SILICON IMAGE INC - FORM 10-Q

Attached files

file	filename
EX-32.02 - EXHIBIT - SILICON IMAGE INC	a0630201410qexhibit3202.htm
EX-32.01 - EXHIBIT - SILICON IMAGE INC	a0630201410qexhibit3201.htm
EX-31.01 - EXHIBIT - SILICON IMAGE INC	a0630201410qexhibit3101.htm
EX-31.02 - EXHIBIT - SILICON IMAGE INC	a0630201410qexhibit3102.htm
EXCEL - IDEA: XBRL DOCUMENT - SILICON IMAGE INC	Financial_Report.xls

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For quarterly period ended: June 30, 2014



¨	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 incorporation or organization)		(I.R.S. Employer I.D. Number)

1140 East Arques Avenue, Sunnyvale, California 94085

(Address of principal executive office)(Zip Code)

(408) 616-4000

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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 ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer o			Accelerated filer x

Non-accelerated filer o			Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.



Class		Shares Outstanding at July 31, 2014
Common Stock, $0.001 par value		78,239,599

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SILICON IMAGE, INC.

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2014

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Part I FINANCIAL INFORMATION	3
Item 1 Financial Statements (Unaudited)	3
Condensed Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013	3
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2014 and 2013	4
Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2014 and 2013	5
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013	6
Notes to Condensed Consolidated Financial Statements	7
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3 Quantitative and Qualitative Disclosures About Market Risk	31
Item 4 Controls and Procedures	31
Part II OTHER INFORMATION	31
Item 1 Legal Proceedings	31
Item 1A Risk Factors	31
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds	51
Item 3 Defaults Upon Senior Securities	52
Item 4 Mine Safety Disclosures	52
Item 5 Other Information	52
Item 6 Exhibits	52
Signature	53


EXHIBIT 31.01
EXHIBIT 31.02
EXHIBIT 32.01
EXHIBIT 32.02

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Part I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS (Unaudited)

SILICON IMAGE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

(unaudited)



	June 30, 2014			December 31, 2013
ASSETS
Current Assets:
Cash and cash equivalents	$	93,348		$	82,220
Short-term investments	47,367			56,003
Accounts receivable, net of allowances for doubtful accounts of $468 at June 30, 2014 and $531 at December 31, 2013	25,963			34,729
Inventories	23,710			11,727
Prepaid expenses and other current assets	5,775			7,733
Deferred income taxes	631			191
Total current assets	196,794			192,603
Property and equipment, net	14,369			14,676
Deferred income taxes, non-current (Note 11)	—			4,368
Intangible assets, net (Note 7)	18,250			10,348
Goodwill	30,458			21,646
Other assets	6,354			8,498
Total assets	$	266,225		$	252,139
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	16,580		$	12,894
Accrued and other current liabilities	26,828			20,622
Deferred margin on sales to distributors	11,086			9,634
Deferred license revenue	1,889			2,742
Total current liabilities	56,383			45,892
Other long-term liabilities	13,650			16,522
Total liabilities	70,033			62,414
Commitments and contingencies (Note 9)
Stockholders’ Equity:
Convertible preferred stock, par value $0.001; 5,000,000 shares authorized; no shares issued or outstanding	—			—
Common stock, par value $0.001; 150,000,000 shares authorized; shares issued and outstanding: 78,054,587 shares at June 30, 2014 and 77,418,247 shares at December 31, 2013	101			100
Additional paid-in capital	545,857			536,935
Treasury stock, 27,930,115 shares at June 30, 2014 and 27,323,067 shares at December 31, 2013	(161,249		)	(157,898		)
Accumulated deficit	(188,328		)	(189,302		)
Accumulated other comprehensive income	(189		)	(110		)
Total stockholders’ equity	196,192			189,725
Total liabilities and stockholders’ equity	$	266,225		$	252,139

See accompanying Notes to Condensed Consolidated Financial Statements.

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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,
	2014		2013			2014		2013
Revenue:
Product	$	50,938	$	63,681		$	97,704	$	114,022
Licensing and services	8,598		9,998			23,393		21,696
Total revenue	59,536		73,679			121,097		135,718
Cost of revenue and operating expenses:
Cost of product revenue (1)(2)	24,814		31,023			49,609		56,821
Cost of licensing and services revenue	—		162			20		429
Research and development (3)	17,416		20,225			34,373		38,783
Selling, general and administrative (4)	15,166		16,097			32,031		32,499
Amortization of acquisition-related intangible assets	510		230			718		481
Restructuring expense (recoveries) (5)	113		—			242		(7		)
Total cost of revenue and operating expenses	58,019		67,737			116,993		129,006
Income from operations	1,517		5,942			4,104		6,712
Proceeds from legal settlement	—		1,275			—		1,275
Other than temporary impairment of a privately held company investment	—		(1,500		)	—		(1,500		)
Interest income and other, net	1,043		500			1,061		891
Income before provision for income taxes and equity in net loss of an unconsolidated affiliate	2,560		6,217			5,165		7,378
Income tax expense	1,487		1,888			4,041		3,630
Equity in net loss of an unconsolidated affiliate	—		136			150		259
Net income	$	1,073	$	4,193		$	974	$	3,489
Net income per share – basic	$	0.01	$	0.05		$	0.01	$	0.05
Net income per share – diluted	$	0.01	$	0.05		$	0.01	$	0.04
Weighted average shares – basic	78,150		77,245			78,004		76,934
Weighted average shares – diluted	79,988		78,713			80,110		78,353
_________________
(1) Includes amortization of acquisition-related intangible assets	$	225	$	250		$	450	$	500
(2) Includes stock-based compensation expense	$	148	$	153		$	321	$	288
(3) Includes stock-based compensation expense	$	792	$	827		$	1,705	$	1,845
(4) Includes stock-based compensation expense	$	1,344	$	1,438		$	3,295	$	3,209
(5) Includes stock-based compensation expense	$	44	$	—		$	74	$	—

See accompanying Notes to Condensed Consolidated Financial Statements.

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SILICON IMAGE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Net income	$	1,073		$	4,193		$	974		$	3,489
Components of accumulated other comprehensive loss, net of zero tax:
Foreign currency translation adjustments	(53		)	54			(92		)	31
Fair value of effective cash flow hedges	—			—			—			—
Unrealized gains (losses) on short-term investments :
Unrealized gain (loss) arising during the period	6			(170		)	14			(293		)
Reclassification adjustment for gains included in net income	—			(133		)	—			(142		)
Total unrealized gain (loss) on short-term investments	6			(303		)	14			(435		)
Other comprehensive loss	(47		)	(249		)	(78		)	(404		)
Comprehensive income	$	1,026		$	3,944		$	896		$	3,085

See accompanying Notes to Condensed Consolidated Financial Statements.

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SILICON IMAGE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)



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

See accompanying Notes to Condensed Consolidated Financial Statements.

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SILICON IMAGE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1. BASIS OF PRESENTATION

In the opinion of management, the accompanying unaudited condensed consolidated financial statements of Silicon Image, Inc. (the “Company”, “Silicon Image”, “we” or “our”) have been prepared on a basis consistent with our December 31, 2013 audited financial statements and include all adjustments, consisting of normal recurring adjustments, necessary to fairly state the condensed consolidated balance sheets of Silicon Image and our subsidiaries as of June 30, 2014 and December 31, 2013 and the related condensed consolidated statements of operations for the three and six months ended June 30, 2014 and 2013, condensed consolidated statements of comprehensive income for the three and six months ended June 30, 2014 and 2013, and the related condensed consolidated statements of cash flows for the six months ended June 30, 2014 and 2013. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013. Financial results for the three and six months ended June 30, 2014 are not necessarily indicative of future financial results.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Areas where significant judgment and estimates are applied include revenue recognition, stock-based compensation, valuation, impairment and fair value hierarchy of short-term investments, inventory reserves, impairment of goodwill and long-lived assets, income taxes, deferred tax assets and legal matters. Actual results could differ materially from these estimates.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of Silicon Image, Inc. and its subsidiaries after elimination of all intercompany balances and transactions.

Summary of Significant Accounting Policies

There have been no changes to the Company’s significant accounting policies during the three and six months ended June 30, 2014 as compared to the significant accounting policies described in the Company’s audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” ("ASU 2014-09"). ASU 2014-09 outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized. The new model will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. This guidance is effective for public entities for interim and annual periods beginning after December 15, 2016. Early adoption is not permitted. Companies may use either a full retrospective or a modified retrospective approach to adopt ASU 2014-09. The Company is currently assessing the potential impact of adopting this new accounting guidance on its consolidated financial statements and footnote disclosures.

In June 2014, the FASB issued Accounting Standards Update No. 2014-12, "Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide that a Performance Target Could be Achieved after the Requisite Service Period," ("ASU 2014-12"). ASU 2014-12 requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. This guidance is effective for public entities for interim and annual periods beginning after December 15, 2015.

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Early adoption is permitted. The Company does not anticipate that the adoption of this standard will have a material impact on its consolidated financial statements.

NOTE 2. NET INCOME PER SHARE

Basic net income (loss) per common share is computed by dividing the net income (loss) available to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted income (loss) per common share is computed by dividing net income (loss) available to common stockholders by the weighted-average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include outstanding stock options, shares to be purchased under the employee stock purchase plan and unvested RSUs. The dilutive effect of potentially dilutive securities is reflected in diluted earnings per common share by application of the treasury stock method. Under the treasury stock method, an increase in the fair market value of the Company’s common stock can result in a greater dilutive effect from potentially dilutive securities.

The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share amounts):



	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
Numerator:
Net income	$	1,073	$	4,193	$	974	$	3,489
Denominator:
Weighted average outstanding shares used to compute basic net income per share	78,150		77,245		78,004		76,934
Effect of dilutive securities	1,838		1,468		2,106		1,419
Weighted average outstanding shares used to compute diluted net income per share	79,988		78,713		80,110		78,353
Net income per share – basic	$	0.01	$	0.05	$	0.01	$	0.05
Net income per share – diluted	$	0.01	$	0.05	$	0.01	$	0.04

For the three and six months ended June 30, 2014 approximately 3.3 million and 3.2 million, respectively, common stock equivalents were excluded from the computation of diluted net income per share because their effect would have been anti-dilutive.

For the three and six months ended June 30, 2013 approximately 4.3 million and 4.5 million, respectively, common stock equivalents were excluded from the computation of diluted net income per share because their effect would have been anti-dilutive.

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NOTE 3. BALANCE SHEET COMPONENTS

The components of inventories, prepaid expenses and other current assets, property and equipment and other assets consisted of the following (in thousands):



	June 30, 2014			December 31, 2013
Inventories:
Raw materials	$	12,638		$	4,862
Work in process	5,868			2,285
Finished goods	5,204			4,580
	$	23,710		$	11,727
Prepaid expenses and other current assets:
Prepaid software maintenance	$	2,157		$	3,041
Other prepaid expenses	1,632			1,939
Other current assets	1,986			2,753
	$	5,775		$	7,733
Property and equipment:
Computers and software	$	22,368		$	20,425
Equipment	34,635			33,942
Furniture and fixtures	2,656			2,656
	59,659			57,023
Less: accumulated depreciation	(45,290		)	(42,347		)
Total property and equipment, net	$	14,369		$	14,676
Other assets:
Investment in a privately held company (Note 4)	$	3,500		$	7,011
Tax receivable, non-current (Note 11)	1,300			—
Others	1,554			1,487
	$	6,354		$	8,498

The components of accrued liabilities and other long-term liabilities were as follows (in thousands):



	June 30, 2014		December 31, 2013
Accrued and other current liabilities:
Accrued royalties payable	$	14,683	$	3,587
Accrued payroll and related expenses	5,745		8,923
Accrued payables	3,593		4,771
Accrued restructuring	589		1,591
Others	2,218		1,750
	$	26,828	$	20,622
Other long-term liabilities:
Non-current liability for uncertain tax positions	$	11,676	$	14,145
Others	1,974		2,377
	$	13,650	$	16,522

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NOTE 4. INVESTMENT

Cost Method Investment in a Privately Held Company

In February 2012, the Company paid $3.5 million in cash to purchase a minority interest in a privately held company which designs and develops wireless semiconductor chips. This investment is accounted for using the cost method as the Company’s ownership percentage is minor and the Company does not exert significant influence over the investee.

In July 2014, the privately held company was acquired by another entity and the Company sold its minority interest in connection with the acquisition. The Company expects to record a gain related to this sale of its investment during the third quarter of fiscal year 2014.

NOTE 5. BUSINESS ACQUISITION

On May 1, 2014, the Company finalized the acquisition of 79% of the ownership interest not already held in UpdateLogic, Inc. (ULI), a privately held company headquartered in Minneapolis. ULI is a provider of a comprehensive device management system which enables the control, maintenance, and support of internet-connected consumer electronics products including DTVs, Blu-ray Disc players, set-top boxes and gaming consoles. The net cash paid by the Company for the remaining ownership interest in ULI was $13.5 million, net of $0.5 million cash acquired. With the acquisition of ULI, the Company is extending its connectivity portfolio to include IP connectivity solutions for over-the-top applications including Digital Rights Management provisioning, software management and remote support.

ULI’s results of operations and the estimated fair value of the ULI assets acquired and liabilities assumed were included in the Company’s unaudited consolidated financial statements beginning May 1, 2014. ULI's revenue and net loss for the period May 1, 2014 through June 30, 2014 was approximately $0.2 million and $0.6 million, respectively. Acquisition cost, which were expensed as incurred, were approximately $138,000.

Immediately prior to this acquisition, the Company held a 21% of the ownership interest in ULI through an equity investment that had been accounted for under the equity method of accounting. The investment balance immediately prior to the completion of the acquisition transaction was $3.4 million, net of cumulative equity method adjustments of $0.6 million. The estimated fair value of this preexisting ownership interest as of the acquisition date was $3.7 million. Estimating this fair value required the use of valuation techniques and entailed consideration of all the relevant factors that might affect the fair value, such as present value factors, estimates of future revenues and costs. The difference of $0.3 million between the carrying value and the fair value of the Company's preexisting ownership interest in ULI as of the acquisition date has been recorded as a gain in the Company’s other income for the quarter ending June 30, 2014.

The fair value of the purchase price consideration consisted of the following (in thousands):



Cash	$	14,000
Fair value of preexisting interest	3,722
Total purchase price	$	17,722

Contingent consideration, up to a maximum of $10.8 million, will become due if certain billing levels are met by the acquired business in the first 18 months after acquisition. Management has determined that the fair value of this contingent consideration as of the acquisition date and June 30, 2014 iszero, and as such no amount related to it is included in the determination of purchase consideration.

Purchase consideration was allocated to the tangible and intangible assets acquired and liabilities assumed on the basis of their respective estimated fair values on the acquisition date. The Company’s allocation of the total purchase price is as follows (in thousands):

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	Estimated Fair Value
Assets acquired:
Cash	$	536
Accounts receivable	322
Other current assets	36
Property and equipment	8
Intangible assets	9,700
Goodwill	8,812
Total assets acquired	19,414

Current liabilities assumed:
Accrued liabilities	(283		)
Deferred revenue, current	(368		)
Total current liabilities	(651		)
Customer deposits	(227		)
Long-term liabilities	(77		)
Deferred revenue, non-current	(737		)
Total liabilities assumed	(1,692		)
Total purchase price	$	17,722

The following table presents details of the intangible assets acquired through the acquisition of ULI ($ in thousands):



	Asset Life in Years	Fair Value
Customer relationships	5	$	7,800
Developed technology	5	1,900
Total intangible assets		$	9,700

The Company does not believe that there is any significant residual value associated with these intangible assets. The Company amortizes the intangible assets straight-line over their estimated useful lives. The estimation of the fair value of the intangible assets required the use of valuation techniques and entailed consideration of all the relevant factors that might affect the fair value, such as present value factors, estimates of future revenues and costs. The purchase price allocation as was based on a preliminary valuation and is subject to revision as more detailed analyzes are completed and additional information about the fair value of assets acquired and liabilities assumed become available, including the finalization of our valuation of identified intangible assets and deferred revenue.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the underlying net tangible and intangible assets. The goodwill recognized in the acquisition of ULI was derived from expected benefits from cost synergies and knowledgeable and experienced workforce who joined the Company after the acquisition. Goodwill will not be amortized, but will instead be tested for impairment annually or more frequently if certain indicators of impairment are present. Goodwill is not expected to be tax deductible for income tax purposes.

Unaudited Pro Forma Financial Information

The unaudited pro forma financial information in the table below summarizes the combined results of operations for the Company and ULI as if the merger occurred at the beginning of each of the reporting periods presented. The pro forma financial information for all periods presented also includes the business combination accounting effects resulting from this acquisition including the amortization charges from acquired intangible assets and the stock-based compensation expense recognized for equity awards granted to ULI employees who joined the Company after the acquisition as though the acquisition was completed

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at the beginning of each reporting period presented. The pro forma financial information as presented below is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of each reporting period presented.

The unaudited pro forma financial information for the three and six months ended June 30, 2014 combined the historical results of the Company for the three and six months ended June 30, 2014, the historical results of ULI for the three and six months ended June 30, 2014, and the effects of the pro forma adjustments described above.

The unaudited pro forma financial information for the three and six months ended June 30, 2013 combined the historical results of the Company for the three and six months ended June 30, 2013, the historical results of ULI for the three and six months ended June 30, 2013, and the effects of the pro forma adjustments described above.



	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014			2013
	(Dollars in thousands except per share amounts)
Total revenues	$	60,202	$	73,795	$	122,210		$	135,940
Net income (loss)	$	936	$	3,024	$	(232	)	$	1,102
Basic net income (loss) per share	$	0.01	$	0.04	$	—		$	0.01
Diluted net income (loss) per share	$	0.01	$	0.04	$	—		$	0.01

The pro forma adjustments did not have any impact on the pro forma combined provision for income taxes for the three and six months ended June 30, 2014 and 2013 due to net loss positions and valuation allowances on deferred income tax assets in those periods.

NOTE 6. FAIR VALUE MEASUREMENTS

The Company’s cash equivalents and short term investments are generally classified within Level 1 or Level 2 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency.

The Company’s Level 1 assets consist of money market fund securities. These instruments are generally classified within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets.

The Company’s Level 2 assets include certificate of deposits, corporate securities and municipal securities and are valued by using a multi-dimensional relational model, the inputs, when available, are primarily benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications.

The Company does not have significant Level 3 assets or liabilities.

The Company measures certain assets, including its cost method investments, at fair value on a nonrecurring basis when they are deemed to be other-than-temporarily impaired. The fair values of these investments are determined based on valuation techniques using the best information available, and may include quoted market prices, market comparables, and discounted cash flow projections. An impairment charge is recorded when the cost of the investment exceeds its fair value and this condition is determined to be other-than-temporary. The Company recorded other-than-temporary impairments of its privately held company investment of $1.5 million in the three and six months ended June 30, 2013. No other-than-temporary impairments related to financial assets required to be measured at fair value recorded in the three and six months ended June 30, 2014.

For certain of the Company’s financial instruments, including cash held in banks, accounts receivable and accounts payable, the carrying amounts approximate fair value due to their short maturities.

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The following table presents the fair value of our financial instruments that are measured at fair value on a recurring basis as of June 30, 2014 (in thousands):



	Fair value measurements using
	Level 1		Level 2		Level 3		Assets at fair value
Assets:
Cash equivalents:
Money market funds	$	27,104	$	—	$	—	$	27,104

Short-term investments:
Certificate of deposits	$	—	$	10,766	$	—	$	10,766
Municipal securities	—		23,232		—		23,232
Corporate securities	—		7,274		—		7,274
United States government agencies	—		6,095		—		6,095
Total short-term investments	$	—	$	47,367	$	—	$	47,367

The cash equivalents in the above table exclude $66.2 million in cash held by the Company in its accounts or with investment fund managers as of June 30, 2014.

The following table presents the fair value of our financial instruments that are measured at fair value on a recurring basis as of December 31, 2013 (in thousands):



	Fair value measurements using
	Level 1		Level 2		Level 3		Assets at fair value
Assets:
Cash equivalents:
Money market funds	$	33,192	$	—	$	—	$	33,192
Short-term investments:
Certificate of deposits	$	—	$	10,874	$	—	$	10,874
Municipal securities	—		31,069		—		31,069
Corporate securities	—		10,313		—		10,313
United States government agencies	—		3,747		—		3,747
Total short-term investments	$	—	$	56,003	$	—	$	56,003

The cash equivalents in the above table exclude $49.0 million in cash held by the Company in its accounts or with investment fund managers as of December 31, 2013.

There were no transfers between Level 1, Level 2 and Level 3 fair value hierarchies during the three months ended June 30, 2014.

NOTE 7. GOODWILL AND INTANGIBLE ASSETS

Goodwill

The Company recorded $8.8 million of goodwill as a result of the acquisitions completed during the three and six months ended June 30, 2014. For further discussion, see Note 5.

The table below summarizes the Company's goodwill activities during the six months ended June 30, 2014 (in thousands):

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Gross amount of goodwill	$	40,856
Accumulated impairment	(19,210		)
Additional goodwill from ULI acquisition	8,812
Carrying value at June 30, 2014	$	30,458

There were no impairments to goodwill during the three and six months ended June 30, 2014 or 2013.

Purchased Intangible Assets

The following table presents the Company’s purchased intangible assets, including those arising from business acquisitions, as of June 30, 2014 (in thousands):



		June 30, 2014
	Useful Life (years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Intangible assets with finite lives
Intellectual Property	6	$	1,600	$	(911	)	$	689
Core Technology	5	1,600		(1,093		)	507
System Technology	3	400		(400		)	—
Developed Technology	5	6,400		(1,789		)	4,611
Customer Relationships	2-5	9,300		(1,375		)	7,925
Acquisition-related intangible assets		19,300		(5,568		)	13,732
Licensed Technology	5	5,887		(1,969		)	3,918
Total intangible assets with finite lives		25,187		(7,537		)	17,650
Intangible assets with indefinite lives
Trade Name	indefinite	600		—			600
Total intangible assets with indefinite lives		600		—			600
Total purchased intangible assets		$	25,787	$	(7,537	)	$	18,250

The Company recorded $9.7 million of purchased intangible assets as a result of the acquisitions completed during the three and six months ended June 30, 2014. For further discussion, see Note 5.

There were no impairment charges with respect to the acquisition-related intangible assets during the three and six months ended June 30, 2014.

Amortization expense of developed technology is recorded to cost of product revenue. Amortization expense of licensed technology is recorded to research and development. Amortization expense of the remainder of the intangible assets with finite lives is recorded to amortization of acquisition-related intangible assets.

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For intangible assets that are subject to amortization, the Company recorded amortization expense in the condensed consolidated statements of operations as follows (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
Cost of product revenue	$	225	$	250	$	450	$	500
Research and development	315		202		630		403
Amortization of acquisition-related intangible assets	510		230		718		481
	$	1,050	$	682	$	1,798	$	1,384

The annual expected amortization expense of intangible assets with finite lives is as follows (in thousands):



Year ending December 31,	Amount
2014 (remaining 6 months)	$	2,453
2015	4,887
2016	4,262
2017	3,235
Thereafter	2,813
Total	$	17,650

NOTE 8. RESTRUCTURING CHARGES

For the three and six months ended June 30, 2014, the Company recorded restructuring expense of approximately $113,000 and $242,000, respectively, which primarily consisted of severance and benefits of terminated employees.

For the three months ended June 30, 2013, the Company did not record any restructuring expense and recorded $(7,000) for the six months ended June 30, 2013 which primarily consisted of the reversal of accrued severance and benefits.

The table below summarizes the Company’s restructuring activities during the six months ended June 30, 2014 (in thousands):



	Employee Severance and Benefits
Accrued restructuring balance as of January 1, 2014	$	1,591
Additional accruals/adjustments	242
Cash payments	(1,244		)
Accrued restructuring balance as of June 30, 2014	$	589

In December 2013 and June 30, 2014, the Company estimated that the range of probable termination benefit expense related to its restructuring plan was between $1.6 million and $2.6 million. At that time, the Company concluded that no amount within that range was more likely than any other, and therefore determined that the amount of current liability it should record for this plan was $1.6 million. The Company made cash payments of approximately $1.0 million for the six months ended June 30, 2014.

The $0.6 million outstanding restructuring liability as of June 30, 2014 is expected to be fully paid during the third quarter of fiscal 2014.

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NOTE 9. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

From time to time the Company has been named as a defendant or has acted as a plaintiff in judicial or administrative proceedings related to its business. Moreover, from time to time, the Company has received notices from licensees of its technology and from adopters of the standards for which the Company serves as agent disputing the payment of royalties and sometimes requesting a refund of royalties allegedly overpaid.

China National Development and Reform Commission (NDRC) Investigation: In March 2014, the NDRC notified HDMI Licensing, LLC, a wholly-owned affiliate of the Company and the agent for and entity charged with administering the HDMI specification, that the NDRC was investigating HDMI’s licensing activities in China under the Chinese Anti-Monopoly Law (AML). A broad range of remedies with respect to business practices deemed to violate the AML is potentially available to the NDRC, including but not limited to issuing an order to cease conduct deemed illegal, confiscating gains deemed illegally obtained, imposing a fine and requiring modifications to business practices. It is difficult to predict the outcome of this matter or what remedies, if any, may be imposed by the NDRC. The Company continues to cooperate with the NDRC as it conducts its investigation.

HDMI Licensing, LLC and the Company will continue to defend themselves vigorously in the foregoing matter. However, litigation and administrative proceedings are inherently uncertain. Accordingly, the outcome of this matter cannot be predicted. The Company has not recorded any accrual at June 30, 2014 for contingent losses associated with this matter based on its belief that, at this time, a loss is not probable and any possible range of loss cannot be reasonably estimated. The unfavorable resolution of this matter could have a material adverse effect on the Company’s business, results of operations, financial condition or cash flows. The Company is engaged in numerous other legal actions not described above arising in the ordinary course of its business and, while there can be no assurance, believes that the ultimate outcome of these other legal actions will not have a material adverse effect on its business, results of operations, financial condition or cash flows.

Indemnifications

Certain of the Company’s licensing agreements indemnify its customers for any expenses or liabilities resulting from claimed infringements of third party patents, trademarks or copyrights by its 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, the Company has not paid any such claims or been required to defend any lawsuits with respect to any such claim.

NOTE 10. STOCK-BASED COMPENSATION

The Company has a share-based compensation program that provides its Board of Directors with broad discretion in creating equity incentives for employees, officers, non-employees and non-employee board members. This program includes incentive and non-statutory stock option grants and restricted stock units (RSUs) for employees, market-based RSUs and performance-based RSUs for the executive officers and RSUs for non-employee board members pursuant to which such individuals will receive grants immediately following each annual meeting of stockholders. These awards are granted under the stockholder approved 2008 Equity Incentive Plan. Stock option grants under the discretionary grant program generally vest as follows: 25% of the shares vest on the first anniversary of the vesting commencement date and the remaining 75% vest proportionately each month over the next 36 months of continued service. RSU grants generally vest over a one to four-year period. RSU grants to non-employee members of our board vest on the earlier of the first anniversary of the grant date or the date of the Company’s first annual meeting of stockholders following the grant date. Additionally, our Employee Stock Purchase Plan (ESPP) allows employees to purchase shares of common stock at the lower of 85% of the fair market value on the commencement date of the six-month offering period or on the last day of the six-month offering period.

Valuation and Expense Information under Stock-based Compensation

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option valuation model with the following weighted-average assumptions:

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	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Employee stock option plans:
Expected life in years	4.1			4.0			4.1			4.0
Expected volatility	55.5		%	60.3		%	55.5		%	61.3		%
Risk-free interest rate	1.3		%	0.8		%	1.3		%	0.7		%
Expected dividends	none			none			none			none
Weighted average fair value	$	2.28		$	2.24		$	2.28		$	2.26
Employee Stock Purchase Plan:
Expected life in years	0.5			0.5			0.5			0.5
Expected volatility	27.0		%	40.1		%	27.0		%	40.1		%
Risk-free interest rate	0.1		%	0.1		%	0.1		%	0.1		%
Expected dividends	none			none			none			none
Weighted average fair value	$	1.32		$	1.27		$	1.32		$	1.27

Amortization method — The value of options and RSUs are amortized to expense, net of estimated forfeitures, on a straight line basis over the vesting period.

Expected Life — The expected life of the options represents the estimated period of time until exercised and is based on historical experience of similar awards, giving consideration to the contractual terms, vesting schedules, and expectations of future employee behavior. The expected term for the ESPP is based on the term of the purchase period.

Expected Volatility — The volatility is based on the Company’s historical common stock volatility derived from historical stock price data for historical periods commensurate with the options’ expected life.

Risk-Free Interest Rate —The risk-free interest rate is based on the implied yield currently available on United States Treasury zero-coupon issues with a term equal to the expected life at the date of grant of the options.

Expected Dividend — The expected dividend is based on our history and expected dividend payouts. The expected dividend yield is zero as the Company has historically paid no dividends and does not anticipate dividends to be paid in the future.

There were no shares purchased under the ESPP for the three months ended June 30, 2014 and 2013. For the six months ended June 30, 2014 and 2013, 372,089 and 566,078 shares of common stock, respectively, were purchased under the ESPP. At June 30, 2014, the Company had $167,000 of total unrecognized compensation expense under the ESPP. The unamortized compensation expense will be amortized on a straight-line basis over a remaining period of approximately 1.5 months.

Stock Option Activity

The following is a summary of activity under the Company’s stock option plans during the six months ended June 30, 2014, excluding RSUs (in thousands, except weighted average exercise price and contractual term):

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	Number of Shares		Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Terms in Years	Aggregate Intrinsic Value
At January 1, 2014	6,152		$	5.53
Granted	136		5.19
Forfeitures and cancellations	(372	)	6.45
Exercised	(370	)	4.78
At June 30, 2014	5,546		$	5.51	4.34	$	3,809
Vested and expected to vest at June 30, 2014	5,268		$	5.53	4.11	$	3,727
Exercisable at June 30, 2014	3,776		$	5.68	3.83	$	3,266

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value that option holders would have received had all option holders exercised their options on June 30, 2014. The aggregate intrinsic value is the difference between the Company’s closing stock price on the last trading day of the quarter ended June 30, 2014 and the exercise price, multiplied by the number of outstanding or exercisable in-the-money options. The aggregate intrinsic value excludes the effect of stock options that have a zero intrinsic value. The total pre-tax intrinsic value of options exercised, representing the difference between the fair market value of the Company’s common stock on the date of the exercise and the exercise price of each option, for the three and six months ended June 30, 2014 was $46,000 and $576,000, respectively, and $89,000 and $152,000 for the three and six months ended June 30, 2013, respectively.

At June 30, 2014, the total unrecognized pre-tax stock-based compensation expense related to stock options, which the Company expects to recognize over the remaining weighted-average vesting period of 2.38 years, was $3.1 million, net of estimated forfeitures.

Restricted Stock Units

The RSUs that the Company grants to its employees typically vest ratably over a certain period of time, subject to the employee’s continuing service to the Company over that period. RSUs granted to executive officers and non-executive employees typically vest over a four-year period.

RSUs are converted into shares of the Company’s common stock upon vesting on a one-for-one basis. The cost of the RSUs is determined using the fair value of the Company’s common stock on the date of the grant. Compensation is recognized on a straight-line basis over the requisite service period of each grant adjusted for estimated forfeitures. Each RSU award granted from the Company’s 2008 Equity Incentive Plan will reduce the number of options available for issuance by 1.5 shares.

A summary of activity with respect to the Company’s RSUs during the six months ended June 30, 2014 is as follows: (in thousands, except weighted-average grant date fair value per share):



	Number of Units		Weighted-Average Grant Date Fair Value Per Share
Outstanding at January 1, 2014	3,500		$	5.37
Granted	518		5.53
Vested	(501	)	6.38
Forfeitures and cancellations	(287	)	5.25
Outstanding at June 30, 2014	3,230		$	5.26

Of the 3,229,774 RSUs outstanding as of June 30, 2014, approximately 2,582,302 units are expected to vest after considering the applicable forfeiture rate.

The aggregate fair value of awards that vested during the three and six months ended June 30, 2014 was $1.0 million and $2.9 million, respectively, which represents the market value of Silicon Image common stock on the date that the RSUs vested.

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The grant date fair value of awards that vested during the three and six months ended June 30, 2014 was $1.0 million and $3.2 million, respectively. The number of RSUs vested includes shares that the Company withheld on behalf of employees to satisfy the minimum statutory tax withholding requirements.

In August 2012, the Company granted 331,500 RSUs with market-based vesting criteria to executives and certain key employees pursuant to 2008 Plan. These market-based awards vest over four years with 25% of the total number of shares vesting on each anniversary of the grant date. Whether or not they vest is determined by a comparison of the price of the Company’s common stock and the price set by the Company, which ranged from $4.52 to $5.39 over the vesting period. The grant-date fair value of these awards was $1.2 million, estimated using a Monte Carlo simulation method which takes into account the probability that the market conditions of these awards will be achieved. Compensation costs related to these awards will be recognized over the vesting period regardless of whether the market conditions are satisfied, provided that the requisite service has been provided. As of June 30, 2014, 213,375 shares of the outstanding restricted stock units were market-based restricted stock units.

In August and September 2013, the Company granted 875,000 RSUs with performance-based vesting criteria to executives. These performance-based awards vest based on the Company’s GAAP earnings per share over the vesting period of 4.3 years. Each RSU represents the right to receive one share of the Company’s common stock upon the vesting of such RSU, and is subject to the terms of the Company’s 2008 Equity Incentive Plan. Any RSUs not vesting on a vesting date due to the Company’s GAAP earnings per share for the fiscal year in question not meeting the target for such fiscal year as established by the Compensation Committee shall be forfeited. The grant date fair value of these awards was $4.7 million. In May 2014, the Company granted 100,000 RSUs with performance-based vesting criteria to one executive who joined the Company through the ULI acquisition. These performance-based awards also vest based on the Company's GAAP earnings per share over the vesting period of 3.6 years. The grant date fair value of these awards was $519,000. As of June 30, 2014, the Company expects the earnings per share targets to be met and thus all of the performance-based RSUs less estimated forfeitures are expected to vest.

At June 30, 2014, the total unrecognized pre-tax stock-based compensation expense related to non-vested RSUs, which the Company expects to recognize over the remaining weighted-average vesting period of 2.15 years, was $8.7 million, net of estimated forfeitures.

During the three months ended June 30, 2014 and 2013, the Company repurchased 46,815 and 129,488 shares of stock, respectively, for an aggregate value of $261,000 and $0.7 million, respectively, from the employees upon the vesting of their RSUs that were granted under the Company’s 2008 Equity Incentive Plan to satisfy the employees’ minimum statutory tax withholding requirement. During the six months ended June 30, 2014 and 2013, the Company repurchased 164,348 and 263,703 shares of stock, respectively, for an aggregate value of $1.0 million and $1.3 million, respectively. The Company will continue to repurchase shares of stock from employees as their RSUs vest to satisfy the employees’ minimum statutory tax withholding requirement.

Stock Repurchase Program

In April 2012, the Company’s Board of Directors authorized a $50 million stock repurchase program. The repurchases may occur from time to time in the open market or in privately negotiated transactions. The timing and amount of any repurchase of shares will be determined by the Company’s management, based on its evaluation of market conditions, cash on hand and other factors and may be made under a stock repurchase plan. The authorization will stay in effect until the authorized aggregate amount is expended or the authorization is modified by the Board of Directors. The program does not obligate the Company to acquire any particular amount of stock and purchases under the program may be commenced or suspended at any time, or from time to time, without prior notice. Further, the stock repurchase program may be modified, extended or terminated by the Board at any time. In July 2013, the Company’s Board of Directors authorized a new share repurchase plan as a follow-on to its current plan which had $10.3 million remaining for repurchase. At the conclusion of the Company’s existing plan, the Company will commence a new share repurchase plan whereby the Company will be authorized to repurchase its common stock up to an aggregate purchase of $50 million.

The Company repurchased 440,500 shares of its common stock on the open market at a total cost of approximately $2.4 million with an average price per share of $5.37 during the three months ended June 30, 2014. The Company repurchased 442,700 shares of its common stock on the open market at a total cost of approximately $2.4 million with an average price per share of $5.37 during the six months ended June 30, 2014.

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NOTE 11. PROVISION FOR INCOME TAXES

The Company recorded an income tax expense of $1.5 million and $4.0 million for the three and six months ended June 30, 2014. The effective tax rate for the three and six months ended June 30, 2014 was 58.1% and 78.2%, respectively. The difference between the effective tax rate and the income tax determined by applying the statutory federal income tax rate of 35% was due primarily to foreign withholding taxes associated with licensing revenue.

The Company continued to maintain a valuation allowance as a result of uncertainties related to the realization of its net deferred tax assets at June 30, 2014. The valuation allowance was established as a result of weighing all positive and negative evidence. The valuation allowance reflects the conclusion of management that it is more likely than not that benefits from certain deferred tax assets will not be realized. If actual results differ from these estimates or these estimates are adjusted in future periods, the valuation allowance may require adjustment which could materially impact the Company’s financial position and results of operations. It is reasonably possible that sometime in the next 12 months positive evidence will be sufficient to release a material amount of our valuation allowance; however there is no assurance that this will occur. The required accounting for the potential release would have significant deferred tax consequences and would increase earnings in the quarter in which the allowance is released.

The Company recorded an income tax expense of $1.9 million and $3.6 million for the three and six months ended June 30, 2013. The effective tax rates for the three and six months ended June 30, 2013 were 30.4% and 49.2%, respectively. The difference between the effective tax rate and the income tax determined by applying the statutory federal income tax rate of 35% was due primarily to foreign withholding taxes associated with licensing revenue.

During the first quarter of 2014, the Company adopted ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. ASU 2013-11 provides guidance on the presentation of unrecognized tax benefits. ASU 2013-11 requires presenting an unrecognized tax benefit or a portion of an unrecognized tax benefit as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carry forward, except to the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. This accounting standard became effective for the Company on January 1, 2014 and was applied prospectively to unrecognized tax benefits that exist at the effective date. Upon adoption of this guidance, the Company reduced deferred tax assets by $4.4 million, reduced unrecognized tax benefits by $3.1 million and recorded a non-current tax receivable of $1.3 million.

The Company’s policy is to include interest and penalties related to unrecognized tax benefits within the provision for income taxes. The Company accrued interest and penalties of $12,000 and $24,000 for the three and six months ended June 30, 2014, respectively, and approximately $34,000 and $67,000 for the three and six months ended June 30, 2013, respectively.

It is possible that the amount of unrecognized tax benefits will change within the next 12 months; however, an estimate of the range of change cannot be made at this time. The Company conducts business globally and, as a result, the Company and its subsidiaries file income tax returns in various jurisdictions throughout the world including with the U.S. federal and various U.S. state jurisdictions as well as with various foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world.

NOTE 12. CUSTOMERS AND GEOGRAPHIC INFORMATION

Following the acquisition of ULI (Note 5), the Company operates in two operating segments: product segment and service segment. In the product segment, the Company provides wired and wireless video, audio and data connectivity solutions for the mobile, consumer electronics, personal computer and enterprise markets with offerings including semiconductors, intellectual property and related service offerings. In the service segment, the Company provides a comprehensive device management system which enables the control, maintenance, and support of internet-connected consumer electronics products. The Company’s Chief Executive Officer, who is considered to be the Company’s chief operating decision maker, reviews financial information of these two operating segments separately for purposes of making operating decisions and assessing financial performance. For all periods presented the service segment represents less than 10% of total revenue and income, and thus separate information has not been presented for this operating segment.

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Revenue

Revenue by geographic area based on bill to locations was as follows (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
United States	$	24,551	$	35,096	$	47,296	$	64,687
Taiwan	9,340		11,197		20,629		20,830
Japan	11,163		10,396		20,086		18,647
Europe	6,309		6,453		14,620		11,950
China	4,491		6,447		11,651		11,796
Korea	3,374		3,646		6,040		7,063
Others	308		444		775		745
Total revenue	$	59,536	$	73,679	$	121,097	$	135,718

The Company’s revenue by its primary markets was as follows (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
Mobile	$	24,847	$	44,607	$	50,133	$	78,210
Consumer Electronics	22,640		15,974		40,947		29,641
Personal Computers	3,451		3,100		6,624		6,171
Total product revenue	50,938		63,681		97,704		114,022
Licensing and services	8,598		9,998		23,393		21,696
Total revenue	$	59,536	$	73,679	$	121,097	$	135,718

For the three and six months ended June 30, 2014, one customer represented 30.9% and 29.6% of total revenue, respectively. For the three and six months ended June 30, 2013, one customer represented 42.5% and 41.7% of total revenue respectively. There were no other customers representing more than 10% of total revenue during the three and six months ended June 30, 2014 and 2013.

At June 30, 2014, three customers each represented 16.9%, 15.3% and 12.5% of net accounts receivable. At December 31, 2013, two customers each represented 38.3% and 20.3% of net accounts receivable. The Company’s top five customers, including distributors, generated 64.0% and 60.3% of the Company’s revenue for three and six months ended June 30, 2014, respectively, and 70.5% and 67.4% of the Company's revenue for the three and six months ended June 30, 2013, respectively.

Property and Equipment

The table below presents the net book value of the property and equipment by their physical location (in thousands):



	June 30, 2014		December 31, 2013
United States	$	7,768	$	7,210
China	3,807		4,627
India	1,210		1,410
Taiwan	1,393		1,216
Others	191		213
Net book value	$	14,369	$	14,676

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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 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 “Risk Factors,” 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,” “estimates,” “may,” “will” and variations of such words 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.

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

Company Overview

Silicon Image is a leading provider of video, audio and data connectivity solutions for the mobile, consumer electronics (CE), personal computer (PC) and enterprise markets. Our offerings include semiconductor, intellectual property (IP) and related service offerings which enable consumers to reliably connect their devices in home, office and mobile environments. Our products are deployed by the world’s leading electronics manufacturers in devices such as smartphones, tablets, digital televisions (DTVs), Blu-ray Disc™ players, audio-video receivers, digital cameras, set-top-boxes, as well as desktop and notebook PCs. In February 2014, we launched our 60 Ghz wireless backhaul solutions for 4G LTE small cells designed for the small cell wireless backhaul market and other markets requiring wireless point to point solutions. On May 1, 2014, we finalized the acquisition of ULI and extended our connectivity portfolio to include IP connectivity solutions for over-the-top applications including Digital Rights Management provisioning, software management and remote support.

Silicon Image was founded in 1995. We are a Delaware corporation headquartered in Sunnyvale, California, with regional engineering and sales offices in China, Japan, Korea, Taiwan and India. Our Internet website address is www.siliconimage.com.

Our customers are product manufacturers in each of our target markets. Our revenue is generated principally by sales of our semiconductor products, with other revenues derived from IP core/design licensing and royalty and adopter fees from our standards licensing activities.

Key Performance Indicators

Below is a summary of some of the quantitative performance indicators (as defined below) that are evaluated by management to assess our financial performance:

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	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Product Gross Profit as a Percentage of Total Product Revenue	51.3		%	51.3		%	49.2		%	50.2		%
Licensing and Services Gross Profit as a Percentage of Total Licensing and Services Revenue	100		%	98.4		%	99.9		%	98		%
Gross Profit as a Percentage of Total Revenue	58.3		%	57.7		%	59		%	57.8		%
Research and Development Expenses as a Percentage of Total Revenue	29.3		%	27.5		%	28.4		%	28.6		%
Net Cash Provided by Operating Activities	$	20,337		$	17,947		$	19,130		$	26,977
Days Sales Outstanding In Receivables	39			33			39			36
Inventory Turns	4.2			7.8			4.2			7.2
Capital Spending as a Percentage of Total Revenue	2.6		%	2.2		%	2.3		%	1.8		%

Gross Profit as a Percentage of Total Revenue

Gross profit as a percentage of total revenue (“gross profit percentage”) is calculated as gross profit for the period divided by total revenue for the period and is comprised of product gross profit and licensing gross profit. For a description of the reasons for changes in gross profit refer to the “Results of Operations” section below. Management considers gross profit percentage to be an important indicator of the Company's ability to bring value to the market.

Research and Development as a Percentage of Total Revenue

Research and development as a percentage of total revenue (“R&D percentage”) is calculated as research and development expense for the period divided by total revenue for the period. Management considers R&D percentage to be an important indicator in our ability to manage our business, as investing in new technologies is a key component to future growth. For a description of the reasons for changes in R&D spending refer to the “Results of Operations” section below.

Net Cash Provided by Operating Activities

Net cash provided by operating activities shown on our Condensed Consolidated Statements of Cash Flows primarily represents the excess of cash collected from billings to our customers and other receipts over cash paid to our vendors for expenses and inventory purchases to run our business. We believe that cash flows from operations are an important performance indicator because cash generation over the long term is essential to maintaining a healthy business and providing funds to help fuel growth. For a description of the reasons for changes in Net Cash Provided by Operating Activities refer to the “Liquidity and Capital Resources” section below.

Days Sales Outstanding in Receivables

We calculate days sales outstanding (“DSO”) in receivables as net receivables at the end of the quarter divided by total revenue during the quarter and then multiplied by the number of days in the quarter, using 90 days for the quarter. We calculate days sales outstanding (“DSO”) in receivables for the six months ended June 30, 2014 and 2013 as net receivables at the end of the quarter divided by total revenue for the six months ended June 30, 2014 and 2013 and then multiplied by the number of days for the six months, using 180 days for the six months. DSO in receivables indicates how well we are managing our collection of receivables, with lower DSO in receivables resulting in higher working capital availability. The more money we have tied up in receivables, the less money we have available for research and development, acquisitions, expansion, marketing and other activities to grow our business. DSO in receivables is higher for the three and six months ended June 30, 2014 as compared to the same periods in 2013 primarily due to the timing of the shipments and related invoicing relative to the quarter end.

Inventory Turns

We calculate inventory turns as cost of sales during the quarter and six months divided by net inventories at the end of the quarter. This indicates how well we are managing our inventory levels, with higher inventory turns resulting in more working capital availability and a higher return on our investments in inventory. The more money we have tied up in inventory, the less money we have available for research and development, acquisitions, expansion, marketing and other activities to grow our

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business. Inventory turns is lower for the three and six months ended June 30, 2014 as compared to the same periods in 2013 primarily due to higher inventory level as of June 30, 2014 to meet the anticipated sales volume for the next quarter and significant production slowdown of one of our largest customers during the second quarter of fiscal 2014.

Capital Spending as a Percentage of Total Revenue

Capital spending as a percentage of total revenue (“capital spending percentage”) is calculated as capital expenditures for the period divided by total revenue for the period. Capital spending percentage indicates the extent to which we are expanding or improving our operations, including investments in technology and equipment. Management monitors capital spending levels as this assists management in measuring our cash flows, net of capital expenditures. Capital spending percentage higher for the three and six months ended June 30, 2014 as compared to the same periods in 2013 primarily due to increase in spending on purchases of research and development assets, computers and software to support our operations.

Critical Accounting Policies

The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect amounts reported in our condensed consolidated financial statements and accompanying notes. 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, 2013.

Results of Operations

REVENUE



	Three Months Ended June 30,								Six Months Ended June 30,
	2014			2013			Change		2014			2013			Change
	(dollars in thousands)								(dollars in thousands)
Product revenue
Mobile	$	24,847		$	44,607		(44.3	)%	$	50,133		$	78,210		(35.9	)%
Consumer Electronics	22,640			15,974			41.7	%	40,947			29,641			38.1	%
Personal Computers	3,451			3,100			11.3	%	6,624			6,171			7.3	%
Total product revenue	50,938			63,681			(20.0	)%	97,704			114,022			(14.3	)%
Percentage of total revenue	85.6		%	86.4		%			80.7		%	84.0		%
Licensing and services revenue	8,598			9,998			(14.0	)%	23,393			21,696			7.8	%
Percentage of total revenue	14.4		%	13.6		%			19.3		%	16.0		%
Total revenue	$	59,536		$	73,679		(19.2	)%	$	121,097		$	135,718		(10.8	)%

Product Revenue

The decrease in product revenue for the three and six months ended June 30, 2014 as compared to the same periods in 2013 was primarily due to a decrease in our mobile product revenue as a result of a significant production slowdown of one of our largest customers. Our MHL-enabled products still represent the majority of our mobile product revenue. CE revenue increased for the three and six months ended June 30, 2014 when compared to the same periods in 2013 primarily due to our HDMI 2.0/MHL 3.0 ICs that support High-Definition Content Protection (HDCP) 2.2 for use in the 4K Ultra HD products. Currently, we are the leading provider of ICs that support HDMI 2.0 with HDCP 2.2 as well as MHL 3.0 ICs (which also support HDCP 2.2). Our PC revenue was flat as we are no longer making investments in these legacy products; however, our MHL and HDMI technologies are applicable for PC devices, and we also expect our 60GHz technology could increase PC revenues in the coming years.

Licensing and Services Revenue

Our licensing and services revenue is comprised of revenue from our IP core licensing activity, patent monetization activities, device management system and remote support services and royalty and adopter fee revenue from our standards activities. Our IP core licensing, patent monetization, device management system and remote support services and standards activities are complementary to our product sales and helps us to monetize our intellectual property and accelerate market adoption curves associated with our technology and standards. The decrease in licensing and services revenue for the three

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months ended June 30, 2014 when compared to the same period in 2013 was primarily due to lower revenue from HDMI royalties in the amount of $1.9 million. HDMI royalty revenue is determined by an allocation formula contractually agreed to by the Company and the other HDMI Founders. The most recent agreement expired on December 31, 2013 and although a new royalty allocation formula has been agreed to, the Founders have not yet entered into a formal written agreement governing royalty sharing for the period January 1, 2014 through December 31, 2016, awaiting agreement on certain administrative matters. Given the lack of a formal written agreement, no royalty revenue for the three and six months ended June 30, 2014 has been recorded. The increase in licensing and services revenue for the six months ended June 30, 2014 when compared to the same period in 2013 was primarily due to increased revenue from our patent monetization activities and HDMI royalty audit settlements of $5.2 million, partially offset by lower HDMI royalties of $3.7 million. Our licensing and services revenue may fluctuate quarter to quarter as a result of the timing of completion of IP and patent licensing arrangements and settlement of royalty audits.

COST OF REVENUE AND GROSS PROFIT



	Three Months Ended June 30,								Six Months Ended June 30,
	2014			2013			Change		2014			2013			Change
	(dollars in thousands)								(dollars in thousands)
Cost of product revenue (1)	$	24,814		$	31,023		(20.0	)%	$	49,609		$	56,821		(12.7	)%
Product gross profit	26,124			32,658			(20.0	)%	48,095			57,201			(15.9	)%
Product gross profit margin	51.3		%	51.3		%			49.2		%	50.2		%
(1) Includes stock-based compensation expense	$	148		$	153				$	321		$	288
Cost of licensing and services revenue	$	—		$	162		(100.0	)%	$	20		$	429		(95.3	)%
Licensing and services gross profit	8,598			9,836			(12.6	)%	$	23,373		$	21,267		9.9	%
Licensing and services gross profit margin	100.0		%	98.4		%			99.9		%	98.0		%
Total cost of revenue	$	24,814		$	31,185		(20.4	)%	$	49,629		$	57,250		(13.3	)%
Total gross profit	34,722			42,494			(18.3	)%	$	71,468		$	78,468		(8.9	)%
Total gross profit margin	58.3		%	57.7		%			59.0		%	57.8		%

Cost of Revenue

Cost of product revenue comprises the cost of our semiconductor devices, which consists of the cost of purchasing finished silicon wafers manufactured by independent foundries, costs associated with our purchase of assembly, test and quality assurance services and packaging materials for semiconductor products, as well as royalties and license fees paid to vendors. Also included in cost of product revenue is the amortization of purchased technology and manufacturing overhead, including costs of personnel and equipment associated with manufacturing support, provisions for excess and obsolete inventories, and stock-based compensation expense for personnel engaged in manufacturing support. Cost of licensing revenue consists primarily of costs to license our technology which involves modification, customization or engineering services, as well as other overhead costs relating to the aforementioned costs including stock-based compensation expense. Total cost of revenue decreased for the three and six months ended June 30, 2014 as compared to the same periods in 2013 primarily due to the lower standard cost of $5.1 million and $6.8 million, respectively, driven by lower revenue volume and lower overhead expense.

Product Gross Profit Margin

Our product gross margin during the three months ended June 30, 2014 was flat as compared to the same period in 2013. Product gross margin decreased during the six months ended June 30, 2014 as compared to the same period in 2013 which resulted from an increase in excess and obsolescence inventory reserve of $0.8 million related to product mix issues and changing customer priorities.

Licensing and Services Gross Profit Margin

Licensing and services gross margin during the three and six months ended June 30, 2014 was comparable to the licensing and services gross margin for the same periods in 2013.

OPERATING EXPENSES

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Research and Development (R&D)

Research and development expense consists primarily of salaries and related costs of employees engaged in research, design and development activities, including stock-based compensation expense. Development and design costs consist primarily of costs related to engineering design tools, mask and prototyping costs, testing and subcontracting costs. In addition, we incur costs related to facilities and equipment expense, among other items.

The following table presents details of research and development expense:



	Three Months Ended June 30,		Change				Six Months Ended June 30,		Change
	2014	2013	$ Change		% Change		2014	2013	$ Change		% Change
	(dollars in thousands)						(dollars in thousands)
Salaries and benefits	9,725	10,820	(1,095	)	(10.1	)%	19,985	20,905	(920	)	(4.4	)%
Development and design costs	2,139	3,287	(1,148	)	(34.9	)%	3,213	5,547	(2,334	)	(42.1	)%
Software licensing	1,219	1,283	(64	)	(5.0	)%	2,543	2,666	(123	)	(4.6	)%
Stock-based compensation	792	827	(35	)	(4.2	)%	1,705	1,845	(140	)	(7.6	)%
Other	3,541	4,008	(467	)	(11.7	)%	6,927	7,820	(893	)	(11.4	)%
Research and development	17,416	20,225	(2,809	)	(13.9	)%	34,373	38,783	(4,410	)	(11.4	)%

R&D expense decreased for the three and six months ended June 30, 2014 when compared to the same periods in 2013 primarily due to decrease in salaries and benefit related expenses due to lower headcount and lower development and design costs as there were less product tape-outs during the three and six months ended June 30, 2014. Our R&D headcount as of June 30, 2014 was 355 employees as compared to 361 employees as of June 30, 2013.

Selling, general and administrative (SG&A)

Selling, general and administrative expense consists primarily of personnel-related expenses, including stock-based compensation expense, marketing and promotional expenses, legal and other professional fees, facilities expenses and communications expenses.

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The following table presents details of selling, general and administrative expense:



	Three Months Ended June 30,		Change				Six Months Ended June 30,		Change
	2014	2013	$ Change		% Change		2014	2013	$ Change		% Change
	(dollars in thousands)						(dollars in thousands)
Salaries and benefits	8,317	9,563	(1,246	)	(13.0	)%	17,468	18,177	(709	)	(3.9	)%
Legal and accounting fees	1,578	1,587	(9	)	(0.6	)%	2,774	2,829	(55	)	(1.9	)%
Selling and marketing expenses	596	955	(359	)	(37.6	)%	2,280	2,399	(119	)	(5.0	)%
Stock-based compensation	1,344	1,438	(94	)	(6.5	)%	3,295	3,209	86		2.7	%
Other	3,331	2,554	777		30.4	%	6,214	5,885	329		5.6	%
Selling, general and administrative	15,166	16,097	(931	)	(5.8	)%	32,031	32,499	(468	)	(1.4	)%

SG&A expense decreased for the three and six months ended June 30, 2014 when compared to the same periods in 2013 primarily due to decrease in salaries and benefits related expenses driven by lower bonus and commission expense due to the Company's financial performance. Our SG&A headcount as of June 30, 2014 was 220 employees as compared to 213 employees as of June 30, 2013.

Amortization of Acquisition-Related Intangible Assets



	Three Months Ended June 30,								Six Months Ended June 30,
	2014			2013			Change		2014			2013			Change
	(dollars in thousands)								(dollars in thousands)
Amortization of acquisition-related intangible assets	$	735		$	480		53.1	%	$	1,168		$	981		19.1	%
Percentage of total revenue	1.2		%	0.7		%			1.0		%	0.7		%

The increase in amortization expense for the three and six months ended June 30, 2014 when compared to the same periods in 2013 was primarily due to new intangible assets acquired from the acquisition completed during the three months ended June 30, 2014.

Interest Income and Other, net



	Three Months Ended June 30,								Six Months Ended June 30,
	2014			2013			Change		2014			2013			Change
	(dollars in thousands)								(dollars in thousands)
Interest income and other, net	$	1,043		$	500		108.6	%	$	1,061		$	891		19.1	%
Percentage of total revenue	1.8		%	0.7		%			0.9		%	0.7		%

The interest and other income for the three and six months ended June 30, 2014 increased as compared to the same periods last year primarily due to gain from a prepaid royalty settlement of $0.6 million and other income associated with business acquisition completed during the three months ended June 30, 2014 (Note 5).

Provision for Income Taxes



	Three Months Ended June 30,								Six Months Ended June 30,
	2014			2013			Change		2014			2013			Change
	(dollars in thousands)								(dollars in thousands)
Income tax expense	$	1,487		$	1,888		(21.2	)%	$	4,041		$	3,630		11.3	%
Percentage of total revenue	2.5		%	2.6		%			3.3		%	2.7		%

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The effective tax rate for the three and six months ended June 30, 2014 was 58.1% and 78.2%, respectively. The difference between the effective tax rate and the income tax determined by applying the statutory federal income tax rate of 35% was due primarily to foreign withholding taxes associated with licensing revenue.

The effective tax rate for the three and six months ended June 30, 2013 was 30.4% and 49.2%, respectively. The difference between the effective tax rate and the income tax determined by applying the statutory federal income tax rate of 35% was due primarily to foreign withholding taxes associated with licensing revenue.

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LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION

The following sections discuss the effects of changes in our balance sheet and cash flows, contractual obligations and other commitments on our liquidity and capital resources.

Cash and Cash Equivalents, Short-term Investments and Working Capital. The table below summarizes our cash and cash equivalents, investments and working capital and the related movements (in thousands).



	June 30, 2014			December 31, 2013			Change
Cash and cash equivalents	$	93,348		$	82,220		$	11,128
Short term investments	47,367			56,003			(8,636		)
Total cash, cash equivalents and short term investments	$	140,715		$	138,223		$	2,492
Percentage of total assets	52.9		%	54.8		%
Total current assets	$	196,794		$	192,603		$	4,191
Total current liabilities	(56,383		)	(45,892		)	(10,491		)
Working capital	$	140,411		$	146,711		$	(6,300	)

As of June 30, 2014, $12.8 million of the cash and cash equivalents and short term investments was held by foreign subsidiaries. Local government regulations may restrict our ability to move cash balances from our foreign subsidiaries to meet cash needs under certain circumstances; however, any current restrictions are not material. We do not currently expect such regulations and restrictions to impact our ability to pay vendors and conduct operations. If these funds are needed for our operations in the U.S., we may be required to accrue and pay U.S. taxes to repatriate these funds. However, our intent is to indefinitely reinvest these funds outside of the U.S. and our current plans do not demonstrate a need to repatriate them to fund our U.S. operations. We did not have any long-term investments. Additionally, we do not have any outstanding bank loans or credit facilities in place.

Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth under “Risk Factors” in this Quarterly Report. We believe that our existing cash and cash equivalents, together with any cash generated from operations, will be sufficient to meet our working capital requirements and anticipated purchases of property and equipment for at least the next 12 months. However, this estimate is based on a number of assumptions that may prove to be wrong and we could exhaust our available cash and cash equivalents earlier than presently anticipated.

Cash Flows

The following table summarizes our cash flows for the periods presented.



	Six Months Ended June 30,
	2014			2013
Purchases of property and equipment	$	(2,797	)	$	(2,466	)
Depreciation and amortization	4,904			4,511
Cash provided by operating activities	19,130			26,977
Cash provided by (used in) investing activities	(8,263		)	18,238
Cash provided by financing activities	160			1,895

Operating Activities

We generated $19.1 million of cash in operating activities during the six months ended June 30, 2014, primarily due to significant changes in our operating assets and liabilities resulted from the following:


•	decrease in accounts receivable of $9.1 million due to higher collection over billings due to improved collection efforts. This offset by an increase in inventory of $12.0 million due to higher inventory level as of June 30, 2014 to meet the anticipated sales volume for the next quarter and less product shipments to one of our largest customers during the second quarter of fiscal 2014;

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•	increase in accrued and other liabilities of $5.7 million relating to an increased accrual for HDMI royalties that have not been distributed to the HDMI Founders as the Founders have not yet entered into a formal written agreement governing the royalty allocation for the period January 1, 2014 through December 31, 2016; and


•	increase in accounts payable of $3.8 million relating to increased payables due to our inventory purchases as well as timing of invoices and payments to vendors.

We generated $27.0 million of cash from operating activities during the six months ended June 30, 2013, primarily due to significant changes in our operating assets and liabilities resulted from the following:


•	decrease in accounts receivable of $10.4 million due to higher collection over billings due to improved collection efforts;


•	increase in accounts payable of $4.5 million relating to increased payables due to our inventory purchases as well as timing of invoices and payments to vendors; and


•	increase in deferred margin on sales to distributors of $3.1 million due to increasing shipment to our distributors driven by the acceleration of demand for our products.

Investing Activities

We used $8.3 million of cash from investing activities during the six months ended June 30, 2014, primarily due to cash used in business acquisition of $13.5 million and $2.8 million used for capital expenditures, offset by net proceeds from the sales and maturities of short-term investments of $8.0 million. During the six months ended June 30, 2014, we sold $13.8 million and purchased $5.8 million of short-term investments.

We generated $18.2 million of cash from investing activities during the six months ended June 30, 2013, primarily resulting from net proceeds from the sales and maturities of short-term investments of $21.7 million and $1.3 million proceeds from legal settlement, partially offset by $2.5 million used for capital expenditures, $0.8 million used for strategic business investments and $1.5 million used for purchases of intellectual properties. During the six months ended June 30, 2013, we sold $48.3 million and purchased $26.6 million of short-term investments.

We are not a capital-intensive business. Our purchases of property and equipment relate mainly to testing equipment, leasehold improvements and information technology infrastructure.

Financing Activities

We generated $160,000 of cash from financing activities during the six months ended June 30, 2014 primarily due to proceeds from stock option exercises and purchases under our employee stock purchase program of approximately $3.5 million, partially offset by $2.4 million to acquire treasury shares and $1.0 million used to repurchase restricted stock units for minimum statutory income tax withholding.

We generated $1.9 million of cash from financing activities during the six months ended June 30, 2013 primarily due to proceeds from stock option exercises and purchases under our employee stock purchase program of approximately $3.1 million, partially offset by $1.3 million used to repurchase restricted stock units for minimum statutory income tax withholding.

Contractual Obligations

Our contractual obligations as of June 30, 2014 were as follows (in thousands):



	Payments Due In
	Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years
Contractual Obligations:
Operating lease obligations	$	9,130	$	1,637	$	4,592	$	2,901	$	—

The amounts above exclude liabilities under FASB ASC 740-10, Income Taxes – Recognition section, amounting to approximately $11.7 million as of June 30, 2014 as we are unable to reasonably estimate the ultimate amount or timing of

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settlement. See Note 11, “Income Taxes,” in our notes to consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2013.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. The primary objective of our investment activities is to preserve principal while maximizing yields without significantly increasing risk. As of June 30, 2014, a hypothetical 100 basis point increase in interest rates would result in an approximate $0.3 million decline in the fair market value of the portfolio. Such losses would only be realized if we sold the investments prior to maturity.

Foreign Currency Exchange Risk

A majority of our revenue, expense, and capital purchasing activities are transacted in U.S. dollars. However, certain operating expenditures and capital purchases are incurred in or exposed to other currencies, primarily the Chinese Yuan, Indian Rupee and Japanese Yen. Additionally, many of our foreign distributors price our products in the local currency of the countries in which they sell. Therefore, significant strengthening or weakening of the U.S. dollar relative to those foreign currencies could result in reduced demand or lower U.S. dollar prices or vice versa, for our products, which would negatively affect our operating results. Cash balances held in foreign countries are subject to local banking laws and may bear higher or lower risk than cash deposited in the United States.

As of June 30, 2014, we did not have any derivative transactions.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Based on our management’s evaluation (with the participation of our principal executive officer and principal financial officer), as of the end of the period covered by this report, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”)) are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our first quarter of fiscal 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II. Other Information

Item 1. Legal Proceedings

The information set forth under Note 9 of Notes to Condensed Consolidated Financial Statements (Unaudited) under Part I Item 1 of this Form 10-Q, is incorporated herein by reference. For an additional discussion of certain risks associated with legal proceedings, see “Risk Factors” immediately below.

Item 1A. Risk Factors

A description of the risk factors associated with our business is set forth below. 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.

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We depend on a few key customers and the loss of any of them could significantly reduce our revenue and gross margins and adversely affect our results of operations.

Historically, a relatively small number of customers and distributors have generated a significant portion of our revenue and we may not be able to diversify our customer and/or distributor base. For the three and six months ended June 30, 2014, revenue from Samsung Electronics accounted for 30.9% and 29.6% of our total revenue, respectively. No other customer generated revenues for more than 10% of our total revenue for the three and six months ended June 30, 2014. For the three and six months ended June 30, 2013, revenue from Samsung Electronics accounted for 42.5% and 41.7% of our total revenue, respectively. No other customer generated revenues for more than 10% of our total revenue for the three and six months ended June 30, 2013. In addition, an OEM customer of ours may buy our products through multiple distributors, contract manufacturers and/or directly from us, which could mean an even greater concentration of revenue in such a customer. 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 or products incorporating our products and generate revenue for us. As a result of this concentration of revenue in few customers, our results of operations could be adversely affected if any of the following occurs:


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


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


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

For example, for the three and six months ended June 30, 2014, our mobile product revenue decreased as compared to the same periods in 2013 as a result of a significant production slowdown by one of our largest customers. This had a material adverse effect on our financial results for the first half of 2014, especially the second quarter.

While our participation in multiple markets has broadened our customer base, we remain dependent on a small number of customers or, in some cases, a single customer for a significant portion of our revenue in any given quarter, the loss of which could adversely affect our operating results.

Our success depends on our ability to develop and bring to market innovative new technologies and products as well as continued growth in consumer and customer demand for these new technologies and products. We may not be able to develop and bring to market such technologies and products in a timely manner because the process of developing high-performance semiconductor and software products is complex and costly.

Our future growth and success depends on the continued growth in the market acceptance of and consumer and customer demand for our mobile technologies and semiconductor products, especially our MHL-enabled and wireless mobile products. Sales of our MHL-enabled products has accounted for a significant portion of our revenue growth in the recent past. If we cannot continue to increase consumer awareness of and demand for MHL-enabled and wireless products, our customers’ demand for our products may not continue to grow as rapidly as has been the case and may even decrease. For the three and six months ended June 30, 2014, our mobile product revenue decreased as compared to the same periods in 2013 as a result of a significant production slowdown by one of our largest customers. This had a material adverse effect on our financial results for the first half of 2014, especially the second quarter. Even though our mobile product revenue still represents a majority of our product revenue and our MHL-enabled products still represent a majority of our mobile product revenue, there can be no assurance that our mobile product revenue, especially our MHL-enabled product revenue, will continue to grow at rates in line with the recent past or at all, that we will not continue to experience further declines in our mobile product revenue or that we will not experience the loss of one or more mobile product customers. Any of these developments would have a negative impact on our business and results of operations.

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Our future growth and success also depends on the growth in the market acceptance of and consumer and customer demand for our 60GHz wireless products. There can be no assurance that the market will ever accept or that there will ever be consumer or customer demand for our wireless products or that we will be successful in developing and marketing these new or other future products. Moreover, there is no assurance that our current, new or future products will ever incorporate the innovations, features or functionality at the price points necessary to achieve a desired level of market acceptance and/or penetration in the anticipated timeframes. For example, we have not yet seen the growth in the demand for and revenue from the sale of our 60GHz wireless products that we anticipated when we undertook development of the product. There is no way to make certain that any such current, new or future products will contribute significantly to our revenue in the future. We face significant competition from startups having the resources, flexibility and ability to innovate faster than we can. We also face competition from established companies with more significant financial resources and greater breadth of product line than we have, providing them with a competitive advantage in the marketplace. For example, in July 2014, Qualcomm, Inc. acquired Wilocity Ltd, a developer and licensor of wireless WiGig semiconductor technology. We expect that the combination of these two companies will represent a significant competitive threat to our wireless products. If we cannot continue to innovate our ability to develop and market new products could negatively affect our business and results of operations.

The development of new semiconductor and software products is highly complex. On several occasions in the past, we have experienced delays, some of which exceeded one year, in the development and introduction of our new semiconductor products. As our products integrate new, more advanced functions and transition to smaller geometries, they become more complex and increasingly difficult to design, manufacture and debug.

Our ability to successfully develop and introduce new products also depends on a number of factors, including, but not limited to:


•	our ability to accurately predict market trends and requirements, the establishment and adoption of new standards in the market and the evolution of existing standards and connectivity technologies, including enhancements or modifications to existing standards such as HDMI and MHL;


•	our ability to identify customer and consumer market 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;


•	our ability to develop advanced technologies and capabilities and new products and solutions that satisfy customer and consumer market demands;


•	how quickly our competitors and customers integrate the innovation and functionality of our new products into their semiconductor products, putting pressure on us to continue to develop and introduce innovative products with new features and functionality;


•	our ability to complete and introduce new product designs on a timely basis, while accurately anticipating the market windows for our products and bringing them to market within the required time frames;


•	our ability to manage product life cycles;


•	our ability to transition our product designs to leading-edge foundry processes in response to market demands, while achieving and maintaining of high manufacturing yields and low testing costs;


•	our ability to create cost efficient designs that can be profitably sold at prices the market can bear;


•	the consumer electronics market’s acceptance of our new technologies, architectures products and other connectivity solutions; and


•	consumers’ shifting preferences for how they purchase and consume content, which may not be met by our products.

Accomplishing what we need to do to be successful is extremely challenging, time-consuming, and expensive; and there is no assurance that we will succeed. We may experience product development delays from unanticipated engineering complexities, commercial deployment of new connectivity standards changing market or competitive product requirements or specifications, difficulties in overcoming resource constraints, our inability to license third-party technology and other factors. Also other companies, including our competitors and our customers may integrate the innovation and functionality of our products into their own products, thereby reducing demand for our products. If we are not able to develop and introduce new and innovative products and solutions successfully and in a timely manner, our costs could increase or our revenue could decrease, both of which would adversely affect our operating results. Even if we are successful in our product development efforts, it is possible that failures in our commercialization may result in delays or failure in generating revenue from these new products.

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In addition, we must work with semiconductor foundries along with current and potential customers to complete new product development and to validate manufacturing methods and processes to support volume production and potential re-work. These steps may involve unanticipated obstacles, which could delay or cancel product introductions and reduce market acceptance of our products. These difficulties and the increasing complexity of our products may result in the increased number of products containing defects or not performing as expected, which would harm our relationships with customers and market acceptance of our new products. There can be no assurance that we will be able to achieve design wins for our 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.

We have made acquisitions of companies and intangible assets in the past and expect to continue to make such acquisitions in the future as we look to develop and bring to market new and innovative semiconductor and products and technologies on a timely basis. Acquisitions of companies or intangible assets involve numerous risks and uncertainties.

Our growth depends on the growth of the markets we serve and our ability to enter new markets. We are also dependent on our ability to enhance our existing products and technologies and to introduce new products and technologies for existing and new markets on a timely basis. The acquisition of companies or intangible assets is a strategy we have used in the past and will continue to use to develop new technologies and products that enhance our existing products portfolio and to enter new markets. Negotiation and integration of acquisitions could divert management’s attention and other company resources. Any of the following risks associated with past or future acquisitions or investments could impair our ability to grow our business, develop new products and sell our products and ultimately could harm our growth or financial results:


•	the inability to find acquisition opportunities that are suitable to our needs available in the time frame necessary for us to take advantage of market opportunities or available at a price that we can afford;


•	the difficulty and increased costs of integrating the operations and employees of the acquired business, including our possible inability to keep and retain key employees of the acquired business;


•	the disruption to our ongoing business of the acquisition process itself and subsequent integration;


•	the risk of undisclosed liabilities of the acquired businesses and potential legal disputes with founders or stockholders of acquired companies;


•	the inability to successfully commercialize acquired products and technologies;


•	the inability to retain the customers and suppliers of the acquired business;


•	difficulty in operating in new and potentially disperse locations;


•	assumptions of liabilities;


•	issuance of equity securities that may be dilutive to our existing stockholders;


•	diversion of resources and unanticipated expenses resulting from litigation arising from potential or actual business acquisitions or investments;


•	failure of the due diligence processes to identify significant issues with product quality, technology and development, or legal and financial issues, among other things;


•	incurring one-time charges, increased contingent liabilities, adverse tax consequences, depreciation or deferred compensation charges, amortization of intangible assets or impairment of goodwill, which could harm our results of operations;


•	potential delay in customer purchasing decisions due to uncertainty about the direction of our product offerings or those of the acquired business;


•	the need to take impairment charges or write-downs with respect to acquired assets and technologies; and


•	the risk that the future business potential as projected may not be realized and as a result, we that we may be required to take a charge to earnings that would impact our profitability.

Mergers and acquisitions of high-technology companies are inherently risky and subject to many factors outside of our control and no assurance can be given that our previous or future acquisitions will be successful, will deliver the intended benefits of such acquisition, and will not materially harm our business, operating results or financial condition. Failure to manage and successfully integrate acquisitions could materially harm our business and operating results.

We have made and continue to make strategic investments in and enter into strategic partnerships with third parties. The anticipated benefits of these investments and partnerships may never materialize.

We have made and will continue to make strategic investments in and enter into strategic partnerships with third parties with the goal of acquiring or gaining access to new and innovative semiconductor products and technologies on a timely basis. Negotiating and performing under these arrangements involves significant time and expense, and we cannot assure you

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that the anticipated benefits of these arrangements will ever materialize or that the products or technologies involved will ever be commercialized or that, as a result, we will not have write down a portion or all of our investment.

Our success depends on our ability to enter new markets and diversify our product portfolio, and our inability to do so successfully could adversely affect our business.

In order for the Company to grow, we must expand in the markets we currently serve and enter into new markets. To do so, we will need to develop and introduce new products in a timely and cost effective manner to appeal to these markets. We sell products in markets that are characterized by rapid technological change, evolving industry standards, frequent new product introductions, short product life cycles and increasing demand for higher levels of integration and smaller process geometries, all of which present significant challenges. In addition, the development of new semiconductor products is highly complex, and due to supply chain cross-dependencies and other issues, we may experience delays in completing the development, production and introduction of our new products. In addition, entering into new markets and expanding the markets we serve can raise significant additional challenges for the Company, including the following:


•	we will be required to develop new products for these markets;


•	we may need to expand our current sales force and cultivate new relationships with customers;


•	we may need to adopt new business models, business processes and systems;


•	the cultural obstacles we encounter in the markets we enter may be difficult to overcome;


•	we will likely face new competitors, many with more significant resources;


•	we may face additional governmental regulation; and


•	there may be differing rates of profitability and growth in the new markets we enter and new products we develop.

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

Our annual and quarterly operating results are highly dependent upon and may fluctuate based on how well we manage our business, including without limitation:


•	our ability to manage product introductions and transitions, develop necessary sales and marketing channels and manage our entry into new market;


•	our ability to attract and retain engineering, marketing and sales personnel specialized in hardware and software development and sales within our markets;


•	our ability to manage sales into multiple markets such as mobile, CE and PC, which may involve additional research and development, marketing or other costs and expenses;


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


•	our ability to develop 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;


•	our ability to successfully maintain certain structural and various compliance activities in support of our global structure which is designed to result in certain operational benefits as well as an overall lower tax rate and which, if not maintained, may result in us losing these operational and tax benefits; and


•	Our ability to effectively manage our business.

Our annual and quarterly operating results may fluctuate significantly and are difficult to predict, particularly given adverse domestic and global economic conditions.

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


•	changes in the market demand for or acceptance of our customers' products;

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•	the growth, evolution and rate of adoption of industry standards in our key markets, including mobile, CE and PCs;


•	the completion of a few key licensing transactions in any given period on which our anticipated licensing revenue and profits are highly dependent, and the timing of which is not always predictable and is especially susceptible to delay beyond the period in which completion is expected;


•	our licensing revenue has been uneven and unpredictable over time and is expected to continue to be uneven and unpredictable in the future;


•	the impact on our operating results of the results of the royalty compliance audits which we regularly perform;


•	competitive pressures, such as the ability of our competitors to offer or introduce products that are more cost-effective or that offer greater functionality than our products;


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


•	government regulations or regulatory actions involving or impacting the industry standards in which we participate or our products;


•	the availability or continued viability of other semiconductors or key components required for a customer solution where we supply one or more of the necessary components;


•	the cost to manufacture our products, including the cost of gold, and prices charged by the third parties who manufacture, assemble and test our products;


•	negative yield impacts due to manufacturing or engineering flaws; and


•	fluctuations in market demand, one-time sales opportunities and sales goals, which sometimes result in heightened sales efforts during a given period that may adversely affect our sales in future periods.

Because we have little or no control over many of these factors and/or their magnitude, our operating results are difficult to predict and the outcome of any of these factors, including any substantial adverse change in any of these factors could negatively affect our business and results of operations including our annual and quarterly operating results. For example, for the three and six months ended June 30, 2014, our mobile product revenue decreased as compared to the same periods in 2013 as a result of a significant production slowdown by one of our largest customers. This had a material adverse effect on our financial results for the first half of 2014, especially the second quarter.

Our business has in the past and may in the future to be significantly impacted by deterioration in worldwide economic conditions and any uncertainty in the outlook for the global economy could make it more likely that our actual results will differ materially from expectations.

Global credit and financial markets have experienced in the past and may experience in the future certain disruptions, including national debt and fiscal concerns, diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, and continued uncertainty about economic stability. These economic uncertainties affect businesses such as ours in a number of ways, making it difficult to accurately forecast and plan our future business activities. Any tightening of credit in financial markets may lead consumers and businesses to postpone spending, which may cause our customers to cancel, decrease or delay their existing and future orders with us. In addition, financial difficulties experienced by our suppliers or distributors could result in product delays, increased accounts receivable defaults and inventory challenges. Our mobile and CE product revenue, which comprised approximately 79.8% and 75.2% of total revenue for the three and six months ended June 30, 2014, respectively, as compared to approximately 82.2% and 79.5% of total revenue for the three and six months ended June 30, 2013, respectively, is dependent on continued demand for consumer electronics devices, including but not limited to, DTVs, STBs, AV receivers, tablets, digital still cameras, and smartphones. Demand for consumer electronics devices is a function of the health of the economies in the United States, Japan and around the world. As a result, the demand for our mobile, CE and PC products and our operating results have in the past and may in the future be adversely affected as well. We cannot predict the timing, strength or duration of any economic disruption or subsequent economic recovery, worldwide, in the United States, in our industry, or in the consumer electronics market. These and other economic factors have had and may in the future have a material adverse effect on demand for our mobile, CE and PC products and on our financial condition and operating results.

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

Our business strategy includes licensing our IP to companies that incorporate it into their respective technologies that address markets in which we do not directly participate or compete. We also license our IP into markets where we do participate and compete. There can be no assurance that these customers will continue to be interested in licensing our technology on commercially favorable terms or at all. Our licensing revenue can be impacted by the introduction of new technologies by customers in place of the technologies used by them based on our IP. There also can be no assurance that our licensing customers 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

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intellectual property or will maintain the confidentiality of our proprietary information. Our IP licensing agreements are complex and depend upon many factors including completion of milestones, allocation of values to delivered items and customer acceptances. Many of these require significant judgments.

Our licensing revenue fluctuates, sometimes significantly, from period to period because it is heavily dependent on a few key transactions being completed in a given period, the timing of which is difficult to predict and may not match our expectations. Because of its high margin, the licensing revenue portion of our overall revenue can have a disproportionate impact on gross profit and profitability. Generating revenue from IP licenses is a lengthy and complex process that may last beyond the period in which our efforts begin and, once an agreement is in place, the timing of revenue recognition may be dependent on the 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. The accounting rules governing the recognition of revenue from IP licensing transactions are increasingly complex and subject to interpretation. As a result, the amount of license revenue recognized in any period may differ significantly from our expectations.

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

The markets in which we operate are intensely competitive and characterized by rapid technological change, evolving standards, short product life cycles and declining selling prices. We expect competition to increase, as industry standards become more widely adopted, new industry standards are introduced, competitors reduce prices and offer products with greater levels of integration, new competitors enter the markets we serve and as we enter new markets.

Our products face competition from companies selling similar discrete products and to companies selling products such as chipsets and system-on-a-chip (SoC) solutions with integrated functionality. Our competitors include semiconductor companies that focus on the mobile, CE and PC markets, as well as major diversified semiconductor companies. In addition, we expect that new competitors will enter our markets.

Some of our current or potential customers, including our own licensees, have their own internal semiconductor capabilities or other semiconductor suppliers or relationships, and may also develop solutions integrating the innovations, features and functionality of our products for use in their own products rather than purchasing products from us. Some of our competitors have already established supplier or joint development relationships with some of our current or potential customers and may be able to leverage these relationships to discourage these customers from purchasing products from us or to 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 and therefore may be able to adapt more quickly to new or emerging technologies and customer requirements, or to devote greater resources to the promotion and sale of their products. Our competitors in the CE market include Analog Devices, Analogix Semiconductor, Parade Technologies, Explore, Broadcom, Intel, MediaTek, Mstar, Sigma and Marvell and our competitors in the Mobile market include Analogix, Parade, Explore, Broadcom, Intel, Qualcomm, Texas Instrument, NVIDIA, Marvell and MediaTek. Mergers and acquisitions are very common in our industry and 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.

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

The markets in which we compete are characterized by rapid technological change, evolving customer needs and frequent introductions of new products, technologies and standards. As we adjust to evolving customer requirements and technological advances, we may be required to further reposition our existing offerings and to introduce new products and services. We may not be successful in developing and marketing such new offerings, or we may experience difficulties that could delay or prevent the development and marketing of new products. In addition, new standards that compete with standards that we promote have been and likely will continue to be introduced, which could impact our success. 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 challenges, our results of operations could be negatively affected.

We may experience difficulties in transitioning to smaller geometry process technologies or in achieving higher levels of design integration, which may result in reduced manufacturing yields, delays in product deliveries and increased expenses.

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To remain competitive, we expect to continue to transition our semiconductor products to increasingly smaller geometries. This requires us to change the manufacturing processes for our products and to redesign some products as well as standard cells and other integrated circuit designs that we may use in multiple products. We periodically evaluate the benefits, on a product-by-product basis, of migrating to smaller geometry process technologies to reduce our costs. Currently a majority of our products are manufactured in geometries that are 130 nanometers or higher. We are now designing more of our new products in 65 nanometers or lower and expect this trend to continue as we respond to market needs for higher speeds and bandwidths. In the past, we have experienced some difficulties in shifting to smaller geometry process technologies or new manufacturing processes, resulting in reduced manufacturing yields, delays in product deliveries and increased expenses. The transition to lower nanometer geometry process technologies has and will continue to result in significantly higher mask and prototyping costs, as well as additional expenditures for engineering design tools and related computer hardware. We may face similar difficulties, delays and expenses as we continue to transition our products to smaller geometry processes.

We are dependent on our relationship with our foundry to transition to smaller geometry processes successfully. We cannot assure you that the foundries that we use will be able to effectively manage the transition in a timely manner, or at all, or that we will be able to maintain our existing foundry relationships or develop new ones. If any of our foundry subcontractors or we experience significant delays in this transition or fail to efficiently implement this transition, we could experience reduced manufacturing yields, delays in product deliveries and increased expenses, all of which could harm our relationships with our customers and our results of operations.

We will have difficulty selling our products if customers do not design our products into their product offerings or if our customers’ products are not commercially successful.

Our products are generally incorporated into our customers’ products at the customers’ design stage. We rely on OEMs in the markets we serve to select our products to be designed into their products. Without having our products designed into our customers’ products (we refer to such design integration as “design wins”), it is very difficult to sell our products. We often incur significant expenditures on the development of a new product under the hope for such “design wins” without any assurance that a manufacturer will select our product for design into its own product. Additionally, in some instances, we are dependent on third parties to obtain or provide information that we need to achieve a design win. Some of these third parties may be competitors and, accordingly, may not supply this information to us on a timely basis, if at all. Once a manufacturer designs a competitor’s product into its product offering, it becomes significantly more difficult for us to sell our products to that customer because changing suppliers involves significant cost, time, effort and risk for the customer. Furthermore, even if a manufacturer designs one of our products into its product offering, we cannot be assured that its product will be commercially successful or that we will receive any revenue from sales of that product. Sales of our products largely depend on the commercial success of our customers’ products. Our customers generally can choose at any time to stop using our products if their own products are not commercially successful or for any other reason. We cannot assure you that we will continue to achieve design wins or that our customers’ products incorporating our products will ever be commercially successful.

Our products typically have lengthy sales cycles. A customer may decide to cancel or change its product plans, which could cause us to lose anticipated sales. In addition, our average product life cycles tend to be short and, as a result, we may hold excess or obsolete inventory that could adversely affect our operating results.

Our customers typically test and evaluate our products prior to deciding to design our product into their own products. This evaluation period generally lasts from three to over six months to test, followed by an additional three to over nine months to begin volume production of products incorporating our products. This lengthy sales cycle may cause us to experience significant delays and to incur additional inventory costs until we generate revenue from our products. It is possible that we may never generate any revenue from products after incurring significant expenditures. Even if we achieve a design win with a customer, there is no assurance that the customer will successfully market and sell its products with our integrated components. The length of our sales cycle increases the risk that a customer will decide to cancel or change its product plans, which would cause us to lose sales that we had anticipated. In addition, anticipated sales could be materially and adversely affected if a significant customer curtails, reduces or delays orders during our sales cycle or chooses not to release equipment that contains our products. Further, the combination of our lengthy sales cycles coupled with worldwide economic conditions could have a compounding negative impact on the results of our operations.

While our sales cycles are typically long, our average product life cycles tend to be short as a result of the rapidly changing technology environment in which we operate. As a result, from time to time, our product sales and marketing efforts may not generate sufficient revenue requiring that we write off excess and obsolete inventory. If we incur significant marketing expenses and investments in inventory in the future that we are not able to recover or otherwise compensate for our operating results could be adversely affected. In addition, if we sell our products at reduced prices in anticipation of cost reductions but still hold higher-cost products in our inventory, our operating results would be harmed.

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Our customers may not purchase anticipated levels of products, which can result in excess inventories.

We generally do not obtain firm, long-term purchase commitments from our customers and, in order to accommodate the requirements of certain customers, we may from time to time build inventory that is specific to that customer in advance of receiving firm purchase orders. The short-term nature of our customers’ commitments and the rapid changes in demand for their products reduce our ability to accurately estimate the future requirements of those customers. Should the customer’s need shift so that they no longer require such inventory, we may be left with excessive inventories, which could adversely affect our operating results.

Our continued success selling MHL-enabled ICs into the mobile device market shall ultimately be dependent on the number of end users who actually use the functionality provided by our IC and the market demand for mobile devices incorporating them.

Currently our mobile device customers implement a “mirroring” use case with our MHL-enabled ICs. They mirror whatever is displayed on the hand set and on the TV such that both the hand set and TV display the same video image. If our customers decide that this use case is no longer required as part of the base functionality of their mobile devices due to low end user usage or other reasons, our customers may choose to remove our MHL IC from their design to reduce their system cost.

We and our customers depend on the availability of certain functions and capabilities within mobile and PC operating systems over which we may have no control. New releases of these operating systems may render our chips inoperable. New releases of these operating systems may require significant engineering effort to create new device driver software.

Our mobile business operates within a market that is dominated by a few key OEMs (Samsung, Apple and Sony). These key players can be a significant driver to the growth of our business or could prevent our growth through deliberate or non-deliberate action. Today, Samsung and Sony are key customers and our MHL technology is well positioned within their products; however, we do not have a presence in the iOS or Windows eco-systems or in all Android devices. Our success and ability to grow is dependent upon our ability to continue to be successful within the Android eco-system and/or gain significant traction within the iOS eco-system and/or Windows eco-system. Failure to maintain and grow our traction in these key eco-systems could materially affect IC unit volumes.

Further, many of our ICs depend on certain functionality being available in the device operating system, typically Android, Linux, Windows or iOS. Certain operating system primitives are needed to support video output (or in the case of legacy ICs, access to the storage subsystem). We have no control over these operating systems or the companies that produce them. Updates to these operating systems that, for example, change the way video is output or remove the ability to output video could materially affect sales of MHL and HDMI ICs.

Android, Windows and iOS are managed and controlled by Google, Microsoft and Apple respectively. Each of these companies is substantially larger than Silicon Image and it is unlikely that we could influence any internal decision they make to limit video output or make any other change that has a negative impact on our ICs and their function.

ICs targeted to PC or mobile designs, laptop, or notebook designs often require device driver software to operate. This software is difficult to produce and may require various certifications such as Microsoft’s Windows Hardware Quality Labs (WHQL) before being released. Each new revision of an operating system may require a new software driver and associated testing/certification. Failure to produce this software can have a negative impact on our relation with OS providers and may damage our reputation as a quality supplier of products in the eyes of end consumers.

A single large customer may be in a position to demand certain functionality, pricing or timing requirements that we would otherwise devote to normal business activities. If this were to happen, it is possible that delays in our normal development schedules could occur, causing our products to miss market windows, thus greatly reducing the total number of units sold of a particular product.

The products we develop are complex and require significant planning and resources. The nature of the consumer electronics market is that new products are introduced early in the year, often at the Consumer Electronics Show (CES) in January, or Mobile World Congress (MWC) in late February or early March. In order to meet these show deadlines our customers must complete their product development by year end which usually means that they require us to ship sample parts in the early spring. If we cannot ship sample parts in early spring, customers may be forced to remove the feature provided by our part, use a competitor’s part, or use an alternate technology in order to meet their timelines.

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We plan our product development with these market windows in mind. If we receive requests to deploy resources on a specific problem for a specific customer, it is possible that delays would be injected into the normal development path which would cause us to miss sample deadlines.

Our customers may be forced to halt production of their products due to supply shortages of devices not provided by Silicon Image. This production line halt would reduce the number of our parts that we deliver to the customer.

Our products are but one component used in our customer’s larger consumer electronic product. Our customer’s products depend on many parts supplied from multiple vendors (of which we are only one). Supply shortages of any of several components used in a TV, for example, might cause our customer’s TV production line to stop until the supply shortage can be resolved. During this time, customers would not require our parts and thus we would see a reduction in volume. We have no control over our customer’s design choices or over other supplier’s ability to produce their product.

We sell our products through distributors, which limits our direct interaction with our end customers, therefore reducing our ability to forecast sales and increasing the complexity of our business.

Many OEMs rely on third-party manufacturers or distributors to provide inventory management and purchasing functions. Distributors generated 39.6% and 36.7% of our total revenue for the three and six months ended June 30, 2014, respectively. Distributors generated 32.1% and 31.3% of our total revenue for the three and six months ended June 30, 2013, respectively. 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 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 not publicly traded.

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

We are dependent upon suppliers for a portion of raw materials used in the manufacturing of our products and new regulations related to conflict free minerals could require us to incur additional expenses in connection with procuring these raw materials.

The Securities and Exchange Commission requires disclosure by reporting companies of certain minerals, so called “ conflict minerals”, sourced from the Democratic Republic of Congo and adjoining countries (Covered Countries) for which such conflict minerals are necessary to the functionality of a product manufactured, or contracted to be manufactured. These regulations also require a reporting company to disclose efforts to prevent the use of such minerals.

In our industry, such conflict minerals are most commonly found in metals. Some of our products use certain metals, such as gold, silicon and copper, as part of the manufacturing process. We have determined that our products contain conflict minerals that are necessary to the functionality or production of such products. However, we are unable to determine whether our products contain conflict minerals that originated in the Covered Countries.

If we determine that our products do contain conflict minerals that are not sourced responsibly, it may be difficult to obtain conflict minerals that are sourced responsibly. If we are required to use alternative supplies, the price we pay for such metals may increase. Additionally, our reputation with our customers could be harmed if we cannot certify that our products do not contain conflict metals that originated in the Covered Countries.

Governmental action against companies located in offshore jurisdictions may lead to a reduction in the demand for our common shares.

Federal and state legislation have been proposed in the past, and similar legislation may be proposed in the future which, if enacted, could have an adverse tax impact on both us and our stockholders. For example, the ability to defer taxes as a result of permanent investments offshore could be limited, thus raising our effective tax rate.

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The cyclical nature of the semiconductor industry may create constraints in our foundry, test and assembly capacities and strain our management and resources.

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. During periods of increased demand and constraints in manufacturing capacity, production capacity for our semiconductors may be subject to allocation, in which case not all of our production requirements may be met. This may impact our ability to meet demand and could also increase our production costs and inventory levels. 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. Our financial performance has been and may in the future be, negatively impacted by downturns in the semiconductor industry. In a downturn situation, we may incur substantial losses if there is excess production capacity or excess inventory levels in the distribution channel.

The cyclicality of the semiconductor industry may also 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.

We depend on third-party sub-contractors to manufacture, assemble and test nearly all of our semiconductor products, which reduce our control over the production process.

We do not own or operate a semiconductor fabrication facility. Instead, we rely on one third-party semiconductor foundry overseas to produce substantially all of our semiconductor products. We also rely on third-party assembly and test services to test all of our semiconductor products. Our reliance on an independent foundry and 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, potentially resulting in higher inventory levels; and


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

We do not have a long-term supply agreement with our third-party semiconductor foundry or many of our other subcontractors and instead obtain these services on a purchase order basis. Our outside sub-contractors have no obligation to manufacture our products or 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 or multi month quote. Our requirements represent a small portion of the total production capacity of our outside foundry, assembly and test facilities and our sub-contractors may reallocate capacity on short notice to other customers who may be larger and better financed than we are, or who have long-term agreements with our sub-contractors, even during periods of high demand for our products. We may elect to have our suppliers move or expand production of our products to different facilities under their control, even in different locations, which may be time consuming, costly and difficult, have an adverse effect on quality, yields and costs and require us and/or our customers to re-qualify our products, which could open up design wins to competition and result in the loss of design wins. If our subcontractors are unable or unwilling to continue manufacturing, assembling or testing our products in the required volumes, at acceptable quality, yields and costs and in a timely manner, our business will be substantially harmed. In this event, we would have to identify and qualify substitute sub-contractors, which would be time-consuming, costly and difficult; and we cannot guarantee that we would be able to identify and qualify such substitute sub-contractors on a timely basis or obtain commercially reasonable terms from them. 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. 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 can reduce yields and prevent identification of problems until well into the production cycle or, in some cases, until after the product has been shipped.

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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. For example, in January 2013, we announced that we took a charge in the fourth quarter of 2012 to reflect the write down of certain unsalable inventory due to defects in the material used by one of our assembly vendors in the packaging process. 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 and replacement costs, 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 and because we have employees in research and development centers and sales offices throughout the world.

A substantial portion of our business is conducted outside of the United States and we have a significant portion of our workforce in research and development centers and sales offices throughout the world. 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. For the three and six months ended June 30, 2014, approximately 58.4% and 60.4% of our total revenue based on billing location, respectively, was generated from customers and distributors located outside of North America, primarily in Asia and was approximately 51.9% for both the three and six months ended June 30, 2013. We anticipate that sales outside of the United States will continue to account for a substantial portion of our revenue in future periods.

In addition to our headquarters in Sunnyvale, California, we maintain research and development centers in Shanghai, China, and Hyderabad, India, and undertake sales and marketing activities through regional offices in several other countries. As we grow, we intend to continue to expand our international business activities.

Accordingly, we are subject to a variety of risks associated with the conduct of business outside the United States. These risks include, but are not limited to:


•	political, social and economic instability;

•

the operational challenges of conducting our business in several geographic regions around the world, especially in the face of different business practices, social norms and legal standards that differ from those to which we are accustomed and held to as a publicly traded company in the United States, particularly with respect to the protection and enforcement of intellectual property rights and the conduct of business generally;


•	governmental policies, laws and regulations and social pressures in foreign countries that favor and promote their own local, domestic companies over non-domestic companies, and additional trade and travel restrictions;


•	natural disasters and public health emergencies;


•	nationalization of business and blocking of cash flows;


•	changing raw material, energy and shipping costs;


•	the imposition of governmental controls and restrictions;


•	burdens of complying with a variety of foreign laws;


•	import and export license requirements and restrictions of the United States and each other country in which we operate;


•	unexpected changes in regulatory requirements;


•	foreign technical standards;


•	changes in taxation and tariffs, including potentially adverse tax consequences;


•	difficulties in staffing and managing international operations;


•	fluctuations in currency exchange rates;


•	cultural and language differences;


•	difficulties in collecting receivables from foreign entities or delayed revenue recognition;

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


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


•	potentially adverse tax consequences.

Any of the factors described above may have a material adverse effect on our ability to increase or maintain our foreign sales or conduct our business generally.

Also OEMs 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 their competitiveness in the marketplace. This in turn could lead to a reduction in our sales and profits.

Our success depends on our investment of a significant amount of resources in research and development. We may have to invest more resources in research and development than anticipated, which could increase our operating expenses and negatively impact our operating results.

Our success depends on us investing significant amounts of resources into research and development. Our research and development expenses as a percent of our total revenue were 29.3% and 28.4% for the three and six months ended June 30, 2014, respectively, and 27.5% and 28.6% for the three and six months ended June 30, 2013, respectively. We expect to have to continue to invest heavily in research and development in the future in order to continue to innovate and come to market with new products in a timely manner and increase our revenue and profitability. If we have to invest more resources in research and development than we anticipate, we could see an increase in our operating expenses which may negatively impact our operating results. Also, if we are unable to properly manage and effectively utilize our research and development resources, we could see adverse effects on our business, financial condition and operating results.

In addition, if we are required to invest significantly greater resources than anticipated in our research and development efforts because of changes in our competitive landscape or our entry into new markets, our operating expenses would increase. If we are required to invest significantly greater resources than anticipated in research and development efforts without a corresponding increase in revenue, our operating results could decline. Research and development expenses are likely to fluctuate from time to time to the extent we make periodic incremental investments in research and development and these investments may be independent of our level of revenue which could negatively impact our financial results. In order to remain competitive, we anticipate that we will continue to devote substantial resources to research and development, and we expect these expenses to increase in absolute dollars in the foreseeable future due to the increased complexity and the greater number of products under development.

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 confidential and proprietary technologies and information. Our success depends on our ability to adequately protect such intellectual property. With respect to our patents, we have been issued patents and have a number of pending patent applications. However, we cannot assume that any pending patents applications will be issued or, if issued, that any claims allowed will protect our technology. Recent and proposed changes to U.S. patent laws and rules may also affect our ability to protect and enforce our intellectual property rights. For example, the Leahy-Smith America Invents Act, which took effect March 16, 2013, includes a number of changes to U.S. patent law, including the manner in which U.S. patents are issued and the way in which issued U.S. patents are challenged. The long-term impact of these changes are unknown, but this law could cause a certain degree of uncertainty surrounding the enforcement and defense of our issued patents, as well as greater costs concerning new and existing patent applications. In addition, we do not file patent applications on a worldwide basis, meaning we do not have patent protection in some jurisdictions. Furthermore, it is possible that our existing or future patents may be challenged, invalidated or circumvented.

With respect to our copyright and trademark intellectual property, it may be possible for a third-party, including our licensees, to misappropriate such proprietary technology. It is possible that copyright, trademark and trade secret protection and enforcement effective in the US may be unavailable or limited in foreign countries. Additionally, with respect to all of our intellectual property, 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.

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Despite our efforts and expenses, for the foregoing reasons and others, 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. 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.

We generally enter into confidentiality agreements with our employees, consultants and strategic partners. We also try to control access to and distribution of our technologies, documentation and other proprietary information. Despite these efforts, internal or external parties may attempt to copy, disclose, obtain or use our products, services or technology without our authorization. Also, current or former employees may seek employment with our business partners, customers or competitors, and we cannot assure you that the confidential nature of our proprietary information will be maintained in the course of such future employment. Additionally, current, departing or former employees or third parties could attempt to penetrate our computer systems and networks to misappropriate our proprietary information and technology or interrupt our business. Because the techniques used by computer hackers and others to access or sabotage networks change frequently and generally are not recognized until launched against a target, we may be unable to anticipate, counter or ameliorate these techniques. As a result, our technologies and processes may be misappropriated, particularly in countries where laws may not protect our proprietary rights as fully as in the United States.

Our products may contain technology provided to us by other parties such as contractors, suppliers or customers. We may have little or no ability to determine in advance whether such technology infringes the intellectual property rights of a third party. Our contractors, suppliers and licensors may not be required to indemnify us in the event that a claim of infringement is asserted against us, or they may be required to indemnify us only up to a maximum amount, above which we would be responsible for any further costs or damages. In addition, we may have little or no ability to correct errors in the technology provided by such contractors, suppliers and licensors, or to continue to develop new generations of such technology. Accordingly, we may be dependent on their ability and willingness to do so. In the event of a problem with such technology, or in the event that our rights to use such technology become impaired, we may be unable to ship our products containing such technology, and may be unable to replace the technology with a suitable alternative within the time frame needed by our customers.

A material change in the agreements governing encryption keys we use could place additional restrictions on us, our distributors or contract manufacturers from shipping parts or significantly increase the cost to track parts throughout the distribution chain.

Many of the components in our products contain encryption keys used in connection with High Definition Content Protection (HDCP). The regulation and distribution of these encryption keys are controlled through license agreements with DCP, a wholly owned subsidiary of Intel. These license agreements have been modified by DCP from time to time, and such changes could impact us, our distributors and our customers. A key element of both HDMI and MHL is the ability to implement link protection for High Definition, and more recently, 4K UltraHD content. This HDCP link protection has been approved by major content providers for use with HD and UltraHD content. We implement various aspects of the HDCP link protection within many of the parts that we sell. We also, for the benefit of our customers, include the necessary HDCP encryption keys in parts that we ship to customers. These encryption keys are provided to us from DCP. We have a specific process for tracking and handling these encryption keys. In the event that DCP changes any of the tracking or handling requirements associated with HDCP encryption keys it could cause us to change our manufacturing and distribution processes and could have a material impact on our manufacturing and distribution costs. In the event we cannot satisfy new requirements for the handling and tracking of encryption keys, then we may have to cease shipping or manufacturing certain products.

Failures of our privacy and security procedures could cause damage to our reputation and harm our business.

Our business interactions with customers and suppliers expose us to certain confidential information of such parties. Although we have systems in place to protect this information, including proven applications designed for data security, failures in these procedures, policies and systems could expose this sensitive information, thereby having a material adverse impact on our reputation as well as our business position and results of operations. If we are unable to protect this information, or if our customers and suppliers lack the confidence in our ability to protect their privacy, our growth could be materially adversely affected. A breach of our privacy and security procedures could impact us in the following ways:


•	causing our customers and suppliers to lack confidence in their working relationships with us;

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•	harming our reputation with customers, suppliers and end-consumers;


•	exposing us to additional financial liability;


•	causing greater scrutiny of our business by governmental authorities; and


•	increasing operating costs to correct damage caused by the breach.

Our participation in consortiums for the development and promotion of industry standards in our target markets, including the HDMI, MHL and WirelessHD standards, requires us to license some of our intellectual property for free or under specified terms and conditions, which makes it easier for others to compete with us in such markets.

A key element of our business strategy includes participating in consortiums to establish industry standards in our target markets, promoting and enhancing specifications and developing and marketing products based on such specifications and future enhancements. We have in the past and will continue to participate in consortiums that develop and promote the HDMI, MHL and WirelessHD specifications. In connection with our participation in these consortiums, we make certain commitments regarding our intellectual property, in each case with the effect of making our intellectual property available to others, including our competitors, desiring to implement the specification in question. For example, as a founder of the HDMI Consortium, we must license specific elements of our intellectual property to others for use in implementing the HDMI specification, including enhancements thereof, as long as we remain part of the consortium. Also, as a promoter of the MHL specification, we must agree not to assert certain necessary patent claims against other members of the MHL Consortium, even if such members may infringed upon such claims in implementing the MHL specification.

Accordingly, certain companies that implement these specifications in their products can use specific elements of our intellectual property to compete with us. Although in the case of the HDMI and MHL Consortiums, there are annual fees and royalties associated with the adopters’ use of the technology, there can be no assurance that our shares of such annual fees and royalties will adequately compensate us for having to license or refrain from asserting our intellectual property.

Our participation in HDMI and MHL includes our acting as agent for these consortiums. This role requires us to administer and promote the respective standards, the cost of which is offset through the receipt of adopter fees. There is no guarantee that we will continue to act as agent for either or both of these standards, in which event, the loss of adopter fees may have an adverse effect on our financial results. We are currently in discussions with the other Founders of HDMI regarding the potential restructuring of our role as agent of the consortium. While not concluded, we believe these discussions may result in a narrowing of our agent functions, resulting in a lowering of the adopter fees received by us. We do not believe that any such reduction of HDMI adopter fees will have a material adverse effect on our financial results.

Through our wholly-owned subsidiary, HDMI Licensing, LLC, we act as agent of the HDMI specification and are responsible for promoting and administering the specification. We receive all the adopter fees paid by adopters of the HDMI specification in connection as our role as agent. We are currently in discussions with the other Founders of HDMI regarding a restructuring of our role as agent. While not concluded, we believe these discussions will result in a narrowing of our agent functions, resulting in a lowering of the adopter fees received by us. We do not believe that any loss of HDMI adopter fees in connection with the narrowing of our agent will have a material adverse effect on our financial results.

Through our wholly-owned subsidiary, MHL, LLC, we act as agent of the MHL specification and are responsible for promoting and administering the specification. As agent, we are entitled to receive license fees paid by adopters of the MHL specification sufficient to reimburse us for the costs we incur to promote and administer the specification. Given the limited number of MHL adopters to date, we do not believe that the license fees paid by such adopters will be sufficient to reimburse us for these costs and there can be no assurance that the license fees paid by MHL adopters will ever be sufficient to reimburse us the cost we incur as agent of the specification.

With respect to royalties, after an initial period during which we received all of the royalties paid by HDMI adopters, in 2007, the HDMI founders reallocated the royalties to reflect each founder’s relative contribution of intellectual property to the HDMI specification. Following this reallocation, our portion of HDMI royalties was reduced to approximately 62%. In 2010, HDMI founders again reviewed the allocation of HDMI royalties and agreed on an allocation formula that further reduced the portion of HDMI royalties received by us. In 2013, we received between 35% to 39% of the royalty allocation.

The HDMI founders have agreed to review the allocation of HDMI royalties every three years, and such review is currently in process. Though a new royalty allocation formula has been agreed to, the HDMI founders have not yet entered into a formal written agreement governing the royalty allocation for the current three (3) period 2014 through 2016, awaiting agreement on the potential restructuring of our role as agent of the consortium. Given the lack of a formal written agreement, no royalty revenue for the three and six months ended June 30, 2014 has been recorded. This interruption in our ability to

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recognize HDMI royalty revenue has had a material adverse effect on our financial performance for the six months ended June 30, 2014. We believe that if this interruption continues through the third quarter of 2014, it will have a material adverse effect on our financial results for fiscal 2014. Further, should the level of our royalty allocation be reduced materially, our financial performance could be materially adversely affected.

We currently intend to promote and continue to be involved and actively participate in other standard setting initiatives. For example, through our acquisition of SiBEAM, Inc. in May 2011, we achieved SiBEAM’s prior position as founder and chair of the WirelessHD Consortium. Accordingly, we may likely license additional elements of our intellectual property to others for use in implementing, developing, promoting or adopting standards in our target markets, in certain circumstances at little or no cost. This may make it easier for others to compete with us in such markets. In addition, even if we receive license fees and/or royalties in connection with the licensing of our intellectual property, there can be no assurance that such license fees and/or royalties will compensate us adequately.

Our business may be adversely impacted as a result of the adoption of competing standards and technologies by the broader market.

The success of our business to date has depended on our participation in standard setting organizations, such as the HDMI and MHL Consortiums, and the widespread adoption and success of those standards. From time to time, competing standards have been established which negatively impact the success of existing standards or jeopardize the creation of new standards. DisplayPort is an example of a competing standard on a different technology base which has been created as an alternative high definition connectivity solution in the PC space. The DisplayPort standard has been adopted by many large PC manufacturers. While currently not as widely recognized as the HDMI standard, DisplayPort does represent a viable alternative to the HDMI or MHL technologies. If DisplayPort should gain broader adoption, especially with non-PC consumer electronics, our HDMI or MHL businesses could be negatively impacted and our revenues could be reduced. WiGig is an example of a competing 60GHz standard which has been created as an alternative high-bandwidth wireless connectivity solution for the PC industry. While the WiGig standard has not been in the market as long as the WirelessHD standard, it does represent a viable alternative to WirelessHD for 60GHz connectivity. If WiGig should gain broader adoption before WirelessHD is adopted, it could negatively impact the adoption of WirelessHD.

Our current and future business is dependent on the continued adoption and widespread implementation of the HDMI and MHL specifications and the new implementation and adoption of the WirelessHD specifications.

Our future success is largely dependent upon the continued adoption and widespread implementation of the HDMI, MHL and WirelessHD specifications. For the three and six months ended June 30, 2014, more than 85% of our total revenue was derived from the sale of HDMI and MHL-enabled products and the licensing of our HDMI and MHL technology. Our leadership in the market for HDMI and MHL-enabled products and intellectual property has been based on our ability to introduce first-to-market semiconductor and IP solutions to our customers and to continue to innovate within the standard. Therefore, our inability to be first to market with our HDMI and MHL-enabled products and intellectual property or to continue to drive innovation in the HDMI and MHL specifications could have an adverse impact on our business going forward.

With our acquisition of SiBEAM, Inc. in May 2011, we acquired 60GHz wireless technology that we hope will be made widely available and adopted by the marketplace through the efforts of the WirelessHD Consortium and incorporated into certain of our future products. As was and is the case with our HDMI and MHL products and intellectual property, our success with this technology will depend on our ability to introduce first-to-market, WirelessHD-enabled semiconductor and IP solutions to our customers and to continue to innovate within the WirelessHD standard. There can be no guarantee that this wireless technology will be adopted by the marketplace and our inability to do this could have an adverse impact on our business going forward.

Additionally, if competing digital interconnect technologies are developed, our ability to sell our products and license our intellectual property could be adversely affected and our revenues could decrease.

As the agent for the HDMI specification, we derive revenue from the license fees paid by adopters, and as a founder we derive revenue from the royalties paid by the adopters of the HDMI technology. Any development that has the effect of lowering the number of adopters of the HDMI standard will negatively impact these license fees and royalties. The allocation of license fees and royalty revenue among the HDMI founders is reviewed and discussed by the founders from time to time. There can be no assurance that going forward we will continue to act as agent of the HDMI specification or to receive the share of HDMI license fees and royalties that we currently receive. If our share of these license fees and royalties is reduced, this

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decision will have a negative impact on our revenues. Refer to the previously discussed risk factor above which also discusses the sharing of HDMI royalty revenues among various founders.

We act as agent of the MHL specification and are responsible for promoting and administering the specification. As agent, we are entitled to receive license fees paid by adopters of the MHL specification sufficient to reimburse us the costs we incur to promote and administer the specification. Given the limited number of MHL adopters to date, we do not believe that the license fees paid by such adopters will be sufficient to reimburse us for these costs and there can be no assurance that the license fees paid by MHL adopters will ever be sufficient to reimburse us the cost we incur as agent of the specification.

We have granted Intel Corporation certain 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 may become engaged in 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.

Any potential intellectual property litigation against us or in which we become involved may be expensive and time-consuming and may divert our resources and the attention of our executives. It 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.

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

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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. Our results of operations could be adversely affected by the use of cross-license or beneficiary of a non-assertion agreement of all our patents and/or certain other intellectual property.

We indemnify certain of our customers against infringement.

We indemnify certain of our 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.

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. We generally do not have employment contracts with our key employees. 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 locations throughout the world. 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. New regulations could 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 have experienced transitions in our management team and our board of directors in the past and we may continue to do so in the future, which could result in disruptions in our operations and require additional costs.

We have experienced a number of transitions with respect to our board of directors and executive officers in the past and we may experience additional transitions in our board of directors and management in the future. Any such future transitions could result in disruptions in our operations and require additional costs.

We rely heavily on certain third-party software applications and platforms for our business and the failure or discontinuation of such applications or platforms could hamper or impede our ability to do business.

The Company is dependent on third party software systems, both on premise and cloud based, to conduct daily business. We have little control over the operation of any of these third-party providers. If these systems are discontinued or the vendor exits the business we may incur significant expense in reconstructing equivalent systems and transferring critical business date to those new systems. Our providers may be vulnerable to damage or interruption, or may choose to change the manner in which they provide services to us. If we lose the services of one or more of these providers for any reason, we could experience disruption in our services or we may be required to retain the services of a replacement provider. Any errors, defects, disruptions or other performance problems with our services could harm our reputation and may damage our customers’ businesses. Interruptions in our services might reduce our revenues, cause us to issue credits to customers or cause customers to terminate their relationships with us. In addition, our business would be harmed if any events of this nature caused our customers and potential customers to believe our services are unreliable.

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If our internal control over financial reporting or disclosure controls and procedures are not effective, there may be errors in our financial statements that could require restatement or our filings may not be timely and investors may lose confidence in our reported financial information, which could lead to a decline in our stock price. While we have not identified any material weaknesses in the past three years, we cannot assure you that a material weakness will not be identified in the future.

Section 404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate the effectiveness of our internal control over financial reporting as of the end of each year and to include a management report assessing the effectiveness of our internal control over financial reporting in each Annual Report on Form 10-K. Section 404 also requires our independent registered public accounting firm to report on, our internal control over financial reporting.

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our internal control over financial reporting will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. Over time, controls may become inadequate because changes in conditions or deterioration in the degree of compliance with policies or procedures may occur. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

As a result, we cannot assure you that significant deficiencies or material weaknesses in our internal control over financial reporting will not be identified in the future. Any failure to maintain or implement required new or improved controls, or any difficulties we encounter in their implementation, could result in significant deficiencies or material weaknesses, cause us to fail to timely meet our periodic reporting obligations, or result in material misstatements in our financial statements. Any such failure could also adversely affect the results of periodic management evaluations and annual auditor attestation reports regarding disclosure controls and the effectiveness of our internal control over financial reporting required under Section 404 of the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder. The existence of a material weakness could result in errors in our financial statements that could result in a restatement of financial statements, cause us to fail to timely meet our reporting obligations and cause investors to lose confidence in our reported financial information, leading to a decline in our stock price.

We have been 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 and derivative 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 meritless, can result in substantial costs to us and could divert the attention of our management.

Our operations and the operations of our significant customers, third-party wafer foundry and third-party assembly and test subcontractors are located in areas susceptible to natural disasters, the occurrence of which could adversely impact our supply of product, revenues, gross margins and results of operations.

Our operations are headquartered in the San Francisco Bay Area, which is susceptible to earthquakes. TSMC, our outside foundry that manufactures almost all of our semiconductor products, is located in Taiwan. Siliconware Precision Industries Co. Ltd., or SPIL, Advanced Semiconductor Engineering, or ASE, and Amkor Taiwan are subcontractors located in Taiwan that assemble and test our semiconductor products.

In addition, the operations of certain of our significant customers are located in Japan and Taiwan. For the three and six months ended June 30, 2014, customers and distributors located in Japan generated 18.7% and 16.6% of our total revenue based on billing location, respectively, and customers and distributors located in Taiwan generated 15.7% and 17.0% of our total revenue based on billing location, respectively. For the three and six months ended June 30, 2013, customers and distributors located in Japan generated 14.1% and 13.7% of our total revenue based on billing location, respectively, and customers and distributors located in Taiwan generated 15.2% and 15.3% of our total revenue based on billing location, respectively.

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

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Our supply of product and our revenues, gross margins and results of operations generally would be adversely affected if any of the following were to occur:


•	an earthquake or other disaster in the San Francisco Bay area were to damage our facilities or disrupt the supply of water or electricity to our headquarters;


•	an earthquake, typhoon or other natural disaster in Taiwan were to damage the facilities or equipment of TSMC, SPIL, ASE or Amkor or were to result in shortages of water, electricity or transportation, which occurrences would limit the production capacity of our outside foundry and/or the ability of our third party contractors to provide assembly and test services;


•	an earthquake, typhoon or other natural disaster in Taiwan or Japan were to damage the facilities or equipment of our customers or distributors or were to result in shortages of water, electricity or transportation, which occurrences would result in reduced purchases of our products, adversely affecting our revenues, gross margins and results of operations; or

•

an earthquake, typhoon or other disaster in Taiwan or Japan were to disrupt the operations of suppliers to our Taiwanese or Japanese customers, outside foundries or our third party contractors providing assembly and test services, which in turn disrupted the operations of these customers, foundries or third party contractors, resulting in reduced purchases of our products or shortages in our product supply.

In March 2011, Japan experienced a 9.0-magnitude earthquake which triggered extremely destructive tsunami waves. The earthquake and tsunami significantly impacted the Japanese people and the overall economy of Japan resulting to reduced consumer spending in Japan and supply chain issues, which adversely affected our revenues and results of operations in 2011.

Terrorist attacks or war could lead to 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 currently has troops in Afghanistan. In addition, the tensions regarding nuclear arms 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.

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

Several jurisdictions have implemented rules that would require that certain products, including semiconductors, be made “green,” which means that the products need to be lead free and be free of certain banned substances. All of our products are available to customers in a green format. While we believe that we are generally in compliance with existing regulations, such environmental regulations are subject to change and the jurisdictions may impose additional regulations which could require us to incur additional costs to develop replacement products. These changes will require us to incur cost or may take time or may not always be economically or technically feasible, or 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.

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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;


•	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:


•	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.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities. The table below summarizes information about our purchases of equity securities registered pursuant to Section 12 of the Exchange Act during the three months ended June 30, 2014.



Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2)
April 1, 2014 to April 30, 2014	21,800	$	5.59	121,954	$	57,210,917
May 1, 2014 to May 31, 2014	418,700	5.36		2,243,721	54,967,196
June 1, 2014 to June 30, 2014	—	—		—	54,967,196
Total	440,500	$	5.37	2,365,675


(1)	In the Quarterly Report of Silicon Image, Inc. on Form 10-Q for the quarter ended March 31, 2012, we announced a board-approved plan authorizing us to repurchase up to $50 million of our common stock in the open market or in privately negotiated transactions. The stock repurchase program may be modified, extended or terminated by the Board at any time.

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(2)

In the Quarterly Report of Silicon Image, Inc. on Form 10-Q for the quarter ended June 30, 2013, we announced that our Board of Directors authorized a new share repurchase plan as a follow-on to 2012 stock repurchase program. At the conclusion of our 2012 stock repurchase program, we will commence a new share repurchase plan whereby we are authorized to repurchase our common stock up to an aggregate purchase of $50 million.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

The information required by this item is set forth on the exhibit index which follows the signature page of this report.

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SIGNATURE

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 7, 2014			Silicon Image, Inc.

			/s/ Raymond Cook
			Raymond Cook
			Chief Financial Officer (Principal Financial Officer)

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Exhibit Index

Form

File

No.

Exhibit

Filing

Date

Filed

Herewith

31.01

Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.

31.02

Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.

32.01*

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.02*

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document



*	This exhibit is being furnished, rather than filed, and shall not be deemed incorporated by reference into any filing of the registrant, in accordance with Item 601 of Regulation S-K.

SILICON IMAGE INC - FORM 10-Q - August 7, 2014

Attached files

SILICON IMAGE INC Reports