In 2005 Silicon Image ordsprog

In 2005, Silicon Image delivered 23% top line growth and bottom line non-GAAP growth of 24% over 2004. Our focus on the storage, distribution and presentation of High Definition content is at the center of an unprecedented build out of digital products for the home and mobile environment. We are entering 2006 with strong market momentum for HDMI and expect to drive greater innovation in, and convergence between CE, PC and storage products as they address consumer market demand.

Silicon Image continues to drive growth and innovation like few companies in our business while improving operational results. Our focus as a company is to continue driving the system architecture for the storage, distribution and presentation of high definition content in the consumer environment.

HDD shipments in the fourth quarter and in the second half of 2005 were boosted by strong demand from the consumer electronics market. Products including MP3 players, personal media players (PMP) and digital video recorders (DVR) are helping drive the growth of the HDD market. Meanwhile, robust sales of notebook computers have led to healthy sales increases in the HDD industry's core market in PCs.

Krishna Chander

HDMI connectivity is expected to soon become as ubiquitous as USB connections are now. The popularity of home theaters is driving this demand for displays with multiple HDMI inputs so that consumers can have two applications, such as a digital set-top box and a game station, hooked up to their high-definition TV. Our new high-bandwidth HDMI switch allows system designers to easily add a second port to their HDMI products without changing internal aspects of the application, or redesigning for an extra feature.

The overall growth of data storage is going up at about a 100 percent every year, and in conjunction with that, systems are getting more complex. So there is a big demand for solutions to help manage this growth. Storage area networks (are) still in their infancy. It's a fairly small market and I think the experts expect to see very rapid growth in the order of 50-to-100 percent in the market for a number of years.

Clinton Morrison

By focusing our resources on fewer markets, where our deep insight and unique silicon-to-systems capabilities can be fully leveraged, we anticipate delivering greater value to customers. Today, we are taking specific actions to significantly enhance our ability to target growing opportunities in the storage and consumer markets, where rapid information growth and the surging consumption of digital content play to our strengths in providing differentiated market solutions that incorporate silicon, systems and software.

As the storage hardware market continues to grow, storage management is one of the fastest-growing areas of storage service with compound annual growth of over nine percent. While compliance, data security and other high profile factors have an impact on storage management growth, the biggest single factor is businesses trying to cope with the growing complexity of their storage environments.

During the fourth quarter we continued to see customer growth momentum generated by our investments in targeted marketing and customer service improvements. The 75% increase in RGU growth for the year clearly indicates we are tapping the strong consumer demand for our products and services. Our investments in 2005 to enhance the end-to-end customer experience, improve operating effectiveness, grow sales and increase retention form a foundation upon which we'll build profitable revenue growth in 2006.

Throughout his career, Dale has achieved an impressive track record of success in developing and implementing strategic plans to create new markets and new revenue streams. He will be instrumental in shaping, architecting, and executing our strategy of driving the storage, distribution and presentation of high definition content in the consumer environment.

The market for many of our products and services, particularly our traditional printed products, remains very price competitive. Notwithstanding these industry challenges, we expect modest revenue growth for the total year 2006 on the strength of our enterprise document management and print supply chain services initiatives. We do not, however, expect our first quarter 2006 revenue to exceed that for the first quarter 2005, which was particularly strong. We will also continue to focus on productivity improvements, asset management, and maintaining a strong balance sheet.

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In 2004 and 2005 we saw new technologies and approaches enter the [server] market as spending and growth began to resume. In 2006, we shouldn't expect to see so many brand-new things, but rather the expansion and maturation of products and technologies already in the market.

I am pleased with our performance in the fourth quarter as our new products and expanded market coverage continue to deliver top-line growth while our lean and cost-saving initiatives drive leverage to the bottom line.

Chris Killingstad

We are very pleased to begin 2006 with excellent top and bottom line growth, exceeding expectations and building on the strong growth momentum we saw in 2005.

The Macintosh storage market has been largely ignored by the major storage players. [Applied Micro Circuits'] entry into the Macintosh storage market will be welcomed by Mac users who require enterprise-like functionality with greater storage performance and capacity for applications such as digital video capture, post-production and graphics.

This is the third consecutive quarter that disk storage systems revenue growth has outpaced that of the server market. However, internal storage growth has exceeded external growth in three of the last four quarters as organizations explore new technologies that increase the flexibility of storage configurations.

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