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Silicon Image Announces Fourth Quarter and Fiscal Year 2012 Earnings

  Silicon Image Announces Fourth Quarter and Fiscal Year 2012 Earnings

               MHLInstalled Base Grew to 220 Million Products

Business Wire

SUNNYVALE, Calif. -- February 5, 2013

Silicon Image, Inc. (NASDAQ: SIMG), a leading provider of HD connectivity
solutions, today reported financial results for its fourth quarter and fiscal
year ended December 31, 2012.

Revenue for the fourth quarter of 2012 was $59.6 million, approximately a 2%
increase from revenue of $58.7 million in the fourth quarter of 2011, and a
19% decrease from $73.9 million in the third quarter of 2012. Revenue for
fiscal year 2012 was $252.4 million compared with $221.0 million for fiscal
year 2011.

“During 2012, Silicon Image achieved a significant number of milestones,” said
Camillo Martino, chief executive officer of Silicon Image, Inc. “We shipped
nearly 200 million product units, including more than 140 million MHL
transmitters for smartphones and tablets. We also successfully launched our
UltraGig™ product line, a complete 60GHz WirelessHD® solution for mobile
devices.”

GAAP net loss for the fourth quarter of 2012 was $0.3 million, or $0.00 per
diluted share, compared with a net loss of $0.4 million, or $0.00 per diluted
share, for the third quarter of 2012 and a net loss of $10.2 million, or $0.12
per diluted share, for the fourth quarter of 2011. GAAP net loss for fiscal
year 2012 was $11.2 million, or $0.14 per diluted share, compared with a net
loss for fiscal year 2011 of $11.6 million, or $0.14 per diluted share.

Non-GAAP net income for the fourth quarter of 2012 was $6.2 million, or $0.08
per diluted share, compared with a net income of $8.8 million, or $0.11 per
diluted share, for the third quarter of 2012 and a net income of $4.8 million,
or $0.06 per diluted share, for the fourth quarter of 2011. Non-GAAP net
income for fiscal year 2012 was $18.5 million, or $0.22 per share, compared
with a net income for fiscal year 2011 of $16.4 million, or $0.20 per diluted
share. Non-GAAP net income for these periods excludes stock-based compensation
expense, impairment of investment in an unconsolidated affiliate, impairment
of intangible asset, write-off certain unsalable inventory, amortization of
intangible assets, restructuring charges, business acquisition related
expenses and reversal of a subsidiary’s foreign currency translation
adjustment.

“Our non-GAAP net income exceeded our expectations for the quarter, and our
revenue for the full year increased 14% from the year before,” said Mr.
Martino. “Additionally, our non-GAAP earnings per share grew year over year
and we remain committed to executing our strategy as planned and driving
shareholder value.”

During the fourth quarter of 2012, pursuant to the share repurchase plan
announced in April 2012, Silicon Image repurchased approximately 751,000
shares of its common stock for approximately $3.3 million. In addition,
pursuant to the $30 million accelerated share repurchase agreement entered in
November 2012, Silicon Image received approximately 5 million shares of its
common stock and expects to receive an additional 1 million to 1.5 million
shares when the program concludes. The company’s cash and short-term
investments balance as of December 31, 2012 was $107.5 million.

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
first quarter of 2013:

Revenue: approximately $59 million to $61 million
Gross Margin: approximately 58%
GAAP operating expenses: approximately $37.5 million
Non-GAAP operating expenses: approximately $34.5 million
Diluted shares outstanding: approximately 77 million
Non-GAAP tax rate: approximately 30% of non-GAAP pre-tax income

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 amortization of intangibles, stock based
compensation, impairment of investment in an unconsolidated affiliate,
impairment of intangible asset, write-off certain unsalable inventory,
restructuring charges, business acquisition related expenses and reversal of a
subsidiary’s foreign currency translation adjustment 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
fourth quarter of 2012 results at 2:00 p.m. Pacific Time and will webcast the
event. To access the conference call, dial 877-941-8416 or 480-629-9808 and
enter pass code 4588511. The webcast and replay will be accessible on Silicon
Image's investor relations website at http://ir.siliconimage.com. A replay of
the conference call will be available within two hours of the conclusion of
the conference call through February 19, 2013. To access the replay, please
dial 800-406-7325 or 303-590-0303 and enter pass code 4558851.

About Silicon Image, Inc.

Silicon Image is a leading provider of connectivity solutions that enable the
reliable distribution and presentation of high-definition content for consumer
electronics, mobile, and PC markets. The company delivers its technology via
semiconductor and intellectual property products that are compliant with
global industry standards and feature market leading Silicon Image innovations
such as InstaPort™ and InstaPrevue™. Silicon Image’s products are deployed by
the world’s leading electronics manufacturers in devices such as mobile
phones, tablets, DTVs, Blu-ray Disc™ players, audio-video receivers, digital
cameras, as well as desktop and notebook PCs. Silicon Image has driven the
creation of the highly successful HDMI® and DVI™ industry standards, the
latest standard for mobile devices – MHL®, and the leading 60GHz wireless HD
video standard – WirelessHD®. Via its wholly-owned subsidiary, Simplay Labs,
Silicon Image offers manufacturers comprehensive standards interoperability
and compliance testing services. For more information, visit us at
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                  Twelve Months Ended
                      December   September   December     December     December
                      31,        30,         31,          31,          31,
                      2012      2012       2011         2012        2011
Revenue:
Product               $ 46,808   $ 62,197    $ 45,029     $ 203,487    $ 174,234
Licensing              12,796   11,722    13,704      48,877     46,775
Total revenue          59,604   73,919    58,733      252,364    221,009
Cost of revenue and
operating expenses:
Cost of product         30,105     30,760      22,824       109,815      90,035
revenue (1)
Cost of licensing       220        99          150          626          794
revenue
Research and            17,305     17,848      17,646       77,372       66,533
development (2)
Selling, general
and administrative      12,279     14,834      13,865       57,446       55,277
(3)
Amortization of
acquisition-related     (889)      496         496          599          1,585
intangible assets
Restructuring           (54)       73          812          110          2,269
expense
Impairment of          -        -         8,500       -          8,500
intangible asset
Total cost of
revenue and            58,966   64,110    64,293      245,968    224,993
operating expenses
Income (loss) from      638        9,809       (5,560)      6,396        (3,984)
operations
Impairment of
investment in an        -          (7,467)     -            (7,467)      -
unconsolidated
affiliate
Interest income and    555      323       384         1,661      1,918
other, net
Income (loss)
before provision
for income taxes
and equity in net       1,193      2,665       (5,176)      590          (2,066)
loss of an
unconsolidated
affiliate
Income tax expense      1,458      2,464       4,047        9,979        8,583
Equity in net loss
of an                  -        609       994        1,803      994
unconsolidated
affiliate
Net loss              $ (265)   $ (408)    $ (10,217)   $ (11,192)  $ (11,643)
                                                                       
Net loss per share    $ (0.00)   $ (0.00)    $ (0.12)     $ (0.14)     $ (0.14)
– basic and diluted
Weighted average
shares – basic and      79,564     82,504      82,050       81,872       80,603
diluted

(1) Includes
stock-based           $ 104      $ 97        $ 84         $ 523        $ 670
compensation
expense
(2) Includes
stock-based           $ 871      $ 812       $ 777        $ 3,585      $ 3,774
compensation
expense
(3) Includes
stock-based           $ 1,200    $ 1,124     $ 1,135      $ 5,096      $ 5,076
compensation
expense
                                                                       

SILICON IMAGE, INC.
GAAP NET LOSS TO NON-GAAP NET INCOME RECONCILIATION
(In thousands, except per share amounts)
Unaudited
                                                                 
                 Three Months Ended                      Twelve Months Ended
                 December     September    December      December      December
                 31,          30,          31,           31,           31,
                 2012        2012        2011          2012         2011
GAAP net loss    $ (265   )   $ (408   )   $ (10,217 )   $ (11,192 )   $ (11,643 )
Non-GAAP
adjustments:
Stock-based
compensation       2,175        2,033        1,996         9,204         9,520
expense (1)
Amortization
of intangible      (639   )     671          496           1,024         1,585
assets (2)
Amortization
of intangible
assets of an       -            134          232           402           232
unconsolidated
affiliate (2)
Business
strategic
initiative and     -            201          -             3,257         814
acquisition
related
expenses (2)
Impairment of
investment in
an                 -            7,467        -             7,467         -
unconsolidated
affiliate (3)
Impairment of
intangible         -            -            8,500         -             8,500
asset (3)
Write-down of
certain            6,245        -            -             6,245         -
unsalable
inventory (3)
Restructuring      (54    )     73           812           110           2,269
expense (3)
Reversal of a
subsidiary's
foreign           -         -         -           -          132     
currency
translation
adjustment (3)
Non-GAAP net
income before      7,462        10,171       1,819         16,517        11,409
tax
adjustments
Tax
adjustments       (1,218 )   (1,327 )   2,992       2,030      4,984   
(4)
Non-GAAP net     $ 6,244    $ 8,844    $ 4,811      $ 18,547    $ 16,393  
income
                                                                       
Non-GAAP net
income per       $ 0.08       $ 0.11       $ 0.06        $ 0.23        $ 0.20
share — basic
Non-GAAP net
income per       $ 0.08       $ 0.11       $ 0.06        $ 0.22        $ 0.20
share —
diluted
Weighted
average shares     79,564       82,504       82,050        81,872        80,603
— basic
Weighted
average shares     80,389       83,353       83,406        82,871        83,195
— diluted
                                                                       
Stock-based
compensation
expense is
composed of
the following:
Cost of          $ 104        $ 97         $ 84          $ 523         $ 670
revenue
Research and       871          812          777           3,585         3,774
development
Selling,
general and       1,200     1,124     1,135       5,096      5,076   
administrative
Total            $ 2,175    $ 2,033    $ 1,996      $ 9,204     $ 9,520   
                                                                                 

Discussion of Non-GAAP Financial Measures

      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
(1)  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.
      
      Business Strategic Initiative and Acquisition Related Items: We exclude
      certain expense items resulting from our business strategic initiative
      and acquisitions including the following, when applicable:(i)
      amortization of purchased intangible assets associated with our
      acquisitions; or relating to our unconsolidated affiliates and (ii)
      business strategic initiative and acquisition-related charges. 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
(2)   to such expenses. In addition, our business 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. During January 2012, we established a research and
      development center in Hyderabad, India, whereby we hired 75 employees
      from our subcontractor and had to incur a onetime fee of approximately
      $3.056 million towards acquiring these employees. We amortized this fee
      over the first two quarters of 2012 amounting to $1,528 million per
      quarter. We do not expect a fee of similar nature to be paid in our
      normal course of business and consider it infrequent and non-recurring.
      We believe that providing non-GAAP information for business strategic
      initiative and acquisition-related expense items 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.
      
      Other Items: We exclude certain other items that are the result of
      either unique or unplanned events including the following, when
      applicable:(i) impairment charges, (ii) write-down of certain unsalable
      inventory due to defects in the material used by one of our assembly
      vendors in the packaging process, (iii) restructuring and related costs
      and (iv) reversal of a subsidiary’s foreign currency translation
      adjustment. It is difficult to estimate the amount or timing of these
      items in advance. Restructuring charges result from events which arise
      from unforeseen circumstances, which often occur outside of the ordinary
      course of continuing operations. The inventory write-down is an unusual
      and one-time event for which we are seeking recovery from the vendor.
      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. Reversal of a
(3)   subsidiary’s foreign currency translation adjustment relates to the
      reversal from accumulated Other Comprehensive Income (OCI) to income of
      the accumulated foreign currency translation adjustment of our wholly
      owned subsidiary in Germany whose facilities and offices had been
      substantially liquidated during 2010. Our decision to take the
      accumulated foreign currency translation adjustment to income was based
      on the provisions of FASB ASC. No. 830-30-40, which states that currency
      translation adjustment should not be released from accumulated OCI into
      income until complete or substantially complete liquidation of an
      investment in a foreign entity. As this was a one-time income and that
      this unique transaction limits the comparability of our on-going
      operations with prior and future periods, we believe that this income
      does not accurately reflect the underlying performance of our continuing
      operations in the period in which this income was 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.
      
      Tax adjustments: For the three and twelve months ended December 31, 2012
      and for the three months ended September 30, 2012, our non-GAAP tax rate
(4)   was approximately 30% of non-GAAP pre-tax income. For the three and
      twelve months ended December 31, 2011, our non-GAAP tax rate was
      approximately 18% 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
                                                          
                                         December 31, 2012   December 31, 2011
ASSETS
Current Assets:
Cash and cash equivalents                $     29,069        $     37,125
Short-term investments                         78,398              124,301
Accounts receivable, net                       37,936              27,368
Inventories                                    11,268              10,062
Prepaid expenses and other current             8,105               9,101
assets
Deferred income taxes                         841                708
Total current assets                           165,617             208,665
Property and equipment, net                    14,840              12,772
Deferred income taxes, non-current             4,144               4,706
Intangible assets, net                         11,452              11,915
Goodwill                                       21,646              18,646
Other assets                                  9,043              9,369
Total assets                             $     226,742       $     266,073
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable                         $     10,690        $     10,133
Accrued and other current liabilities          19,600              26,116
Deferred margin on sales to                    10,340              7,809
distributors
Deferred license revenue                      2,185              2,684
Total current liabilities                      42,815              46,742
Other long-term liabilities                   16,827             14,815
Total liabilities                              59,642              61,557
Stockholders’ equity                          167,100            204,516
Total liabilities and stockholders’      $     226,742       $     266,073
equity
                                                                   

SILICON IMAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Unaudited
                                                     Year Ended December 31,
                                                      2012        2011
Cash flows from operating activities:                            
Net loss                                              $ (11,192)   $ (11,643)
Adjustments to reconcile net loss to cash provided
by operating activities:
Depreciation                                            6,107        6,416
Stock-based compensation expense                        9,204        9,520
Amortization of investment premium                      1,995        2,610
Tax benefits from employee stock-based transactions     498          2,125
Impairment of investment in an unconsolidated           7,467        -
affiliate
Impairment of intangible asset                          -            8,500
Amortization of intangible assets                       1,331        1,585
Deferred income taxes                                   429          389
Reversal of a subsidiary's accumulated foreign          -            132
currency translation adjustment
Excess tax benefits from employee stock-based           (498)        (2,125)
transactions
Realized loss on sale of short-term investments         (139)        (177)
Equity in net loss of unconsolidated affiliate          1,803        994
Others                                                  340          240
Changes in assets and liabilities:
Accounts receivable                                     (10,503)     (4,353)
Inventories                                             (1,206)      1,701
Prepaid expenses and other assets                       1,124        (2,844)
Accounts payable                                        (529)        (2,521)
Accrued and other liabilities                           (4,635)      4,829
Deferred margin on sales to distributors                2,531        (5,675)
Deferred license revenue                               (505)      (2,245)
Cash provided by operating activities                  3,622      7,458
Cash flows from investing activities:
Proceeds from maturities and sales of short-term        104,765      147,032
investments
Purchases of short-term investments                     (60,612)     (113,319)
Cash used in business acquisitions                      -            (15,910)
Purchases of property and equipment                     (8,885)      (7,821)
Cash paid for investment in an unconsolidated           (2,750)      (7,514)
affiliate
Investment in privately held companies                  (6,000)      -
Cash paid for assets purchased from privately-held      (1,200)      -
company
Advances for intellectual properties                    (1,242)      (7,805)
Repayment of secured notes                             -          575
Cash provided by (used in) investing activities        24,076     (4,762)
Cash flows from financing activities:
Proceeds from employee stock programs                   5,631        6,203
Excess tax benefits from employee stock-based           498          2,125
transactions
Payment to acquire treasury shares                      (39,684)     -
Repurchases of restricted stock units for income        (2,179)      (3,304)
tax withholding
Payment of a line of credit assumed in business        -          (523)
acquisition
Cash provided by (used in) financing activities        (35,734)   4,501
Effect of exchange rate changes on cash and cash       (20)       (14)
equivalents
Net increase (decrease) in cash and cash                (8,056)      7,183
equivalents
Cash and cash equivalents — beginning of year          37,125     29,942
Cash and cash equivalents — end of year               $ 29,069    $ 37,125
Supplemental cash flow information:
Common stock issued in connection with business       $ -          $ 10,429
acquisition (1.3 million shares)
Cash payment for income taxes                         $ (6,389)    $ (6,722)
Restricted stock units vested                         $ 6,276      $ 9,626
Property and equipment and other assets purchased     $ 2,380      $ 1,132
but not paid for
Unrealized gain (loss) on short term investments      $ 40         $ (90)

Contact:

MEDIA CONTACT:
Silicon Image, Inc.
Gabriele Collier, 408-616-4088
gcollier@siliconimage.com
or
INVESTOR CONTACT:
Investor Relations – The Blueshirt Group
Mike Bishop, 415-217-4968
mike@blueshirtgroup.com
 
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