10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2005

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from     to         .

Commission file number: 000-26887

Silicon Image, Inc.

(Exact name of registrant as specified in its charter)

Delaware	77-0396307
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)

1060 East Arques Avenue
Sunnyvale, California 94085
(Address of principal executive offices and zip code)

(408) 616-4000
(Registrant’s telephone number, including area code)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) Yes þ No o and (2) has been subject to such filing requirements for the past 90 days Yes þ No o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o

     The number of shares of the registrant’s Common Stock, $0.001 par value per share, outstanding as of July 29, 2005 was 80,032,134 shares.

Silicon Image, Inc.
Quarterly Report on Form 10-Q
Three and Six Months Ended
June 30, 2005

Table of Contents

Part I	Financial Information (Unaudited)
Item 1	Financial Statements
	Condensed Consolidated Balance Sheets as of June 30, 2005 and December 31, 2004	3
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2005 and 2004	4
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2005 and 2004	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4	Controls and Procedures	40
Part II	Other Information	41
Item 1	Legal Proceedings	41
Item 2	Change in Securities and Use of Proceeds	42
Item 3	Defaults Upon Senior Securities	42
Item 4	Submission of Matters to a Vote of Security Holders	42
Item 5	Other Information	42
Item 6	Exhibits and Reports on Form 8-K	43
Signatures		44
Certifications
EXHIBIT 10.01
EXHIBIT 10.02
EXHIBIT 31.01
EXHIBIT 31.02
EXHIBIT 32.01
EXHIBIT 32.02

2

Part I. Financial Information

Item 1. Financial Statements

Silicon Image, Inc.

Condensed Consolidated Balance Sheets
(in thousands, except share and per share amounts)
(unaudited)

	June 30,			December 31,
	2005			2004
Assets
Current Assets:
Cash and cash equivalents	$	17,980		$	23,280
Short-term investments		98,858			70,240
Accounts receivable, net of allowances for doubtful accounts of $806 at June 30 and $745 at December 31		25,227			19,417
Inventories		12,854			13,926
Prepaid expenses and other current assets		3,531			3,073
Total current assets		158,450			129,936
Property and equipment, net		8,584			9,494
Goodwill		13,021			13,021
Intangible assets, net		1,135			1,683
Other assets		779			774
Total assets	$	181,969		$	154,908
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable	$	12,686		$	6,833
Accrued liabilities		11,807			13,418
Deferred license revenue		3,413			2,127
Debt obligations and capital leases		418			489
Deferred margin on sales to distributors		9,985			9,962
Total current liabilities		38,309			32,829
Commitments and contingencies (Note 9)
Stockholders’ Equity:
Common stock, par value $0.001; shares authorized:
150,000,000 – June 30 and December 31; shares issued and outstanding: 79,498,572 – June 30 and 78,131,604 – December 31		80			78
Additional paid-in capital		296,949			299,744
Unearned stock compensation		(7,228	)		(7,632	)
Accumulated deficit		(145,884	)		(172,978	)
Accumulated other comprehensive income (loss)		(257	)		2,867
Total stockholders’ equity		143,660			122,079
Total liabilities and stockholders’ equity	$	181,969		$	154,908

See accompanying Notes to Condensed Consolidated Financial Statements.

3

Silicon Image, Inc.

Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)

	Three Months Ended June 30,					Six Months Ended June 30,
	2005		2004			2005			2004
Revenue:
Product	$	47,323	$	36,826		$	88,131		$	68,876
Development, licensing and royalties		3,398		6,535			6,910			10,343
Total revenue		50,721		43,361			95,041			79,219
Cost and operating expenses:
Cost of revenue (1)		20,987		17,695			36,492			32,210
Research and development (2)		11,903		16,245			20,025			33,043
Selling, general and administrative (3)		8,801		10,067			12,705			21,718
Amortization of intangible assets		274		357			548			713
Patent assertion costs		72		98			121			263
Total cost and operating expenses		42,037		44,462			69,891			87,947
Income (loss) from operations		8,684		(1,101	)		25,150			(8,728	)
Interest income and other, net		641		104			1,259			188
Gain on investment security		1,382		990			1,263			990
Income (loss) before provision for income taxes		10,707		(7	)		27,672			(7,550	)
Provision for taxes		247		255			578			572
Net income (loss)	$	10,460	$	(262	)	$	27,094		$	(8,122	)
Net income (loss) per share:
Net income (loss) per share – basic	$	0.13	$	(0.00	)	$	0.34		$	(0.11	)
Net income (loss) per share – diluted	$	0.12	$	(0.00	)	$	0.31		$	(0.11	)
Weighted average shares – basic		78,981		73,352			78,722			72,934
Weighted average shares – diluted		86,817		73,352			87,157			72,934
(1) Includes stock compensation expense (benefit)	$	41	$	849		$	(1,156	)	$	2,000
(2) Includes stock compensation expense (benefit)		747		4,776			(3,691	)		10,989
(3) Includes stock compensation expense (benefit)		514		3,507			(3,178	)		8,211

See accompanying Notes to Condensed Consolidated Financial Statements.

4

Silicon Image, Inc.

Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)

	Six Months Ended June 30,
	2005			2004
Cash flows from operating activities:
Net income (loss)	$	27,094		$	(8,122	)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation		3,153			2,329
Amortization of intangible assets		548			713
Provision for doubtful accounts receivable		61			52
Stock compensation expense (benefit)		(8,025	)		21,200
Gain on investment security		(1,263	)		(990	)
Changes in assets and liabilities:
Accounts receivable		(5,871	)		(7,481	)
Inventories		1,072			375
Prepaid expenses and other assets		(463	)		649
Accounts payable		5,853			2,832
Accrued liabilities and deferred license revenue		(325	)		3,265
Deferred margin on sales to distributors		23			4,464
Cash provided by operating activities		21,857			19,286
Cash flows from investing activities:
Proceeds from sales and maturities of short-term investments		32,930			13,281
Purchases of short-term investments		(63,454	)		(19,625	)
Net purchases of property and equipment		(2,243	)		(2,975	)
Cash used in investing activities		(32,767	)		(9,319	)
Cash flows from financing activities:
Proceeds from issuances of common stock, net		5,681			8,461
Repayments of capital lease and debt obligations		(71	)		(869	)
Cash provided by financing activities		5,610			7,592
Net increase (decrease) in cash and cash equivalents		(5,300	)		17,559
Cash and cash equivalents — beginning of period		23,280			24,059
Cash and cash equivalents — end of period	$	17,980		$	41,618
Supplemental cash flow information:
Cash payment for income taxes	$	296		$	262
Supplemental non-cash investing and financing activities:
Unrealized gain on investment security, net of tax	$	—		$	3,943

See accompanying Notes to Condensed Consolidated Financial Statements.

5

Silicon Image, Inc.

Notes to Condensed Consolidated Financial Statements
June 30, 2005
(unaudited)

1. Basis of Presentation

          In the opinion of management, the accompanying unaudited condensed consolidated financial statements of Silicon Image, Inc. (“Silicon Image”, “we” or “our”) included herein have been prepared on a basis consistent with our December 31, 2004 audited financial statements and include all adjustments, consisting of normal recurring adjustments, necessary to fairly state the consolidated financial position of Silicon Image and our subsidiaries at June 30, 2005 and the related consolidated results of operations and cash flows for the three and six months ended June 30, 2005 and 2004. All significant intercompany accounts and transactions have been eliminated. These interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in our Form 10-K for the fiscal year ended December 31, 2004. Certain comparative amounts have been reclassified to conform with the current presentation. These reclassifications have no impact on the reported results of operations for any period presented. Results of operations for the three and six months ended June 30, 2005 are not necessarily indicative of future operating results.

2. Recent Accounting Pronouncements

          On December 16, 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 123 (revised 2004), Share-Based Payment (“SFAS 123R”). SFAS 123R eliminates the alternative of applying the intrinsic value measurement provisions of Accounting Principles Board (“APB”) Opinion No. 25 (“APB 25”) to stock compensation awards issued to employees. Rather, the new standard requires enterprises to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost will be recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).

          The Company has not yet quantified the effects of the adoption of SFAS 123R, but it is expected that the new standard may result in significant stock-based compensation expense. The pro forma effects on net income (loss) and net income (loss) per share if the Company had applied the fair value recognition provisions of original SFAS No. 123 on stock compensation awards (rather than applying the intrinsic value measurement provisions of APB 25) are disclosed in Note 3, “Stock-Based Compensation”. Although such pro forma effects of applying the original SFAS 123 may be indicative of the effects of adopting SFAS 123R, the provisions of these two statements differ in some important respects. The actual effects of adopting SFAS 123R will be dependent on numerous factors including, but not limited to, the valuation model chosen by the Company to value stock-based awards; the assumed award forfeiture rate; the accounting policies adopted concerning the method of recognizing the fair value of awards over the requisite service period; and the transition method (as described below) chosen for adopting SFAS 123R.

          SFAS 123R will be effective for the Company’s fiscal quarter beginning January 1, 2006, and requires the use of the Modified Prospective Application Method. Under this method, SFAS 123R is applied to new awards and to awards modified, repurchased, or cancelled after the effective date. Additionally, compensation cost for the portion of awards for which the requisite service has not been rendered (such as unvested options) that is outstanding as of the date of adoption shall be recognized as the remaining requisite services are rendered. The compensation cost relating to unvested awards at the date of adoption shall be based on the grant-date fair value of those awards as calculated for pro forma disclosures under the original SFAS No. 123. In addition, companies may use the Modified Retrospective Application Method. This method may be applied to all prior years for which the original SFAS No. 123 was effective or only to prior interim periods in the year of initial adoption. If the Modified Retrospective Application Method is applied, financial statements for prior periods shall be adjusted to give effect to the fair-value-based method of accounting for awards on a consistent basis with the pro forma disclosures required for those periods under the original SFAS No. 123. We are in the process of evaluating the impact of the adoption of SFAS 123R on our financial statements.

          On March 29, 2005, the SEC issued SAB 107, which provides guidance on the interaction between FAS 123R, and certain SEC rules and regulations. SAB 107 provides guidance that may simplify some of FAS 123R’s implementation challenges.

          In November 2004, the FASB issued SFAS No. 151 (“SFAS 151”), “Inventory Costs, an amendment of ARB No. 43, Chapter 4”. This Statement amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). This Statement requires those items to be excluded from the cost of inventory and expensed when incurred. In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. This Statement is effective for companies at the beginning of the first interim or annual period beginning after June 15, 2005. We do not believe that the adoption of SFAS 151 will have a material effect on our financial position, results of operations, or cash flows.

6

          In December 2004, the FASB issued SFAS No. 153 (“SFAS 153”), “Exchanges of Non-monetary Assets,” an amendment of APB Opinion No. 29. The guidance in APB Opinion No. 29 (“APB 29”), “Accounting for Non-monetary Transactions”, is based on the principle that exchanges of non-monetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however, included certain exceptions to that principle. SFAS 153 amends APB 29 to eliminate the exception for non-monetary exchanges of similar productive assets and replaces it with a general exception for exchanges of non-monetary assets that do not have commercial substance. A non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This Statement is effective for non-monetary asset exchanges occurring in fiscal periods beginning after June 15, 2005, and should be applied prospectively. We do not believe that the adoption of SFAS 153 will have a material effect on our financial position, results of operations, or cash flows.

          In May 2005, the FASB issued SFAS No. 154 (SFAS 154), Accounting Changes and Error Corrections, which will require entities that voluntarily make a change in accounting principle to apply that change retrospectively to prior periods’ financial statements, unless this would be impracticable. SFAS 154 supersedes APB No. 20 (“APB 20”), Accounting Changes, which previously required that most voluntary changes in accounting principle be recognized by including in the current period’s net income the cumulative effect of changing to the new accounting principle. SFAS 154 also makes a distinction between “retrospective application” of an accounting principle and the “restatement” of financial statements to reflect the correction of an error. Another significant change in practice under SFAS 154 will be that if an entity changes its method of depreciation, amortization, or depletion for long-lived, non-financial assets, the change must be accounted for as a change in accounting estimate. Under APB 20, such a change would have been reported as a change in accounting principle. SFAS 154 applies to accounting changes and error corrections that are made in fiscal years beginning after December 15, 2005. We do not anticipate material impact from adoption of this standard on our financial position, results of operations, or cash flows.

3. Stock-Based Compensation

          Excluding certain re-pricings, we account for stock-based awards to employees and directors using the intrinsic value method of accounting in accordance with APB 25. Under the intrinsic value method, if the exercise price of our employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. As detailed below, we recognize stock compensation expense (benefit) for certain options granted to employees, options granted to non-employees, option repricings, and options assumed in connection with acquisitions.

          Had we recorded compensation expense for our stock options based on the grant-date fair value as prescribed by SFAS No. 123 and SFAS No. 148, our net income (loss) would have been as follows (in thousands, except per share amounts):

	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Net income (loss) — as reported	$	10,460		$	(262	)	$	27,094		$	(8,122	)
Stock-based employee compensation expense (benefit) included in the determination of net income (loss) as reported		560			6,893			(9,705	)		16,179
Stock-based employee compensation expense determined using fair value method		(6,175	)		(5,233	)		(12,765	)		(10,370	)
Pro forma net income (loss)	$	4,845		$	1,398		$	4,624		$	(2,313	)
Net income (loss) per share – basic (as reported)	$	0.13		$	(0.00	)	$	0.34		$	(0.11	)
Net income (loss) per share – diluted (as reported)		0.12			(0.00	)		0.31			(0.11	)
Pro forma net income (loss) per share – basic		0.06			0.02			0.06			(0.03	)
Pro forma net income (loss) per share – diluted		0.06			0.02			0.05			(0.03	)

          The weighted average grant-date fair value was estimated using the Black-Scholes pricing model with the following assumptions:

	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Expected life (years)		5			5			5			5
Interest rate		3.7	%		3.0	%		4.1	%		3.0	%
Volatility		90	%		90	%		90	%		90	%
Dividend yield		—			—			—			—
Weighted average fair value	$	7.51		$	8.37		$	9.36		$	7.39

7

          The weighted average, grant-date fair value of stock purchase rights granted under our Employee Stock Purchase Plan and the assumptions used are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Expected life (years)		1.9			1.5			1.7			1.5
Interest rate		3.8	%		1.2	%		3.8	%		1.2	%
Dividend yield		—			—			—			—
Volatility		77	%		73	%		77	%		73	%
Weighted average grant date fair value	$	5.26		$	2.88		$	4.47		$	2.69

          We are required to determine the fair value of stock option grants to non-employees and to record the amount as an expense over the period during which services are provided to us. Management calculates the fair value of these stock option grants using the Black-Scholes model, which requires us to estimate the life of the stock option, the volatility of our stock, an appropriate risk-free interest rate, and our dividend yield. The calculation of fair value is highly sensitive to the expected life of the stock option and the volatility of our stock, both of which we estimate based primarily on historical experience.

          The following table summarizes the components of our stock compensation expense (benefit) for the three and six months ended June 30, 2005 and 2004 (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2005		2004		2005			2004
Options granted to employees	$	12	$	20	$	31		$	51
Options granted to non-employees		685		1,263		1,624			2,766
Option repricings		415		7,535		(10,220	)		17,656
Options assumed in connection with acquisitions		190		314		540			727
Stock compensation expense (benefit)	$	1,302	$	9,132	$	(8,025	)	$	21,200

          In the table above, options granted to employees, options granted to non-employees, and option repricings are significantly impacted by changes in our stock prices. Increases in our stock price generally have the effect of increasing the associated expense. Decreases in our stock price have the effect of decreasing the associated expense or increasing the associated benefit.

4. Comprehensive income (loss)

          The components of comprehensive income (loss), net of related taxes, were as follows (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Net income (loss)	$	10,460		$	(262	)	$	27,094		$	(8,122	)
Change in unrealized value on investments, net		(1,317	)		3,943			(3,124	)		3,943
Total comprehensive income	$	9,143		$	3,681		$	23,970		$	(4,179	)

          The only component of accumulated other comprehensive income (loss) is the change in the unrealized value of investments, net of tax.

8

5. Net Income (Loss) Per Share

          Basic net income (loss) per share is computed using the weighted-average number of common shares outstanding during the period, excluding shares subject to repurchase, and diluted net income (loss) per share is computed using the weighted-average number of common shares and diluted equivalents outstanding during the period, if any, determined using the treasury stock method. The following table sets forth the computation of basic and diluted net income (loss) per share (in thousands, except per share amounts):

	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Net income (loss)	$	10,460		$	(262	)	$	27,094		$	(8,122	)
Weighted average shares		79,214			74,101			78,955			73,683
Unvested common shares subject to repurchase		(233	)		(749	)		(233	)		(749	)
Weighted average shares – basic		78,981			73,352			78,722			72,934
Weighted average shares – diluted		86,817			73,352			87,157			72,934
Net income (loss) per share – basic	$	0.13		$	(0.00	)	$	0.34		$	(0.11	)
Net income (loss) per share – diluted	$	0.12		$	(0.00	)	$	0.31		$	(0.11	)

          Had we generated net income for the three and six month periods ended June 30, 2004, the number of weighted average securities outstanding that would have been added to weighted average shares for purposes of calculating diluted earnings per share would have been (in thousands):

	Three Months		Six Months
	Ended		Ended
	June 30, 2004		June 30, 2004
Unvested common stock subject to repurchase		749		749
Stock options		10,773		10,284
Total		11,522		11,033

          As a result of our losses for the three and six month periods ended June 30, 2004, all common share equivalents would have been anti-dilutive and have therefore been excluded from the diluted net loss per share calculation. The weighted average securities that were anti-dilutive and excluded from our calculation of diluted net loss per share were approximately 20,413,000 for the three month period ended June 30, 2004, and approximately 20,412,000 for the six month period ended June 30, 2004.

9

6. Balance Sheet Components

	June 30,		December 31,
	2005		2004
	(in thousands)
Inventories:
Raw materials	$	2,559	$	3,089
Work in process		2,864		2,372
Finished goods		7,431		8,465
Total inventories	$	12,854	$	13,926
Accrued liabilities:
Accrued payroll and related expenses	$	5,595	$	3,351
Restructuring accrual		655		1,036
Accrued legal fees		1,033		910
Warranty accrual		353		351
Bonus accrual		915		3,122
Other accrued liabilities		3,256		4,648
Total accrued liabilities	$	11,807	$	13,418

          At the time of revenue recognition, we provide an accrual for estimated costs to be incurred pursuant to our warranty obligation. Our estimate is based primarily on historical experience. Warranty accrual activity for the six months ended June 30, 2005 and 2004 was as follows (in thousands):

	2005			2004
Balance at January 1	$	351		$	271
Provision for warranties issued during the period		115			200
Cash and other settlements made during the period		(113	)		(120	)
Balance at June 30	$	353		$	351

7. Asset impairment and restructuring activities

          During the third quarter of 2001, we began a program to focus our business on products and technology, including those obtained through acquisitions, in which we have, or believe we can achieve, a market leadership position. As part of this program, we decided to cancel numerous products under development, to remove certain projects from our development plan, to phase out or de-emphasize certain existing products and to integrate the operations of two acquired companies—CMD Technology (“CMD”) and Silicon Communication Lab (“SCL”).

          In connection with this program, during the third quarter of 2001 through the first quarter of 2003, we recorded restructuring expenses as a result of four workforce reductions by eliminating approximately 136 positions. These expenses consisted of both cash severance-related costs and non-cash severance-related costs representing the intrinsic value of modified stock options. In addition, restructuring expenses during this period were also a result of expected losses on leased facilities, fixed asset write-downs, impairment of goodwill, intangible assets and acquired technology offset in part by reversals of unearned compensation, a component of stockholders’ equity for unvested stock options that were cancelled in connection with employee terminations.

          Severance and benefits payments are substantially complete. Lease payments will be made in the form of cash through the end of the related lease term of November 2005. The following table presents restructuring activity for the six-month periods ended June 30, 2005 and 2004 (in thousands):

	2005								2004
	Severance								Severance
	and		Leased						and			Leased
	Benefits		Facilities			Total			Benefits			Facilities			Total
Balance as of January 1	$	32	$	1,004		$	1,036		$	37		$	1,838		$	1,875
Cash payments		–		(381	)		(381	)		(5	)		(453	)		(458	)
Balance as of June 30	$	32	$	623		$	655		$	32		$	1,385		$	1,417

10

8. Debt Facilities

          In October 2002, we entered into a $3.6 million term loan to refinance $3.1 million of debt acquired in connection with our acquisition of CMD and $500,000 of other bank debt. This loan bore interest at prime plus 0.25% and required monthly payments through its maturity of October 1, 2004. This loan was repaid in full in 2004.

          During the three months ended March 31, 2003, we borrowed $383,000 to finance certain capital equipment. This term loan bore interest at 5% and required monthly payments through its maturity in February 2005. During the three months ended March 31, 2005, the remaining balance on this loan was repaid in full. During the period ended March 31, 2004, we entered into an agreement to extend this debt facility by way of a revolving line of credit with an availability of up to $10.0 million, and an equipment line of credit of up to $3.0 million. Borrowings under the revolving line were limited to the lesser of $10.0 million or 80% of eligible accounts receivable as defined in the loan agreement, and bore interest at either prime plus 0.25% or LIBOR plus 2.75%, at our option. This revolving line of credit expired in May 2005 and was not renewed.

          In January 2005, we acquired certain capital equipment under a debt arrangement and as of June 30, 2005, the future debt obligations under this arrangement were approximately $80,000.

11

9. Commitments and Contingencies

     Legal Proceedings

          On April 24, 2001, we filed suit in the U.S. District Court for the Eastern District of Virginia against Genesis Microchip Corp. and Genesis Microchip, Inc. (collectively, “Genesis”) for infringement of our U.S. patent number 5,905,769 (USDC E.D. Virginia Civil Action No.: CA-01-266-R) (the “Federal Suit”). On April 24, 2001, we also filed a complaint against Genesis with the International Trade Commission of the United States government (ITC) for unlawful trade practices related to the importation of articles infringing our patent (the “ITC investigation”). The actions sought injunctions to halt the importation, sale, manufacture and use of Genesis DVI receiver chips that infringe our patent, and monetary damages. We voluntarily moved to dismiss the ITC investigation, with notice that we would proceed directly in the Federal Suit. Our motion to dismiss was granted on February 7, 2002. We filed an amended complaint in the Federal Suit as of February 28, 2002, adding a claim for infringement of our U.S. patent number 5,974,464. In April 2002, Genesis answered and made counterclaims against us for non-infringement, license, patent invalidity, fraud, antitrust, unfair competition and patent misuse. Also in April 2002, we filed a motion to dismiss certain of Genesis’s counterclaims. In addition, we filed a motion to bifurcate trial of the counterclaims to the extent the court does not dismiss them. In May 2002, the Court granted our motion to dismiss certain of the counterclaims, with leave to amend. Genesis re-filed counterclaims against us for fraud and patent misuse. We filed another motion to dismiss these counterclaims, which the Court granted with prejudice on August 6, 2002. In December 2002, the parties entered into a memorandum of understanding (MOU) to settle the case. When the parties failed to reach agreement on a final, definitive agreement as required by the MOU, in January 2003, the parties filed motions with the Court to enforce their respective interpretations of the MOU. On July 15, 2003, the Court granted our motion to interpret the MOU in the manner we requested, and ruled that Genesis had engaged in efforts to avoid its obligations under the MOU. On August 6, 2003, the Court entered a final judgment based on its July 15, 2003 ruling. Under the final judgment order, Genesis was ordered to make a substantial cash payment, and to make royalty payments; although Genesis has made a cash payment to the Court, it has not made all the payments that are required under the final judgment order. We filed motions for reimbursement of some of our expenses, including some of our legal fees, and for modification and/or clarification of certain items of the judgment, and to hold Genesis in contempt of Court for breaching the protective order in the case by disclosing secret information to at least one of our competitors. On December 19, 2003, the Court granted our motions in part and denied them in part: the court issued an amended judgment, and held Genesis in contempt of Court for breaching the protective order. Under the amended judgment, Genesis was ordered to make a substantial cash payment, royalty payments, and interest; although Genesis has made certain cash payments to the Court, it has not made all the payments that are required under the amended judgment. On January 16, 2004, Genesis filed a notice of appeal to the U.S. Court of Appeals for the Federal Circuit. On August 26, 2004, the parties completed the filing of their respective appeal briefs. After a hearing, the Federal Circuit dismissed Genesis’ appeal for lack of jurisdiction. The Federal Circuit held that the lower court’s order, which was based on the parties’ agreement to settle the case, was not “final” and appealable. The case was remanded by the Federal Circuit back to the lower court. The parties have negotiated a stipulation by which the lower court can issue a new final judgment. Under this stipulation, the Court was to turn over funds deposited by Genesis to us. On July 19, 2005 the Court sent $6.8 million to Silicon Image, which we have deposited in a segregated account and will not use until Genesis has exhausted all of its appeals.

          To date, we have not received any unrestricted cash payments nor have we recognized any gain associated with the matter. If the MOU is upheld in its present form after all appeals have been exhausted the restrictions on the use of the cash payment will be lifted and additional cash amounts will be owed by Genesis to Silicon Image under the terms of the MOU. In addition, Genesis will be granted a royalty-bearing license for the right to use certain non-necessary patent claims referred to in the DVI Adopters Agreement. In addition, Genesis will be granted a royalty-bearing license for the right to use these claims as part of any HDMI implementation. Genesis will also be granted a royalty-bearing license to expand use of certain DVI- related patent claims to the consumer electronics marketplace. We expect that an amended final, appealable order will be entered in the third quarter of 2005. We further expect that Genesis will refile its appeal. Through June 30, 2005, we have spent and expect to continue to incur significant legal costs until the matter is resolved.

          Silicon Image, certain officers and directors, and Silicon Image’s underwriters have been named as defendants in a securities class action lawsuit captioned Gonzales v. Silicon Image, et al., No. 01 CV 10903 (SDNY 2001) pending in Federal District Court for the Southern District of New York. The lawsuit alleges that all defendants were part of a scheme to manipulate the price of Silicon Image’s stock in the aftermarket following Silicon Image’s initial public offering in October 1999. Response to the complaint and discovery in this action on behalf of Silicon Image and individual defendants has been stayed by order of the court. The lawsuit is proceeding as part of a coordinated action of over 300 such cases brought by plaintiffs in the Southern District of New York. Pursuant to a tolling agreement, individual defendants have been dropped from the suit for the time being. In February 2003, the Court denied motions to dismiss brought by the underwriters and certain issuers and ordered that the case may proceed against certain issuers including against Silicon Image. A proposed settlement has been negotiated and has received preliminary approval by the Court. In the event that the settlement is granted final approval, we do not expect it to have a material effect on our results of operations or financial position. This settlement will not require Silicon Image to pay any settlement amounts nor issue any securities. In the event that the settlement is not finally approved, we could not accurately predict the outcome the litigation, but we intend to defend this matter vigorously.

12

          Silicon Image and certain of its officers were named as defendants in a securities class action litigation captioned “Curry v. Silicon Image, Inc., Steve Tirado, and Robert Gargus, No. C05 00456 MMC”, commenced on January 31, 2005 and pending in the United States District Court for the Northern District of California. Plaintiffs filed the action on behalf of a putative class of shareholders who purchased Silicon Image stock between October 19, 2004 and January 24, 2005. The lawsuit alleges that Silicon Image and certain of its officers and directors made alleged misstatements of material facts and violated certain provisions of Sections 20(a) and 10(b) of the Exchange Act of 1934 and Rule 10b-5 promulgated there under. On April 27, 2005, the Court issued an order appointing lead plaintiffs and approving the selection of lead counsel. On July 27, 2005, plaintiffs filed an amended consolidated complaint. The amended complaint no longer names Mr. Gargus as an individual defendant, but adds David Lee as an individual defendant. By stipulation and order, the defendants’ deadline to file any motion to dismiss is September 26, 2005. Silicon Image intends to defend itself vigorously in this matter.

          On January 14, 2005, we received a notification that the Securities and Exchange Commission had commenced a formal, private investigation involving trading in securities of Silicon Image. We are fully cooperating with the investigation.

          In addition, we have been named as defendants in a number of judicial and administrative proceedings incidental to our business and may be named again from time to time. We intend to defend such matters vigorously, and although adverse decisions or settlements may occur in one or more of such cases, the final resolution of these matters, individually or in the aggregate, is not expected to have a material adverse effect on our results of operations or financial position.

     Guarantees

          Certain of our licensing agreements indemnify our customers for any expenses or liabilities resulting from claimed infringements of patent, trademark or copyright by third parties related to the intellectual property content of our products. Certain of these indemnification provisions are perpetual from execution of the agreement and, in some instances, the maximum amount of potential future indemnification is not limited. To date, we have not paid any such claims or been required to defend any lawsuits with respect to any claim. However, there can be no assurance that such claims will not be filed in the future.

10. Customer and Geographic Information

          Revenue by geographic area was as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2005		2004		2005		2004
Taiwan	$	13,087	$	13,518	$	24,455	$	22,975
Japan		8,510		7,832		16,051		15,372
United States		15,197		11,730		27,355		21,299
Hong Kong		1,901		1,291		3,119		2,780
Korea		3,521		1,843		8,215		3,573
Other		8,505		7,147		15,846		13,220
Total revenue	$	50,721	$	43,361	$	95,041	$	79,219

          Revenue by product line was as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2005		2004		2005		2004
Consumer Electronics	$	26,802	$	21,272	$	48,034	$	33,554
Storage		11,055		11,609		23,037		25,505
Personal Computer		12,864		10,480		23,970		20,160
Total revenue	$	50,721	$	43,361	$	95,041	$	79,219

          For the three months ended June 30, 2005, two customers each generated 18.8%,and 10.0% of our revenue. For the six months ended June 30, 2005, two customers each generated 18.6% and 10.1% of our revenue. At June 30, 2005, three customers each represented 13.0%, 11.6% and 10.0% of gross accounts receivable.

          For the three months ended June 30, 2004, three customers each generated 12.1%, 11.3% and 10.5% of our revenue. For the six months ended June 30, 2004, two customers generated 12.9% and 11.8% of our revenue. At June 30, 2004, no customer represented 10.0% of gross accounts receivable.

          For each period presented, substantially all long-lived assets were located within the United States.

13

11. Provision for taxes

          For the three and six month periods ended June 30, 2005, we recorded provision for taxes of $247,000 and $578,000, respectively compared to $255,000 and $572,000, respectively, for the three and six month periods ended June 30, 2004. The provision amounts relate primarily to an estimated provision for U.S. alternative minimum taxes for the fiscal year ending December 31, 2005 and a provision relating to taxes in foreign jurisdictions where we operate based on expected annual estimated tax rates. The provision for the three and six months ended June 30, 2004, included approximately $45,000 and $262,000 relating to withholding taxes payable in connection with certain licensing contracts.

12. Gain on investment security

          In October 2000, as consideration for the transfer of certain technology to Leadis Technology Inc. (Leadis), a development stage privately controlled entity, we received 300,000 shares of preferred stock and a warrant to purchase 75,000 shares of Leadis’ common stock. Initially, these equity instruments were recorded at a nominal value due to the early stage of Leadis’ development and other uncertainties as to the realization of this investment.

          During the quarter ended June 30, 2004, Leadis completed an initial public offering of its stock. In connection with the initial public offering, the preferred stock was converted into common stock on a 1:1 basis. As part of the original agreement, we were subject to a lock-up restriction that prevented us from selling or hedging any of the securities from our investment for a period of six months ended December 2004. For the three and six month periods ended June 30, 2004, we valued the warrant using the Black-Scholes model and recorded a gain of approximately $990,000.

          In February 2005, we sold approximately 23,600 shares of our investment in Leadis at prices ranging from $7.40 to $7.50. These shares related to the warrant shares and consequently in connection with this sale, we recorded a loss of approximately $120,000 for the three-month period ended March 31, 2005. During the three month period ended June 30, 2005, we sold the remainder of our holding in Leadis at prices ranging from $5.38 to $6.06, and recorded a net realized gain of approximately $1.4 million.

14

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

          This report contains forward-looking statements within the meaning of Section 21E of the Securities and 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 Form 10-Q 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 Form 10-Q are identified by words such as “believes,” “anticipates,” “expects,” “intends,” “may,” “will” 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 revisions to these forward-looking statements that may be made to reflect events or circumstances occurring subsequent to the filing of this Form 10-Q with the 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 Silicon Image, Inc. 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.

Overview

          Silicon Image is a leader in multi-gigabit semiconductor solutions for the secure transmission, storage and display of rich digital media. Our mission is to be the leader in defining the architectures, intellectual property (IP) and semiconductor technology required to build secure digital content delivery systems. To ensure that rich digital content is always available on any device, consumer electronics (CE), personal computers (PC) and storage devices must be architected for content compatibility and interoperability.

          Silicon Image’s strategy entails establishing industry-standard, high-speed digital interfaces and building market momentum and leadership through our first-to-market, standards-based integrated circuit (IC) products. We also utilize our strong intellectual property (IP) portfolio in our efforts to accelerate and broaden market adoption of the High-Definition Multimedia Interface (HDMI), Serial ATA (SATA), and Digital Visual Interface (DVI) technology interfaces by licensing our proven IP cores to other companies, providing advanced system-on-a-chip solutions incorporating these interfaces. In addition to creating revenue and return on engineering investment, we primarily license our IP in market segments we choose not to pursue with our semiconductor products, creating products complementary that expand the markets for our products and help to improve standards adoption, implementation and industry-wide interoperability.

          We have leveraged our core technology and standards-setting expertise to drive the adoption of HDMI, which is becoming the digital interface standard for video applications in the consumer electronics market. Introduced in 2002, HDMI enables the distribution of uncompressed, high-definition video and multi-channel audio in a single, all-digital interface that dramatically improves quality and simplifies cabling. In addition to Silicon Image, the HDMI founders include leading consumer electronics manufacturers Hitachi Ltd. (Hitachi), Matsushita Electric Industrial Co. (MEI or Panasonic), Philips Consumer Electronics International B.V. (Philips), Sony Corporation (Sony), Thomson Multimedia, S.A. (Thomson or Thomson RCA) and Toshiba Corporation (Toshiba). Our HDMI technology is also marketed under the PanelLink(R) brand and can include High-bandwidth Digital Content Protection (HDCP), which is supported by Hollywood studios as the technology of choice for the secure distribution of premium content over uncompressed digital connections. Silicon Image shipped the first HDMI-compliant silicon to the market and currently remains the market leader for HDMI functionality.

          Products sold into the CE market have been increasing as a percentage of our total revenue and generated 52.8% and 50.5% for the three and six month periods ended June 30, 2005, respectively, compared to 49.1% and 42.4% of our total revenue for three and six month periods ended June 30, 2004. Our CE products offer a secure interface for transmission of digital video and audio to consumer devices, such as digital TVs, HDTVs, A/V receivers, STBs, and DVD players. Demand for our products will be driven primarily by the adoption rate of the HDMI standard within these product categories.

15

          In the storage market, Silicon Image has assumed a leadership role in SATA, a high-bandwidth, point-to-point interface that is replacing parallel ATA in desktop storage and making inroads in the enterprise arena. Silicon Image is a leading supplier of discrete SATA devices. Our SATALink(TM)-branded solutions offer advanced features and capabilities such as native command queuing, port multiplier capability and ATAPI support. Silicon Image also supplies high-performance, low-power fibre channel serializer/deserializers (SerDes) to leading switch manufacturers. Products sold into the storage market, as a percentage of our total revenue, generated 21.8% and 24.2% of our revenue for the three and six months ended June 30, 2005, respectively and 26.8% and 32.2% for the three and six months ended June 30, 2004, respectively. In September 2004, Silicon Image introduced its first products based on its SteelVine(TM) storage architecture that is expected to serve the storage needs of the SMB and consumer electronics markets. Demand for our storage semiconductor products is dependent upon the rate at which interface technology transitions from parallel to serial, market acceptance of our SteelVine(TM) architecture, and the extent to which SATA functionality is integrated into chipsets and controllers offered by other companies, which would make our discrete devices unnecessary where we have not already licensed our technology.

          Silicon Image is a leader in the global PC and digital display arena with its innovative PanelLink-branded digital interconnect technology, which enables an all-digital connection between PC host systems, such as PC motherboards, graphics add-in boards, notebook PCs and digital displays such as LCD monitors, plasma displays and projectors. Silicon Image’s PanelLink technology serves as the basis for both the DVI standard as well as for the popular HDMI standard. Together, Silicon Image’s PanelLink DVI and HDMI solutions have shipped more than 125.0 million units to date. Products sold into the PC market generated 25.4% and 25.2% of our revenue in the first three and six months of 2005, respectively and 24.2% and 25.4% of our revenue in the first three and six months of 2004, respectively.

          We also pursue a strategy of licensing our intellectual property. This strategy is complementary to the sale of our products, further monetizes our valuable intellectual property and accelerates market adoption of our technologies. Most of our licenses include a field of use restriction that prevents most of our licensees from building a chip in direct competition with those market segments we have chosen to pursue. Revenue from development for licensees, licensing and royalties accounted for 6.7% and 7.3% of our revenue for the three and six months ended June 30, 2005, respectively and 15.1% and 13.1% of our revenue for the three and six months ended June 30, 2004, respectively. Licensing contracts are complex and depend upon many factors including completion of milestones, allocation of values to delivered items, and customer acceptances. Although we attempt to make these factors predictable, many of these factors require significant judgment. License revenue has been lumpy over time, and is expected to continue to be lumpy for the foreseeable future, resulting in considerable fluctuation in the amount of revenue recognized in a particular quarter.

16

Commitments, Contingencies and Concentrations

          Historically, a relatively small number of customers and distributors have generated a significant portion of our revenue. For instance, our top five customers, including distributors, generated 51.5% and 50.3% of our revenue for the three and six months ended June 30, 2005, respectively, and 49% and 45.6% of our revenue for the three and six months ended June 30, 2004, respectively. Additionally, the percentage of revenue generated through distributors tends to be significant, since many OEM’s rely upon third party manufacturers or distributors to provide purchasing and inventory management functions. For the three and six months ended June 30, 2005, 50.3% and 49.3%, respectively, of our revenue was generated through distributors, compared to 39.5% and 41.5%, respectively, for the comparable period of 2004. Our licensing revenue is not generated through distributors, and to the extent licensing revenue increases faster than product revenue, we would expect a decrease in the percentage of our total revenue generated through distributors.

          A significant portion of our revenue is generated from products sold overseas. Sales to customers in Asia, including distributors, generated 63.2% and 65.6% of our revenue in the three and six months ended June 30, 2005, and 68% and 69% for the three and six month periods ended June 30, 2004. The reason for our geographical concentration in Asia is that most of our products are part of flat panel TV’s, graphic cards and motherboards, the majority of which are manufactured in Asia. The percentage of our revenue derived from any country is dependent upon where our end customers choose to manufacture their products. Accordingly, variability in our geographic revenue is not necessarily indicative of any geographic trends, but rather is the combined effect of new design wins and changes in customer manufacturing locations. All revenue to date has been denominated in U.S. dollars.

          In September 1998, we entered into an agreement with Intel to develop and promote the adoption of a digital display interface specification. In connection with this agreement, we granted Intel a warrant to purchase 285,714 shares of our common stock at $1.75 per share. Under the same agreement, we granted Intel a warrant to purchase 285,714 shares of our common stock at $0.18 per share upon achievement of a specified milestone that was reached during the first quarter of 1999. Both of these warrants were exercised in May 2001. Additionally, if a second specified milestone was achieved, we would have been required to grant Intel a third warrant to purchase 285,714 shares of our common stock at $0.18 per share. The second specified milestone was not achieved and accordingly the third warrant was not issued. Our obligation under this agreement with Intel has since expired.

Critical Accounting Policies

          The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported in our consolidated financial statements and accompanying notes. We base our estimates on historical experience and all known facts and circumstances that we believe are relevant. Actual results may differ materially from our estimates. We believe the following accounting policies to be most critical to an understanding of our financial condition and results of operations because they require us to make estimates, assumptions and judgments about matters that are inherently uncertain. Our critical accounting estimates include those regarding (1) revenue recognition, (2) allowance for doubtful accounts receivable, (3) inventories, (4) long-lived assets, (5) goodwill, (6) deferred tax assets, (7) accrued liabilities, (8) stock-based compensation expense, and (9) legal matters. For a discussion of the critical accounting estimates, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies” in our Annual Report on Form 10-K for the year ended December 31, 2004.

17

Results of Operations for the Three and Six Months Ended June 30, 2005 Compared to Results of Operations for the Three and Six Months Ended June 30, 2004

REVENUE

	Three months ended June 30,							Six months ended June 30,
	2005		2004		Change			2005		2004		Change
	(dollars in thousands)
Product revenue	$	47,323	$	36,826		28.5	%	$	88,131	$	68,876		28.0	%
Development, licensing and royalty revenue		3,398		6,535		(48.0	%)		6,910		10,343		(33.2	%)
Total revenue	$	50,721	$	43,361		17.0	%	$	95,041	$	79,219		20.0	%

	Three months ended June 30,							Six months ended June 30,
	2005		2004		Change			2005		2004		Change
	(dollars in thousands)
Consumer Electronics	$	26,802	$	21,272		26.0	%	$	48,034	$	33,554		43.2	%
Storage		11,055		11,609		(4.8	%)		23,037		25,505		(9.7	%)
Personal Computers		12,864		10,480		22.7	%		23,970		20,160		18.9	%
Total revenue	$	50,721	$	43,361		17.0	%	$	95,041	$	79,219		20.0	%

Revenue was $50.7 million and $95.0 million for the three and six month periods ended June 30, 2005, respectively, representing an increase of 17.0% and 20.0%, relative to comparable periods of 2004. Revenue in the Consumer Electronics and Personal Computers was up for both periods and was partially offset by lower sales of Storage products. The increase in Consumer Electronics was due to continued strong demand for our HDMI receivers for use in various devices including high definition plasma and LCD televisions. The increase in Personal Computers reflects our success with our transmitter semiconductors. The primary reason for the decrease in Storage revenue was a decrease in sales of our fibre channel products partially offset by an increase in SATA products. The decrease in development, licensing and royalty revenue was due to the inherently lumpy nature of our licensing revenue.

18

COST OF REVENUE AND GROSS PROFIT

	Three months ended								Six months ended
	June 30,								June 30,
	2005			2004			Change		2005			2004			Change
	(dollars in thousands)
Cost of revenue (1)	$	20,987		$	17,695		$	3,292	$	36,492		$	32,210		$	4,282
Product gross profit (excluding licensing revenue)		26,336			19,131			7,205		51,639			36,666			14,973
Product gross profit margin		55.7	%		51.9	%	3.8 pts			58.6	%		53.2	%	5.4 pts
Total gross profit		29,734			25,666			4,068		58,549			47,009			11,540
Total gross profit margin		58.6	%		59.2	%	(0.6) pts			61.6	%		59.3	%	2.3 pts
(1) Includes stock compensation expense (benefit)	$	41		$	849				$	(1,156	)	$	2,000

     Cost of revenue consists primarily of costs incurred to manufacture, assemble and test our products, as well as other related overhead costs. Cost of revenue was $21.0 million or 41.4% of revenue and $36.5 million or 38.4% of revenue for the three and six months ended June 30, 2005, respectively, and $17.7 million or 40.8 % of revenue and $32.2 million or 40.7% of revenue for the comparable periods of 2004. The dollar increase in the three and six months ended June 30, 2005 over the comparable periods of 2004 was primarily due to the volume and mix of our revenue. Non-cash stock compensation expense (benefit) associated with cost of revenue was $41,000 and $(1.2) million for the three and six months ended June 30, 2005 and $849,000 and $2.0 million for the three and six months ended June 30, 2004.

     Total gross profit was $29.7 million or 58.6% of revenue and $58.5 million or 61.6% of revenue for the three and six months ended June 30, 2005, respectively. This compares to $25.7 million or 59.2% of revenue and $47.0 million or 59.3% of revenue for the same periods of 2004. The increase in gross profit for the three and six month period ending June 30, 2005 compared with the same periods of the prior year was primarily due to increased revenue and a lower amount of stock compensation expense offset by a decrease in licensing revenue and erosion in our average selling prices.

19

OPERATING EXPENSES

										Six months ended June
	Three months ended June 30,									30,
	2005			2004			Change			2005			2004			Change
	(dollars in thousands)
Research and development (1)	$	11,903		$	16,245			(26.7	%)	$	20,025		$	33,043			(39.4	%)
Percentage of total revenue		23.5	%		37.5	%	(14.0)pts				21.1	%		41.7	%	(20.6) pts
Selling, general and administrative (2)	$	8,801		$	10,067			(12.6	%)	$	12,705		$	21,718			(41.5	%)
Percentage of total revenue		17.4	%		23.2	%	(5.8) pts				13.4	%		27.4	%	(14.0) pts
Amortization of intangible assets	$	274		$	357			(23.2	%)	$	548		$	713			(23.1	%)
Patent assertion costs		72			98			(26.5	%)		121			263			(54.0	%)
Interest income and other, net		641			104			516.3	%		1,259			188			569.7	%
Gain on investment security		1,382			990			39.6	%		1,263			990			27.6	%

(1) Includes stock compensation expense (benefit)	$	747	$	4,776	$	(3,691	)	$	10,989
(2) Includes stock compensation expense (benefit)		514		3,507		(3,178	)		8,211

     Research and Development. R&D expense consists primarily of employee compensation and other related costs, fees for independent contractors, the cost of software tools used for designing and testing our products, and costs associated with prototype materials. R&D expense was $11.9 million or 23.5% of revenue and $20.0 million or 21.1% of revenue for the three and six month periods ended June 30, 2005, respectively. During the same three and six month periods of 2004, R&D expense was $16.2 million or 37.5% of revenue and $33.0 million or 41.7% of revenue, respectively. Factors contributing to the decrease in R&D expense for the three and six months ended June 2005, versus the same periods in 2004, include benefits from a credit to expense of approximately $914,000 and $1,260,000 for the three and six months ended June 30, 2005, respectively, related to a portion of two engineering projects that are being funded by an outside party, irrespective of the results of the projects and reduced stock compensation expense as detailed below. These were partially offset by higher compensation expenses resulting from increased employee headcount and increased number of projects. Non-cash stock compensation expense (benefit) associated with R&D was $747,000 and $(3.7) million for the three and six months ended June 30, 2005 and $4.8 million and $10.9 million for the three and six months ended June 30, 2004.

     Selling, General and Administrative. SG&A expense consists primarily of employee compensation and benefits, sales commissions, professional fees, and marketing and promotional expenses. SG&A expense was $8.8 million or 17.4% of revenue and $12.7 million or 13.4% of revenue for the three and six months ended June 30, 2005, respectively. During the same three and six months of 2004, we recorded SG&A expense of $10.1 million or 23.2% of revenue and $21.7 million or 27.4%. The decrease in SG&A expense resulted from lower stock compensation expense in 2005, offset by increased expenses related to staffing and costs, higher professional fees and increased costs from additional facilities. Non-cash stock compensation expense (benefit) associated with the SG&A was $514,000 and $(3.2) million for the three and six months ended June 30, 2005 and $3.5 million and $8.2 million for the three and six months ended June 30, 2004.

     Amortization of Intangible Assets. Amortization of intangible assets was $274,000 and $548,000 for the three and six months ended June 30, 2005, compared to $357,000 and $713,000 for the three and six months ended June 30, 2004, respectively, pursuant to our acquisition of Transwarp Netwoks, Inc. during the second quarter of 2003.

     Restructuring. During the third quarter of 2001, we began a program to focus our business on products and technology, including those obtained through acquisitions, in which we have, or believe we can achieve, a market leadership position. As part of this program, we decided to cancel numerous products under development, to remove certain projects from our development plan, to phase out or de-emphasize certain existing products and to integrate the operations of two acquired companies—CMD Technology (“CMD”) and Silicon Communication Lab (“SCL”).

     In connection with this program, during the third quarter of 2001 through the first quarter of 2003, we recorded restructuring expenses as a result of four workforce reductions by eliminating approximately 136 positions which consisted of both cash severance-related costs and non-cash severance-related costs representing the intrinsic value of modified stock options. In addition, restructuring expenses during this period were also a result of expected loss on leased facilities, fixed asset write-downs, impairment of goodwill, intangible assets and acquired technology offset by reversals of unearned compensation, a component of stockholders’ equity for unvested stock options that were cancelled in connection with employee terminations.

20

     Severance and benefits payments are substantially complete. Lease payments will be made in the form of cash through the end of the related lease term of November 2005. The following table presents restructuring activity for the six-month periods ended June 30, 2005 and 2004 (in thousands):

	2005								2004
	Severance								Severance
	and		Leased						and			Leased
	Benefits		Facilities			Total			Benefits			Facilities			Total
Balance as of January 1	$	32	$	1,004		$	1,036		$	37		$	1,838		$	1,875
Cash payments		—		(381	)		(381	)		(5	)		(453	)		(458	)
Balance as of June 30	$	32	$	623		$	655		$	32		$	1,385		$	1,417

          Patent assertion costs. Patent assertion costs were $72,000 and $121,000 for the three and six months ended June 30, 2005, respectively, compared to $98,000 and $263,000, respectively, for the comparable periods of 2004. Patent assertion are related to the lawsuit we filed against Genesis in April 2001. The decrease in 2005 compared to 2004 resulted from the lower level of activity in 2005 compared to 2004.

          Interest Income and other, net. The net amount of interest income and other, which principally includes interest income and interest expense, was $641,000 and $1.3 million for the three and six-month periods ended June 30, 2005, respectively, compared to $104,000 and $188,000 for the three and six month periods ended June 30, 2004, respectively. This increase was primarily due to higher interest income resulting from larger cash and investment balances and higher interest rates in the periods ended June 30, 2005 than in the comparable periods of 2004.

          Gain on investment security. During the three and six months ended June 30, 2005, we recorded a net gain of $1.4 million and $1.3 million, respectively, from the mark to market and subsequent sale of our holdings in Leadis Technology, Inc (Leadis). These holdings related to equity we acquired in a transaction with Leadis in 2001. We also recorded a gain from this investment of $990,000 for the three and six months ended June 30, 2004. As of June 30, 2005 we no longer have an equity interest in Leadis.

          Provision for Taxes. For the three and six month periods ended June 30, 2005, we recorded a provision for taxes of $247,000 and $578,000, respectively compared to $255,000 and $572,000, respectively, for the three and six month periods ended June 30, 2004. The provision amounts relate primarily to our estimate for U.S. alternative minimum taxes for the fiscal year ending December 31, 2005 and taxes in foreign jurisdictions where we operate based on expected annual tax rates. The provision for the three and six months ended June 30, 2004, included approximately $45,000 and $262,000 relating to foreign withholding taxes payable in connection with certain licensing contracts.

21

LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION

	June 30,		December 31,
	2005		2004		Change
	(dollars in thousands)
Cash and cash equivalents	$	17,980	$	23,280	$	(5,300	)
Short term investments		98,858		70,240		28,618
Total cash, cash equivalents and short term investments.	$	116,838	$	93,520	$	23,318
Total current assets	$	158,450	$	129,936	$	28,514
Total current liabilities		38,309		32,829		5,480
Working capital	$	120,141	$	97,107	$	23,034

	Six months ended June 30,
	2005			2004			Change
	(dollars in thousands)
Cash provided by (used in) operating activities	$	21,857		$	19,286		$	2,571
Cash provided by (used in) investing activities		(32,767	)		(9,319	)		(23,448	)
Cash provided by financing activities		5,610			7,592			(1,982	)
Net increase (decrease) in cash and cash equivalents	$	(5,300	)	$	17,559		$	(22,859	)

     Since our inception, we have financed our operations through a combination of private sales of convertible preferred stock, our initial public offering, lines of credit, capital lease financing, exercise of employee stock options, and cash flows from operations. At June 30, 2005, we had $120.1 million of working capital and $116.8 million of cash, cash equivalents and short-term investments. If we are not able to generate cash from operating activities, stock option exercises, and proceeds from sales of shares under our employee stock purchase plan, we will liquidate short-term investments or, to the extent available, utilize credit arrangements to meet our cash needs.

     Working Capital

     Net accounts receivable increased by 29.9% to $25.2 million at June 30, 2005 from $19.4 million at December 31, 2004. The increase was primarily due to higher sales volumes and in particular shipments to distributors in June 30, 2005 quarter compared to the December 31, 2004 quarter were up significantly.

     Inventories decreased by 7.7% to $12.9 million at June 30, 2005 from $13.9 million at December 31, 2004. The decrease was largely due to stronger sales of CE and PC products.

     Accounts payable and accrued liabilities increased by a net 20.9% or $4.2 million at June 30, 2005 from December 31, 2004. Much of this increase is due to the timing of payments made on accounts payable. This was further compounded by increased business volume and in particular sales of CE and PC products. Offsetting factors were a lower bonus accrual at June 30, 2005 versus the full year bonus that was accrued at December 31, 2004.

     Deferred margin on sale to distributors at June 30, 2005 was $10.0 million, which was consistent with the balance at December 31, 2004.

     Operating Activities

     We generated $21.9 million in cash from operating activities in the six months ended June 30, 2005 as compared to $19.3 in the same period of 2004. The major components of operating cash flow were the $27.1 million in net income, the change in accounts payable, and the add back of non-cash expenses such as depreciation and amortization. These items were partially offset by, among other items, the $8.0 million in non-cash benefit relating to stock compensation and the increase in accounts receivable.

     Investing and Financing Activities

     We used $32.8 million in cash in our investing activities in the six months ended June 30, 2005 as compared to $9.3 in the same period of 2004. This use of cash resulted from our purchases, net of the sale and maturity, of short term investments. Financing activities in the six months ended June 30, 2005 consisted of cash inflow of $5.6 million principally from the proceeds from the exercise of stock options.

22

     Debt and Lease Obligations

     In October 2002, we entered into a $3.6 million term loan to refinance $3.1 million of debt acquired in connection with our acquisition of CMD and $500,000 of other bank debt. This loan bore interest at prime plus 0.25% and required monthly payments through its maturity of October 1, 2004. This loan was repaid in full in 2004.

     During the three months ended March 31, 2003, we borrowed $383,000 to finance certain capital equipment. This term loan bore interest at 5% and required monthly payments through its maturity in February 2005. During the three-months ended March 31, 2005, this remaining balance on this loan was repaid in full. During the period ended March 31, 2004, we entered into an agreement to extend this debt facility by way of a revolving line of credit with an availability of up to $10.0 million, and an equipment line of credit of up to $3.0 million. Borrowings under the revolving line are limited to the lesser of $10.0 million or 80% of eligible accounts receivable as defined in the loan agreement and bore interest at either prime plus 0.25% or LIBOR plus 2.75%, at our option. This revolving line of credit expired in May 2005 and was not renewed.

     In January 2005, we acquired certain capital equipment under a debt arrangement and as of June 30, 2005, the future debt obligations under this arrangement were approximately $80,000.

     Future minimum payments for our operating leases, debt and inventory related purchase obligations outstanding at June 30, 2005 are as follows (in thousands):

	Payments due in
Contractual obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Debt obligations	$	337	$	220	$	117	$	—	$	—
Operating lease obligations (1)		8,179		2,305		2,807		2,942		125
Inventory purchase obligations		8,808		8,808		—		—		—
Total contractual obligations	$	17,324	$	11,333	$	2,924	$	2,942	$	125

(1) Future minimum lease payments under operating leases have not been reduced by expected sublease rental income or by the amount of our restructuring accrual that relates to leased facilities.

     Based on our estimated cash flows, we believe our existing cash and short-term investments are sufficient to meet our capital and operating requirements for at least the next 12 months. Our future operating and capital requirements depend on many factors, including the levels at which we generate product revenue and related margins, the extent to which we generate cash through stock option exercises and proceeds from sales of shares under our employee stock purchase plan, the timing and extent of development, licensing and royalty revenue, investments in inventory and accounts receivable, the cost of securing access to adequate manufacturing capacity, our operating expenses, including legal and patent assertion costs, and general economic conditions. In addition, cash may be required for future acquisitions should we choose to pursue any. To the extent existing resources and cash from operations are insufficient to support our activities, we may need to raise additional funds through public or private equity or debt financing. These funds may not be available, or if available, we may not be able to obtain them on terms favorable to us.

23

Factors Affecting Future Results

     You should carefully consider the following risk factors, together with all other information contained or incorporated by reference in this filing, before you decide to purchase shares of our common stock. These factors could cause our future results to differ materially from those expressed in or implied by forward-looking statements made by us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also harm our business. The trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment.

We operate in rapidly evolving markets, which makes it difficult to evaluate our future prospects.

     The revenue and income potential of our business and the markets we serve are early in their lifecycle and are difficult to predict. The Digital Visual Interface (DVI) specification, which is based on technology developed by us and used in many of our products, was first published in April 1999. We completed our first generation of consumer electronics and storage IC products in mid-to-late 2001. The preliminary serial ATA specification was first published in August 2001. The High Definition Multimedia Interface (HDMI) specification was first released in December 2002. Our SteelVine storage architecture was released in September 2004. Accordingly, we face risks and difficulties frequently encountered by companies in new and rapidly evolving markets. If we do not successfully address these risks and difficulties, our results of operations could be negatively effected.

We have a history of losses and may not become profitable.

     For the three and six months ended June 30, 2005, we generated net income of $10.5 and $27.1 million. However, prior to this quarter, we have incurred net losses in each fiscal year since our inception. We incurred losses of $0.3 million and $12.8 million for the years ended December 31, 2004 and 2003, respectively.

Our quarterly operating results may fluctuate significantly and are difficult to predict.

     Our quarterly operating results are likely to vary significantly in the future based on a number of factors over which we have little or no control. These factors include, but are not limited to:

• the growth, evolution and rate of adoption of industry standards for our key markets, including digital-ready PCs and displays, consumer electronics and storage devices and systems;

• the fact that our licensing revenue is heavily dependent on a few key licensing transactions being completed for any given period, the timing of which is not always predictable and is especially susceptible to delay beyond the period in which completion is expected, and our concentrated dependence on a few licensees in any period for substantial portions of our expected licensing revenue and profits;

• the fact that our licensing revenue has been lumpy over time, and is expected to continue to be lumpy for the foreseeable future, resulting in considerable fluctuation in the amount of revenue recognized in a particular quarter;

• competitive pressures, such as the ability of competitors to successfully introduce products that are more cost-effective or that offer greater functionality than our products, including integration into their products of functionality offered by our products, the prices set by competitors for their products, and the potential for alliances, combinations, mergers and acquisitions among our competitors;

• average selling prices of our products, which are influenced by competition and technological advancements, among other factors;

• government regulations regarding the timing and extent to which digital content must be made available to consumers;

• the availability of other semiconductors or other key components that are required to produce a complete solution for the customer; usually, we supply one of many necessary components;

• the cost of components for our products and prices charged by the third parties who manufacture, assemble and test our products;

• fluctuations in the price of our common stock, which drive a substantial portion of our non-cash stock compensation expense; and

• the nature and extent of litigation activities, particularly relating to our patent infringement suit against Genesis Microchip, and

24

any subsequent legal proceedings related to the matters raised in that suit; and class action lawsuits against us that were initiated in early 2005;

     Because we have little or no control over these factors and/or their magnitude, our operating results are difficult to predict. Any substantial adverse change in any of these factors could negatively affect our business and results of operations.

Our future quarterly operating results are highly dependent upon how well we manage our business.

     Our quarterly operating results may fluctuate based on how well we manage our business. Some of these factors include the following:

• our ability to manage product introductions and transitions, develop necessary sales and marketing channels, and manage other matters necessary to enter new market segments;

• our ability to successfully manage our business in multiple markets such as PC, storage and CE; which may involve additional research and development, marketing or other costs and expenses;

• our ability to close licensing deals when expected and make timely deliverables and milestones on which recognition of revenue often depends;

• our ability to engineer customer solutions that adhere to industry standards in a timely, and cost-effective manner;

• our ability to achieve acceptable manufacturing yields and develop automated test programs within a reasonable time frame for our new products;

• our ability to manage joint ventures and projects, design services, and our supply chain partners;

• our ability to monitor the activities of our licensees to ensure compliance with license restrictions and remittance of royalties;

• our ability to structure our organization to enable achievement of our operating objectives and to meet the needs of our customers and markets;

• the success of the distribution and partner channels through which we choose to sell our products; and

• our ability to manage expenses and inventory levels.

     If we fail to effectively manage our business, this could adversely affect our results of operations.

The licensing component of our business strategy increases business risk and volatility.

     Part of our business strategy is to license certain of our Company’s technology to companies that address markets in which we do not want to directly participate. We signed our first license contract in December 2001 and have limited experience marketing and selling our technology on a licensing basis. There can be no assurance that additional companies will be interested in licensing our technology on commercially favorable terms or at all. We also cannot ensure that companies who license our technology will introduce and sell products incorporating our technology, will accurately report royalties owed to us, will pay agreed upon royalties, will honor agreed upon market restrictions, will not infringe upon or misappropriate our intellectual property and will maintain the confidentiality of our proprietary information. Licensing contracts are complex and depend upon many factors including completion of milestones, allocation of values to delivered items, and customer acceptances. Many of these factors require significant judgments. Licensing revenue could fluctuate significantly from period to period because they are heavily dependent on a few key deals being completed in a particular period, the timing of which is difficult to predict. Because of their high margin content, licensing revenue can have a disproportionate impact on gross profit and profitability. Also, generating revenue from licensing arrangements is a lengthy and complex process that may last beyond the period in which efforts begin, and once an agreement is in place, the timing of revenue recognition may be dependent on customer acceptance of deliverables, achievement of milestones, our ability to track and report progress on contracts, customer commercialization of the licensed technology, and other factors. In addition, in any period, our expectation of licensing revenue is or may be dependent on one or a few licenses being completed. Licensing that occurs in connection with actual or contemplated litigation is subject to risk that the adversarial nature of the transaction will induce non-compliance or non-payment. The accounting rules associated with recognizing revenue from licensing transactions are increasingly complex and subject to interpretation. Due to these factors, the amount of license revenue recognized in any period may differ significantly from our expectations.

25

We face intense competition in our markets, which may lead to reduce revenue from sales of our products and increased losses.

     The PC, CE and storage markets in which we operate are intensely competitive. These markets are characterized by rapid technological change, evolving standards, short product life cycles and declining selling prices. We expect competition for many of our products to increase, as industry standards become widely adopted and as new competitors enter our markets.

     Our products face competition from companies selling similar discrete products, and from companies selling products such as chipsets with integrated functionality. Our competitors include semiconductor companies that focus on the display, CE or storage markets, as well as major diversified semiconductor companies, and we expect that new competitors will enter our markets. Current or potential customers, including our own licensees, may also develop solutions that could compete with us, including solutions that integrate the functionality of our products into their solutions. In addition, potential OEM customers may have internal semiconductor capabilities, and may develop their own solutions for use in their products rather than purchasing them from companies such as us. Some of our competitors have already established supplier or joint development relationships with current or potential customers and may be able to leverage their existing relationships to discourage these customers from purchasing products from us or persuade them to replace our products with theirs. Many of our competitors have longer operating histories, greater presence in key markets, better name recognition, access to larger customer bases and significantly greater financial, sales and marketing, manufacturing, distribution, technical and other resources than we do As a result, they may be able to adapt more quickly to new or emerging technologies and customer requirements, or devote greater resources to the promotion and sale of their products. In particular, well-established semiconductor companies, such as Analog Devices, Intel, National Semiconductor and Texas Instruments, and consumer electronics manufacturers, such as Hitachi, Matsushita, Philips, Sony, Thomson and Toshiba, may compete against us in the future. Some of our competitors could merge, which may enhance their market presence. Existing or new competitors may also develop technologies that more effectively address our markets with products that offer enhanced features and functionality, lower power requirements, greater levels of integration or lower cost. Increased competition has resulted in, and is likely to continue to result in price reductions and loss of market share in certain markets. We cannot assure you that we can compete successfully against current or potential competitors, or that competition will not reduce our revenue and gross margins.

Our success depends in part on demand for our new SteelVine products.

     Our growth depends in part on market acceptance of our new product offerings based on our SteelVine architecture. These products may not achieve the desired level of market acceptance in the anticipated timeframes. We anticipate that the products based upon our SteelVine architecture will be sold into markets where we have limited experience. Furthermore, there is no established market for these products. There can be no assurance that we will be able to successfully market and sell the products based upon the SteelVine architecture and failure to do so would adversely affect our business.

Our success depends in part on the success of our new integrated HDMI DTV products

     Our future growth depends on the success of our highly integrated DTV SOC solutions currently sampling in the market and which may or may not contribute significantly to our overall CE revenue. These products are subject to significant competition from established companies that have been selling these kinds of products for longer periods of time than Silicon Image.

26

Demand for our consumer electronics products is dependent on the adoption and widespread use of the HDMI specification.

     Our success in the consumer electronics market is largely dependent upon the rapid and widespread adoption of the HDMI specification, which combines high-definition video and multi-channel audio in one digital interface and uses our patented underlying transition minimized differential signaling (TMDS^® ) technology, and optionally Intel’s HDCP technology, as the basis for the interface. Version 1.0 of the specification was published for adoption in December 2002 and version 1.1 of the specification was published for adoption in May 2004. We cannot predict the rate at which manufacturers will adopt the HDMI specification. Adoption of the HDMI specification may be affected by the availability of consumer products, such as DVD players and televisions, and of computer components that implement this new interface. Other competing specifications may also emerge that could adversely affect the acceptance of the HDMI specification. Delays in the widespread adoption of the HDMI specification could reduce acceptance of our products, limit or reduce our revenue growth and increase our losses.

     We believe that the adoption of our CE products may be affected in part by U.S. and international regulations relating to digital television, cable, satellite and over-the-air digital transmissions, specifically regulations relating to the transition from analog to digital television. The Federal Communications Commission (FCC) has adopted rules governing the transition from analog to digital television, which include rules governing the requirements for television sets sold in the United States designed to speed the transition to digital television. The FCC has delayed such requirements and timetables for phasing in digital television in the past. We cannot predict whether the FCC will further delay its rules relating to the digital television requirements and timetables. In the event that additional regulatory activities, either in the United States or internationally, delay or postpone the transition to digital television beyond the anticipated time frame, that could reduce the demand for our CE products.

     In addition, we believe that the rate of HDMI adoption may be accelerated by FCC rules requiring that after July 2005 high-definition STBs distributed by cable operators include a DVI or HDMI interface and that as of certain phase-in dates televisions marketed or labeled as “digital cable ready” include a DVI or HDMI interface. However, we cannot predict whether these rules will be amended prior to phase in or that their phase-in dates will not be pushed back or otherwise delayed. In the event that the phase-in dates are postponed or otherwise delayed the demand for our products could be reduced, which would adversely affect our business. In the event that mandatory use of a DVI or HDMI interface in STBs distributed by cable operators were to be delayed beyond the currently anticipated time frame or not required at all, that could reduce the demand for our CE products, which would adversely affect our business. In addition, we cannot guarantee that the FCC will not in the future reverse these rules or adopt rules requiring or supporting different interface technologies, either of which would adversely affect our business.

     We believe that the adoption of HDMI may be affected by the availability of high-quality digital content to devices equipped with HDMI or DVI interfaces. Typically high quality digital content is made available to devices equipped with HDMI or DVI interfaces through high-definition television or digital television distribution channels. To the extent that the availability of such content is delayed or not made available by the content owners or broadcasters and distributors of such content then demand for HDMI products could be delayed or reduced.

     Transmission of audio and video from source devices (such as a DVD player or STB) to sink devices (such as an HDTV) over HDMI with HDCP represents a combination of new technologies working in concert. Cable and satellite system operators are just beginning to require transmissions of digital video with HDCP between source and sink devices in consumer homes, and DVD players incorporating this technology have only recently come to market. Complexities with these technologies and the variability in implementations between manufacturers may cause some of these products to work incorrectly, or for the transmissions to not occur correctly, or for certain products not to be interoperable. Also, the user experience associated with audiovisual transmissions over HDMI with HDCP is unproven, and users may reject products incorporating these technologies or they may require more customer support than expected. Delays or difficulties in integration of these technologies into products or failure of products incorporating this technology to achieve market acceptance could have an adverse effect on our business.

Our success depends in part on strategic relationships.

     We have entered into strategic partnerships with third parties. For example, we have entered into a relationship with Sunplus which includes licensing and development agreements. Under these agreements, Sunplus licenses our technology and we and Sunplus jointly develop products.

     While these strategic partnerships are designed to drive revenue growth and adoption of our technologies and industry standards promulgated by us and also reduce our research and development expenses, there is no guarantee that these strategic partnerships will be successful. Negotiating and performing under these strategic partnerships involves significant time and expense; we may not realize anticipated increases in revenue, standards adoption or cost savings; and these strategic partnerships may make it easier for the third parties to compete with us; any of which may have a negative effect our business and results of operations.

27

We do not have long-term commitments from our customers and we allocate resources based on our estimates of customer demand.

     Substantially all of our sales are made on the basis of purchase orders, rather than long-term agreements. In addition, our customers may cancel or reschedule purchase orders. We purchase inventory components and build our products according to our estimates of customer demand. This process requires us to make multiple assumptions, including volume and timing of customer demand for each product, manufacturing yields and product quality. If we overestimate customer demand or product quality or under estimate manufacturing yields, we may build products that we may not be able to sell at an acceptable price or at all. As a result, we would have excess inventory, which would increase our losses. Additionally, if we underestimate customer demand or if sufficient manufacturing capacity is unavailable, we will forego revenue opportunities or incur significant costs for rapid increases in production, lose market share and damage our customer relationships.

Our lengthy sales cycle can result in a delay between incurring expenses and generating revenue, which could harm our operating results.

     Because our products are based on new technology and standards, a lengthy sales process, typically requiring several months or more, is often required before potential customers begin the technical evaluation of our products. This technical evaluation can exceed nine months before the potential customer informs us whether we have achieved a design win, which is not a binding commitment to purchase our products. After achieving a design win, it can then be an additional nine months before a customer commences volume shipments of systems incorporating our products, if at all. Given our lengthy sales cycle, we may experience a delay between the time we incur expenditures and the time we generate revenue, if any. As a result, our operating results could be seriously harmed if a significant customer reduces or delays orders, or chooses not to release products incorporating our products.

We depend on a few key customers and the loss of any of them could significantly reduce our revenue.

     Historically, a relatively small number of customers and distributors have generated a significant portion of our revenue. For the three and six months ended June 30, 2005, shipments to World Peace International, an Asian distributor, generated 19% and 19% of our revenue and shipments to Microtek, a distributor, generated 10% and 10% of our revenue. For the year ended December 31, 2004, shipments to World Peace International, generated 15% of our revenue, and shipments to Microtek generated 12% of our revenue. In addition, an end-customer may buy through multiple distributors, contract manufacturers, and/or directly, which could create an even greater concentration. We cannot be certain that customers and key distributors that have accounted for significant revenue in past periods, individually or as a group, will continue to sell our products and generate revenue. As a result of this concentration of our customers, our results of operations could be negatively affected if any of the following occurs:

• one or more of our customers, including distributors, becomes insolvent or goes out of business;

• one or more of our key customers or distributors significantly reduces, delays or cancels orders; or

• one or more significant customers selects products manufactured by one of our competitors for inclusion in their future product generations.

     Due to our participation in multiple markets, our customer base has broadened significantly and we therefore anticipate being less dependent on a relatively small number of customers to generate revenue. However, as product mix fluctuates from quarter to quarter, we may become more dependent on a small number of customers or a single customer for a significant portion of our revenue in a particular quarter, the loss of which could adversely affect our operating results.

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.

     Many original equipment manufacturers rely on third-party manufacturers or distributors to provide inventory management and purchasing functions. Distributors generated 50% and 49% of our revenue for the three and six months ended June 30, 2005, 45% of our revenue for the year ended December 31, 2004, and 42% of our revenue for the year ended December 31,2003. Selling through distributors reduces our ability to forecast sales and increases the complexity of our business, requiring us to:

• 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;

28

• Since we have limited ability to forecast inventory levels at our end customers, it is possible that there may be significant build-up of inventories in the retail channel, with the OEM or the OEM’s contract manufacturer. Such a buildup could result in a slowdown in orders, requests for returns from customers, or requests to move out planned shipments. This could adversely impact our revenue and profits.

     Any failure to manage these challenges could disrupt or reduce sales of our products and unfavorably impact our financial results.

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.

     The development of new products is highly complex, and we have experienced delays, some of which exceeded one year, in the development and introduction of new products on several occasions in the past. We have recently introduced new storage products for the consumer and small to medium business markets and we expect to introduce new consumer electronics, storage and PC products in the future. As our products integrate new, more advanced functions, they become more complex and increasingly difficult to design, manufacture and debug. Successful product development and introduction depends on a number of factors, including, but not limited to:

• accurate prediction of market requirements and evolving standards, including enhancements or modifications to existing standards such as DVI, HDCP, SATA I and SATA II, and HDMI;

• identification of customer needs where we can apply our innovation and skills to create new standards or areas for product differentiation that improve our overall competitiveness either in an existing market or in a new market;

• development of advanced technologies and capabilities, and new products that satisfy customer requirements;

• competitors’ and customers’ integration of the functionality of our products into their products, which puts pressure on us to continue to develop and introduce new products with new functionality;

• timely completion and introduction of new product designs;

• management of product life cycles;

• use of leading-edge foundry processes and achievement of high manufacturing yields and low cost testing; and

• market acceptance of new products; and

• market acceptance of new architectures like SteelVine.

     Accomplishing all of this is extremely challenging, time-consuming and expensive and there is no assurance that we will succeed. Product development delays may result from unanticipated engineering complexities, changing market or competitive product requirements or specifications, difficulties in overcoming resource limitations, the inability to license third-party technology or other factors. Competitors and customers may integrate the functionality of our products into their products that would reduce demand for our products. If we are not able to develop and introduce our products successfully and in a timely manner, our costs could increase or our revenue could decrease, both of which would adversely affect our operating results. In addition, it is possible that we may experience delays in generating revenue from these products or that we may never generate revenue from these products. We must work with a semiconductor foundry and with potential customers to complete new product development and to validate manufacturing methods and processes to support volume production and potential re-work. Each of these steps may involve unanticipated difficulties, which could delay product introduction and reduce market acceptance of the product. In addition, these difficulties and the increasing complexity of our products may result in the introduction of products that contain defects or that do not perform as expected, which would harm our relationships with customers and our ability to achieve market acceptance of our new products. There can be no assurance that we will be able to achieve design wins for our planned new products, that we will be able to complete development of these products when anticipated, or that these products can be manufactured in commercial volumes at acceptable yields, or that any design wins will produce any revenue. Failure to develop and introduce new products, successfully and in a timely manner, may adversely affect our results of operations.

29

We have made acquisitions in the past and may make acquisitions in the future, if advisable, and these acquisitions involve numerous risks.

     Our growth depends upon market growth and our ability to enhance our existing products and introduce new products on a timely basis. One of the ways we develop new products and enter new markets is through acquisitions. In 2001, we completed the acquisitions of CMD and SCL. In April 2003, we acquired TWN. We may acquire additional companies or technologies. Acquisitions involve numerous risks, including, but not limited to, the following:

• 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.

     No assurance can be given that our prior acquisitions or our future acquisitions, if any, will be successful or provide the anticipated benefits, or that they will not adversely affect our business, operating results or financial condition. Failure to manage growth effectively and to successfully integrate acquisitions made by us could materially harm our business and operating results.

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

     The semiconductor industry is characterized by significant downturns and wide fluctuations in supply and demand. This cyclicality has led to significant fluctuations in product demand and in the foundry, test and assembly capacity of third-party suppliers. Production capacity for fabricated semiconductors is subject to allocation, whereby not all of our production requirements would be met. This may impact our ability to meet demand and could also increase our production costs. Cyclicality has also accelerated decreases in average selling prices per unit. We may experience fluctuations in our future financial results because of changes in industry-wide conditions.

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.

     We do not own or operate a semiconductor fabrication facility. We rely on third party semiconductor manufacturing companies overseas to produce the vast majority all of our semiconductor products. We also rely on outside assembly and test services to test all of our semiconductor products. Our reliance on independent foundries, assembly and test facilities involves a number of significant risks, including, but not limited to:

• reduced control over delivery schedules, quality assurance, manufacturing yields and production costs;

• lack of guaranteed production capacity or product supply;

• lack of availability of, or delayed access to, next-generation or key process technologies; and

• our ability to transition to alternate sources if services are unavailable from primary suppliers.

     In addition, our semiconductor products are assembled and tested by several independent subcontractors. We do not have a long-term supply agreement with all of our subcontractors, and instead obtain production services on a purchase order basis. Our outside sub-contractors have no obligation to supply products to us for any specific period of time, in any specific quantity or at any specific price, except as set forth in a particular purchase order. Our requirements represent a small portion of the total production capacity of our outside foundries, assembly and test facilities and our sub-contractors may reallocate capacity to other customers even during periods of high demand for our products. These foundries may allocate or move production of our products to different foundries under their control, even in different locations, which may be time consuming, costly, and difficult, have an adverse affect on quality, yields, and costs, and require us and/or our customers to re-qualify the products, which could open up design wins to competition and result in the loss of design wins and design-ins. If our subcontractors are unable or unwilling to continue manufacturing our products in the required volumes, at acceptable quality, yields and costs, and in a timely manner, our business will be substantially harmed. As a result, we would have to identify and qualify substitute contractors, which would be

30

time-consuming, costly and difficult. This qualification process may also require significant effort by our customers, and may lead to re-qualification of parts, opening up design wins to competition, and loss of design wins and design-ins. Any of these circumstances could substantially harm our business. In addition, if competition for foundry, assembly and test capacity increases, our product costs may increase and we may be required to pay significant amounts or make significant purchase commitments to secure access to production services.

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.

     The manufacture of semiconductors is a complex process, and it is often difficult for semiconductor foundries to achieve acceptable product yields. Product yields depend on both our product design and the manufacturing process technology unique to the semiconductor foundry. Since low yields may result from either design or process difficulties, identifying problems can often only occur well into the production cycle, when an actual product exists that can be analyzed and tested.

     Further, we only test our products after they are assembled, as their high-speed nature makes earlier testing difficult and expensive. As a result, defects often are not discovered until after assembly. This could result in a substantial number of defective products being assembled and tested or shipped, thus lowering our yields and increasing our costs. These risks could result in product shortages or increased costs of assembling, testing or even replacing our products.

     Although we test our products before shipment, they are complex and may contain defects and errors. In the past we have encountered defects and errors in our products. Because our products are sometimes integrated with products from other vendors, it can be difficult to identify the source of any particular problem. Delivery of products with defects or reliability, quality or compatibility problems, may damage our reputation and our ability to retain existing customers and attract new customers. In addition, product defects and errors could result in additional development costs, diversion of technical resources, delayed product shipments, increased product returns, warranty and product liability claims against us that may not be fully covered by insurance. Any of these circumstances could substantially harm our business.

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.

     A substantial portion of our business is conducted outside of the United States. As a result, we are subject to foreign business, political and economic risks. Nearly all of our products are manufactured in Taiwan or elsewhere in Asia, and for the three and six months ended June 30, 2005, 71% and 71% of our revenue, and for the years ended December 31, 2004 and 2003, 72% and 74% of our revenue respectively was generated from customers and distributors located outside of the United States, primarily in Asia. We anticipate that sales outside of the United States will continue to account for a substantial portion of our revenue in future periods. Accordingly, we are subject to international risks, including, but not limited to:

• difficulties in managing from afar;

• political and economic instability, including international tension in Iraq, Korea and the China Strait and lack of normal diplomatic relationships between the United States and Taiwan;

• less developed infrastructures in newly industrializing countries;

• susceptibility of foreign areas to terrorist attacks;

• susceptibility to interruptions of travel, including those due to international tensions (including the war in and occupation of Iraq), medical issues such as the SARS and Avian Flu epidemics (particularly affecting the Asian markets we serve), and the financial instability and bankruptcy of major air carriers;

• bias against foreign, especially American, companies;

• difficulties in collecting accounts receivable;

• expense and difficulties in protecting our intellectual property in foreign jurisdictions;

• difficulties in complying with multiple, conflicting and changing laws and regulations, including export requirements, tariffs, import duties, visa restrictions, environmental laws and other barriers;

• exposure to possible litigation or claims in foreign jurisdictions; and

• competition from foreign-based suppliers and the existence of protectionist laws and business practices that favor these suppliers, such as withholding taxes on payments made to us.

31

     These risks could adversely affect our business and our results of operations. In addition, original equipment manufacturers that design our semiconductors into their products sell them outside of the United States. This exposes us indirectly to foreign risks. Because sales of our products are denominated exclusively in United States dollars, relative increases in the value of the United States dollar will increase the foreign currency price equivalent of our products, which could lead to a change in the competitive nature of these products in the marketplace. This in turn could lead to a reduction in sales and profits.

The success of our business depends upon our ability to adequately protect our intellectual property.

     We rely on a combination of patent, copyright, trademark, mask work and trade secret laws, as well as nondisclosure agreements and other methods, to protect our proprietary technologies. We have been issued patents and have a number of pending patent applications. However, we cannot assure you that any patents will be issued as a result of any applications or, if issued, that any claims allowed will protect our technology. In addition, we do not file patent applications on a worldwide basis, meaning we do not have patent protection in some jurisdictions. It may be possible for a third-party, including our licensees, to misappropriate our copyrighted material or trademarks. It is possible that existing or future patents may be challenged, invalidated or circumvented and effective patent, copyright, trademark and trade secret protection may be unavailable or limited in foreign countries. It may be possible for a third-party to copy or otherwise obtain and use our products or technology without authorization, develop similar technology independently or design around our patents in the United States and in other jurisdictions. It is also possible that some of our existing or new licensing relationships will enable other parties to use our intellectual property to compete against us. Legal actions to enforce intellectual property rights tend to be lengthy and expensive, and the outcome often is not predictable. As a result, despite our efforts and expenses, we may be unable to prevent others from infringing upon or misappropriating our intellectual property, which could harm our business. In addition, practicality also limits our assertion of intellectual property rights. Patent litigation is expensive and its results are often unpredictable. Assertion of intellectual property rights often results in counterclaims for perceived violations of the defendant’s intellectual property rights and/or antitrust claims. Certain parties after receipt of an assertion of infringement will cut off all commercial relationships with the party making the assertion, thus making assertions against suppliers, customers, and key business partners risky. If we forgo making such claims, we may run the risk of creating legal and equitable defenses for an infringer.

Our participation in the Digital Display Working Group requires us to license some of our intellectual property for free, which may make it easier for others to compete with us in the DVI PC market.

     We are a promoter of the DDWG, which published and promotes the DVI specification. Our strategy includes establishing the DVI specification as the industry standard, promoting and enhancing this specification and developing and marketing products based on this specification and future enhancements. As a result:

• 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.

     Accordingly, companies that implement the DVI specification in their products can use specific elements of our intellectual property for free to compete with us.

Our participation as a founder in the working group developing HDMI requires us to license some of our intellectual property, which may make it easier for others to compete with us in the market.

     In April 2002, together with Sony, Philips, Thomson, Toshiba, Matsushita and Hitachi, we announced the formation of a working group to define the next-generation digital interface specification for consumer electronics products. Version 1.0 of the specification was published for adoption on December 9, 2002. The HDMI specification combines high-definition video and multi-channel audio in one digital interface and uses Silicon Image’s patented underlying TMDS(R) technology, optionally, along with Intel’s HDCP as the basis for the interface. The founders of the working group have signed a founder’s agreement in which each commits to license certain intellectual property to each other, and to adopters of the specification.

     Our strategy includes establishing the HDMI specification as the industry standard, promoting and enhancing this specification and developing and marketing products based on this specification and future enhancements. As a result:

• 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.

     Accordingly, companies that implement the HDMI specification in their products can use specific elements of our intellectual property to compete with us. Although there will be license fees and royalties associated with the adopters agreements, there can be no

32

assurance that such license fees and royalties will adequately compensate us for having to license our intellectual property. Fees and royalties received during the early years of adoption will be used to cover costs we incur to promote the HDMI standard and to develop and perform interoperability tests; in addition, after an initial period, the HDMI founders may reallocate the license fees and royalties amongst themselves to reflect each founder’s relative contribution of intellectual property to the HDMI specification.

Our success depends on managing our relationship with Intel.

     Intel has a dominant role in many of the markets in which we compete, such as PCs and storage, and is a growing presence in the CE market. We have a multi-faceted relationship with Intel that is complex and requires significant management attention, including:

• Intel has been an investor of ours;

• Intel and we have been parties to business cooperation agreements;

• Intel and we are parties to a patent cross-license;

• Intel and we worked together to develop HDCP;

• an Intel subsidiary has the exclusive right to license HDCP, of which we are a licensee;

• Intel and we were two of the promoters of the Digital Display Working Group (DDWG);

• Intel is a promoter of the serial ATA working group, of which we are a contributor;

• Intel is a supplier to us and a customer for our products;

• we believe that Intel has the market presence to drive adoption of serial ATA by making them widely available in its chipsets and motherboards, which could affect demand for our products;

• we believe that Intel has the market presence to affect adoption of HDMI by either endorsing complementary technology or promulgating a competing standard, which could affect demand for our products;

• Intel may potentially integrate the functionality of our products, including Fibre Channel, Serial ATA, DVI, or HDMI into its own chips and chipsets, thereby displacing demand for some of our products;

• Intel may design new technologies that would require us to re-design our products for compatibility, thus increasing our R&D expense and reducing our revenue;

• Intel’s technology, including its 845G chipset, may lower barriers to entry for other parties who may enter the market and compete with us; and

• Intel may enter into or continue relationships with our competitors that can put us at a relative disadvantage.

     Our cooperation and competition with Intel can lead to positive benefits, if managed effectively. If our relationship with Intel is not managed effectively, it could seriously harm our business, negatively affect our revenue, and increase our operating expenses.

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 entered into a patent cross-license agreement with Intel in which each of us granted the other a license to use the patents filed by the grantor prior to a specified date, except for identified types of products. We believe that the scope of our license to Intel excludes our current products and anticipated future products. Intel could, however, exercise its rights under this agreement to use our patents to develop and market other products that compete with ours, without payment to us. Additionally, Intel’s rights to our patents could reduce the value of our patents to any third-party who otherwise might be interested in acquiring rights to use our patents in such products. Finally, Intel could endorse competing products, including a competing digital interface, or develop its own proprietary digital interface. Any of these actions could substantially harm our business and results of operations.

We are 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.

     Securities class action suits are often brought against companies, particularly technology companies, following periods of volatility in the market price of their securities. Defending against these suits, even if merit less, can result in substantial costs to us and could

33

divert the attention of our management. We and certain of our officers and directors, together with certain investment banks, have been named as defendants in a securities class action suit filed against us on behalf of purchasers of our securities between October 5, 1999 and December 6, 2000. It is alleged that the prospectus related to our initial public offering was misleading because it failed to disclose that the underwriters of our initial public offering had solicited and received excessive commissions from certain investors in exchange for agreements by investors to buy our shares in the aftermarket for predetermined prices. Due to inherent uncertainties in litigation, we cannot accurately predict the outcome of this litigation; however, a proposed settlement has been negotiated and has received preliminary approval by the Court. This settlement will not require Silicon Image to pay any settlement amounts nor issue any securities. In the event that the settlement is not granted final approval, we believe that these claims are without merit and we intend to defend vigorously against them. We and certain of our officers, together with certain investment banks and their current or former employees, were named as defendants in a securities class action suit filed against us on behalf of a putative class of shareholders who purchased stock from some or all of approximately 50 issuers whose public offerings were underwritten by Credit Suisse First Boston. The lawsuit alleges that Silicon Image and certain officers were part of a scheme by Credit Suisse First Boston to artificially inflate the price of Silicon Image’s stock through the dissemination of allegedly false analysts’ reports. The plaintiff in this matter has filed an amended complaint in which Silicon Image, and the named officers, was dropped as defendants. We believe that the settlement described above, if approved, would encompass the claims in this case. We believe that these claims were without merit and, if revived, and not subject to the settlement, we intend to defend vigorously against them.

     Silicon Image and certain of its officers were named as defendants in a securities class action litigation captioned “Curry v. Silicon Image, Inc., Steve Tirado, and Robert Gargus, No. C05 00456 MMC”, commenced on January 31, 2005 and pending in the United States District Court for the Northern District of California. Plaintiffs filed the action on behalf of a putative class of shareholders who purchased Silicon Image stock between October 19, 2004 and January 24, 2005. The lawsuit alleges that Silicon Image and certain of its officers and directors made alleged misstatements of material facts and violated certain provisions of Sections 20(a) and 10(b) of the Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. On April 27, 2005, the Court issued an order appointing lead plaintiffs and approving the selection of lead counsel. On July 27, 2005, plaintiffs filed an amended consolidated complaint. The amended complaint no longer names Mr. Gargus as an individual defendant, but adds David Lee as an individual defendant. By stipulation and order, the defendants’ deadline to file any motion to dismiss is September 26, 2005. Silicon Image intends to defend itself vigorously in this matter.

We are currently engaged in intellectual property litigation that is time-consuming and expensive to prosecute. We may become engaged in additional intellectual property litigation that could be time- consuming, may be expensive to prosecute or defend, and could adversely affect our ability to sell our product.

     In recent years, there has been significant litigation in the United States and in other jurisdictions involving patents and other intellectual property rights. This litigation is particularly prevalent in the semiconductor industry, in which a number of companies aggressively use their patent portfolios to bring infringement claims. In addition, in recent years, there has been an increase in the filing of so-called “nuisance suits,” alleging infringement of intellectual property rights. These claims may be asserted as counterclaims in response to claims made by a company alleging infringement of intellectual property rights. These suits pressure defendants into entering settlement arrangements to quickly dispose of such suits, regardless of merit. In addition, as is common in the semiconductor industry, from time to time we have been notified that we may be infringing certain patents or other intellectual property rights of others. Responding to such claims, regardless of their merit, can be time consuming, result in costly litigation, divert management’s attention and resources and cause us to incur significant expenses. As each claim is evaluated, we may consider the desirability of entering into settlement or licensing agreements. No assurance can be given that settlements will occur or that licenses can be obtained on acceptable terms or that litigation will not occur. In the event there is a temporary or permanent injunction entered prohibiting us from marketing or selling certain of our products, or a successful claim of infringement against us requiring us to pay damages or royalties to a third-party, and we fail to develop or license a substitute technology, our business, results of operations or financial condition could be materially adversely affected.

     On April 24, 2001, we filed suit in the U.S. District Court for the Eastern District of Virginia against Genesis Microchip Corp. and Genesis Microchip, Inc. (collectively, “Genesis”) for infringement of our U.S. patent number 5,905,769 (USDC E.D. Virginia Civil Action No.: CA-01-266-R) (the “Federal Suit”). On April 24, 2001, we also filed a complaint against Genesis with the International Trade Commission of the United States government (ITC) for unlawful trade practices related to the importation of articles infringing our patent (the “ITC investigation”). The actions sought injunctions to halt the importation, sale, manufacture and use of Genesis DVI receiver chips that infringe our patent, and monetary damages. We voluntarily moved to dismiss the ITC investigation, with notice that we would proceed directly in the Federal Suit. Our motion to dismiss was granted on February 7, 2002. We filed an amended complaint in the Federal Suit as of February 28, 2002, adding a claim for infringement of our U.S. patent number 5,974,464. In April 2002, Genesis answered and made counterclaims against us for non-infringement, license, patent invalidity, fraud, antitrust, unfair competition and patent misuse. Also in April 2002, we filed a motion to dismiss certain of Genesis’s counterclaims. In addition, we filed a motion to bifurcate trial of the counterclaims to the extent the court does not dismiss them. In May 2002, the Court granted our motion to dismiss certain of the counterclaims, with leave to amend. Genesis re-filed counterclaims against us for fraud and patent misuse. We filed another motion to dismiss these counterclaims, which the Court granted with prejudice on August 6, 2002. In December 2002, the parties entered into a memorandum of understanding (MOU) to settle the case. When the parties failed to reach agreement on a final, definitive agreement as required by the MOU, in January 2003, the parties filed motions with the

34

Court to enforce their respective interpretations of the MOU. On July 15, 2003, the Court granted our motion to interpret the MOU in the manner we requested, and ruled that Genesis had engaged in efforts to avoid its obligations under the MOU. On August 6, 2003, the Court entered a final judgment based on its July 15, 2003 ruling. Under the final judgment order, Genesis was ordered to make a substantial cash payment, and to make royalty payments; although Genesis has made a cash payment to the Court, it has not made all the payments that are required under the final judgment order. We filed motions for reimbursement of some of our expenses, including some of our legal fees, and for modification and/or clarification of certain items of the judgment, and to hold Genesis in contempt of Court for breaching the protective order in the case by disclosing secret information to at least one of our competitors. On December 19, 2003, the Court granted our motions in part and denied them in part: the court issued an amended judgment, and held Genesis in contempt of Court for breaching the protective order. Under the amended judgment, Genesis was ordered to make a substantial cash payment, royalty payments, and interest; although Genesis has made certain cash payments to the Court, it has not made all the payments that are required under the amended judgment. On January 16, 2004, Genesis filed a notice of appeal to the U.S. Court of Appeals for the Federal Circuit. On August 26, 2004, the parties completed the filing of their respective appeal briefs. After a hearing, the Federal Circuit dismissed Genesis’ appeal for lack of jurisdiction. The Federal Circuit held that the lower court’s order, which was based on the parties’ agreement to settle the case, was not “final” and appealable. The case was remanded by the Federal Circuit back to the lower court. The parties have negotiated a stipulation by which the lower court can issue a new final judgment. Under this stipulation, the Court will turn over funds deposited by Genesis to us. On July 19, 2005 the Court sent $6.8 million to Silicon Image, which we have deposited in a segregated account and will not use until Genesis has exhausted all of its appeals.

     To date, we have not received any unrestricted cash payments nor have we recognized any gain associated with the matter. If the MOU is upheld in its present form after all appeals have been exhausted the restrictions on the use of the cash payment will be lifted and additional cash amounts will be owed by Genesis to Silicon Image under the terms of the MOU. In addition, Genesis will be granted a royalty-bearing license for the right to use certain non-necessary patent claims referred to in the DVI Adopters Agreement. In addition, Genesis will be granted a royalty-bearing license for the right to use these claims as part of any HDMI implementation. Genesis will also be granted a royalty-bearing license to expand use of certain DVI- related patent claims to the consumer electronics marketplace. We expect that an amended final, appealable order will be entered in the third quarter of 2005. We further expect that Genesis will refile its appeal. Through June 30, 2005, we have spent and expect to continue to incur significant legal costs until the matter is resolved.

     Any potential intellectual property litigation against us could also force us to do one or more of the following:

• 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.

     If we take any of these actions, we may be unable to manufacture and sell our products. We may be exposed to liability for monetary damages, the extent of which would be very difficult to accurately predict. In addition, we may be exposed to customer claims, for potential indemnity obligations, and to customer dissatisfaction and a discontinuance of purchases of our products while the litigation is pending. Any of these consequences could substantially harm our business and results of operations.

35

We have entered into, and may again be required to enter into, patent or other intellectual property cross-licenses.

     Many companies have significant patent portfolios or key specific patents, or other intellectual property in areas in which we compete. Many of these companies appear to have policies of imposing cross-licenses on other participants in their markets, which may include areas in which we compete. As a result, we have been required, either under pressure of litigation or by significant vendors or customers, to enter into cross licenses or non-assertion agreements relating to patents or other intellectual property. This permits the cross-licensee, or beneficiary of a non-assertion agreement, to use certain or all of our patents and/or certain other intellectual property for free to compete with us.

We must attract and retain qualified personnel to be successful, and competition for qualified personnel is increasing in our market.

     Our success depends to a significant extent upon the continued contributions of our key management, technical and sales personnel, many of who would be difficult to replace. The loss of one or more of these employees could harm our business. Although we have entered into a limited number of employment contracts with certain executive officers, we generally do not have employment contracts with our key employees. We do not have key person life insurance for any of our key personnel. Our success also depends on our ability to identify, attract and retain qualified technical, sales, marketing, finance and managerial personnel. Competition for qualified personnel is particularly intense in our industry and in our location. This makes it difficult to retain our key personnel and to recruit highly qualified personnel. We have experienced, and may continue to experience, difficulty in hiring and retaining candidates with appropriate qualifications. To be successful, we need to hire candidates with appropriate qualifications and retain our key executives and employees. Replacing departing executive officers and key employees can involve organizational disruption and uncertain timing.

     The volatility of our stock price has had an impact on our ability to offer competitive equity-based incentives to current and prospective employees, thereby affecting our ability to attract and retain highly qualified technical personnel. If these adverse conditions continue, we may not be able to hire or retain highly qualified employees in the future and this could harm our business. In addition, regulations adopted by The NASDAQ National Market requiring shareholder approval for all stock option plans, as well as regulations adopted by the New York Stock Exchange prohibiting NYSE member organizations from giving a proxy to vote on equity compensation plans unless the beneficial owner of the shares has given voting instructions, could make it more difficult for us to grant options to employees in the future. To the extent that new regulations make it more difficult or expensive to grant options to employees, we may incur increased cash compensation costs or find it difficult to attract, retain and motivate employees, either of which could harm our business.

     We use contractors to provide services to the Company, which often involves contractual complexity, tax and employment law compliance, and being subject to audits and other governmental actions. We have been audited for our contracting policies in the past, and may be in the future. Burdening our ability to freely use contractors to provide services to the Company may increase the expense of obtaining such services, and/or require us to discontinue using contractors and attempt to find, interview, and hire employees to provide similar services. Such potential employees may not be available in a reasonable time, or at all, or may not be hired without undue cost.

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.

     We have experienced a number of transitions with respect to our board of directors, executive officers, and our independent registered public accounting firm in recent quarters, including the following:

• In April 2004, Steve Tirado moved from the position of president and Chief Operating Officer to division president of storage group, Jaime Garcia-Meza moved from the position of vice president of worldwide sales to vice president of sales and marketing for storage platforms, Rob Valiton was appointed as vice president of worldwide sales, and Chris Paisley was appointed to the board of directors

• In August 2004, we announced that Robert C. Gargus planned to retire from the position of chief financial officer and Dale Brown, the controller, was appointed as chief accounting officer.

• In September 2004, Parviz Khodi, the vice president, PC/display products, passed away unexpectedly and his duties were subsequently assumed by John LeMoncheck, the vice president, CE products and Patrick Reutens was appointed as chief legal officer.

• In November 2004, David Lee resigned from the positions of chief executive officer and president, Steve Laub was appointed as chief executive officer and president and to the board of directors as well, and Andrew Rappaport and Douglas Spreng resigned from the board of directors.

36

• In January 2005, Steve Laub 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 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 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 at our annual meeting of stockholders, and accordingly, Dr. Lee resigned from our board of directors.

• In June 2005, PricewaterhouseCoopers LLP, our independent accountant, resigned as our auditor. In July 2005, we appointed Deloitte & Touche LLP as our new independent auditor.

     Such past and future transitions may continue to result in disruptions in our operations and require additional costs.

We face potential delisting from Nasdaq, as a result of the resignation of independent outside directors.

     In April 2005, four of our independent outside directors resigned from our Board of Directors and Board committees. As a result of these resignations, we were not in compliance with the marketplace rules of the Nasdaq Stock Market requiring that a majority of our Board consist of independent outside directors and that our Audit Committee consist of three independent outside directors, one of whom has requisite financial sophistication, and Nasdaq requested that we provide it with information related to our compliance with its listing requirements. We are cooperating with Nasdaq’s requests, and believe that with the election of Masood Jabbar and Peter Hanelt to our board of directors and audit committee in May 2005, we are now in compliance with the marketplace rules of the Nasdaq Stock Market. However, we cannot predict whether the Nasdaq Stock Market will take any actions that would adversely affect the continued listing of our common stock on the Nasdaq National Market.

Industry cycles may strain our management and resources.

     Cycles of growth and contraction in our industry may strain our management and resources. To manage these industry cycles effectively, we must:

• improve operational and financial systems;

• train and manage our employee base;

• successfully integrate operations and employees of businesses we acquire or have acquired;

• attract, develop, motivate and retain qualified personnel with relevant experience; and

• adjust spending levels according to prevailing market conditions.

     If we cannot manage industry cycles effectively, our business could be seriously harmed.

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.

     Our operations are headquartered in the San Francisco Bay Area, which is susceptible to earthquakes, and the operations of CMD, which we acquired, are based in the Los Angeles area, which is also susceptible to earthquakes. TSMC and UMC, the outside foundries that produce the majority of our semiconductor products, are located in Taiwan. Advanced Semiconductor Engineering, or ASE, one of the subcontractors that assembles and tests our semiconductor products, is also located in Taiwan.

37

Both Taiwan and Japan are susceptible to earthquakes, typhoons and other natural disasters.

     Our business would be negatively affected if any of the following occurred:

• 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.

Changes in environmental rules and regulations could increase our costs and reduce our revenue.

     Several jurisdictions are considering whether to implement rules that would require that certain products, including semiconductors, be made lead-free. We anticipate that some jurisdictions may finalize and enact such requirements. Some jurisdictions are also considering whether to require abatement or disposal obligations for products made prior to the enactment of any such rules. Although several of our products are available to customers in a lead-free condition, most of our products are not lead-free. Any requirement that would prevent or burden the development, manufacture or sales of lead-containing semiconductors would likely reduce our revenue for such products and would require us to incur costs to develop substitute lead-free replacement products, which may take time and may not always be economically or technically feasible, and may require disposal of non-compliant inventory. In addition, any requirement to dispose or abate previously sold products would require us to incur the costs of setting up and implementing such a program.

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.

     Provisions of our certificate of incorporation and bylaws may discourage, delay or prevent a merger or acquisition that a stockholder may consider favorable. These provisions include:

• authorizing the issuance of preferred stock without stockholder approval;

• providing for a classified board of directors with staggered, three-year terms;

• requiring advance notice of stockholder nominations for the board of directors;

• providing the board of directors the opportunity to expand the number of directors without notice to stockholders;

• prohibiting cumulative voting in the election of directors;

• requiring super-majority voting to amend some provisions of our certificate of incorporation and bylaws;

• limiting the persons who may call special meetings of stockholders; and

• prohibiting stockholder actions by written consent.

Provisions of Delaware law also may discourage, delay or prevent someone from acquiring or merging with us.

The price of our stock fluctuates substantially and may continue to do so.

     The stock market has experienced extreme price and volume fluctuations that have affected the market valuation of many technology companies, including Silicon Image. These factors, as well as general economic and political conditions, may materially and adversely affect the market price of our common stock in the future. The market price of our common stock has fluctuated significantly and may continue to fluctuate in response to a number of factors, including, but not limited to:

38

• 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.

     Due to these factors, the price of our stock may decline. In addition, the stock market experiences volatility that is often unrelated to the performance of particular companies. These market fluctuations may cause our stock price to decline regardless of our performance.

Continued terrorist attacks or war could lead to further economic instability and adversely affect our operations, results of operations and stock price.

     The United States has taken, and continues to take, military action against terrorism and has engaged in war with Iraq and currently has an occupation force there and in Afghanistan. In addition, the current nuclear arms crises in North Korea and Iran could escalate into armed hostilities or war. Acts of terrorism or armed hostilities may disrupt or result in instability in the general economy and financial markets and in consumer demand for the OEM’s products that incorporate our products. Disruptions and instability in the general economy could reduce demand for our products or disrupt the operations of our customers, suppliers, distributors and contractors, many of whom are located in Asia, which would in turn adversely affect our operations and results of operations. Disruptions and instability in financial markets could adversely affect our stock price. Armed hostilities or war in South Korea could disrupt the operations of the research and development contractors we utilize there, which would adversely affect our research and development capabilities and ability to timely develop and introduce new products and product improvements.

We indemnify certain of our licensing customers against infringement.

     We indemnify certain of our licensing agreements customers for any expenses or liabilities resulting from third-party claims of infringements of patent, trademark, trade secret, or copyright rights by the technology we license. Certain of these indemnification provisions are perpetual from execution of the agreement and, in some instances; the maximum amount of potential future indemnification is not limited. To date, we have not paid any such claims or been required to defend any lawsuits with respect to any claim. In the event that we were required to defend any lawsuits with respect to our indemnification obligations, or to pay any claim, our results of operations could be materially adversely affected.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

          Our cash equivalents and short-term investments consist primarily of fixed-income securities that are subject to interest rate risk and will decline in value if interest rates increase. Due to the short duration of our cash equivalents and short-term investments, an immediate 10% change in interest rates would not be expected to have a material effect on our near-term results of operations or financial condition. Our long-term capital lease obligations bear interest at fixed rates; therefore, our results of operations would not be affected by immediate changes in interest rates. Also, components of our stock compensation expense are tied to our stock price. Changes in our stock price can have a significant affect on the amount recorded as stock compensation expense.

Foreign Currency Exchange Risk

          All of our sales are denominated in U.S. dollars, and substantially all of our expenses are incurred in U.S. dollars, thus limiting our exposure to foreign currency exchange risk. We currently do not enter into forward exchange contracts to hedge exposures denominated in foreign currencies and do not use derivative financial instruments for trading or speculative purposes. The effect of an immediate 10% change in foreign currency exchange rates should not have a material effect on our future operating results or cash flows; however, a long term change in foreign currency rates would likely result in increased wafer, packaging, assembly or testing costs.

39

Item 4. Controls and Procedures

          (a) Evaluation of Controls and Procedures. For the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule13a-15(e). Based upon that evaluation, our Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer concluded that our disclosure controls and procedures were ineffective as of the end of the period covered by this report due solely to the assessment of the material weakness described below.

          (b) Changes in Internal Controls. There have not been any changes in our internal controls over financial reporting (as such term is defined in Rules13a-15(f) under the Securities Exchange Act of 1934, as amended) during the second quarter of our 2005 fiscal year that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting except as described below.

          A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

          On April 25, 2005, four of the five independent members of our board of directors resigned, leaving our audit committee with only one member, who was not a financial expert as defined by Nasdaq or an “audit committee financial expert” as defined by the rules of the SEC. Due to the vacancies on the board and its audit committee created by these resignations, we failed to comply with the Marketplace Rules of Nasdaq and rules of the Securities and Exchange Commission (“SEC”) requiring that the audit committee consist of three independent directors and that one of the three audit committee members meet the financial sophistication requirement of the Marketplace Rules and be a “audit committee financial expert”, as defined by the rules of the SEC. The fact that our Audit Committee consisted of only one member, who is not a financial expert as defined by Nasdaq or an “audit committee financial expert” as defined by the rules of the SEC, limited the ability of the audit committee to provide effective oversight over our internal control over financial reporting and the preparation of our financial statements for external purposes in accordance with Generally Accepted Accounting Principles (GAAP). Accordingly, management concluded that this control deficiency constituted a material weakness.

          Effective as of May 15, 2005, our board of directors elected Masood Jabbar as a new member of the board, and effective as of May 18, 2005, our board of directors elected Peter Hanelt as a new member of the board. Mr. Jabbar and Mr. Hanelt both became members of the audit committee, and Mr. Hanelt was appointed chairman of the audit committee. As a result, our audit committee now complies with the marketplace rules of the NASDAQ Stock Market, Inc. and rules of the Securities and Exchange Commission requiring that the audit committee consist of three independent directors and that one of the three audit committee members meet the financial sophistication requirement of the Marketplace Rules and be a “audit committee financial expert”, as defined by the rules of the SEC. We believe that remediation of this material weakness will be completed once sufficient time has elapsed for the board of directors to evaluate the effectiveness of our newly constituted audit committee.

40

Part II. Other Information

Item 1. Legal Proceedings

          On April 24, 2001, we filed suit in the U.S. District Court for the Eastern District of Virginia against Genesis Microchip Corp. and Genesis Microchip, Inc. (collectively, “Genesis”) for infringement of our U.S. patent number 5,905,769 (USDC E.D. Virginia Civil Action No.: CA-01-266-R) (the “Federal Suit”). On April 24, 2001, we also filed a complaint against Genesis with the International Trade Commission of the United States government (ITC) for unlawful trade practices related to the importation of articles infringing our patent (the “ITC investigation”). The actions sought injunctions to halt the importation, sale, manufacture and use of Genesis DVI receiver chips that infringe our patent, and monetary damages. We voluntarily moved to dismiss the ITC investigation, with notice that we would proceed directly in the Federal Suit. Our motion to dismiss was granted on February 7, 2002. We filed an amended complaint in the Federal Suit as of February 28, 2002, adding a claim for infringement of our U.S. patent number 5,974,464. In April 2002, Genesis answered and made counterclaims against us for non-infringement, license, patent invalidity, fraud, antitrust, unfair competition and patent misuse. Also in April 2002, we filed a motion to dismiss certain of Genesis’s counterclaims. In addition, we filed a motion to bifurcate trial of the counterclaims to the extent the court does not dismiss them. In May 2002, the Court granted our motion to dismiss certain of the counterclaims, with leave to amend. Genesis re-filed counterclaims against us for fraud and patent misuse. We filed another motion to dismiss these counterclaims, which the Court granted with prejudice on August 6, 2002. In December 2002, the parties entered into a memorandum of understanding (MOU) to settle the case. When the parties failed to reach agreement on a final, definitive agreement as required by the MOU, in January 2003, the parties filed motions with the Court to enforce their respective interpretations of the MOU. On July 15, 2003, the Court granted our motion to interpret the MOU in the manner we requested, and ruled that Genesis had engaged in efforts to avoid its obligations under the MOU. On August 6, 2003, the Court entered a final judgment based on its July 15, 2003 ruling. Under the final judgment order, Genesis was ordered to make a substantial cash payment, and to make royalty payments; although Genesis has made a cash payment to the Court, it has not made all the payments that are required under the final judgment order. We filed motions for reimbursement of some of our expenses, including some of our legal fees, and for modification and/or clarification of certain items of the judgment, and to hold Genesis in contempt of Court for breaching the protective order in the case by disclosing secret information to at least one of our competitors. On December 19, 2003, the Court granted our motions in part and denied them in part: the court issued an amended judgment, and held Genesis in contempt of Court for breaching the protective order. Under the amended judgment, Genesis was ordered to make a substantial cash payment, royalty payments, and interest; although Genesis has made certain cash payments to the Court, it has not made all the payments that are required under the amended judgment. On January 16, 2004, Genesis filed a notice of appeal to the U.S. Court of Appeals for the Federal Circuit. On August 26, 2004, the parties completed the filing of their respective appeal briefs. After a hearing, the Federal Circuit dismissed Genesis’ appeal for lack of jurisdiction. The Federal Circuit held that the lower court’s order, which was based on the parties’ agreement to settle the case, was not “final” and appealable. The case was remanded by the Federal Circuit back to the lower court. The parties have negotiated a stipulation by which the lower court can issue a new final judgment. Under this stipulation, the Court will turn over funds deposited by Genesis to us. On July 19, 2005 the Court sent $6.8 million to Silicon Image, which we have deposited in a segregated account and will not use until Genesis has exhausted all of its appeals.

          To date, we have not received any unrestricted cash payments nor have we recognized any gain associated with the matter. If the MOU is upheld in its present form after all appeals have been exhausted the restrictions on the use of the cash payment will be lifted and additional cash amounts will be owed by Genesis to Silicon Image under the terms of the MOU. In addition, Genesis will be granted a royalty-bearing license for the right to use certain non-necessary patent claims referred to in the DVI Adopters Agreement. In addition, Genesis will be granted a royalty-bearing license for the right to use these claims as part of any HDMI implementation. Genesis will also be granted a royalty-bearing license to expand use of certain DVI- related patent claims to the consumer electronics marketplace. We expect that an amended final, appealable order will be entered in the third quarter of 2005. We further expect that Genesis will refile its appeal. Through June 30, 2005, we have spent and expect to continue to incur significant legal costs until the matter is resolved.

          Silicon Image, certain officers and directors, and Silicon Image’s underwriters have been named as defendants in a securities class action lawsuit captioned Gonzales v. Silicon Image, et al., No. 01 CV 10903 (SDNY 2001) pending in Federal District Court for the Southern District of New York. The lawsuit alleges that all defendants were part of a scheme to manipulate the price of Silicon Image’s stock in the aftermarket following Silicon Image’s initial public offering in October 1999. Response to the complaint and discovery in this action on behalf of Silicon Image and individual defendants has been stayed by order of the court. The lawsuit is proceeding as part of a coordinated action of over 300 such cases brought by plaintiffs in the Southern District of New York. Pursuant to a tolling agreement, individual defendants have been dropped from the suit for the time being. In February 2003, the Court denied motions to dismiss brought by the underwriters and certain issuers and ordered that the case may proceed against certain issuers including against Silicon Image. A proposed settlement has been negotiated and has received preliminary approval by the Court. In the event that the settlement is granted final approval, we do not expect it to have a material effect on our results of operations or financial position. In the event that the settlement is not finally approved, we could not accurately predict the outcome the litigation, but we intend to defend this matter vigorously.

41

          Silicon Image and certain of its officers were named as defendants in a securities class action litigation captioned “Curry v. Silicon Image, Inc., Steve Tirado, and Robert Gargus, No. C05 00456 MMC”, commenced on January 31, 2005 and pending in the United States District Court for the Northern District of California. Plaintiffs filed the action on behalf of a putative class of shareholders who purchased Silicon Image stock between October 19, 2004 and January 24, 2005. The lawsuit alleges that Silicon Image and certain of its officers and directors made alleged misstatements of material facts and violated certain provisions of Sections 20(a) and 10(b) of the Exchange Act of 1934 and Rule 10b-5 promulgated there under. On April 27, 2005, the Court issued an order appointing lead plaintiffs and approving the selection of lead counsel. On July 27, 2005, plaintiffs filed an amended consolidated complaint. The amended complaint no longer names Mr. Gargus as an individual defendant, but adds David Lee as an individual defendant. By stipulation and order, the defendants’ deadline to file any motion to dismiss is September 26, 2005. Silicon Image intends to defend itself vigorously in this matter.

          On January 14, 2005, we received a notification that the Securities and Exchange Commission had commenced a formal, private investigation involving trading in securities of Silicon Image. We are fully cooperating with the investigation.

          In addition, we have been named as defendants in a number of judicial and administrative proceedings incidental to our business and may be named again from time to time. We intend to defend such matters vigorously, and although adverse decisions or settlements may occur in one or more of such cases, the final resolution of these matters, individually or in the aggregate, is not expected to have a material adverse effect on our results of operations or financial position.

Item 2. Changes in Securities and Use of Proceeds

          Not applicable.

Item 3. Defaults Upon Senior Securities

          Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders

          (a) We held our 2005 Annual Meeting of Stockholders on June 15, 2005.

          (b) Our board of directors consists of five members and is divided into three classes, with each class serving staggered three-year terms. The term of the Class I directors, currently Darrel Slack and Peter Hanelt, will expire at the 2006 Annual Meeting of Stockholders, and the term of the Class II directors, who are currently David Hodges and Masood Jabbar, will expire at the 2007 Annual Meeting of Stockholders.

          (c) At the 2005 Annual Meeting of Stockholders, the only matter voted upon was the election of one Class III director to serve until the 2008 Annual Meeting of Stockholders. At the meeting, Steve Tirado was elected as a Class III director, in an uncontested election, by the following vote:

	Shares		Shares		Shares		Shares		Broker
Name	For		Against		Abstaining		Withheld		Non-Votes
Steve Tirado		50,796,627		—		—		20,359,357		—

Item 5. Other Information

          Not applicable.

42

Item 6. Exhibits

          (a) Exhibits

10.01*	Business Cooperation Agreement dated April 26, 2005 between Intel Corporation and the Registrant.
10.02*	Unified Display Interface Specification Promoters Agreement dated April 26, 2005 among Intel Corporation, National Semiconductor Corporation and the Registrant.
31.01	Certification under Section 302 of the Sarbanes-Oxley Act of 2002
31.02	Certification under Section 302 of the Sarbanes-Oxley Act of 2002
32.01	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.02	Certification 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.

43

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: August 9, 2005	Silicon Image, Inc.
	/s/ Darrel Slack
	Darrel Slack
	Chief Financial Officer (Principal Financial Officer)

44

Exhibit Index

10.01*	Business Cooperation Agreement dated April 26, 2005 between Intel Corporation and the Registrant.
10.02*	Unified Display Interface Specification Promoters Agreement dated April 26, 2005 among Intel Corporation, National Semiconductor Corporation and the Registrant.
31.01	Certification under Section 302 of the Sarbanes-Oxley Act of 2002
31.02	Certification under Section 302 of the Sarbanes-Oxley Act of 2002
32.01	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.02	Certification 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.

EX-10.01

INTEL and SILICON IMAGE CONFIDENTIAL

Exhibit 10.01

CONFIDENTIAL TREATMENT REQUESTED

Business Cooperation Agreement
Between Intel Corporation and Silicon Image, Inc.
for
Unified Display Interface

This Business Cooperation Agreement (“Agreement”) is entered into as of April 26, 2005 (the “Effective Date”) by and between Silicon Image, Inc. a Delaware corporation, having an office at 1060 E. Arques Avenue, Sunnyvale, California, U.S.A, (“SI” or “Silicon Image”) and Intel Corporation, a Delaware corporation, having an office at 2200 Mission College Blvd., Santa Clara, California 95052, U.S.A. (“Intel”).

Purpose

The purpose of the Unified Display Interface (“UDI”) effort is to define, promote and enable wide industry adoption of a new display interconnect specification (“Specification”) for use in PC’s, digital monitors (e.g. LCD displays) and embedded notebook displays, which provides interoperability between such devices and HDMI television displays.

Whereas, Silicon Image presently licenses its Transition Minimized Differential Signaling (TMDS) protocol and encoding algorithm in the PC and Consumer Electronics segments;

Whereas, Intel presently has a UDI Specification draft in progress, and has joined with Silicon Image and desires to join with additional promoters to develop the Specification for use in desktop PC and mobile PC display applications that can be adopted generally as an open industry specification by a broad group of Adopters in order to enhance the demand for products that comply with the Final Specification;

Whereas, Silicon Image is willing to make available the TMDS interface and all necessary claims pertaining to the TMDS interface and associated Panel Interface Logic (“PIL”) needed for broad adoption of the Specification on terms described herein; and

Whereas, Intel and Silicon Image desire to encourage broad adoption of the Specification and collaborate as Promoters to license the necessary claims contained in the Specification under a reasonable and non-discriminatory licensing framework agreed to by such Promoters. The Parties will mutually agree on and invite other companies to join a Promoters group to define and ready the Specification for release to Adopters.

Now Therefore, in consideration of the mutual covenants and promises contained herein, the parties agree as follows:

1

INTEL and SILICON IMAGE CONFIDENTIAL

1. Definitions.

Unless otherwise provided in this Agreement, defined terms that are herein capitalized will have the meaning ascribed to them in the Promoters Agreement attached hereto as Attachment A.

“CNDA” means the Confidential Information Disclosure Agreement # 94185 dated between the Parties.

“HDMI 1.x” means that next version of the HDMI Specification to be published by the HDMI Founders (as such term is described in the HDMI Specification) subsequent to the most recently released version of the HDMI specification (HDMI version 1.1).

“HDMI 1.x+1” means that next version of the HDMI Specification to be published by the HDMI Founders (as such term is described in the HDMI Specification) subsequent to the HDMI 1.x version of the HDMI Specification.

“HDMI Specification” means the specification for the High-Definition Multimedia Interface.

“Party” or “Parties” means Intel or Silicon Image or Intel and Silicon Image collectively.

“Promoters” means Intel, Silicon Image and such other parties as the initial Promoters may elect to include in the Promoters group under the procedures set forth in the Promoters Agreement and that sign the Promoters Agreement.

“Promoters Agreement” means that agreement entered into between Intel, SI and certain other parties relating to the promotion of the UDI Specification and attached hereto as Attachment A.

“Sink” means a digital electronic device that is fully compliant with the HDMI specification and has passed all applicable HDMI compliance tests, such device being adapted to receive and process, from a Source or repeater device, a digital data signal representative of video and/or audio data for rendering such digital data signal to a display (in the case of video data) and/or an audio rendering system (in the case of audio data), solely in accordance with the HDMI specification.

“Source” means a digital electronic device that is fully compliant with the HDMI specification and has passed all applicable HDMI compliance tests, such device being adapted to process a digital signal representative of video and/or audio data and, upon processing, to transmit the processed digital data signal or sub-set of such digital data signal to a Sink or repeater device for producing a visual image and/or audio sound as represented by the processed digital data signal, solely in accordance with the HDMI specification.

2

INTEL and SILICON IMAGE CONFIDENTIAL

2. Specification Scope and Objectives.

2.1 Scope. The Specification Scope is as defined in the Promoters Agreement, and shall consist of those video protocols in the DVI specification, UDI protocol, performance extensions based on TMDS protocols, and a new PCI Express-based electrical layer. The Parties recognize that subject matter outside of, and not required for implementation of the Specification (but which may be optional or desirable) may be subject to royalty bearing intellectual property licensing. Although those video protocols in the DVI specification will be part of the Specification, there is no intent to change existing DVI licensing. For avoidance of misinterpretation among Specification Adopters, the Parties shall work with the other Promoters to ensure the Draft, Interim and Final Specification reflect this. The Parties also do not intend to supersede or modify existing DVI or HDMI licenses or any obligations of third parties to license DVI or HDMI.

2.2 Objective. The Specification objective is to define a unified display interface using TMDS encoding which has the following characteristics:

A.	HDMI1.x Compatible. The Parties will support HDMI compatibility with UDI (i.e., defining UDI to be compatible with HDMI) for the first Final Draft of the Specification, Specification updates, and one (1) major revision of the Specification, if the Promoters vote to define and release a major revision of the Specification. A goal of UDI is to allow for UDI platforms to be able to pass HDMI compliance testing (as defined by HDMI Licensing, LLC) and be eligible to obtain an HDMI logo.
B.	Provides convergence and cross interoperability of PC and CE devices.
C.	Provides lower system cost (relative to current digital display interconnects: DVI, LVDS) via common, standardized electronics for all digital displays (i.e., LCD panels for notebooks, PC monitors, and TVs).

a. Provides an easier, lower cost (relative to current digital display interconnects: DVI, LVDS) system design with lower EMI and low pincount interface for a wide range of resolutions.

D. To further clarify objectives, interoperability with current DVI displays is not a base requirement and is therefore considered optional, but highly desirable.

3. Intel Deliverables.

3.1 Intel will contribute link layer definition, physical layer definition, UDI port electricals and timing definition, and will license the Necessary Claims in these contributions to the Promoters and Adopters under the reasonable and non-discriminatory licensing framework planned by the Promoters for the Specification. [***]

*** Note: Confidential treatment has been requested with respect to the information contained within the [***] marking. Such portions have been omitted from this filing and have been filed separately with the Securities and Exchange Commission.

3

INTEL and SILICON IMAGE CONFIDENTIAL

3.2 For the purpose of maintaining compatibility between UDI and HDMI, Intel agrees to collaborate with Silicon Image in coordinating with the HDMI Founders (as defined in the HDMI Specification Adopter Agreement) in defining and making necessary changes to the HDMI Specification.

3.3 Intel intends to remain an HDMI Adopter (as defined in the HDMI Specification Adopter Agreement) during the term of this Business Cooperation Agreement and therefore, if changes authorized by the HDMI Licensing, LLC are made to the HDMI Specification in order to ensure interoperability with the UDI Specification (revisions 1.0 through 2.0), and Intel has necessary claims (as defined in the HDMI Adopters Agreement) needed for those changes, then Intel agrees to the terms of the Non-Assertion clause for Adopters in the HDMI Specification Adopter Agreement, for such necessary claims.

3.4 [***]

3.5 [***]

3.6 Intel agrees to apply engineering resources necessary to develop the Specification in an expedient manner.

4. Silicon Image Deliverables.

4.1 Silicon Image will identify and provide descriptions of the TMDS interface and PIL (e.g., the necessary intellectual property in the non-electrical section of the DVI 1.0 specification including TMDS, PIL electronics) needed for broad adoption of the Specification across multiple market segments. Silicon Image will contribute the TMDS interface and the PIL and will license the Necessary Claims therein to the Promoters and Adopters under the reasonable and non-discriminatory licensing framework agreed to by the Promoters for the Specification on a zero dollar royalty basis. Such zero-dollar royalty offer to license may be conditioned upon, among other things, the licensee’s grant of a reciprocal license with a corresponding royalty rate equaling zero and such condition shall be deemed within the meaning of “reasonable and nondiscriminatory terms” as provided above. While the Promoters do not intend to supersede or in any way modify the terms of the HDMI Specification License (the “HDMI License”) or the DVI Specification License (the “DVI License”), it is Silicon Image’s intent to use its commercially reasonable efforts to ensure that the Specification and Silicon Image’s contributions to the UDI Specification provide interoperability and compatibility between a UDI Source and HDMI 1.x Sink.

*** Note: Confidential treatment has been requested with respect to the information contained within the [***] marking. Such portions have been omitted from this filing and have been filed separately with the Securities and Exchange Commission.

4

INTEL and SILICON IMAGE CONFIDENTIAL

4.2 HDMI 1.x and HDMI 1.x+1

With respect to UDI being compliant with the HDMI Specification, Silicon Image will use its commercially reasonable efforts to introduce, propose or otherwise submit changes targeted at two different anticipated revisions of the HDMI Specification, which promote or provide interoperability between UDI and HDMI, for the consideration of the HDMI Founders for inclusion in the HDMI specification; such changes are listed below under the headings “HDMI 1.x Will Cover” and “HDMI 1.x+1 Will Cover”. The Parties acknowledge that SI has no authority to make changes to the HDMI Specification and that there is no guarantee that either HDMI 1.x or HDMI 1.x+1 will be published or that if published such versions of the HDMI Specification will contain the items set forth below. Performance by SI of its obligations hereunder is a necessary precondition of the Parties performing their respective Specification definition and promotion obligations under this Agreement. The qualifications contained in the preceding sentence shall apply to all items identified under this Section 4.1. For mutual planning and discussion purposes only, the Parties set forth below a timetable for proposed revisions to the HDMI Specification.

A.	[***]
B.	[***]

4.3 HDMI 1.x Will Cover:

A.	[***]
B.	[***]
C.	[***]

*** Note: Confidential treatment has been requested with respect to the information contained within the [***] marking. Such portions have been omitted from this filing and have been filed separately with the Securities and Exchange Commission.

5

INTEL and SILICON IMAGE CONFIDENTIAL

4.4 HDMI 1.x+1 Will Cover:

A.	[***]
B.	[***]
C.	[***]
D.	[***]
E.	[***]
F.	[***]

4.5 Silicon Image agrees to apply engineering resources necessary to develop the Specification in an expedient manner.

5. Joint Intel-Silicon Image Deliverables

5.1 Intel and Silicon Image will collaborate closely in identifying and inviting other qualified industry suppliers to join this Specification development effort as Promoters and proceed with Specification development under the terms of the Promoters Agreement in Attachment A.

5.2 The Parties will work in good faith to develop the Specification as outlined in Attachment C to the Promoters Agreement, finalize Promoters, Contributors and Adopters Agreement terms, and a compliance program for Adopters’ devices which implement the Specification.

5.3 [***]

*** Note: Confidential treatment has been requested with respect to the information contained within the [***] marking. Such portions have been omitted from this filing and have been filed separately with the Securities and Exchange Commission.

6

INTEL and SILICON IMAGE CONFIDENTIAL

5.4 [***] Intel and SI understand that the rate of adoption of the Final Specification and their associated respective product development and Final Specification implementation is dependent to a large degree on the timing of the Final Specification release, the relative price and availability of cost-reduced platform components for a UDI, acceptance by high-volume platform Adopters willing to design and sell Final Specification-compliant products necessary to generate broad market acceptance, as well as market factors and conditions, over which neither Party has any material control.

6. Specification Licensing and Administration

6.1 Intel, Silicon Image and the other Promoters shall collaborate on the development of an Adopters Agreement for the Specification. Such agreement will provide for reciprocal licensing under reasonable and nondiscriminatory terms, among all Adopters and Promoters of those claims necessary to implement the Specification, and shall reflect the licensing framework as agreed by the Promoters under terms substantially similar to those in Attachment A.

6.2 Following adoption, the Promoters plan to promote the Specification and shall take steps to form and fund an organization to license and administer the Final Specification and administer compliance testing. Such organization shall maintain the same Specification licensing framework as set forth herein and shall not be empowered to modify the Specification, licensing framework, or compliance requirements without express authority of the Promoters. The Promoters will mutually agree upon appropriate members’ and Adopters’ fees to fund the Final Specification administration, licensing and compliance effort. Silicon Image, Intel and other Promoters will lead the definition and administration of a compliance program, structured under the framework of the Promoter Agreement, including coordination with and transition to a standards administration organization with the objective of creating a low-overhead, low–politics, efficient licensing body.

7. Licensing Framework

7.1 The Parties agree to license Promoters and Adopters those claims necessary for Specification implementation, as defined in the Promoters Agreement.

7.2 No Other Licenses. Except for the rights expressly provided by this Agreement and as set forth in the Promoters Agreement, neither Party grants or receives, by implication, estoppel, or otherwise, any rights under any patents or other intellectual property rights.

*** Note: Confidential treatment has been requested with respect to the information contained within the [***] marking. Such portions have been omitted from this filing and have been filed separately with the Securities and Exchange Commission.

7

INTEL and SILICON IMAGE CONFIDENTIAL

8. Program Management

Each Party shall designate in writing a program manager to coordinate joint deliverables and contract activities, and ensure milestones are met. The Program managers for each Party shall be responsible for meeting scheduling and attendance, meeting coverage during absences, progress reports and performance milestone tracking. A Party may designate a new program manager by sending written notice to the other.

9. Effective Date, Term, Termination

9.1 Term. The term of this Agreement shall be for two (2) years from the Effective Date. The expiration of this Agreement shall have no effect on the rights and obligations of the Parties under the Promoters Agreement.

9.2 Termination for Breach. This Agreement may be terminated by either Party upon written notice to the other, if the other Party breaches any material term or condition of this Agreement and fails to remedy the breach within sixty (60) days after being given written notice thereof; provided however, that if such breach cannot be cured within such sixty (60) day period, but (x) the breach is capable of cure, (y) the breaching Party commences to effect a cure within such sixty (60) day period and (z) the breaching Party diligently pursues such cure, the breaching Party will have so much time as is reasonably necessary to cure such default.

9.3 Termination Effect on Licenses. Upon termination under Subsection 9.2, the non-breaching Party may terminate all licenses and agreements to license herein with the breaching Party; and the breaching Party agrees not to assert any copyright in the Specification with respect to material in any Specification.

9.4 Termination for Promoters’ Failure to Finalize Specification or for Non-Adoption of Final Specification. The Parties agree that (i) acceptance of the Specification by other Promoters, (ii) acceptance by prospective Adopters, including without limitation, those Adopters needed to drive the necessary volume to generate large scale adoption and standardization, (iii) HDMI interoperability, and (iv) poor performance of Adopters’ and Promoters’ product implementations designed to conform to the UDI Specification are all factors which may affect the ability of the Parties to accomplish the business and technical objectives set forth herein and in the Promoters Agreement. Therefore, if any of the above (items (i) through (iv)) should occur, then a Party may initiate discussions with the other Party, and if following forty-five (45) days good faith discussion between the Parties, no resolution is found, then either Party may terminate this Agreement upon written notice to the other.

10. No Assignment

This Agreement may not be assigned or otherwise transferred without the prior written consent of the other Party hereto, nor, except as expressly provided herein, may any right or obligation hereunder be assigned or transferred, to a third party by either Party without the prior written consent of the other Party hereto. Notwithstanding the foregoing or

8

INTEL and SILICON IMAGE CONFIDENTIAL

anything contained herein to the contrary, either Party may transfer or assign its licenses, rights and obligations under this Agreement to (i) a wholly owned subsidiary who has sufficient resources and rights to fulfill the terms of this Agreement or (ii) a successor to all or substantially all of its business or assets relating to this Agreement who has sufficient resources and rights to fulfill the terms of this Agreement whether by sale, merger, operation of law or otherwise.

11. Outside Specifications and IP Frameworks

Reference to outside specifications and related IP frameworks are made to clarify dependencies and reflect no intent to modify existing licensing frameworks, (e.g., TMDS/DVI, HDMI, HDCP).

12. Costs

Each Party shall be solely liable for all of its own fees, costs and other expenses in conjunction with negotiation and preparation of this Agreement and its performance hereunder.

13. Promoters Agreement

The Parties’ performance under the Promoters Agreement in Attachment A is a necessary part of the Parties’ performance as envisioned under this Agreement. This Agreement shall in no way be construed as a modification to the terms of the Promoters Agreement as between Intel, Silicon Image or between the Parties and other Promoters nor shall it restrict the rights of either Party thereunder.

14. Miscellaneous

14.1 Relationship of Parties. The Parties are not partners or joint venturers, or liable for the obligations, acts, or activities of the other. No Party has any express or implied right or authority to assume or create any obligations on behalf of the other or to bind the other to any contract, agreement or undertaking with any third party. Nothing in this Agreement shall be construed to create a partnership, joint venture, employment or agency relationship between the Parties.

14.2 Limitation of Liability. IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER FOR DAMAGES OF ANY KIND AS A RESULT OF THIS AGREEMENT, INCLUDING FOR LOSS OF PROFITS, DATA OR USE, OR ANY SPECIAL, CONSEQUENTIAL OR INCIDENTAL DAMAGES, HOWEVER CAUSED, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGE.

14.3 Confidentiality and Publicity. The terms of this Agreement are Confidential Information of the Parties as defined in the CNDA, and neither Party will disclose or make any public statements about this Agreement or the Specification definition effort without prior written approval of the other. In the event that a Party is requested or is legally required or becomes legally compelled by any governmental authority or

9

INTEL and SILICON IMAGE CONFIDENTIAL

regulatory body (including, without limitation, the Securities and Exchange Commission) or by statute or regulation or by oral questions, interrogatories, requests for information or documents, subpoena, criminal or civil investigative demand or similar process, including, without limitation, in connection with any public or private offering of the Party’s capital stock to disclose any Confidential Information, the Party shall provide the other Party with prompt written notice of that fact before such disclosure and will fully cooperate with the other Party to seek a protective order, confidential treatment or other appropriate remedy with respect to the disclosure. In the event of any disclosure, the Party shall disclose only that portion of the Confidential Information that the Party is legally required to disclose and shall exercise commercially reasonable efforts to obtain reliable assurance that confidential treatment will be accorded such information and to the extent possible under law. The Party agrees that it will provide the other Party with drafts of the disclosing materials in which the Party desires to disclose Confidential Information under subsection (ii) above or is required to disclose Confidential Information under this subsection (iii) at least two (2) business days prior to disclosure thereof, and that it will coordinate with the other Party to make mutually agreeable changes to the extent permitted by law.

14.4 No Warranty. The Parties acknowledge that all information provided as part of the Specification development process and the Draft Specification and/or Final Specification itself is provided “AS IS” WITH NO WARRANTIES WHATSOEVER, WHETHER EXPRESS, IMPLIED, STATUTORY, OR OTHERWISE, AND THE PARTIES EXPRESSLY DISCLAIM ANY WARRANTY OF MERCHANTABILITY, NONINFRINGEMENT, FITNESS FOR ANY PARTICULAR PURPOSE, OR ANY WARRANTY OTHERWISE ARISING OUT OF ANY PROPOSAL, SPECIFICATION, OR SAMPLE.

14.5 Governing Law. This Agreement shall be construed and controlled by the laws of New York without reference to conflict of laws principles.

14.6 Jurisdiction. The Parties agree that all disputes arising in any way out of this Agreement shall be heard exclusively in, and all Parties irrevocably consent to jurisdiction and venue in, the State and Federal courts of New York.

14.7 Notices. All notices hereunder shall be in writing and sent to each Party at addresses indicated in such Party’s signature block at the end of this Agreement and or at such addresses as each such Party may later specify by such written notice.

14.8 Not Partners. No Intent to Create Third Party Beneficiaries. The Parties are independent companies and are not partners or joint venturers with each other. Intel and Silicon Image agree that only Intel and Silicon Image will benefit from and are entitled to enforce the provisions of this Agreement and that no third-party beneficiary is intended under this Agreement.

14.9 Complete Agreement; No Waiver. This Agreement sets forth the entire understanding of the Parties and supersedes all prior agreements and understandings relating hereto. No modifications or additions to or deletions from this Agreement shall

10

INTEL and SILICON IMAGE CONFIDENTIAL

be binding unless accepted in writing by an authorized representative of all Parties, and the waiver of any breach or default will not constitute a waiver of any other right hereunder or any subsequent breach or default.

14.10 Survival: The provisions of Sections 1, 7, 9, 10, 11, 12, 13 and 14 will survive expiration or termination of this Agreement.

14.11 Section Headings. The section headings contained in this Agreement are for reference purposes only and will not affect in any way the meaning or interpretation of this Agreement.

14.12 Taxes Each Party shall be responsible for the payment of its own tax liability arising from this Agreement.

14.13 No Rule of Strict Construction . Regardless of which Party may have drafted this Agreement, no rule of strict construction shall be applied against any Party. If any provision of this Agreement is determined by a court to be unenforceable, the Parties shall deem the provision to be modified to the extent necessary to allow it to be enforced to the extent permitted by law, or if it cannot be modified, the provision will be severed and deleted from this Agreement, and the remainder of the Agreement will continue in effect.

In witness of their agreement, the Parties have executed this Agreement below:

SILICON IMAGE, INC.	INTEL CORPORATION
/s/ Steve Tirado	/s/ Eric Mentzer
Signature	Signature
Steve Tirado	Eric Mentzer
Printed Name	Printed Name
CEO	VP and GM, Chipset Group
Title	Title
04/28/05	04/28/05
Date	Date

11

INTEL and SILICON IMAGE CONFIDENTIAL

ATTACHMENT A

PROMOTERS AGREEMENT

(Incorporated by reference from Exhibit 10.02 of the Form 10-Q filed by Registrant on August 9, 2005.)

12

EX-10.02

UDI Promoters Confidential

Exhibit 10.02

CONFIDENTIAL TREATMENT REQUESTED

UNIFIED DISPLAY INTERFACE

SPECIFICATION PROMOTERS AGREEMENT

This UDI Specification Promoters Agreement (“Agreement”) is entered as of April 26, 2005 (“Effective Date”) by and among Intel Corporation, Silicon Image, Inc., and National Semiconductor Corporation, (collectively referred to herein as the “Promoters”). The parties hereto hereby agree as follows.

Background

A.	The Promoters wish to develop a specification to define and promote the wide industry adoption of a new display interconnect specification for use in PC’s, digital monitors (e.g. LCD displays) and embedded notebook displays, which provides interoperability with HDMI TV Displays.
B.	The Promoters wish to encourage broad industry adoption of the specification and wish to make available licenses for it on reasonable and non-discriminatory terms.

Agreement

1. Definitions

1.1 “Adopter” means any entity that has executed a copy of the Adopters Agreement in the form attached hereto as Attachment A (“Adopters Agreement”) and delivered it to the Secretary.

1.2 “Adoption Meeting” shall mean a meeting of Promoters at which the Final Specification shall be voted upon and approved by a Passing Vote of the Promoters.

1.3 “Affiliate” means any entity now or hereafter that is directly or indirectly controlled by, under common control with or that controls the subject party. For purposes of this definition control means direct or indirect ownership of or the right to exercise (a) more than fifty percent (50%) of the outstanding shares or securities entitled to vote for the election of directors or similar managing authority of the subject entity; or (b) more than fifty percent (50%) of the ownership interest representing the right to make the decisions for the subject entity; provided, however, that in each case such entity shall be deemed to be an Affiliate only so long as such ownership or control exists and is more than fifty percent (50%).

1.4 “Compliant Portion” means those portions of a product (hardware, software or combinations thereof) that implement and are compliant with the Final Specification (as applicable to such portions); provided, and only to the extent that, such portions are within the bounds of the Scope.

1.5 “Confidential Information” means solely the Draft Specification(s). Notwithstanding the foregoing, Confidential Information shall not include any information that is (a) rightfully in the public domain other than by a breach of a duty to the disclosing party; (b) rightfully received from a third party without any obligation of confidentiality; (c) rightfully known to the receiving party without any limitation on use or disclosure prior to its receipt from the disclosing party; (d) independently developed by employees of the receiving party without reference or access to any Confidential Information; or (e) generally made available to third parties by the disclosing party without restriction on disclosure. For purposes of this section, a Promoter that transmits Confidential Information to any of the other Promoters shall be considered a “disclosing party” and any Promoter that receives Confidential Information from a disclosing party shall be considered a “receiving party.”

1.6 “Contributor” means a party that has, subject to the terms set forth in this Agreement, entered into a Contribution Agreement in the form attached hereto as Attachment B (“Contribution Agreement”).

1.7 “Submission” means a submission by a Promoter proposing an addition to or modification of an existing Draft Specification or a new specification or portion thereof , or a submission proposing changes or modifications to any reference design or ancillary documents required by the Final Specification, provided that the submission is either (i) submitted in writing (electronically or otherwise) with language identifying it as a submission of that party, or (ii) stated orally, memorialized with specificity in the written minutes of a meeting, and attributed in the meeting minutes to the submitting Promoter, provided that the minutes are promptly provided to the individual representing the submitting Promoter, unless the submitting Promoter withdraws its submission in writing as soon as practicable and in any event, no later than thirty(30) days of receipt of such written minutes. A Promoter failing to provide such notice shall be conclusively deemed to have made a Submission as memorialized in the minutes.

1.8 “Draft Specification” means any written information provided by a Promoter or Contributor to any other Promoter or the Secretary for the purpose of creating, commenting on, revising, updating, modifying, or adding to any document that is to be considered for inclusion in the Final Specification by the Promoters.

1.9 “DVI” means the Digital Visual Interface specification.

1.10 “Final Specification” means the version and contents of the Draft Specification as adopted by the Promoters in accordance with the procedures in Section 6 and as updated from time to time as set forth in Sections 6 and 8; provided that the Final Specification shall not include (i) any implementation examples unless such implementation examples are expressly identified as being “licensed” under the patent license in Section 7 herein, and (ii) any feature, specification, protocol, interface, item or other element that is labeled or otherwise identified as “not licensed”.

1.11 “Final Draft” means that version of the Draft Specification that the Promoters have identified as ready for Final review.

1.12 “HDMI” means the High Definition Multimedia Interface specification.

1.13 “HDCP” means the High Bandwidth Digital Content Protection specification.

2

1.14 “Necessary Claims” for each party to this Agreement means claims of a patent or patent application, to the extent patents issue on such application, that

(a)	now or at any future time during the term of this Agreement, are owned, controlled or licensable by such party or any of its Affiliates throughout the world; and
(b)	are necessarily infringed by implementing those portions of the Final Specification that are within the bounds of the Scope, provided that a claim is necessarily infringed only when it is not possible to avoid infringing such claim because there is no commercially reasonable non-infringing alternative for implementing such portions of the Final Specification within the bounds of the Scope.
	Notwithstanding the foregoing sentence, Necessary Claims do not include any claims
(c)	other than those set forth above even if contained in the same patent or patent application as Necessary Claims; or
(d)	that read solely on any implementations of any portion of the Final Specification that are not within the bounds of the Scope; or
(e)	that, if licensed, would require a payment of royalties by the licensor to third parties who are not Affiliates, unless the licensee agrees in writing to indemnify the licensor against all royalty costs and expenses arising from such license.

1.15 “Scope” means those electrical signaling characteristics, register models, electrical and mechanical characteristics, interfaces (including, without limitation, the TMDS interface and PIL), physical dimensions and characteristics, application program interfaces, behavioral rules, TMDS algorithms, signals, signal sets, video protocols, signaling and coding protocols, bus protocols, and data structures disclosed with particularity in the Final Specification where the primary purpose of such disclosure is to enable products to interoperate, interconnect, and communicate, as defined within the Final Specification. “Scope” also means those portions of the implementation examples related to the TMDS interface indicated as being “licensed” in the Final Specification, including, without limitation,

(a)	the development of a video application or device used within the source, sink, switching device, or video processing device (i.e., a silicon IHV would be able to develop a TCON using UDI);
(b)	a wide range of display implementations;
(c)	UDI to HDMI interoperability; and
(d)	the visual interface to CE devices. Audio will not be included in the 1.0 version of the Specification, but audio is not precluded from a post-1.0 revision of the Specification.

Notwithstanding the foregoing, the Scope shall not include

(a) any technology that is (i) not actually contained within a product or portion thereof that complies with the Final Specification even if such technology is useful or necessary to develop, design, debug, manufacture, sell or use such product or portion thereof, (ii) any implementation examples unless such implementation examples are expressly identified in the Final Specification as being “licensed” under the patent license in Section 7, or

3

(b)

technologies not disclosed with particularity in the Final Specification (examples of such technologies include without limitation semiconductor manufacturing technology, compiler technology, power reduction technology, content protection technologies, including without limitation, HDCP, HDMI, DVI (but shall include those Necessary Claims that are common to both UDI and DVI), object oriented technology, basic operating system technology); non-interface portions of the transmitter or receiver that are not defined with particularity as licensed implementation examples in the Final Specification, or other published specifications developed elsewhere but referred to in the body of the Final Specification, even if required for compliance with the Final Specification; or

(c)

any portion of any product or any combination of products (or portions of products) the purpose or function of which is not required for compliance with, or specified as a compliant implementation in, the Final Specification,

1.16 “PIL” means panel interface logic that is used to condition data for presentation to a display device.

1.17 “Passing Vote” means that vote of Promoters needed to pass a measure put to vote. It shall be a unanimous vote if the number of Promoters, during the time a matter is put to vote, numbers two (2) or three (3). It shall be any vote that results in no more than one dissenting voter, if the number of Promoters, during the time a matter is put to vote, numbers more than three (3).

1.18 “Secretary” means the party that is elected by Passing Vote to undertake certain ministerial duties, all as set forth in Section 4.

1.19 “TMDS” means Transition Minimized Differential Signaling, a protocol and encoding algorithm owned by Silicon Image used in the PC and Consumer Electronics segments.

1.20 “Trademarks” shall have the meaning assigned in Section 11.1.

2. Compliance With Antitrust Laws

     The Promoters are committed to fostering competition in the development of products and/or services based on the activities undertaken pursuant to this Agreement. The Promoters understand that in certain lines of business they are or may be direct competitors and that it is imperative that they and their representatives act in a manner that does not violate any applicable antitrust law or regulation. Without limiting the foregoing, the Promoters acknowledge that as part of their activities under this Agreement they will not undertake to enter into any agreement or hold discussions or make communications directed at entering into any agreement regarding costs, product prices, quantity or quality of production levels, methods or channels of distribution, division of markets, allocation of customers exclusion of competitors or any other topic that would be a violation of the applicable antitrust laws and regulations. Accordingly, each Promoter is responsible for counseling its representatives who participate in any activities under this Agreement on the importance of limiting the scope of their communications to the topics that relate to the legal purposes of this Agreement, whether or not such communications take place during formal meetings, informal gatherings, or otherwise.

4

3. Specification Development

3.1 The Promoters agree that the purpose of entering into this Agreement is to establish a Final Specification for a Unified Display Interface that can be adopted generally by Adopters in order to enhance the demand for products that comply with the Final Specification. Notwithstanding the foregoing, each Promoter shall be free to use any efforts or no efforts in the course of working to develop materials related to the Draft Specification or the Final Specification.

3.2 Each Promoter agrees that if such Promoter makes any contribution to an externally licensed specification in the display interface segment, that includes necessary patent claims offered under license by Promoter as part of such external specification licensing effort, then Promoter agrees it shall offer Promoters, Contributors and Adopters of the Final Specification licensing terms that are no more restrictive, and royalty rates (if any) that are no higher for those necessary patent claims which are also Necessary Claims.

4. The Secretary and its Duties

4.1 Selection of the Secretary. The Promoters shall elect a Promoter by Passing Vote as the secretary for the carrying out the responsibilities set forth in this Agreement with respect to the development and administration of the Draft Specification, Interim Specification and the Final Specification.

4.2 Editing and Record Keeping Duties. The Secretary shall be responsible for coordinating the drafting and modification of Draft Specifications, the documentation of the Final Specification, keeping a list of all Adopters and Contributors, keeping copies of all Adopters Agreements and Contribution Agreements, and preparing and distributing for review the Interim Specification. The Secretary shall make such lists and agreements available to the Promoters at any time upon request. The Secretary shall keep the minutes of the Promoter meetings and the Adoption Meeting(s). The Secretary shall be responsible for distributing to the Promoters the notice of Adoption Meeting(s).

4.3 Replacement of Secretary. Should the Secretary desire to cease acting as the Secretary, or wishes to withdraw from this Agreement, it shall so notify all the Promoters immediately. The Promoters shall elect by Passing Vote another Promoter as the new Secretary within fifteen (15) days of the transmission of such notice. The Promoters may also replace the Secretary at any time by a Passing Vote for such replacement. The outgoing Secretary shall provide the new Secretary with its files of Adopters and their agreements with the Promoters.

5. INTERIM SPECIFICATION REVIEW AND WITHDRAWAL

(a)

Interim Specifications. At such time as development of the Draft Specification reaches a point where the Promoters have a working draft reflecting a Revision 0.8 readiness (“Interim Specification”), and subject to a reasonable determination by the Secretary that the Minimum Requirements are reflected in the Interim Specification, the Secretary will call a vote of Promoters and upon Passing Vote, the Secretary shall prepare and distribute to all Promoters the Interim Specification for review.

(b)

Review. For a period of thirty (30) days from the date that the Secretary sends the Interim Specification to the Promoters, the Promoters, on behalf of themselves and their

5

	Affiliates, may review the Interim Specification for any Necessary Claims that may be implicated by the Interim Specification and for confirmation that the Interim Specification reflects the Minimum Requirements. While there is no requirement for a Promoter to review its patent portfolio for Necessary Claims, Promoters are put on notice that unless they withdraw from the Promoters in accordance with the provisions of this Section 5, below, before the end of this thirty (30) day period, the Promoter is committing to the licensing provisions of Section 7 below with regard to Necessary Claims implicated by the Interim Specification, if and when those Necessary Claims implicated by the Interim Specification are adopted in the Final Specification by the Promoters.
(c)	Withdrawal. Without limiting a Promoters absolute right to withdraw pursuant to Section 15, a Promoter may withdraw from the Promoters pursuant to this subsection without granting a license to its Necessary Claims, if that Promoter determines during the thirty (30) day Interim Review Period, that (i) the Interim Specification does not reflect the Minimum Requirements, or (ii) the Interim Specification implicates Necessary Claims which that Promoter is unwilling to license to the other Promoters pursuant to Section 7, below. A Promoter wishing to exercise the right to withdraw under this provision must deliver notice of withdrawal not later than the end of the review period referenced in Section 5 (b), above. Said notice of withdrawal pursuant to this provision shall include written identification of any Necessary Claims of the withdrawing Promoter that that withdrawing Promoter does not wish to license hereunder.
(d)	New Promoters. If, during the review period stated in Section 5(b), above, the existing Promoters invite a prospective Promoter to join this effort and the prospective Promoter seeks to join, then subject to the execution of such nondisclosure agreements as the Promoters may determine necessary, such prospective Promoter shall be permitted not less than thirty (30) days to review the Interim Specification for any and all Necessary Claims and to agree in separate affirmative writing to be committed to the licensing provisions of Section 7 below, as to such Interim Specification if it is adopted by the Promoters. Failure to provide such written affirmation shall result in the existing Promoters’ withdrawal of the invitation to the prospective Promoter.

6. FINAL SPECIFICATION NOTICE, REVIEW AND PROMOTER WITHDRAWAL

6.1

(a)

Notice. When, by a Passing Vote, the Promoters agree that a particular version of the Draft Specification is suitable for consideration for adoption as the Final Specification, the Promoters shall so notify the Secretary and the Secretary shall provide the Promoters with not less than thirty (30) days’ prior notice of the Adoption Meeting whereby the Promoters will vote upon adoption of a new or revised Final Specification. Such notice shall include a complete draft of the Final Draft as approved by the Secretary and state the effective date when the Final Draft shall become the Final Specification, and all Necessary Claims therein, shall be subject to the licensing provisions of Section 7 below.

(b)

Review. Upon receipt of the notice and Specification, the Promoter, on behalf of itself and its Affiliates, may review the same for any Necessary Claims that may be implicated by the Specification. While there is no requirement for a Promoter to review its patent portfolio for Necessary Claims, Promoters are put on notice that unless they withdraw from the Promoters organization in accordance with the provisions of this Section 6 and

6

	Section 15, before the end of the period referenced in Section 6.1 (c), below, the Promoter is committing to the licensing provisions of Sections 7.
(c)	Withdrawal. Without limiting a Promoter’s absolute right to withdraw pursuant to Section 15, a Promoter may withdraw from the Promoters pursuant to this subsection, if that Promoter determines that the Specification implicates Necessary Claims which that Promoter is unwilling to license to the other Promoters pursuant to Section 7, below; provided however, that the Promoter has not already committed to license such Necessary Claims pursuant to Section 7. A Promoter wishing to exercise the right to withdraw under this provision, must deliver notice of withdrawal not later than fifteen (15) calendar days prior to the effective date of the Specification stated in the notice provided pursuant to Section 6.1 (a), above. Said notice of withdrawal pursuant to this provision shall include written identification of any Necessary Claims of the withdrawing Promoter that that withdrawing Promoter does not wish to license hereunder.
(d)	New Promoters. If, during the review period stated in Section 6.1 (b), above, the existing Promoters invite a prospective Promoter to join this effort and the prospective Promoter seeks to join, then subject to the execution of such nondisclosure agreements as the Promoters may determine necessary, such prospective Promoter shall be permitted not less than thirty (30) days to review the Final Specification then for any and all Necessary Claims and to agree in separate affirmative writing to be committed to the licensing provisions of Section 7 below, as to such Final Specification if it is adopted by the Promoters. Failure to provide such written affirmation shall result in the existing Promoters’ withdrawal of the invitation to the prospective Promoter.

6.2 Changes to Final Draft. After the Secretary sends the Final Draft and Adoption Meeting notice, but prior to adoption of the Final Draft, and subject to the agreement of a Passing Vote of Promoters and notice to the Secretary, the Promoters may modify, remove from or add to the contents of the Final Draft. Upon any such change to the Final Draft, the Secretary shall follow the procedures set forth in Section 6 with regards to the revised Final Draft, i.e., the Secretary shall send out the revised Final Draft and Adoption Meeting notice and shall reschedule the Adoption Meeting accordingly. Similarly, if a Promoter withdraws under Sections 6 and 15 during the period after the Secretary sends out the Final Draft and Adoption Meeting notice, but prior to the Adoption Meeting, the Secretary shall reschedule the Adoption Meeting at the request of any remaining Promoter.

6.3 Voting Process. The Final Specification shall be deemed adopted when approved at an Adoption Meeting by a Passing Vote of the Promoters; provided that if a Promoter thereafter withdraws under Section 6.1 (c) the remaining Promoters (i) shall have the right to reconsider the Final Specification in light of such withdrawal, and (ii) the Final Specification shall not be deemed adopted unless the remaining Promoters ratify the adoption by Passing Vote (x) at a meeting called by the Secretary for that purpose at the convenience and agreement of the remaining Promoters, or (y) at the request of any remaining Promoter, re-initiating and following the adoption procedures set forth in this Section 6, or (z) such other procedure that the Promoters may unanimously agree upon in writing.

6.4 Continued Work. Subject to Section 15, the Promoters shall be free to continue work under this Agreement and to schedule future Adoption Meetings pursuant to this Section 6 in the event that an Adoption Meeting vote results in rejection of the Final Draft as the Final Specification.

7

6.5 Notice of Adoption of Final Specification. Within one (1) week following earliest of (i) the date of adoption of a Final Draft as the Final Specification and (ii) the last date on which a Promoter has the right to withdraw under this Section 6, the Secretary shall send written notice of such adoption, including a copy of such Final Specification, to all Promoters and Contributors.

6.6 Minimum Requirements of Interim and Final Specification. As a consideration to some or all of the Promoters’ participation in the UDI specification development and entering into this Agreement the Promoters herein agree that the minimum set of requirements as set forth in Attachment C (“Minimum Requirements”), be included in both the Interim Specification, and the Final Specification for Specification versions 1.0 and 2.0 (subsequent revisions of the Specification following 2.0 shall be determined by the Promoters and shall not be subject to the Minimum Requirements). The Final Specification must include the Minimum Requirements as set forth in Attachment C before the Secretary is authorized to call a vote on Interim or Final Specification.

6.7 Prior to Interim review, the Promoters herein agree to use commercially reasonable efforts to consider use of same or similar logical protocols for all UDI devices for the negotiation, optimization and configuration of source and sink operational modes without the need for end-user intervention.

7. Licenses

7.1 Limited Patent License.

(a)

General Patent Licensing Obligation. When the Promoters adopt and approve for release a Final Specification after providing notice as set forth in Section 6, above, upon request by a Promoter or an Adopter directed to a Promoter, the Promoter receiving such request will grant to the requesting Promoter or Adopter (and those subsidiaries of such requesting entity who are or agree to be bound to this Agreement or the Adopters Agreement, as applicable) (collectively “Licensee”) a nonexclusive, non-sublicensable, worldwide patent license under its Necessary Claims solely to make, have made, use, import, and directly and indirectly sell and offer to sell, and otherwise distribute and dispose of Compliant Portions; provided that such license need not extend to any part or function of a product in which a Compliant Portion is incorporated but that is not itself part of the Compliant Portion. Such license shall be granted on reasonable and non-discriminatory terms, provided that such license grant may be conditioned upon Licensee’s grant of a reciprocal license.

(b)

Some Promoters may desire to offer to Promoters and Adopters a license to their Necessary Claims at a royalty rate equal to zero in addition to their commitment to license under reasonable and nondiscriminatory terms. Such zero-royalty rate offer to license may be conditioned upon, among other things, Licensee’s grant of a reciprocal license with a corresponding royalty rate equaling zero and such condition shall be deemed within the meaning of “reasonable and nondiscriminatory terms” as provided in subparagraph (a) above.

(i) Silicon Image will offer such a zero-royalty rate license for its TMDS and PIL Necessary Claims to Promoters and Adopters contingent upon and subject in all cases to the terms and conditions of Sections 6.6 (Minimum Requirements of Interim and Final Specification.), 7 (Licenses) and 15 (Withdrawal) (and by their reference herein no attempt is made to modify those sections or the Parties’ rights

8

under this Agreement), and the obligation of licensees to grant a reciprocal license with a corresponding royalty rate equaling zero..

(c)

Optional Patent License Termination Conditions. At its sole discretion, a Promoter may include in any patent license it grants pursuant to Section 7 a provision that provides in the event a Licensee first sues the Promoter for patent infringement on account of the manufacture, use, sale, offer for sale, importation or other disposition or promotion of the Promoter’s fully compliant implementation of the Specification, then the Promoter may terminate all license grants and any other rights provided under their license to such entity and such entity’s Affiliates.

(d)

Any transfer by a Promoter or its Affiliates to a third party of a patent having Necessary Claims shall be subject to: (i) the terms and conditions of this Agreement, and (ii) the agreement to grant licenses to Adopters and their Affiliates pursuant to the Adopters Agreement.

7.2 Copyright License for Draft Specifications. Subject to Section 13.5(b), each Promoter hereby grants and will grant to each of the other Promoters a license under its copyrights to reproduce, distribute, display, perform, and create derivative works of any Draft Specification or derivative work thereof.

8. Modifications to the Final Specification

8.1 Error Corrections and Minor Modifications. Subject to agreement by a Passing Vote of the Promoters, the Promoters may at any time update the Final Specification for the sole purpose of making error corrections and/or minor modifications that do not materially alter or augment the functionality, capabilities or capacities of products or portions thereof that qualify as Compliant Portions (such updates being “Minor Updates”). Minor Updates to the Final Specification approved by a Passing Vote of the Promoters shall be published subject to the terms of Section 13.5.

8.2 Subject to agreement by a Passing Vote of the Promoters, the Promoters may reengage to define a single major revision (i.e., Revision 2.0) to the Final Specification and agree to conduct such definition effort under the terms of this Agreement (including section 5), including without limitation, the right of any Promoter to withdraw as provided for under Section 15.

8.3 No Modification. Subject to and except as set forth in Section 8.1 and 8.2, once the Final Specification has been adopted, any updates or alterations to the Final Specification shall be treated as a proposal to develop a new specification, and shall be subject to a separate, written promoters agreement. Each Promoter may, in its sole discretion, choose to enter into, or not to enter into, such separate promoters agreement, subject to the terms and conditions thereof, provided that any such choice shall have no effect on any rights or obligations hereunder. No license or other obligations, express or implied, shall apply to or be deemed to be granted by any Promoter under this Agreement with respect to any such updated or altered Final Specification or with respect to any proposal to develop a new specification.

9. Compliance Specification and Testing Procedure

9.1 Compliance Test Specification. In order to foster interoperability among products from multiple Adopters or Promoters, the Promoters shall jointly develop a compliance test specification (the “Compliance Test Specification”), as may be updated from time to time by the

9

Promoters. The Compliance Test Specification shall represent the minimum compliance testing required for products incorporating Compliant Portions. Each Adopter shall solely be responsible for ensuring that its products that incorporate Compliant Portions comply with the Final Specification, function correctly, and interoperate with other products. The Promoters must approve, by Passing Vote, the Compliance Test Specification and any updates thereto. The Promoters shall use good faith efforts to finalize the first Compliance Test Specification within ninety (90) days of their voting to adopt the Final Specification.

9.2 Testing Requirement. Prior to an Adopter’s use of any Trademarks and prior to the mass producing or distributing (either directly or through a manufacturing contractor or agent) of a product incorporating a Compliant Portion each of such Adopters shall reasonably test a representative sample of such product to establish compliance with the Specification. At a minimum, this testing shall include successfully performing all testing required in the Compliance Test Specification. The Promoters may establish an authorized test center by passing vote and such authorized test center may develop terms and conditions of testing to enable Adopters to pass the testing requirements. Each Adopter shall be responsible for its expenses associated with such compliance testing .

10. Administration and Ownership of the Specification

10.1 Copyright Ownership. Effective as of the adoption of the Final Specification, each Promoter hereby conveys to each other Promoter a non-exclusive, undivided, and equal ownership in the copyrights in the Final Specification. Each Promoter may exercise any and all rights of copyright ownership and sublicense such rights in the Final Specification as if such rights were solely owned by such Promoter, without seeking permission of the other Promoters and without any duty to account. If a Promoter wishes to register its copyright in the Final Specification, it may do so in the name of all the Promoters at its own expense, and the other Promoters shall cooperate with such Promoter to the extent reasonably required to file the application for such registration. Subject to the licenses granted herein, nothing in this Agreement shall alter any copyright ownership that each Promoter has or may have in the future on any material other than the Final Specification.

10.2 Copyright Notices. Any publication of the Final Specification shall contain an appropriate copyright notice in the names of the Promoters. Public references to the Final Specification shall attribute authorship to the Promoters.

10.3 Copyright Infringement Actions. Any Promoter may propose a copyright enforcement action against a purported infringer of the Final Specification, and the other Promoters shall have the right to participate at their own expense and at their own discretion. On request of any Promoter considering suit against a third party, the other Promoters shall provide their best information as to whether an identified potential defendant is licensed.

10.4 Administration Organization. The Promoters agree that they will form a new licensing and administration body for the purpose of promoting the Final Specification. This administration organization will offer the Final Specification to adopters under the Adopters License, administer the compliance testing program as defined by the Promoters, and take such actions as the Promoters determine is necessary to promote the Specification and shall not be empowered to modify the Specification, licensing framework, or compliance requirements without express authority of the Promoters. Promoters will mutually agree on appropriate Adopters’ fees and any additional tiers of members’ fees to fund the new Administration Organization.

10

11. Trademarks

11.1 Selection. The Promoters hereby agree not to assert against any Promoter any trademark, trade name or similar rights they may have now or hereafter in the names “_UDI___”, “Unified Display Interface___”, or “Uniform Display Interface”(collectively “Trademarks”) when used to identify or refer to the Final Specification and products containing Compliant Portions. If the Promoters agree to create or assert trademark or trade name rights in such name or a related logo or another name or logo to be used in conjunction with the Final Specification, they agree to use commercially reasonable efforts to agree on the nature of ownership, licensing and registration of such name or logo prior to adoption. By unanimous agreement, the Promoters may agree in the future to create, use and seek appropriate protection for additional trademarks, trade names, logos, trade dress, and the like (all such trademarks and the like also being “Trademarks”) for identifying or referring to the Final Specification and products containing Compliant Portions. Such unanimous agreement shall also include provisions for protection of and rights to assert such trademarks.

11.2 Obligation to Use Trademarks. No Promoter or Adopter shall be obligated to use any of the Trademarks on any product, advertising, or on any other material in any manner.

11.3 Use of the Trademarks. Each Promoter hereby agrees that, to the extent it uses the Trademarks, it shall only use the Trademarks to label and promote products in which all included features and functions reasonably capable of being implemented as Compliant Portions have been so implemented. No Promoter shall use or adopt any trademarks for any product, service or specification likely to cause confusion with any Trademarks adopted by the Promoters in connection with the Final Specification, unless agreed in writing by all Promoters.

12. Adding Promoters, Contributors and Adopters

12.1 Adding Promoters. At any time prior to the adoption of the Final Specification, by unanimous agreement of the Promoters, additional parties may be added to this agreement.

12.2 Solicitation of Inputs from Third Party Contributors. Subject to Passing Vote of the Promoters, any Promoter may solicit suggestions for incorporation in the Final Specification from a third party Contributor, provided that disclosure of the Draft Specification and solicitation of comments is done after (a) proper execution of and pursuant to the terms of a Contribution Agreement that has been executed by such third party and two (2) Promoters, and (b) the receipt of such properly executed agreement by the Secretary.

12.3 Enrolling Adopters. After adoption of the Final Specification, any third party may become an Adopter by executing the Adopters Agreement and transmitting an original copy of the executed Adopters Agreement to the Administration Organization. After adoption of the Final Specification, upon request of a third party, the Secretary shall furnish a signature ready copy of the Adopters Agreement to the requesting third party.

12.4 Enforcement of Contribution and Adopters Agreements. Each Promoter shall promptly notify each other Promoter of any violation of any Contribution Agreement or Adopters Agreement. Each Promoter shall have the right to enforce compliance with the terms of such agreement upon notice to the other Promoters. Upon receipt of such notice, any Promoter may, at its option, bring suit against a Contributor or an Adopter to enforce such agreement. The other Promoters shall provide reasonable assistance in the prosecution of such suit, including without limitation allowing, upon request, their names to be added to such suit if required by the law of

11

the forum in which such action is brought. Each party shall bear its own costs in any such enforcement action.

13. Confidentiality

13.1 Confidentiality. Each party agrees that it will maintain all Confidential Information in confidence with at least the same degree of care that it uses to protect its own proprietary material and in no event with less than reasonable care. Each party agrees that it will not, nor will it assist or allow any third party to disclose any Confidential Information received from a disclosing party except as specifically allowed hereunder (a) to communicate with other Promoters; and (b) to communicate with Contributors pursuant to Section 12.2. Each party shall mark any copies of Confidential Information it makes “confidential” or with a similar legend. Unless the parties agree otherwise, this obligation of confidentiality will expire three (3) years after the date of disclosure of Confidential Information. Notwithstanding anything to the contrary contained herein, the parties agree that only the Draft Specification(s), the terms of this Agreement, and no other information of any kind shall be deemed Confidential Information under this Agreement. And nothing in this Agreement shall preclude a party from independent development of a specification or technology that is an alternative to the Final Specification without use of the Confidential Information or from the use or sale of any such specification or technology independently developed by any other person.

13.2 Residuals. Notwithstanding anything herein to the contrary, any party may use Residuals for any purpose, including without limitation use in development, manufacture, promotion, sale and maintenance of its products and services; provided that this right to Residuals does not represent a license under any patents, or copyrights of the disclosing party. The term “Residuals” means any information retained in the unaided memories of the receiving party’s employees who have had access to the disclosing party’s Confidential Information pursuant to the terms of this Agreement. An employee’s memory is unaided if the employee has not intentionally memorized the Confidential Information for the purpose of retaining and subsequently using or disclosing it.

13.3 Confidentiality of Terms. The parties hereto shall keep the terms of this Agreement confidential and shall not now or hereafter divulge these terms to any third party except: (a) with the prior written consent of the other parties; (b) as otherwise may be required by law or legal process (including but not limited to filings that may be required by the securities laws of the United States or other jurisdictions), including to legal and financial advisors in their capacity of advising a party in such matters; (c) during the course of litigation, so long as the disclosure of such terms and conditions are restricted in the same manner as is the confidential information of other litigating parties; or (d) in confidence to its legal counsel, accountants, banks and financing sources and their advisors solely in connection with complying with financial transactions; provided that, in (b) through (d) above, (i) the disclosing party shall use all reasonable legitimate and legal means available to minimize the disclosure to third parties, including without limitation seeking a confidential treatment request or protective order whenever appropriate or available; and (ii) the disclosing party shall provide the other parties with at least 10 days prior written notice of such disclosure.

13.4 Press Releases. Subject to the terms and conditions of this Section 13, no Promoter may make a press release or other public announcement regarding its activities as a Promoter and the identities of any of the other Promoters without unanimous consent of the other Promoters.

13.5 Publication.

12

(a)

The Promoters will use reasonable efforts to ensure that the Final Specification will be published timely following adoption, and will not be subject to trade secret or confidential treatment. The Promoters agree that any publication of the Final Specification shall include, in addition to the notices required by Section 10.1, appropriate disclaimers reasonably to prevent any third party from claiming that any rights are granted by implication or estoppel because of such publication.

(b)

Upon agreement (as evidenced by a Passing Vote) of the Promoters, any Promoter may publish or distribute all or any portion of a Draft Specification to a limited set of third parties. Any publication or disclosure of a Draft Specification or portions thereof pursuant to this Section 13 shall include all of the notices and disclaimers required for publication of the Final Specification, as agreed by the Promoters.

14. Term

14.1 Term. The term of this Agreement shall begin on the Effective Date and shall continue indefinitely subject to each party’s right to withdraw pursuant to Section 15, and subject to Section 14.2.

14.2 Termination. If the Promoters have not adopted a Final Specification after holding three (3) Adoption Meetings pursuant to Section 6, the Promoters may by a Passing Vote of the Promoters and their written agreement, terminate this Agreement at any time prior to adoption of a Final Specification. In the event of such termination, the Secretary shall notify all Promoters and Contributors of such termination. Following such termination, Sections 1, 7.2, 10.1, 13, 14 and 16 shall survive and remain in effect, but no other portion of this Agreement shall survive.

15.	Withdrawal
15.1	Conditions for Withdrawal.
(a)	As provided in Sections 5 and 6, a Promoter may withdraw from this Agreement at any time prior to adoption of the Final Specification.
(b)	A Promoter that fails to attend the Adoption Meeting at which the Final Specification is adopted or that votes against the adopted Final Specification at such meeting may withdraw from this Agreement no later than thirty (30) calendar days following its receipt of notice of adoption of the Final Specification.

15.2 Withdrawal Procedure. A Promoter desiring to withdraw may do so by written notice to the Secretary and all other Promoters, transmitted during any period in which such withdrawal is permitted. A Promoter wishing to exercise the right to withdraw under this provision, must deliver notice of withdrawal to the Secretary not later than thirty (30) calendar days following the date of the Secretary’s notice of the Interim Specification review or the Final Specification adoption meeting in Sections 5 and 6. Said notice of withdrawal pursuant to this provision shall include written identification of any Necessary Claims of the withdrawing Promoter that the withdrawing Promoter does not wish to license hereunder. Promoter’s Representative (“Representative” is any Promoter employee who participates in or attends work group meetings) shall disclose to the other Promoters, any potential Necessary Claims personally known to the Representative in that Promoter company’s patents and published patent applications. In no instance shall a Promoter or Promoter’s representative be required to make additional disclosures, including without limitation, unpublished patent applications, nor shall any patent

13

search on the part of any Promoter be required. Notice to the Secretary must be in writing and may be given by email, fax, or other delivery mechanism.

15.2	Effect of Withdrawal. If a Promoter withdraws under this Section 15,
(a)	this Agreement shall continue in full force and effect for all remaining Promoters; and
(b)	with respect to the withdrawing Promoter, 10.1, first sentence of 11.1, Section 1 in its entirety, 13 (excepting Section 13.5), 15, and 16 shall continue in full force and effect; and
(c)	the withdrawing Promoter grants to all the Promoters a perpetual, irrevocable, worldwide, royalty-free, copyright license (including the right to sublicense) to reproduce, distribute, display, perform, and create derivative works of any material the withdrawing Promoter has delivered under this Agreement to any other Promoter in any form, to the extent that such material is included the Final Specification; and
(d)	the withdrawing Promoter will within ten (10) days following its withdrawal, destroy all copies of Confidential Information in its possession and certify to the Secretary such destruction; and
(e)	Notwithstanding the dissolution of the Promoters or a Promoter’s withdrawal, or termination of this Agreement, a Promoter’s agreement to grant a license as provided in Section 7, above, shall remain in full force and effect for: (i) any Necessary Claim to an Interim Specification adopted before the effective date of dissolution or before the effective date of a Promoter’s withdrawal or termination of this Agreement; (ii) any Necessary Claim to a Final Specification adopted before the effective date of dissolution or before the effective date of a Promoter’s withdrawal or termination of this Agreement (iii) any Necessary Claim implicated by an Interim Specification, if such Necessary Claim is implicated by such later adopted Final Specification, and for which a Promoter did not identify such Necessary Claim in its notice of withdrawal (if any) submitted prior to the expiration of the review period set forth in Section 5 (c) for such Interim Specification; (iv) any Necessary Claim to a Specification that is provided to the Promoters in accordance with Section 1.7 and for which a Promoter did not identify such Necessary Claim in its notice of withdrawal (if any) submitted prior to the expiration of the review period set forth in Section 5(c) for such Specification, and such Specification is later adopted; and (vi) any Necessary Claims to a Specification adopted by the Promoters after the effective date of the Promoter’s withdrawal, termination of this Agreement that (a) are necessary for the future Specification to be backwards compatible with the prior Specification, and (b) are used in a substantially similar manner and to a substantially similar extent with a substantially similar result as the same Necessary Claims were used in a prior Specification for which the Promoter is obligated to grant licenses. In no event is a withdrawn Promoter obligated to license any additional Necessary Claims under this Section 15. A withdrawn Promoter shall remain entitled to reciprocity pursuant to Section 7 so long as that withdrawn Promoter remains obligated to license any Necessary Claims under this Section 15. This agreement to the survival of reciprocal licensing shall extend to all Promoters, including Promoters who become Promoters after the effective date of a departing Promoter’s termination or expiration.
(f)	all other rights, licenses, obligations, terms and conditions of this Agreement shall terminate with respect to the withdrawing Promoter.

14

16. General

16.1 No Other Licenses. Except for the rights expressly provided by this Agreement, under this Agreement, no Promoter grants or receives, by implication, estoppel, or otherwise, any rights under any patents or other intellectual property rights.

16.2 No Warranty. All parties acknowledge that all information provided as part of the Final Specification development process and the Draft Specification and/or Final Specification itself are all provided “AS IS” WITH NO WARRANTIES WHATSOEVER, WHETHER EXPRESS, IMPLIED, STATUTORY, OR OTHERWISE, AND THE PARTIES EXPRESSLY DISCLAIM ANY WARRANTY OF MERCHANTABILITY, NONINFRINGEMENT, FITNESS FOR ANY PARTICULAR PURPOSE, OR ANY WARRANTY OTHERWISE ARISING OUT OF ANY PROPOSAL, SPECIFICATION, OR SAMPLE.

16.3 Limitation of Liability. IN NO EVENT WILL PROMOTERS BE LIABLE TO EACH OTHER OR TO ANY THIRD PARTY FOR THE COST OF PROCURING SUBSTITUTE GOODS OR SERVICES, LOST PROFITS, LOSS OF USE, LOSS OF DATA OR ANY INCIDENTAL, CONSEQUENTIAL, INDIRECT, OR SPECIAL DAMAGES, WHETHER UNDER CONTRACT, TORT, WARRANTY OR OTHERWISE, ARISING IN ANY WAY OUT OF THIS OR ANY OTHER RELATED AGREEMENT, WHETHER OR NOT SUCH PARTY HAD ADVANCE NOTICE OF THE POSSIBILITY OF SUCH DAMAGES.

16.4 Governing Law. This Agreement shall be construed and controlled by the laws of New York without reference to conflict of laws principles.

16.5 Jurisdiction. The parties agree that all disputes arising in any way out of this Agreement shall be heard exclusively in, and all parties irrevocably consent to jurisdiction and venue in, the State and Federal courts of New York.

16.6 Notices. All notices hereunder shall be in writing and sent to each party at addresses indicated in such party’s signature block at the end of this Agreement and to the Secretary at such address as the Secretary has furnished for notice from the parties hereto, or at such addresses as each such party may later specify by such written notice. For purposes of this Section 16.6, written notice shall not include notice by electronic mail or by facsimile. Notices shall be deemed served when received by the addressee or, if delivery is not accomplished by reason of some fault of the addressee, when tendered for delivery. Any party may give written notice of a change of address and, after notice of such change has been received, any notice or request shall thereafter be given to such party at such changed address.

16.7 Authority to Grant Licenses; No Attempt to Circumvent Agreement. Each party hereby represents and warrants that it has the power and authority to bind itself and all of its Affiliates to the obligations contained herein, including without limitation, the obligation to grant patents licenses as set forth in this Agreement. Each party further represents and warrants that it has not and will not transfer patents having Necessary Claims for the purpose of circumventing the commitment to grant licenses contained in this Agreement. Any transfer by a Promoter or its Affiliates to a third party of a patent having Necessary Claims shall be subject to: (i) the terms and conditions of this Agreement, and (ii) the agreement by the Promoter to grant licenses to other Promoters and their Affiliates and Adopters and their Affiliates pursuant to Section 7.1 herein.

15

16.8 Not Partners. The Promoters are independent companies and are not partners or joint venturers with each other. While the Promoters may select an entity to handle certain administrative tasks for them, no party is authorized to make any commitment on behalf of all or any of them.

16.9 Complete Agreement; No Waiver. This Agreement sets forth the entire understanding of the parties and supersedes all prior agreements and understandings relating hereto. No modifications or additions to or deletions from this Agreement shall be binding unless accepted in writing by an authorized representative of all parties, and the waiver of any breach or default will not constitute a waiver of any other right hereunder or any subsequent breach or default.

16.10 No Rule of Strict Construction . Regardless of which party may have drafted this Agreement, no rule of strict construction shall be applied against any party. If any provision of this Agreement is determined by a court to be unenforceable, the parties shall deem the provision to be modified to the extent necessary to allow it to be enforced to the extent permitted by law, or if it cannot be modified, the provision will be severed and deleted from this Agreement, and the remainder of the Agreement will continue in effect.

16.11 Compliance with Laws. Anything contained in this Agreement to the contrary notwithstanding, the obligations of the parties hereto shall be subject to all laws, present and future, of any government having jurisdiction over the parties hereto, and to orders, regulations, directions or requests of any such government.

16.12 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and to this Agreement were upon the same instrument.

In witness of their agreement, the Promoters have executed this Agreement below:

INTEL CORPORATION	SILICON IMAGE, INC.
/s/ Eric Mentzer	/s/ Steve Tirado
Signature	Signature
Eric Mentzer	Steve Tirado
Printed Name	Printed Name
Vice President and GM, Chipset Group	CEO
Title	Title
04/28/05	04/28/05
Date	Date

16

NATIONAL SEMICONDUCTOR CORPORATON

/s/ Donald Macleod

Signature

Donald Macleod

Printed Name

EVP/COO

Title

05/02/05

Date

17

Attachment A

Adopters Agreement

To be prepared with terms consistent with the licensing framework herein and released on mutual agreement of the Promoters.

18

Attachment B
Contribution Agreement

To be prepared with terms consistent with the licensing framework herein and released on mutual agreement of the Promoters.

19

Attachment C
Minimum Set of Requirements
Rev 022805

[***]

*** Note: Confidential treatment has been requested with respect to the information contained within the [***] marking. Such portions have been omitted from this filing and have been filed separately with the Securities and Exchange Commission.

20

EX-31.01

Certifications

Exhibit 31.01

Certification Under
Section 302 of the Sarbanes-Oxley Act of 2002

     I, Steve Tirado, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Silicon Image, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2005

/s/ Steve Tirado

Steve Tirado

President and Chief Executive Officer

(Principal Executive Officer)

EX-31.02

Exhibit 31.02

Certification Under
Section 302 of the Sarbanes-Oxley Act of 2002

I, Darrel Slack, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Silicon Image, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2005

/s/ Darrel Slack

Darrel Slack

Chief Financial Officer

(Principal Financial Officer)

EX-32.01

Exhibit 32.01

Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant To
Section 906 of The Sarbanes-Oxley Act of 2002

     In connection with the Quarterly Report of Silicon Image, Inc (the “Company”) on Form 10-Q for the period ending June 30, 2005, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steve Tirado, President and Chief Executive Officer of the Company, certify to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company for the periods presented therein.

/s/ Steve Tirado  

Steve Tirado 

President and Chief Executive Officer (Principal Executive Officer)
August 9, 2005 

     A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.02

Exhibit 32.02

Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant To
Section 906 of The Sarbanes-Oxley Act of 2002

     In connection with the Quarterly Report of Silicon Image, Inc (the “Company”) on Form 10-Q for the period ending June 30, 2005, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Darrel Slack, Chief Financial Officer of the Company, certify to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company for the periods presented therein.

/s/ Darrel Slack  

Darrel Slack 

Chief Financial Officer (Principal Financial Officer)
August 9, 2005 

     A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.