SUNNYVALE, Calif. — (BUSINESS WIRE) — July 30, 2014 — Silicon Image, Inc. (NASDAQ: SIMG), a leading provider of multimedia connectivity solutions and services, today reported financial results for its second quarter ended June 30, 2014.

Revenue for the second quarter of 2014 was $59.5 million, compared with $61.6 million in the first quarter of 2014 and $73.7 million in the second quarter of 2013. As previously disclosed, revenue for the second quarter excludes HDMI royalties, the recognition of which have been deferred.

“We saw additional growth in our CE business with first half 2014 performance up 38 percent over the same period last year,” said Camillo Martino, chief executive officer of Silicon Image, Inc. “Strength in our CE business partially offset the headwinds in our mobile business. We are also pleased with the increased momentum and market acceptance of the worldwide standards in which we participate. In particular, this quarter, the MHL ecosystem showed continued growth with tier one manufacturers shipping MHL 3.0-enabled TVs and the addition of another 4K Ultra HD MHL 3.0 phone.”

GAAP net income for the second quarter of 2014 was $1.1 million, or $0.01 per diluted share, compared with a GAAP net loss of $0.1 million, or $0.00 per share, for the first quarter of 2014 and a GAAP net income of $4.2 million, or $0.05 per diluted share, for the second quarter of 2013.

Non-GAAP net income for the second quarter of 2014 was $3.4 million, or $0.04 per diluted share, compared with a non-GAAP net income of $4.3 million, or $0.05 per diluted share, for the first quarter of 2014, and a non-GAAP net income of $6.5 million, or $0.08 per diluted share, for the second quarter of 2013. Non-GAAP net income for these periods excludes stock-based compensation expense, amortization of intangible assets, business acquisition related expenses, gain from business acquisition, other than temporary impairment of a privately held company investment, other income from prepaid royalty settlement, proceeds from legal settlement and restructuring charges.

A reconciliation of GAAP and non-GAAP items is provided in a table following the Condensed Consolidated Statements of Operations.

The following are Silicon Image’s financial performance estimates for the third quarter of 2014, which exclude deferred HDMI royalties for the three quarters ended September 30, 2014:

Revenue:				$70 million to $75 million
Gross Margin:				approximately 58%
GAAP operating expenses:				approximately $38 million
Non-GAAP operating expenses:				approximately $34 million
Diluted shares outstanding:				approximately 80.9 million
Non-GAAP tax rate:				approximately 30% of non-GAAP pre-tax income

Full year 2014 guidance, which includes deferred HDMI royalties, is as follows:

Revenue				down 4% to 8% as compared to 2013
Gross Margin:				approximately 60%
Non-GAAP operating expenses:				$127 million to $130 million
Non-GAAP tax rate:				approximately 30%

Full year guidance is dependent upon certain key customers maintaining their forecasted shipping patterns.

Use of Non-GAAP Financial Information

Silicon Image presents and discusses gross margin, operating expenses, net income (loss) and basic and diluted net income (loss) 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 stock-based compensation expense, amortization of intangible assets, business acquisition related expenses, gain from business acquisition, other than temporary impairment of a privately held company investment, other income from prepaid royalty settlement, proceeds from legal settlement and restructuring charges 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 host an investor conference call today to discuss its second quarter of 2014 results at 2:00 p.m. Pacific Time and will webcast the event. To access the conference call, dial 888-455-2260 or 719-325-2454 and enter passcode 8015090. The webcast and replay will be accessible on Silicon Image's investor relations website at http://www.SiliconImage.com. A replay of the conference call will be available within two hours of the conclusion of the conference call through August 13, 2014. To access the replay, please dial 888-203-1112 or 719-457-0820 and enter passcode 8015090.

About Silicon Image, Inc.

Silicon Image (NASDAQ: SIMG) is a leading provider of multimedia connectivity solutions and services for mobile, consumer electronics and PC markets. Silicon Image’s semiconductor and intellectual property products feature wireless and wired technologies that deliver connectivity across a wide array of devices in the home, office and on the go. Silicon Image has driven the creation of the industry standards HDMI®, DVI™, MHL® and WirelessHD®, and offers manufacturers comprehensive standards interoperability and compliance testing services via its wholly-owned subsidiary, Simplay Labs. For more information, visit http://www.siliconimage.com/.

Silicon Image and the Silicon Image logo are trademarks, registered trademarks or service marks of Silicon Image, Inc. in the United States and/or other countries. All other trademarks and registered trademarks are the property of their respective owners in the United States and/or other countries.

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 Silicon Image's future operating results, including revenue, gross margin, operating expenses, tax rates, company growth, progress and stock repurchases. These forward-looking statements involve risks and uncertainties, including the risks of uncertain economic conditions, competition in our markets, Silicon Image's ability to deliver financial performance in-line with its stated goals and other risks and uncertainties described from time to time in Silicon Image's filings with the U.S. 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 and 10-Q filed by Silicon Image with the SEC. These forward-looking statements are made on the date of this press release, and Silicon Image assumes no obligation to update any such forward-looking information.

SILICON IMAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Unaudited
				Three Months Ended																		Six Months Ended
				June 30, 2014					March 31, 2014						June 30, 2013							June 30, 2014					June 30, 2013
Revenue:
Product				$	50,938				$	46,766					$	63,681						$	97,704				$	114,022
Licensing					8,598					14,795						9,998							23,393					21,696
Total revenue					59,536					61,561						73,679							121,097					135,718
Cost of revenue and operating expenses:
Cost of product revenue (1)(2)					24,814					24,795						31,023							49,609					56,821
Cost of licensing revenue					-					20						162							20					429
Research and development (3)					17,416					16,957						20,225							34,373					38,783
Selling, general and administrative (4)					15,166					16,865						16,097							32,031					32,499
Amortization of acquisition-related intangible assets					510					208						230							718					481
Restructuring expense (recoveries) (5)					113					129						-							242					(7	)
Total cost of revenue and operating expenses					58,019					58,974						67,737							116,993					129,006
Income from operations					1,517					2,587						5,942							4,104					6,712
Proceeds from legal settlement					-					-						1,275							-					1,275
Other than temporary impairment of a privately held company investment					-					-						(1,500	)						-					(1,500	)
Interest income and other, net					1,043					18						500							1,061					891
Income before provision for income taxes and equity in net loss of an unconsolidated affiliate					2,560					2,605						6,217							5,165					7,378
Income tax expense					1,487					2,554						1,888							4,041					3,630
Equity in net loss of an unconsolidated affiliate					-					150						136							150					259
Net income (loss)				$	1,073				$	(99	)				$	4,193						$	974				$	3,489
Net income (loss) per share – basic				$	0.01				$	(0.00	)				$	0.05						$	0.01				$	0.05
Net income (loss) per share – diluted				$	0.01				$	(0.00	)				$	0.05						$	0.01				$	0.04
Weighted average shares – basic					78,150					77,858						77,245							78,261					76,934
Weighted average shares – diluted					79,988					77,858						78,713							80,367					78,353
(1) Includes amortization of acquisition-related intangible assets				$	225				$	225					$	250						$	450				$	500
(2) Includes stock-based compensation expense				$	148				$	173					$	153						$	321				$	288
(3) Includes stock-based compensation expense				$	792				$	913					$	827						$	1,705				$	1,845
(4) Includes stock-based compensation expense				$	1,344				$	1,951					$	1,438						$	3,295				$	3,209
(5) Includes stock-based compensation expense				$	44				$	30					$	-						$	74				$	-

SILICON IMAGE, INC.
GAAP NET INCOME (LOSS) TO NON-GAAP NET INCOME RECONCILIATION
(In thousands, except per share amounts)
Unaudited
				Three Months Ended																	Six Months Ended
				June 30, 2014					March 31, 2014					June 30, 2013							June 30, 2014					June 30, 2013
GAAP net income (loss)				$	1,073				$	(99	)			$	4,193						$	974				$	3,489
Non-GAAP adjustments:
Stock-based compensation expense (1)					2,328					3,067					2,418							5,395					5,342
Amortization of intangible assets (2)					735					433					480							1,168					981
Amortization of intangible assets of an unconsolidated affiliate (2)					-					40					41							40					76
Strategic initiative and acquisition related expenses (2)					138					-					-							138					-
Gain from business acquisition (2)					(361	)				-					-							(361	)				-
Restructuring expense (recoveries) (3)					69					99					-							168					(7	)
Other than temporary impairment of a privately held company investment (3)					-					-					1,500							-					1,500
Other income from prepaid royalty settlement (3)					(639	)				-					-							(639	)				-
Proceeds from legal settlement (3)					-					-					(1,275	)						-					(1,275	)
Non-GAAP net income before tax adjustments					3,343					3,540					7,357							6,883					10,106
Tax adjustments (4)					38					726					(886	)						764					(491	)
Non-GAAP net income				$	3,381				$	4,266				$	6,472						$	7,647				$	9,615
Non-GAAP net income per share — basic				$	0.04				$	0.05				$	0.08						$	0.10				$	0.12
Non-GAAP net income per share — diluted				$	0.04				$	0.05				$	0.08						$	0.10				$	0.12
Weighted average shares — basic					78,150					77,858					77,245							78,261					76,934
Weighted average shares — diluted					79,988					80,100					78,713							80,367					78,353
Stock-based compensation expense is composed of the following:
Cost of revenue				$	148				$	173				$	153						$	321				$	288
Research and development					792					913					827							1,705					1,845
Selling, general and administrative					1,344					1,951					1,438							3,295					3,209
Restructuring expense					44					30					-							74					-
Total				$	2,328				$	3,067				$	2,418						$	5,395				$	5,342

Discussion of Non-GAAP Financial Measures

(1)		Stock-Based Compensation Related Items: Stock-based compensation expense relates primarily to equity awards, such as stock options and restricted stock units. Stock-based compensation is a non-cash expense that varies in amount from period to period and is dependent on market forces that are often beyond our control. As such, management excludes this item from our internal operating forecasts and models. Management believes that non-GAAP measures adjusted for stock-based compensation provide investors with a basis to measure our core performance against the performance of other companies without the variability created by stock-based compensation as a result of the variety of equity awards used by companies and the varying methodologies and subjective assumptions used in determining such non-cash expense.
(2)		Strategic Initiatives and Acquisition Related Items: We exclude certain expense items resulting from our strategic initiatives and acquisitions including the following, when applicable: (i) amortization of purchased intangible assets associated with our acquisitions or relating to our unconsolidated affiliates, (ii) strategic initiatives and acquisition-related charges, and (iii) gain from business acquisition. The amortization of purchased intangible assets associated with our acquisitions results in our recording expenses in our GAAP financial statements that were already expensed by the acquired company before the acquisition and for which we have not expended cash. Moreover, had we internally developed the products acquired, the amortization of intangible assets, and the expenses of uncompleted research and development would have been expensed in prior periods. Accordingly, we analyze the performance of our operations in each period without regard to such expenses. In addition, our strategic initiatives and acquisitions result in non-continuing operating expenses, which would not otherwise have been incurred by us in the normal course of our business operations. In the second quarter of fiscal 2014, we finalized the acquisition of the remaining ownership interest in UpdateLogic, Inc., resulting in acquisition-related charges and gain from business acquisition. We do not expect expenses of similar nature to be paid or gain of similar nature to be received in our normal course of business and consider it infrequent and non-recurring. We believe that providing non-GAAP information for strategic initiatives and acquisition-related expense items and gain from business acquisition in addition to the corresponding GAAP information allows the users of our financial statements to better review and understand the historic and current results of our continuing operations, and also facilitates comparisons to less acquisitive peer companies.
(3)		Other Items: We exclude certain other items that are the result of either unique or unplanned events including the following, when applicable: (i) other than temporary impairment of a privately held company investment, (ii) other income from prepaid royalty settlement, (iii) proceeds from legal settlement and (iv) restructuring and related costs. It is difficult to estimate the amount or timing of these items in advance. Other than temporary impairment of a privately held company investment was recorded due to the conclusion that the possibility is remote that we will exercise our warrants to purchase the entity’s preferred stock or that we will realize any other value from these investments. Other income from prepaid royalty settlement relates to the termination of an HDMI rebate agreement with one of the HDMI adopters. Proceeds from legal settlement relates to our acquisition of SiBEAM, Inc. on May 16, 2011. We do not expect other income or proceeds of similar nature to be recognized or received in our normal course of business and consider it infrequent and non-recurring. Restructuring charges result from events which arise from unforeseen circumstances, which often occur outside of the ordinary course of continuing operations. Although these events are reflected in our GAAP financials, these unique transactions may limit the comparability of our on-going operations with prior and future periods. As such, we believe that these expenses do not accurately reflect the underlying performance of our continuing operations for the period in which they are incurred. We assess our operating performance both with these amounts included and excluded, and by providing this information, we believe the users of our financial statements are better able to understand the financial results of what we consider our continuing operations.
(4)		Tax adjustments: For the three and six months ended June 30, 2014 and June 30, 2013 and the three months ended March 31, 2014, our non-GAAP tax rate was approximately 30% of non-GAAP pre-tax income. Non-GAAP tax rate is primarily based on net expected cash flow for income taxes.

SILICON IMAGE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
Unaudited
					June 30, 2014						December 31, 2013
ASSETS
Current Assets:
Cash and cash equivalents					$	93,348					$	82,220
Short-term investments						47,367						56,003
Accounts receivable, net						25,963						34,729
Inventories						23,710						11,727
Prepaid expenses and other current assets						5,775						7,733
Deferred income taxes						631						191
Total current assets						196,794						192,603
Property and equipment, net						14,369						14,676
Deferred income taxes, non-current						-						4,368
Intangible assets, net						18,250						10,348
Goodwill						30,458						21,646
Other assets						6,354						8,498
Total assets					$	266,225					$	252,139
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable					$	16,580					$	12,894
Accrued and other current liabilities						26,828						20,622
Deferred margin on sales to distributors						11,086						9,634
Deferred license revenue						1,889						2,742
Total current liabilities						56,383						45,892
Other long-term liabilities						13,650						16,522
Total liabilities						70,033						62,414
Stockholders’ equity						196,192						189,725
Total liabilities and stockholders’ equity					$	266,225					$	252,139

SILICON IMAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Unaudited
					Six Months Ended June 30,
					2014						2013
Cash flows from operating activities:
Net income					$	974					$	3,489
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation						3,106						3,127
Stock-based compensation expense						5,395						5,342
Amortization of investment premium						487						578
Tax benefits from employee stock-based transactions						76						182
Other than temporary impairment of a privately held company investment						-						1,500
Amortization of intangible assets						1,798						1,384
Non-operating proceeds from legal settlement						-						(1,275	)
Gain from business acquisition						(361	)					-
Deferred income taxes						(440	)					-
Excess tax benefits from employee stock-based transactions						(76	)					(182	)
Realized gain on sale of short-term investments						-						(143	)
Equity in net loss of unconsolidated affiliate						150						259
Others						(21	)					283
Changes in assets and liabilities:
Accounts receivable						9,108						10,421
Inventories						(11,983	)					(4,734	)
Prepaid expenses and other assets						1,927						1,418
Accounts payable						3,823						4,536
Accrued and other liabilities						5,673						(2,316	)
Deferred margin on sales to distributors						1,452						3,067
Deferred license revenue						(1,958	)					41
Cash provided by operating activities						19,130						26,977
Cash flows from investing activities:
Proceeds from sales of short-term investments						13,796						48,330
Purchases of short-term investments						(5,798	)					(26,588	)
Cash used in business acquisition, net of cash acquired						(13,464	)					-
Purchases of property and equipment						(2,797	)					(2,466	)
Proceeds from legal settlement						-						1,275
Investment in privately-held companies						-						(500	)
Cash paid for assets purchased from a privately-held company						-						(300	)
Purchase of intellectual properties						-						(1,513	)
Cash provided by (used in) investing activities						(8,263	)					18,238
Cash flows from financing activities:
Proceeds from employee stock program						3,453						3,090
Excess tax benefits from employee stock-based transactions						76						182
Repurchase of restricted stock units for income tax withholding						(974	)					(1,332	)
Payment to acquire treasure shares						(2,377	)					-
Cash paid to settle contingent consideration liabilities						(18	)					(45	)
Cash provided by financing activities						160						1,895
Effect of exchange rate changes on cash and cash equivalents						101						(233	)
Net increase in cash and cash equivalents						11,128						46,877
Cash and cash equivalents — beginning of period						82,220						29,069
Cash and cash equivalents — end of period					$	93,348					$	75,946
Supplemental cash flow information:
Cash payment for income taxes					$	(3,710	)				$	(2,705	)
Restricted stock units vested					$	2,936					$	3,902
Property and equipment and other assets purchased but not paid for					$	603					$	688
Unrealized gain (loss) on short-term investments					$	13					$	(435	)

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Contact:

MEDIA CONTACT:
Silicon Image, Inc.
Sherrie Gutierrez, 408-616-4017
Email Contact
or
INVESTOR RELATIONS CONTACT:
Silicon Image, Inc.
Alex Chervet, 408-616-4153
Email Contact