $18,289  $32,669  $68,916

    Non-GAAP net income per
     share - basic                $0.11     $0.10     $0.21    $0.38    $0.83
    Non-GAAP net income per
     share - diluted              $0.11     $0.10     $0.21    $0.37    $0.79

    Weighted average shares -
     basic                       84,218    84,489    85,618   85,557   82,787
    Weighted average shares -
     diluted                     85,228    85,937    89,113   87,388   86,791

    (1)  For the three months ended December 31, 2006, September 30, 2007 and
         December 31, 2007, and for the twelve months ended December 31, 2006
         and 2007, these adjustments represent the non-cash amortization of
         stock-based compensation associated with SFAS No. 123 (R) Share-based
         Payment.

    Cost of Revenue                $387      $421      $473   $1,597   $2,427
    Research and Development      1,866     2,181     1,715    8,411   11,108
    Selling General and
     Administrative               2,646     2,731     2,583    9,442   13,696
    Total                        $4,899    $5,333    $4,771  $19,450  $27,231

    (2)  This adjustment represents expenses for the amortization of
         intangible assets recorded in connection with our acquisitions. These
         on-going expenses pertain to intangible assets that are not expected
         to be replaced when fully amortized, as might a depreciable tangible
         asset.

    (3)  This adjustment represents the reversal of royalty revenue and
         reversal of contra expense for reimbursement of litigation expenses
         for the quarter ended December 31, 2006.

    (4)  This adjustment represents the change in recognition of distributor
         revenue and related standard cost of sales.

    (5)  This adjustment represents the non-cash tax benefits from employee
         stock transactions and other discrete items included in the tax
         provision and recorded to additional paid in capital.



                             SILICON IMAGE, INC.
                    CONDENSED CONSOLIDATED BALANCE SHEETS
    (In thousands)
    Unaudited                                             December 31,
                                                     2007              2006
    Assets
    Current Assets:
      Cash and cash equivalents                   $137,822           $81,921
      Short-term investments                       111,889           168,724
      Accounts receivable, net                      21,254            39,931
      Inventories                                   20,198            28,287
      Prepaid expenses and other current assets     14,149             4,895
      Deferred income taxes                          3,567            12,793
         Total current assets                      308,879           336,551
    Property and equipment, net                     24,191            18,431
    Goodwill                                        19,210            13,021
    Intangible assets, net                          39,269                78
    Deferred income taxes, non-current              19,978            10,580
    Other assets                                     1,421             1,570
         Total assets                             $412,948          $380,231
    Liabilities and Stockholders' Equity
    Current Liabilities:
      Accounts payable                             $17,892           $14,187
      Accrued liabilities and other current
       liabilities                                  36,996            37,308
      Deferred license revenue                       3,860             5,264
      Deferred margin on sales to
       distributors                                 26,443            17,712
         Current liabilities                        85,191            74,471
      Other long-term liabilities                   13,910               538
         Total liabilities                          99,101            75,009
    Stockholders' Equity:
         Total stockholders' equity                313,847           305,222
         Total liabilities and
          stockholders' equity                    $412,948          $380,231

Web site: http://www.siliconimage.com/