Silicon Image Inc. (SIMG, Financial) filed Quarterly Report for the period ended 2010-06-30.
Silicon Image Inc. has a market cap of $319.5 million; its shares were traded at around $4.17 with and P/S ratio of 2.1. SIMG is in the portfolios of Jim Simons of Renaissance Technologies LLC.
Total product revenue for the three months ended June 30, 2010 was $8.9 million or 30.3% higher than the product revenue from the same period in 2009 primarily due to the recovering economy and increased demand for our CE, PC and Storage products. Revenue from our CE, PC and Storage products during the three months ended June 30, 2010 increased by 27.1%, 36.1% and 65.5%, respectively, compared to the same period in 2009. Our unit shipments during the three months ended June 30, 2010 for CE, PC and Storage were up by 26.2%, 42.5% and 118.1%, respectively, compared to the same period in 2009. The higher unit shipments in our CE product line were primarily driven by increased demand for our port processors from the DTV market. Higher demands for our home theater and mobile products also contributed to the favorable results from our CE product line during the three months ended June 30, 2010 when compared to the same period in 2009. The increase in unit shipments in our PC and Storage product lines was primarily due to the higher demand for our DVI and SATA products. The impact of the 118.1% increase in unit shipments to our storage product revenue was partially offset by the 23.0% decrease in the average selling price of our storage products.
Our licensing activity is complementary to our product sales and helps us to monetize our intellectual property and accelerate market adoption curves associated with our technology. Most of the intellectual property we license includes a field of use restriction that prevents the licensee from building products that directly compete with ours in those market segments we have chosen to pursue. IP licensing continues to represent an important part of our overall business. Revenue from licensing accounted for 13.9% and 18.0% of our total revenue for the three and six months ended June 30, 2010, respectively, and 21.2% and 17.7% of our total revenue for the three and six months ended June 30, 2009, respectively. Licensing revenue during the three months ended June 30, 2010 decreased by $1.7 million or 21.7% when compared to the licensing revenue during the same period in 2009. However, when our licensing revenue for the three months ended June 30, 201 is taken together with our licensing revenue for the three months ended March 31, 2010, the licensing revenue for the six months ended June 30, 2010 was at par with the licensing revenue generated in the same period in 2009. Our licensing revenue was primarily driven by the increasing demand for our new IP cores for our video decoders and image signal processors. We have also started to generate revenues from IP cores we developed and announced in 2009. During 2009, we announced our cineramIC™ 4K and 3D H.264 digital video decoder core, the camerIC-18 18 megapixel (MP) image signal processing (ISP) core, and new HDMI 1.4 transmit and receive cores.
Cost of revenue consists primarily of costs incurred to manufacture, assemble and test our products, and 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. Gross margin, as a percentage of revenue was 56.2% and 56.4% for the three and six months ended June 30, 2010, respectively, and 53.0% and 53.8% for the three and six months ended June 30, 2009, respectively. Total cost of revenue for the three months ended June 30, 2010 increased by 11.2% when compared to the total cost of revenue in the same period in 2009 primarily due to the increase in revenue volume. Total cost of revenue for the six months ended June 30, 2010 was comparable with the total cost of revenue in the same period in 2009, which was consistent with the comparable revenue volume for the first half of 2010 and 2009.
Our licensing gross margin for the three and six months ended June 30, 2010 was 99.8% and 99.7%, respectively, compared to 96.5% and 96.6% for the three and six months ended June 30, 2009, respectively. The increase in licensing gross margin was the result of a lower mix of IP customization projects during the three and six months ended June 30, 2010 compared to the same periods in 2009.
Our overall gross margin for the three months ended June 30, 2010 was 56.2%, 3.2% higher than the overall gross margin in the same period in 2009, primarily due to the improvement in the product gross margins. Overall gross margin for six months ended June 30, 2010 was comparable with the overall gross margin in the same period in 2009. We expect our overall gross margin to be within the 54%-55% range in the third quarter of 2010.

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Silicon Image Inc. has a market cap of $319.5 million; its shares were traded at around $4.17 with and P/S ratio of 2.1. SIMG is in the portfolios of Jim Simons of Renaissance Technologies LLC.
Highlight of Business Operations:
Historically, a relatively small number of customers and distributors have generated a significant portion of our revenue. For instance, our top five customers, including distributors, generated 59.1% and 55.2% of our revenue for the three and six months ended June 30, 2010, respectively, and 43.4% and 44.0% of our revenue for the three and six months ended June 30, 2009, respectively. Additionally, the percentage of revenue generated through distributors tends to be significant, since many OEMs rely upon third party manufacturers or distributors to provide purchasing and inventory management services. Revenue generated through distributors was 61.8% and 54.3% of our total revenue for the three and six months ended June 30, 2010, respectively, and 60.0% and 61.0% of our total revenue for the three and six months ended June 30, 2009, respectively. Our licensing revenue is not generated through distributors, and to the extent licensing revenue increases faster than product revenue, we would expect a decrease in the percentage of our total revenue generated through distributors.Total product revenue for the three months ended June 30, 2010 was $8.9 million or 30.3% higher than the product revenue from the same period in 2009 primarily due to the recovering economy and increased demand for our CE, PC and Storage products. Revenue from our CE, PC and Storage products during the three months ended June 30, 2010 increased by 27.1%, 36.1% and 65.5%, respectively, compared to the same period in 2009. Our unit shipments during the three months ended June 30, 2010 for CE, PC and Storage were up by 26.2%, 42.5% and 118.1%, respectively, compared to the same period in 2009. The higher unit shipments in our CE product line were primarily driven by increased demand for our port processors from the DTV market. Higher demands for our home theater and mobile products also contributed to the favorable results from our CE product line during the three months ended June 30, 2010 when compared to the same period in 2009. The increase in unit shipments in our PC and Storage product lines was primarily due to the higher demand for our DVI and SATA products. The impact of the 118.1% increase in unit shipments to our storage product revenue was partially offset by the 23.0% decrease in the average selling price of our storage products.
Our licensing activity is complementary to our product sales and helps us to monetize our intellectual property and accelerate market adoption curves associated with our technology. Most of the intellectual property we license includes a field of use restriction that prevents the licensee from building products that directly compete with ours in those market segments we have chosen to pursue. IP licensing continues to represent an important part of our overall business. Revenue from licensing accounted for 13.9% and 18.0% of our total revenue for the three and six months ended June 30, 2010, respectively, and 21.2% and 17.7% of our total revenue for the three and six months ended June 30, 2009, respectively. Licensing revenue during the three months ended June 30, 2010 decreased by $1.7 million or 21.7% when compared to the licensing revenue during the same period in 2009. However, when our licensing revenue for the three months ended June 30, 201 is taken together with our licensing revenue for the three months ended March 31, 2010, the licensing revenue for the six months ended June 30, 2010 was at par with the licensing revenue generated in the same period in 2009. Our licensing revenue was primarily driven by the increasing demand for our new IP cores for our video decoders and image signal processors. We have also started to generate revenues from IP cores we developed and announced in 2009. During 2009, we announced our cineramIC™ 4K and 3D H.264 digital video decoder core, the camerIC-18 18 megapixel (MP) image signal processing (ISP) core, and new HDMI 1.4 transmit and receive cores.
Cost of revenue consists primarily of costs incurred to manufacture, assemble and test our products, and 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. Gross margin, as a percentage of revenue was 56.2% and 56.4% for the three and six months ended June 30, 2010, respectively, and 53.0% and 53.8% for the three and six months ended June 30, 2009, respectively. Total cost of revenue for the three months ended June 30, 2010 increased by 11.2% when compared to the total cost of revenue in the same period in 2009 primarily due to the increase in revenue volume. Total cost of revenue for the six months ended June 30, 2010 was comparable with the total cost of revenue in the same period in 2009, which was consistent with the comparable revenue volume for the first half of 2010 and 2009.
Our licensing gross margin for the three and six months ended June 30, 2010 was 99.8% and 99.7%, respectively, compared to 96.5% and 96.6% for the three and six months ended June 30, 2009, respectively. The increase in licensing gross margin was the result of a lower mix of IP customization projects during the three and six months ended June 30, 2010 compared to the same periods in 2009.
Our overall gross margin for the three months ended June 30, 2010 was 56.2%, 3.2% higher than the overall gross margin in the same period in 2009, primarily due to the improvement in the product gross margins. Overall gross margin for six months ended June 30, 2010 was comparable with the overall gross margin in the same period in 2009. We expect our overall gross margin to be within the 54%-55% range in the third quarter of 2010.

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