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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

Annual report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934

For the fiscal year ended December 31, 2002

Commission file number 000-26887

Silicon Image, Inc.
(Exact name of registrant as specified in its charter)

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

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

Securities registered pursuant to section 12(g) of the Act:
Common Stock, $0.001 par value

        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), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 under the Securities Exchange Act of 1934). Yes ý No o

        The aggregate market value of voting and non-voting common equity held by non-affiliates at June 28, 2002 was approximately $371,735,000, based on the last reported sale price of our common shares on the NASDAQ Stock Market on that date of $6.12 per share. We had 65,673,000 common shares outstanding at June 28, 2002.

        Part III incorporates by reference information from our proxy statement for our annual meeting of stockholders' to be held on May 20, 2003.

TABLE OF CONTENTS

        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-K entitled "Factors Affecting Future Results," that may cause actual results to differ materially from those discussed in, or implied by, such forward-looking statements. Forward-looking statements within this Form 10-K 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-K 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.

PART I

Item 1. Business

        Silicon Image designs, develops and markets semiconductor products for applications that require high-bandwidth, cost-effective solutions for high-speed digital data communications. The markets into which we sell our products are personal computer (PC), consumer electronics (CE) and storage.

        Products sold into the PC market generated 58% of our revenue in 2002, 70% of our revenue in 2001 and 96% of our revenue in 2000. Our products for the PC market include:

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Transmitters, which are used in graphic cards or motherboards, for PCs and notebook computers;



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Receivers for use in cathode ray tubes (CRTs), flat panel monitors, flat panels and projectors; and



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Intelligent Panel Controllers, which integrate a receiver with a timing controller, for use in liquid crystal display (LCD) panels.

        Our products in the PC market are based on PanelLink® technology, which is our proprietary implementation of the digital visual interface (DVI) specification that defines a high-speed serial data communication link between computers and digital displays. The majority of the displays in the PC market employ an analog receiver or a dual-interface receiver capable of receiving either an analog or digital signal. We do not offer an analog or dual-interface solution, but do partner with other companies to sell multiple-chip solutions into the dual-interface market. These multiple-chip solutions are typically limited to higher end, larger displays operating at resolutions of SXGA (1280 pixels × 1024 pixels) and above. In addition, we have licensed certain of our technologies to companies for use in making products for the dual-interface market.

        Products sold into the CE market generated 11% of our revenue in 2002, 8% of our revenue in 2001 and 4% of our revenue in 2000. Our products for the CE market include:

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Transmitters for use in set-top boxes, DVD players and D-VHS players;



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Controllers for digital TVs; and



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Digital video processors for use in progressive scan DVD players, DTVs, LCD TVs, projectors and set-top boxes, and video processing systems for use in HDTVs, multimedia TVs, data and video projectors and PC monitors.

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        Semiconductor products sold into the storage market generated 15% of our revenue in 2002, 5% of our revenue in 2001 and none of our revenue in 2000. Our products for the storage market include:

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Fibre Channel SerDes (serializer, deserializer) devices for Host Bus Adapters (HBAs) and Switches that connect PCs and servers to large storage banks;



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Serial ATA (SATA) controllers for PC motherboards, disk controller add-in cards and storage/embedded systems;



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Serial ATA-to-Parallel ATA bridges for use in storage systems and optical and hard disk drives;



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Serial ATA physical layer (PHY) for use in PC motherboards and storage / embedded systems; and



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Parallel and universal serial bus (USB) controllers for use in PC motherboards, add-in cards and embedded systems.

        Sales of storage systems products generated 8% of our revenue in 2002, 17% of our revenue in 2001 and none of our revenue in 2000. During 2002, we decided to phase out our storage systems products and therefore do not expect significant revenue from these products in 2003.

        Development, licensing and royalties represented 8% of our revenue in 2002 and none of our revenue in 2001 and 2000. During 2002, we decided to license our technology to third parties that address market segments in which we do not want to participate directly. Additionally, in conjunction with our decision to phase out our storage systems products and change primarily to a licensing business model, we decided to design products for, and / or license our technology to, third parties in this market segment. We anticipate continuing this business model for our storage systems technology as advancements and developments warrant.

        From our inception in 1995 through the first half of 1997, we were engaged primarily in developing our first generation PanelLink digital transmitter and receiver products, developing our high-speed digital interconnect technology, establishing our digital interface technology as an open standard, and building strategic customer and foundry relationships.

        In the third quarter of 1997, we began volume shipments of our first generation PanelLink digital transmitter and receiver products. Since that time, we have introduced several new generations of transmitter and receiver products providing higher speed and increased functionality. In 1999, we began shipping our first generation digital display controller product.

        In 2000, we began focusing our resources on entering two new markets—CE and storage. We acquired two companies during 2000, one of which was a developer of high-speed transmission technology for data storage applications and the other of which was a provider of digital video processing systems for the CE market.

        In 2001, we focused on accelerating our entry into the CE and storage markets, leveraging our IP into licensing revenue and restructuring the company to improve profitability. We acquired two companies during 2001, one of which was a provider of storage subsystems and semiconductors designed for storage area networks, and the other of which was a provider of mixed-signal and high-speed circuit designs.

        During 2002, we began to see the benefits of our diversification strategy, which resulted in establishing a key presence in the CE and storage markets, both of which we expect to experience significant growth rates during the next several years. Additionally, we were able to successfully leverage our intellectual property to generate licensing revenue. Lastly, we completed the final steps of the restructuring program we began in 2001. As part of this restructuring program, we decided in the second quarter of 2002 to phase out our existing storage subsystem products, to not manufacture new subsystem products, and to license our technology to other companies in this market. Our restructuring

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program has resulted in a more focused market strategy and a more appropriate cost structure for us going forward.

Markets and Customers

        We focus our sales and marketing efforts on achieving design wins with leading original equipment manufacturers (OEMs) of PC, CE and storage products. In most cases, these OEMs outsource manufacturing functions to third parties. Therefore, once our product is designed into an OEMs product, we typically work with the OEMs third party manufacturer to ready the design for production. Once the design is complete, we sell our products to these third party manufacturers either directly or indirectly through distributors.

        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 41%, 51% and 57% of our revenue in 2002, 2001 and 2000, respectively. In 2002, shipments to World Peace International, an Asian distributor, generated 15% of our revenue, and shipments to Weikeng, an Asian distributor, generated 11% of our revenue. In 2001, shipments to Samsung, a Korean customer, and Compaq, a global customer, each generated 12% of our revenue, and shipments to World Peace International generated 11% of our revenue. In 2000, shipments to World Peace International generated 18% of our total revenue, and shipments to Kanematsu, a Japanese distributor, generated 16% of our total revenue. 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. In 2002, 42% of our revenue was generated through distributors, versus 40% in 2001 and 66% in 2000.

Products

        Our industry and the markets we serve are characterized by rapid technological advancement. We constantly strive for innovation in our product offerings. We introduce products both to address markets or applications that we previously have not addressed, and to replace our existing products with products that are based on more advanced technology and that incorporate new or enhanced features. We introduced 16 new products in 2002, and expect to introduce 12 to 16 new products in 2003. Although the number of new product introductions may decrease in 2003 from 2002 levels, we expect to continue integrating more functionality into our existing products in order to enhance their performance and capabilities.

        When we introduce replacement products, we notify our customers in advance, work with our customers to qualify and migrate to our newer products and accept final orders for replaced products. This allows us to eventually discontinue production and support for our older, less advanced products. We may decide to phase out products for reasons other than new product introductions. Such reasons could include failure of products to achieve market acceptance, changing market conditions and changes in business strategy.

        In 1999, the Digital Display Working Group (DDWG), of which we are a promoter, published the digital visual interface (DVI) specification, which defines a high-speed serial data communication link between computers and digital displays. Our key PC and CE products are based on our PanelLink technology and our highly-integrated PanelLink controller architecture. PanelLink is our proprietary implementation of the DVI specification. PanelLink architecture is our platform for developing controllers that integrate PanelLink receiver technology with additional functionality to enable intelligent displays. Key features of our solution include a high-speed interface, low cost of system implementation, system-level integration and scalability. Our solution enables customers to introduce digital display products, thereby eliminating the need for analog technology in both the host system and display. We believe this provides a number of benefits to our customers, including lower component

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costs, easy to use "plug and play" products for the end user, better image quality than analog systems, the ability to customize features to differentiate products and shorter design cycles.

        PanelLink Transmitters    Our PanelLink transmitter products reside on host systems, such as PC motherboards, graphics add-in boards, notebook PCs, set-top boxes, A/V receivers, DVD and D-VHS players. Transmitters take a stream of digital data from a graphics source, convert it to DVI-compliant digital output and transmit that output to a receiver in a display. Our PanelLink transmitter products are:

        Display Products    We have three families of display products: PanelLink receivers, PanelLink controllers and Intelligent Panel Controllers. Our PanelLink receiver products reside in display systems, such as flat panel displays, projectors and digital TVs. Receivers receive DVI-compliant digital input and restore the video data format. Our receivers also contain functionality that simplifies the design of digital displays. Our PanelLink receiver products are:

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        PanelLink Controllers    Our PanelLink controller products are suitable for display systems such as flat panel displays, CRT monitors and digital TVs. Our PanelLink controller products are:

        Intelligent Panel Controllers    Our Intelligent Panel controller products are programmable controllers with integrated timing controllers that reside on the LCD display module. These products receive digital input, restore the video data format and directly interface with the LCD module electronics. Our Intelligent Panel controller products are:

        Digital Video Processors    Our digital video processor products are high-quality digital video format converters that convert any standard-definition interlaced video signal to a non-interlaced signal, resulting in higher-definition images. These products are suitable for display on LCD, digital light processing DTVs or progressive scan. Our digital video processors and processing system products are (* denotes product is being phased out):

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        Fibre Channel SerDes    Our fibre channel serializer / deserializer (SerDes) products are a low-power, high-quality (low-jitter), cost-effective solution for applications such as HBAs and switches that connect PCs and servers to large storage banks. Our Fibre Channel products are:

        Serial ATA Controllers, PHYs and Bridges    The products in our SATALink family include two host controllers, a dual-channel PHY and two bridge ICs that are intended to enable customers to begin to incorporate serial ATA while they transition from parallel ATA. Our serial ATA controller, PHY and bridge devices are based on the SATA 1.0 specification, which is used to transmit and receive data at a rate of 1.5 Gbps, and are:

        Parallel ATA and USB Controllers    Our parallel ATA and USB Controllers serve products incorporating parallel ATA and USB interfaces such as motherboards, add-in cards and embedded systems. Our parallel ATA and USB controller products are (* denotes product is being phased out):

Promotion of Industry Standards

        As technology innovators, a key element of our business strategy is the development and promotion of industry standards in our target markets. Current standards efforts include:

Digital Visual Interface (DVI)

        We, together with Intel, Compaq, IBM, Hewlett-Packard, NEC and Fujitsu, announced the formation of the Digital Display Working Group (DDWG) in 1998. Subsequently, these parties entered into a Promoter's Agreement in which they agreed to:

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define, establish and support the DVI specification, an industry specification for sending video data between a computer and a digital display;



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encourage broad industry adoption of the DVI specification, in part by creating an implementer's forum that others may join in order to receive information and by providing support for the DVI specification; and

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invite third parties to enter into a Participant's Agreement in order to consult on the content, feasibility and other aspects of the DVI specification.

        In 1999, the DDWG published the DVI 1.0 specification, which defines a high-speed serial data communication link between computers and digital displays. Today, over 100 companies, including systems manufacturers, graphics semiconductor companies and monitor manufacturers have participated in DDWG activities, and many are developing hardware and software products designed to be compliant with the DVI specification.

Joint Development of High Definition Content Protection (HDCP)

        In 2000, the High-bandwidth Digital Content Protection (HDCP) specification HDCP 1.0 was released by Intel, with our contributions acknowledged in the specification. The specification was developed to provide a content protected link from host devices, such as set-top boxes and DVD and D-VHS players, to displays such as HDTVs and digital TVs. This technology has support from some members of the Motion Picture Industry Association and aims to prevent high-definition movie content from being copied when transmitted over a digital link.

High Definition Multimedia Interface (HDMI)

        In December 2002, the final specification for High Definition Multimedia Interface (HDMI) was released. The HDMI 1.0 specification is a next-generation digital interface for consumer electronics that enables the secure distribution of uncompressed high-definition video and multi-channel audio in a single cable, providing consumers with a broader array of high-quality digital content while increasing ease of use. This standard was created by Silicon Image, together with Sony, Matsushita Electric (Panasonic), Phillips, Thomson (RCA), Hitachi and Toshiba, and with strong support from Fox and Universal studios, DirecTV and Echostar. The HDMI specification is based on our transition minimized differential signaling (TMDS™) technology, the underlying technology for DVI 1.0. We expect HDMI to become a standard digital interface for consumer electronics products that carry digital audio and video signals.

Serial ATA Working Group

        During 2000, we acquired Zillion Technologies, a developer of high-speed transmission technology for data storage applications. Zillion contributed in drafting the preliminary serial ATA specification (SATA 1.0), which was published in 2001 and is being promoted as a successor to parallel bus technology. We are a contributor to the SATA working group, which includes APT, Dell, Intel, Maxtor and Seagate among its promoters. In February 2002, we joined the SATA II Working Group as a contributor. The SATA II working group released "Extensions to Serial ATA 1.0 Specifications" in October 2002 to enhance the existing SATA 1.0 specification for the server and network storage markets, and is developing a specification for the next-generation SATA speed of 3Gbps. The SATA II working group includes many of the same members as the SATA working group.

Serial-Attached SCSI Working Group

        In January 2002, we joined the Serial-Attached SCSI (SAS) working group as a contributor. The SAS working group is working to develop a specification that will propose serial-attached SCSI as a successor to existing parallel bus SCSI technology. Members of the SAS working group include Adaptec, Agilent, Compaq, Dell, Eurologic, Fujitsu, Hitachi, IBM, LSI Logic, Maxtor, QLogic, Seagate and others.

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Silicon Image Technology

Multi-Layered Systems Approach to Solving High-Speed Interconnect Problems

        We invented technology upon which the DVI and HDMI specifications are based and have substantial experience in the design, manufacture and deployment of semiconductor products incorporating this high-speed data communications technology. The advanced nature of our high-speed digital design allows us to integrate significant functionality with multiple high-speed communication channels using industry-standard, low-cost complementary metal oxide semiconductor (CMOS) manufacturing processes. At the core of our innovation is a multi-layered approach to providing multigigabit semiconductor solutions.

        The three layers of our multi-layer serial link (MSL) architecture include the physical, coding and protocol layers. Serial link technology is the basis for the physical layer, which performs electrical signaling in several data communication protocols, including DVI 1.0, HDMI 1.0, Serial ATA and Fibre Channel. This technology converts parallel data into a serial stream that is transmitted sequentially at a constant rate and then reconstituted into its original form. Our high-speed serial link technology includes a number of proprietary elements designed to address the significant challenge of ensuring that data sent to a display or a storage device can be accurately recovered after it has been separated and transmitted in serial streams over multiple channels. In order to enable a display or a storage device to recognize data at the proper time and rate, our digital serial link technology uses a digital phase-locked loop combined with a unique phase detecting and tracking method to monitor the timing of the data.

        At the coding layer, we have developed substantial intellectual property in data coding technology for high-speed serial communication. Our coding technology simplifies the protocol for high-speed serial communication and allows tradeoffs to be made in physical implementation of the link, which in turn reduces the cost of bandwidth and simplifies the overall system design. In addition, we have ensured direct current (DC) balanced transmission and the ability to use TMDS to keep electromagnetic emissions low and to enable connection to fiber optic interconnects without use of additional components.

PanelLink Cinema

        Our PanelLink Cinema technology sends high-fidelity digital audio and protected video across the HDMI link for use in the consumer electronics market. Combining digital video and digital audio transmissions in a single interconnect system simplifies and reduces the cost of the connection between consumer electronics devices, while maintaining high-quality and protection. PanelLink Cinema technology is fully compliant with the HDMI 1.0 specification.

Research and Development

        We have assembled a team of engineers and technologists with extensive experience in the areas of high-speed interconnect architecture, circuit design, digital imaging processor architecture, LCD panels and storage interconnect, software and systems. Our engineering team includes a group of consultants in Asia that focuses primarily on advanced technology development. The majority of these consultants are students at a university that we utilize for research and design services.

        From our inception until 1998, our internal research and development efforts focused primarily on the development of our core PanelLink technology, our initial transmitter and receiver products, and our first intelligent panel controller product. In 1999, we improved our PanelLink technology and developed new transmitter and receiver products, focusing on providing both higher speeds and improved ease of use. We also began development of our PanelLink architecture for digital displays. In 2000, we focused our internal research and development efforts on integrating our PanelLink receiver

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technology with additional functionality, such as PanelLink A/V and HDCP, for flat panel displays, digital CRTs and the consumer electronics industry. In 2001, we diversified our research and development efforts by increasing our investment in storage semiconductor development and by adding storage system architecture and software development expertise through our acquisition of CMD Technology. In 2002, our research and development efforts focused primarily on technology and applications for the consumer electronics and storage markets, including the development of HDMI technology.

        Our research and development efforts continue to focus on developing higher bandwidth links with different clocking methodologies for use in various PC, CE and storage applications. By utilizing our patented data coding technology and different clocking methodologies, we believe our high-speed link can scale with advances in semiconductor manufacturing process technology and simplify system design.

        We have invested, and expect that we will continue to invest, significant funds for research and development activities. Excluding non-cash stock compensation expense, our research and development expenses were approximately $32.8 million in 2002, $25.5 million in 2001, and $12.8 million in 2000.

Sales and Marketing

        We sell our products to distributors and OEMs throughout the world using a direct sales force with field offices located in North America, Taiwan and Europe, and indirectly through a network of distributors and manufacturer's representatives located throughout North America, Asia and Europe.

        Our sales strategy for all products is to achieve design wins with key industry leaders in order to grow the markets in which we participate and to promote and accelerate the adoption rate for industry standards we support or are developing, such as DVI, HDMI and serial ATA. Our sales personnel and applications engineers provide a high-level of technical support to our customers. Our marketing efforts focus primarily on promoting adoption of the DVI, HDMI and serial ATA specifications, participating in industry trade shows and forums, entering into branding relationships such as PanelLink for DVI, PanelLink Cinema for HDMI, and SATALink for serial ATA to build awareness of our brands, and on bringing new solutions to markets.

Manufacturing

Wafer Fabrication

        Our semiconductor products are fabricated using standard CMOS processes, which permit us to engage independent wafer foundries to fabricate our semiconductors. By outsourcing our manufacturing requirements, we are able to avoid the high cost of owning and operating a semiconductor wafer fabrication facility. This allows us to focus our resources on the design and quality of our products. Our devices are currently fabricated using 0.5 micron, 0.35 micron, 0.25 micron and 0.18 micron processes. We continuously evaluate the benefits, primarily improved performance, and feasibility of migrating our products to smaller geometry process technologies. We rely almost entirely on Taiwan Semiconductor Manufacturing Company (TSMC), an outside foundry, to produce all of our PC, CE and fibre channel and serial ATA storage products. We also rely on other outside foundries, such as Kawasaki and Atmel, to produce our parallel ATA and USB storage semiconductor products. We do not have long-term supply agreements with any of these foundries and therefore cannot be assured of sufficient capacity availability or future prices. Because of the cyclical nature of the semiconductor industry, capacity availability can change quickly and significantly. We attempt to optimize wafer availability by continuing to use less advanced wafer geometries, such as 0.5 micron, 0.35 micron and 0.25 micron, which generally have more available capacity.

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Assembly and Test

        After wafer fabrication, die (semiconductor devices) are assembled into packages and the finished products are tested. Our products are designed to use low-cost standard packages and to be tested with widely-available semiconductor test equipment. We outsource all of our packaging and the majority of our test requirements to Amkor Technology in Korea, Advanced Semiconductor Engineering in Taiwan, Malaysia and the United States, and Fujitsu and Kawasaki in Japan. We test a small portion of our products in-house.

        The high-speed nature of our products makes it difficult to test our products in a cost-effective manner prior to assembly. Since the fabrication yields of our products have historically been high and the costs of our packaging have historically been low, we test our products after they are assembled. Our operations personnel closely review the process control monitor information provided to us by our foundries. To ensure quality, we have established firm guidelines for rejecting wafers that we consider unacceptable. To date, not testing our products prior to assembly has not caused us to experience higher final test failures or lower yields. However, lack of testing prior to assembly could have adverse effects if there are significant problems with wafer processing. Additionally, for newer products and products for which yield rates have not stabilized, we may conduct bench testing using our personnel and equipment, which is more expensive than fully automated testing.

Quality Assurance

        We focus on product quality through all stages of the design and manufacturing process. Our designs are subjected to in-depth circuit simulation at temperature, voltage and processing extremes before being fabricated. We pre-qualify each of our subcontractors through a series of industry-standard environmental product stress tests, as well as an audit and analysis of the subcontractor's quality system and manufacturing capability. We also participate in quality and reliability monitoring through each stage of the production cycle by reviewing data from our wafer foundries and assembly subcontractors. We closely monitor wafer foundry production to ensure consistent overall quality, reliability and yields. Our independent foundries and assembly and test subcontractors have achieved ISO 9000 certification.

Intellectual Property

        Our success and future revenue growth will depend, in part, on our ability to protect our intellectual property. We rely on a combination of patent, copyright, trademark and trade secret laws, as well as nondisclosure agreements and other methods, to protect our proprietary technologies. As of December 31, 2002, we have been issued 31 United States patents and have in excess of 130 United States patent applications pending. Our issued patents expire in 2016 or later, subject to our payment of periodic maintenance fees. We cannot assure you that any valid patent will be issued as a result of any applications or, if issued, that any claims allowed will be sufficiently broad to protect our technology, or that any patent will be upheld in the event of a dispute. In addition, we do not file patent applications on a worldwide basis, meaning we do not have patent protection in some jurisdictions. We also generally control access to and distribution of our documentation and other proprietary information. Despite our precautions, 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. 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, and the relief available may not compensate for the harm caused.

        Our participation in the DDWG requires that we grant others the right to use specific elements of our intellectual property in implementing the DVI specification in their products, at no cost, in exchange for an identical right to use specific elements of their intellectual property for this purpose.

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We agreed to grant rights to the DDWG members and other adopters of the DVI specification in order to promote the adoption of our technology as an industry standard. We thereby limited our ability to rely on intellectual property law to prevent the adopters of the DVI specification from using certain specific elements of our intellectual property for free. This reciprocal free license covers the connection between a computer and digital display. It does not, however, extend to the internal methods by which such performance is created. Although the DVI specification is an open industry standard, we have developed proprietary methods of implementing the DVI specification. The intellectual property that we have agreed to license defines the logical structure of the interface, such as the number of signal wires, the signaling types, and the data encoding method for serial communication. Our implementation of this logical structure in integrated circuits remains proprietary, and includes our techniques to convert data to and from a serial stream, our signal recovery algorithms and our circuits to reduce electromagnetic interference (EMI). Third parties may develop proprietary intellectual property relating to DVI implementations that would prevent us from developing or enhancing our DVI implementation in conflict with those rights. Third parties may also develop equivalent or superior implementations of the DVI specification and we cannot guarantee that we will succeed in protecting our intellectual property rights in our proprietary implementation. Third parties may have infringed or be infringing our intellectual property rights, or may do so in the future, and we may not discover that fact in a timely or cost-effective manner. Moreover, the cost of pursuing an intellectual property infringement may be greater than any benefit we would realize.

        Our participation as a founder of the HDMI specification requires that we grant others the right to use specific elements of our intellectual property in implementing the HDMI specification in their products, in exchange for a license. This license bears an annual fee and royalties that are payable to HDMI Licensing, L.L.C., a wholly-owned subsidiary of ours. There can be no assurance that such license fees and royalties will adequately compensate us for having to license our intellectual property. The license, with restrictions, generally covers the patent claims necessary to implement the specification of an interface for CE devices, and does not extend to the internal methods by which such performance is created. Although the HDMI specification is a proposed industry standard, we have developed proprietary methods of implementing the HDMI specification. The intellectual property that we have agreed to license defines the logical structure of the interface, such as the number of signal wires, the signaling types, and the data encoding method for serial communication. Our implementation of this logical structure in integrated circuits remains proprietary, and includes our techniques to convert data to and from a serial stream, our signal recovery algorithms, our implementation of audio and visual data processing, and our circuits to reduce EMI. Third parties may also develop intellectual property relating to HDMI implementations that would prevent us from developing or enhancing our HDMI specification in conflict with those rights. Third parties may also develop equivalent or superior implementations of the HDMI specification and we cannot guarantee that we will succeed in protecting our intellectual property rights in our proprietary implementation. Third parties may have infringed or be infringing our intellectual property rights, or may do so in the future, and we may not discover that fact in a timely or cost-effective manner. Moreover, the cost of pursuing an intellectual property infringement may be greater than any benefit we would realize. In addition, third parties may not pay the prescribed license fees and royalties, in which case we may become involved in infringement or collection actions, or we may determine that the cost of pursuing such matters may be greater than any benefit we would realize. We agreed to grant rights to the founders and adopters of the HDMI specification in order to promote the adoption of our technology as an industry standard. We thereby limited our ability to rely on intellectual property law to prevent the founders and adopters of the HDMI specification from using certain specific elements of our intellectual property for the specified royalties.

        We entered into a patent cross-license agreement with Intel in which each of us granted the other a license to use the grantor's patents, including certain future patents, with specific exclusions related to the grantor's current and anticipated future products and network devices. Products excluded include

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our digital receivers, discrete digital transmitters and discrete display controllers, and Intel's processors, chipsets, graphics controllers and flash memory products. This cross-license does not require delivery of any masks, designs, software or any other item evidencing or embodying such patent rights, thus making "cloned" products no easier to create. The cross-license agreement expires when the last licensed patent expires, anticipated to be no earlier than 2016, subject to the right of either party to terminate the agreement earlier upon material breach by the other party, or a bankruptcy, insolvency or change of control of the other party. We have forfeited, however, our ability to rely on intellectual property law to prevent Intel from using our patents within the scope of this license. To date, we are not aware of any use by Intel of our patent rights that negatively impacts our business.

        The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights or positions, which can result in significant, protracted litigation. We have brought a patent infringement suit against Genesis Microchip, which is described in further detail below in the section entitled "Legal Proceedings."

Competition

        The markets in which we compete are intensely competitive and are characterized by rapid technological change, evolving standards, short product life cycles and decreasing prices. We believe that some of the key factors affecting competition in our markets are levels of product integration, compliance with industry standards, time-to-market, cost, product capabilities, system design costs, intellectual property, customer support, quality and reputation.

        In the PC market, our products face competition from a number of sources including analog solutions, DVI-compliant solutions, dual-interface solutions and other digital interface solutions.

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Analog Solutions. Display systems still predominantly employ an analog interface. Improvements to analog interface display solutions may slow the adoption of all-digital display systems. We compete with analog solution vendors such as Analog Devices, Genesis Microchip and a number of Taiwan-based companies.



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DVI-Compliant Solutions. We believe that over time, the DVI specification will become widely adopted in the digital display industry and attract additional market entrants. We believe the following companies have developed or announced intentions to develop DVI-compliant solutions: Analog Devices, ATI Technologies, Broadcom, Chrontel, Genesis Microchip, National Semiconductor, nVidia, Pixelworks, SIS, Smart ASIC, ST Microelectronics, Texas Instruments and Thine.



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Dual-Interface Solutions. The following companies have developed, or announced intentions to develop, products that connect to both analog and digital host systems, also known as a dual-interface solution: Genesis Microchip, Macronix, Philips Semiconductor, Pixelworks and a number of Taiwan-based companies.



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Other Digital Interface Solutions. Texas Instruments, Thine, and National Semiconductor offer proprietary digital interface solutions based on LVDS, or low voltage differential signaling technology. LVDS technology has gained broad market acceptance in notebook PCs, and has gained some adoption with PC and display manufacturers for use outside of the notebook PC market.

        The market for our intelligent panel controller products is also very competitive. Some of our intelligent panel controller products are designed to be functionally interchangeable with similar products sold by National Semiconductor, Texas Instruments and Thine.

        In the consumer electronics market, our digital interface products are used to connect new cable set-top boxes, satellite set-top boxes and DVD players to digital televisions. These products incorporate

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DVI and HDCP, or HDMI with or without HDCP support. Companies that have announced or are shipping competing DVI-HDCP solutions include TI, Thine, Broadcom, and Genesis. In addition, our video processor products face competition from products sold by AV Science, Broadcom, Focus Enhancements, Genesis Microchip, Mediamatics, Micronas Semiconductor, Oplus, Philips Semiconductor, Pixelworks, and Trident. We also compete in some instances against in-house processing solutions designed by large consumer electronics OEMs. We expect competition for HDMI products from the other HDMI founders and adopters, including Hitachi, Matsushita, Philips, Sony, Thomson and Toshiba.

        In the storage market, our fibre channel products face competition from companies selling similar discrete products, including Agilent, Mindspeed, PMC-Sierra, Serverworks and Vitesse, from other Fibre Channel SerDes providers who license their core technology, such as LSI Logic, and from companies that sell HBA controllers with integrated SerDes, such as QLogic and Agilent.

        Our serial ATA products compete with similar products from Marvell, VIA, SIS and Promise. In addition, other companies, such as APT, Intel, LSI Logic, ServerWorks and Vitesse, have developed or announced intentions to develop serial ATA products. We also are likely to compete against Intel and other motherboard chip-set makers that have announced intentions to integrate serial ATA functionality into their chipsets.

        Many of our competitors have longer operating histories and greater presence in key markets, greater 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. We cannot assure you that we can compete successfully against current or potential competitors, or that competition will not seriously harm our business.

Employees

        As of December 31, 2002, we had a total of 249 employees, including 8 located outside of the United States. None of our employees are represented by a collective bargaining agreement, nor have we experienced any work stoppages. We consider our relations with our employees to be good. We depend on the continued service of our key technical, sales and senior management personnel, and our ability to attract and retain additional qualified personnel. If we are unable to hire and retain qualified personnel, our business will be seriously harmed.

Available Information

        Our Internet website address is http://www.siliconimage.com. We make available free of charge through our Internet website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.

Item 2. Properties

        Our principal operating facility, consisting of approximately 80,000 square feet of space in Sunnyvale, California, is leased through August 1, 2010 and should be adequate to meet our requirements through at least 2003. We also have approximately 91,000 square feet of space in Irvine, California, which is leased through November 2005, and approximately 8,000 square feet of space in

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Milpitas, California, which we currently do not occupy and which is leased through April 2006. We currently sublease to third parties, under two separate arrangements, approximately 24,000 square feet of our space in Irvine, California on conventional terms, and are attempting to sublease additional space at this facility and at our Milpitas facility. Each of our subleases, one of which is on a month-to-month basis and the other of which is through July 2003, is for approximately 12,000 square feet of space.

Item 3. 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 for the Federal Suit as of February 28, 2002. 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' 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. In August 2002, the Court granted our motion and dismissed Genesis' counterclaims without leave to amend. In September 2002, we filed a motion for summary judgment, upon which the Court has yet to rule. In October 2002, both parties filed several more motions for summary judgment, upon which the Court has yet to rule. Several dispositive motions have subsequently been filed under seal and were heard by the Court in March 2003; the Court has yet to rule on these motions. Depending on the outcome of such motions, a trial date may be set, the case may be dismissed, or other orders may be entered. Management intends to prosecute our position vigorously until this matter is resolved. Through December 31, 2002, we have spent approximately $8.3 million on this matter and expect to continue to incur significant costs through at least the first half of 2003.

        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 underwriters' motion to dismiss and ordered that the case may proceed against issuers including against Silicon Image. At this time, we cannot predict the outcome of this lawsuit; however, we intend to defend this matter vigorously.

        Silicon Image, certain officers and directors, and Silicon Image's underwriters have been named as defendants in a securities class action lawsuit captioned Liu v. Credit Suisse First Boston Corp., et al., No. 03-20459 (S.D. Fla. 2003) pending in Federal District Court for the Southern District of Florida. Plaintiff filed an action on behalf of a putative class of shareholders who purchased stock from some or

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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. Silicon Image has not been served with a copy of the complaint. At this time, we cannot predict the outcome of this lawsuit; however, we intend to defend this matter vigorously.

        On August 7, 2002, we filed a demand for arbitration with the American Arbitration Association, file #74 Y 117 01399 02 GAP, against the principal shareholders of CMD Technology (CMD) relating to shares held in escrow in connection with our acquisition of CMD. Pursuant to agreements by which we acquired CMD, a portion of the Silicon Image common stock issued to the principal shareholders of CMD was held in two separate escrow pools as collateral for the indemnification obligations of these shareholders. We previously made indemnification claims against these escrow pools for the release of escrow shares with a value of approximately $5.4 million, which claims were contested by the principal shareholders of CMD. On February 28, 2003, we and the principal shareholders of CMD entered into a settlement agreement and mutual release, pursuant to which our indemnification claims were resolved. As a result of the settlement, we expect to receive 949,780 of the escrowed shares, valued at approximately $4.8 million.

        In addition, we are involved in a number of judicial and administrative proceedings incidental to our business. We intend to prosecute or defend, as appropriate, 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.

        The amount of legal fees we incur with respect to the litigation matters described above will depend on the duration of our litigation matters, as well as the nature and extent of the litigation activities. We are not able to accurately estimate the amount of legal fees we will incur in 2003 with respect to the litigation matters described above, however, we do expect to incur substantial amounts through at least the first half of 2003.

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

        None.

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PART II

Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters

        Our common shares have been traded on the NASDAQ Stock Market under the symbol "SIMG" since our initial public offering on October 6, 1999. Our shares are not listed on any other markets or exchanges. The following table shows the high and low closing prices for our common shares as reported by the NASDAQ Stock Market:

        As of January 31, 2003, we had approximately 227 holders of record of our common shares and a substantially greater number of beneficial owners.

        We filed a Registration Statement on Form S-1 (File No. 333-83665) that was declared effective by the SEC on October 5, 1999. On October 6, 1999, Silicon Image shares commenced trading, and on October 12, 1999, we completed the sale of all 8,970,000 registered shares at a price of $6.00 per share.

        We received net proceeds of $48 million, after deducting underwriting discounts and commissions of approximately $3.8 million and estimated offering expenses of approximately $1.7 million. None of these offering expenses were paid directly or indirectly to any of our directors or officers, any person owning 10% or more of any class of our equity securities, or any of our affiliates. We intend to use the proceeds from this offering for general corporate purposes, including working capital and capital expenditures.

        We have never declared or paid cash dividends on shares of our capital stock. We intend to retain any future earnings to finance growth and do not anticipate paying cash dividends in the future.

        In connection with our acquisition of Zillion Technologies, LLC, we are obligated under an exchange agreement to periodically issue to the two founders of Zillion shares of our common stock as consideration for their membership interests in Zillion which we acquired and services provided pursuant to their employment agreements with us. The Zillion founders were granted registration rights with respect to the shares to be issued under this exchange agreement. These issuances of shares were made in reliance on an exemption from registration under Section 4(2) of the Securities Act. On December 31, 2002, we issued 18,750 shares of our common stock to the Zillion founders pursuant to the exchange agreement. The issuances of shares were made without general solicitation or advertising and were only made to two individuals.

Item 6. Selected Financial Data

        The following selected financial data should be read in connection with our consolidated financial statements and notes thereto and "Management's Discussion and Analysis of Financial Condition and

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Results of Operations" included elsewhere in this Form 10-K. Historical results of operations are not necessarily indicative of future results.