Silicon Image, Inc. (SIMG)

BarCap Global Technology Conference

December 07, 2011 8:00 p.m. ET

Executives

Noland Granberry - CFO

Analysts

Presentation

Unidentified Analyst

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All right. We’ll go ahead and get started. Last but not the least, very happy to have Noland Granberry, the CFO of Silicon Image. I have known Silicon Image for a long time. They have transitioned into a very substantial mobile business. Very exciting and happy to have them. I’ll turn it over. Thanks.

Noland Granberry

Thank you, Glenn. Welcome. We’re glad here -- to be able to present here at the Barclays global technology conference. About 10 years ago, Silicon Image working with six other CE manufacturers, created the HDMI standard whereby we simplified the process of connecting your source devices, your VCR, or DVD player to connect to your TV. That standard actually grew and today is set up with adopters of over 1000 adopters. And today the HDMI standard actually creates over 600 million HDMI-enabled devices year over year. And that’s continuing to grow.

A very successful standard, and we’ve actually had the opportunity to play within that standard and garner a lot of revenues. Last year, we actually introduced a mobile standard whereby we’ve provided a simplified way to connect your mobile device to your larger screen. And that standard was introduced in June of last year. And in the quarter Q3 of last year, we actually realized mobile revenue of about $3 million. This year, our Q3 revenue, we recognized revenue of over $20 million, primarily related to this new standard.

The standard itself called the MHL or mobile high definition link – it’s a standard that’s growing, is over 80 adopters today. And what I will do over the next 20 minutes or so is walk you through a little bit about our business, a little bit about our HDMI space as well -- more primarily our mobile space, which is our growth story.

So to start with the Safe Habor statement. So little bit about Silicon Image. We’re a leading provider of wireless and wired connectivity connections. And a year ago today we could only say that we were a wired connectivity solution provider, with a lot of questions around what happens when you get – when everything goes wireless. Today we have an answer for that and I will talk a little bit about that as well.

We focus on the consumer electronics, mobile and PC markets, all large markets. We garner a very large position in our – in the space we play in on the CE side of things. And we are growing our mobile business. And as I mentioned earlier, it is our growth story. The PC space is one that we actually still have business in but there is not a lot of focus at this point in time.

If we highlight our revenue, take a look back at our revenue, looking at the trend, through nine months today, we’re over $160 million in revenue and on track to actually grow our revenues year over year by almost 20%. And so pretty good growth here particularly in light of the challenges we face on our CE business – within our CE business, off of the Japan earthquake as well as some mix-shifts we’re seeing relative to the high-end and mid-range on the CE side of things.

We have about 500 employees, headquartered at Sunnyvale. We do have a group of about 75 engineers, contractors in India who support our R&D activities. So we call ourselves having three R&D centers: Sunnyvale, Shanghai, and Hyderabad.

We have about 176 U.S. patents and that number is growing as we speak, continuing to build our strong patent portfolio. And as I highlighted, we actually play in the CE, mobile and PC space.

At the highest level, we have two businesses: the product business and the licensing or an IP business. Our product business focuses on the mobile, PC side and is actually geared off of standards. We’re – we believe our best opportunity to win on the product side is to create a standard, drive a technology, and build out a broad acceptance of that particular standard. And we’ve been successful with that.

We actually had participated in digital video interface standard, or DVI standard on the PC side of things a number of years ago. HDMI highlighted the success of that standard, and we’re seeing a lot of good traction with our mobile standards today.

Our product business makes up about 80% to 85% of our business. And our margins are pretty strong at 45% to 48% as well. We supplement that product business with an IP business, and that’s made up of standard -- fees from our standards activities, including adopter fees and royalties. And also, as a means for us to drive this standard adoption, we license our IP cores to the market and drive revenue from that, and garner the royalties from that activity as well.

Our IP business is generally 15% to 20% of our overall business, and the margin on that is much, much higher at 96% to 99%. On a combined basis, and when you look at our model long term, we push to achieve 55% or better gross margins, and the combination of our product and our IP business allows us to do just that.

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