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Silicon Image, Inc. (NASDAQ:SIMG)

2012 CES Analyst and Investor Meeting Conference Call

January 12, 2011 12:00 pm ET

Executives

Tim Wong – President, MHL Consortium

Camillo Martino – Chief Executive Officer

Noland Granberry – Chief Financial Officer

Operator

Good morning, everyone, just wanted to get your attention and get going here. Quick note on what we're going to be doing today, someone from the MHL is going to say a few words, and with that, a little bit of a demonstration here. And then, we'll have Noland and Camillo start the slide deck.

Just a few slides for you, and then we will make our way over to the booth where you can see the Silicon Image dials we’ve above, they’ll take us upfront, and take a few figures to the booth. And so, I anticipate probably go over there by a quarter or two, 10-ish depending on how long the Q&A session go.

And with that, I’ll turn the presentation over to Tim.

Tim Wong

So, my name is Tim Wong, I’m the President of MHL, LLC. What I want to show you is, how we're promoting MHL at the show. So I'm going to introduce Camilla and Betsy, and obviously turn around here. Unfortunately, for the people on the phone, what they are wearing is a 19-inch monitor battery-powered with a MHL cable, and a Samsung Galaxy S II phone, and they are playing very high-res games.

One of the interesting trends in the marketplace today is games like Gameloft’s Modern Combat 3, and Need for Speed 3 Shift are actually made for the big screen. It actually has more resolution than the phone can actually produce. So when you connect it to a monitor, you’re actually gaining the 720p screen and 1080 screens on the game. And so, we actually have them walking before us. We have some of them in some Samsung booth, in LG’s booth, and they have been in Huawei’s booth and they have been basically creating awareness. People walk by and see games being played, high res games being played, and they want to know what’s going on.

And the good news is, they’ve all been trained and are very well-versed in MHL technology, and I will speak to it. And we’ve had people seeing that come by [Washington] from there we’ve had a lot of attraction; one of our demo specialists knows Justin Bieber. So when he was here, we gave him a (inaudible) cable because his brand Rexsol is purple.

So it’s a great way to understand MHL’s technology very quickly. The TVs are actually have been modified, so the remote control you see stuck beside, actually does work with our CP. So I can actually pick up the remote control, stop what they are doing, go to slides, go look at the [deals] pause, fast or rewind.

So our CT, which is the integral part of the MHL technology actually works, basically a fully working demonstration of MHL. The other thing I just want to say very quickly is that, I’m very happy with MHL products announcements at this show. Sharp announced a Blu-ray player, that is when MHL also announced an AVR, that has MHL in it, the real cool media sticks that you plug into an MHL TV then turn it into a smart TV was announced.

LG announced essentially the Nitro HD phone, and their TVs. They are showing, they’re actually demonstrating it in their booth. Samsung announced a new monitor, and what is really exciting about Samsung’s goods is, I endorse you to go there is, they have their mobility, mobile connectivity cable, it’s probably a 20 foot by 10 foot table, seven monitors, all connected to MHL phones, different phones and they’re showing gaming experiences. They have Bluetooth keyboard to show the desktop productivity experience, and they’re just showing all this to who can use this cases of MHL, and we have people. We actually have some of our demonstrations, they’re helping Samsung explain it, and get people to see the demo.

So I’m very happy with the presence. Huawei announced their new phone, and that they are showing in office well. So there is a lot of attraction of MHL and products with brand names at this show. Thank you.

Unidentified Analyst

Still there Samsung Galaxy S IIs. So chamber presents the MHL consortium, or do you have any specific questions where you – probably quick questions regarding the consortium activities. I don’t know what’s really that’s presented, I guess that will be the opportunities (inaudible). It sounds it’s going to be going back to the…

Tim Wong

One of the thing, if you haven’t done the shift, so you’ll see all throughout the show, the Galaxy Note. This is the 5.3 inch phone from Samsung is being promoted that they basically have artist hired, and they’re doing caricature shows because one of the features of the (inaudible) phone is, you’ve (inaudible) actually can do all work on the phone. Well what’s cool is, all of those stations are connected to MHL to a much bigger monitor as you can see what the artist is doing, and they are actually set up in multiple hotels, in multiple locations to see us. So, and they are doing your caricature for free. So go check out, so that’s another way you are seeing MHL technology out there.

Unidentified Analyst

Could you just go through real quickly loosing out MHL.

Tim Wong

Sure. So Sharp has actually…

Unidentified Analyst

They’re involved with?

Tim Wong

Yeah, I have my own list. But Sharp has a Blu-ray player as well as Samsung monitor.

Unidentified Analyst

Monitor, this is a PC monitor got another series?

Tim Wong

Yes. A BenQ actually has three 3D TVs that were announced. Huawei has their sense phone, LG has TVs, O2 has an AVR, and I’m waiting for you to catch-up. Okay, Pioneer has an AppRadios &Mdash radio replacement that has MHL.

The Samsung Series 9, 7 monitors which you just talked about, Sharp has a Blu-ray player and media station because that’s more than just a Blu-ray player, the Verizon LG Spectrum has an LG phone, the AT&T Galaxy Note and the Sprint Galaxy Nexus, all are new phones that were announced. Okay. Yeah.

Unidentified Analyst

(Inaudible) lot more of those?

Tim Wong

I’m starting skew down. So unfortunately, it’s just me surfing and looking at Gameloft’s Modern Combat 3 is one, and the way you know, it’s built for a bigger screen as you download the 8 mega byte app. And in that says, please connect to Wi-Fi to download 930 megs more of information. And the only reason you have that much more is for TV screens. If you see, this is Modern Combat 3. So, actually once you spend, you’ll spend more inside. Actually, our restart commissions are – you’ll see the video and the same things going around.

Yeah. So the other thing I’m saying is, people have made YouTube front app that basically use a bigger screen, have more text, more fun there. So people are now aware of MHL and that you can do it on a bigger screen. One of the things that consortium has done is, we just hired a new senior partner alliance manager who is going to focus on working with game companies, working with application companies, working with a media company to drive more usage or more development of TV friendly app.

We saw this when the iPad first came out that it took a while for people to not just scale up their app, but to actually have it optimize with the tablet. We’re now at another juncture where people need to recognize that you can have content on the TV from a phone and actually have a TV friendly app, but we are starting to see it now, but we need to drive more of that. And that’s one of the things (inaudible) going to focus on this year.

Unidentified Analyst

(inaudible).

Tim Wong

So it is astronomical and I will qualify that. So we started the year in 2011 with 15 licensees in addition to the five founders. And if you look at the list, you probably would recognize any of the names. We are now at 85. So we have essentially – so we are at 85 right now. I expect to keep going, but there is a 5x growth in one year, and it’s all brand names LG, Pantech, HTC, Sharp, Pioneer, JVC KENWOOD, Onkyo. So that’s what I like is, if I look through my adopter list half of the names are well known brand names. So I’m very happy with the rate of adoption. I think 5x growth in the first year is tremendous.

Unidentified Analyst

(inaudible).

Tim Wong

We have seen everything from I think HDC was a record. They joined in one month later. They were already testing products and two months later they were shipping products. So that was relatively fast. Some of these announcements you are seeing with Rocco and I think Rocco joined one month ago and they announced products are going to ship very soon. So it’s very fast. The good news is Silicon Image engineering team is able to – because Silicon Image has chips inside, is able to help design, help people get their products going and in parallel, we workout the adopter agreement and get them licensed and ready to actually release product. so they can actually get pretty far along in the product development stage before they actually have to become a member and that’s courtesy of Silicon Image. Yes.

Unidentified Analyst

And (inaudible) what would be kind of (inaudible) Motorola while they continue to rollout handsets that have micro HDMI versus an Intel? And then I have a follow-up question.

Tim Wong

So why is – I don’t understand it myself. I went to Motorola’s booth, they now have an HD dock for the RAZR, they had a dock for the ATRIX and the first thing I asked is, can you actually pick that up and play with it. If you notice their image, they’re fully connected and they’re able to use external game, they’re able to move around again and that’s what the only cable I need. To have to bring a dock where you have to have an HDMI cable plus a power cable, it is just not a good solution, especially for mobile, I don’t carry all that stuff around with me.

Unidentified Analyst

(Inaudible)

Tim Wong

That is a Samsung Galaxy S II phone. So Motorola have not licensed that (inaudible).

Unidentified Analyst

And the second question is what are the (inaudible) few people working with this except that it is handset tool really even though what I’m talking about MHL, so far as though currently that’s a high end Samsung excuse me, and I asked about MHL didn’t know and I Googled one of the two results that I had.

Tim Wong

Yeah.

Unidentified Analyst

So what is – how that’s going to be a challenge? Help us – walk us through what you’re doing (inaudible)?

Tim Wong

And I completely agree with you. Awareness of MHL is the biggest problem facing MHL today. And that’s why one is, I have ten of these – products specialists whelming the floors bundling people explain what MHL is, but we need to go further than that.

So we have basically working with retail advocacy groups to basically one of the programs we're going to have is going to Best Buy and train all the blue shirts on what MHL is, which products have that, how you connected up. And then of course, now that we have some big brand names Toshiba, Samsung, HTC, LG working with their marketing departments to co-brand and co-promote MHL. And so a great example is Samsung TV reaching after their group to make sure that when they release, if they put it on a box, they put in the manual, it’s on the UI, that something that we’re actively doing with all the consortium members.

And that's what hasn’t been done after this point. But I had Samsung TV, I bought in March last year, I happened to know, I connect my MHL cable to HDMI 3, but there is no indication. If I didn't have an MHL cable, I would not know that. So we’re trying to basically change all that by working very closely with the OEMs.

Camillo Martino

(inaudible) we've been co-brand with constantly by there almost to the (inaudible). So that's we’re hoping to go all that out this year, so we still have 15 co-branding or the co-marketing of the OEMs and possible co-branding (inaudible).

Unidentified Analyst

Thanks.

Unidentified Analyst

Sorry, I probably not exactly (inaudible) with MHL. But I would like to (inaudible) connection with the download (inaudible). When you go and talk to your customers, what do they say? Wireless, actually for wired connections what (inaudible).

Tim Wong

So this is a really easy one. Wireless isn't wireless. At some point you still got to plug it in and recharge. I’ve used wireless at home and my kids got really upset with me because 20 minutes before the movie ended, the tablet died and I had to go find the charger. And so in the end, to me, wireless coexists with wired. Your laptop today has Ethernet and Wi-Fi. You use both.

To me, when Wi-Fi converges hopefully with wireless HD, and it’s easy to use, it’s easy to connect. If they are capable, the smart people working on wireless will get it right and will figure out how to make it usable. So you’ll switch to it. But when you need to charge, switch back to MHL because you can still use it by recharging. But to me it co-exists. It’s not a competitive thing.

I’ll take one more question. I think we have to move on. Go ahead.

Unidentified Analyst

Is there any other silicon provider that's supporting MHL at this point?

Tim Wong

Right now, it’s only silicon MHL. Although if you look through the adopter list, you'll see many semiconductor companies have joined. But no one else has caught it yet. And as you know, it takes a lot to develop a chip.

Okay, thank you everyone.

Unidentified Analyst

(Inaudible)

Noland Granberry

So as you can see a lot of progress with MHL. We are very excited about the progress the Consortium has made. We’re excited about the progress the company has made at Silicon Image with our MHL activity.

Now let me move on to the rest of the presentation. My name is Noland Granberry. I’m the Chief Financial Officer and wanted to welcome you to our CES Analyst Meeting today.

As highlighted earlier, we will go for a quick presentation and then we will head over to our booth and walk through 12x5, before I turn it over to Camillo to take us through the presentation. I have to do some of the upfront work and walk your through the Safe Harbor statement. So I will just go through it pretty quickly here and highlight that.

Any forward-looking statements, our forward-looking statements would include statements regarding our current and future products, our product development activities, customer and market demand, target markets, anticipated benefits of our products, expected financial results, expansion plans, our growth strategies and anticipated growth drivers, our standardization efforts, evolution and growth of adoption standards, and our expected penetration of our target markets. In addition, we may also make other forward-looking statements regarding events that could potentially impact future of the company and its financial results.

These forward-looking statements involve risks and uncertainties, including those described in the most recent Quarterly Report on Form 10-Q and Annual Report on Form 10-K filed by Silicon Image with the SEC, that could cause our actual results to differ materially from those anticipated by the forward-looking statements contained in this presentation. Silicon Image assumes no obligation to update these statements.

And with that, I’ll turn it over to Camillo.

Camillo Martino

Thanks, Noland. Good morning, everyone. Welcome. It’s Thursday, day three, hopefully, you’re all awake and a little bit (inaudible) that’s good. Okay, so we have only, I think, roughly 10 to 12 slides, not many slides. The real story is when you go to our private meeting room. I think you’re going to see all the demos et cetera. But we’re going to cover some slides now that gives you a quick update. And you heard from Tim Vehling, earlier, despite all those pretty really in progress because I am winding over different products that were being out this week that’s actually happening on a daily basis. So it was important for me, business for you as well.

So let’s move on to the next slide, I think and just by the nature of the questions I heard this morning. There really is some confusion out there in terms of different types of standards, whether they’re being wire standard or wireless standard we heard the question from you before it had preview. And in just the wireless world in particular, WiDi and there is another one called, there is wireless HD, there is wireless Wi-Fi display, and (inaudible). And then in the wire there is a whole bunch of different strength as well.

And I think it’s for the average consumer it’s very, very tough to understand. And by the way, if you go into a particular manufacturers demo area you will see how all of these products work well to a certain degree with each other, especially the remote control. But you take it out of the comfort zone, and you put a Samsung TV or the Sharp Blu-ray player and something else and then the whole remote control system is not actually that easy to use anymore, it’s something more complicated. And I think what we do as a company is really make that simple, it just works. Standards is what drives simplicity it’s what drives consumer adoption, it’s what drives volume. That’s the business that we run, is standards in this area.

And here are some examples, I think all of the standards you’re familiar with, HDMI, MHL, Wireless HD, recent one that we added during the year and more recently of course was the Wi-Surf, which is related to the wireless audio, speaker technology as well. So this is really a main focus.

So, if you just look at over the years, there has been a number of innovations and standards that we have introduced to the industry going way back in the panellink days and right up in some more recently with the MHL Wireless HD and some of you may have noticed the HDMI Forum announcement as well the HDMI Forum announcement for those of you who maybe not thing close enough attention to it. It was an announcement that was much larger than just a consumer industry which is where we were before. We now have other industries in particular the PC industry that has joined us and we believe that’s a great way to further expand the overall market size. So this is another innovation. And the last, the most recent announcement was Wi-Surf announcement.

And you see this technology, Wi-Surf technology in our meeting room. We have speakers in that little feel the room environment totally wireless apart from the power cable. So Tim Wong said before, he has done the power cable for the speakers but you can position these speakers anywhere in the room and you will automatically just synchronize for the optimum audio sound quality wherever you are sitting, wherever you are sitting. It is quite an interesting experience. So I thought it would be a good opportunity to just to quickly highlight or recap what has happened during the last couple of years and where we plan to go in the next year or two as well.

So if you go back in 2010 specifically, I think what we did, what we’re trying to do and I think we have done this successfully, is to reposition the company back onto connectivity. That is the core of the company. That’s the focus and I think everything we are doing or the announcements we’re making, or the products we’re shipping are very much inline with this strategy.

Secondly, we launched the MHL specification, I see a lot of questions or why are the people out of four, what they know about MHL, and frankly just as disappointment as everybody else. The very first specification, let’s not forget was only announced June 30 of 2010.

And the fact that we've got the volume that we did. 2011 was the first year, actually roughly I would say like three quarters of real business and we think the full year frankly speaking of adoption. And so if you look at that context MHL as done phenomenally well in considering that somebody launched, specification was launched June 30 of 2010.

And I think the other thing we really were focused on and we told all the investors and analysts that beginning was to restore the company back to financial stability. I think everyone saw what happened during 2008, 2009 periods excessive revenue declines and our main focus was to restore the company back to some respectability. And I think we did that, we put some cash away and we got the profitability both GAAP and non-GAAP basis. So that was a good thing in 2010.

So in 2011, we continue to execute to the plan that we articulated really on. And in particular, we really became a major supplier, leading supplier to the mobile phone instruments which should never ship to before in the box at all. This is a very material thing for us as a company and being able to ship to Samsung and HTC they were the first two smartphone manufacturers that we were shipping soon. So we're happy we achieved that goal.

The other thing in 2011 is according to (inaudible) we use basic statistics, they were over 50 million products shipped with MHL during 2011. Again, considering that the very first specification only came in June 30. This number was every bit, actually it’s a lot more than what we thought to be honest. I mean what everybody in the room thought. So this is what actually happened during 2011.

The other activity that took place last year is what we’ve been saying for some time, we wanted to add wireless to our portfolio. Not as a replacement, it is an additive, it is a complementary technology to the portfolio. We say this over and over again, and we’re going to continue repeating it. Adding wireless to our portfolio is not to replace the wired technology, it is additive, it’s complementary to our wire technology. And so, we executed on that plan as well.

And finally, we wanted to further expand the HDMI market opportunity, and reach in particular to the PC, lots of category and so we created the HDMI forum. And today there is a lot of company that have joined the forum. We have a board of directors, I welcome all of you – to encourage all of you to go and look at the website for the forum and see who is actually on there. It’s a complete boarding system. All companies are elected to the board of directors; a Chairman is elected, et cetera, et cetera.

So it’s a legitimate organization, in fact Silicon Image was elected to the Chairman position as a pure, elected by the (inaudible) members across all industry. So I think that was a major accomplishment for us as well.

So what is our vision? We try to make this very, very simple. We want our HD technology to be deployed into every mobile device, every consumer device and every PC device. That is a very simple mission, what we did achieve, but that is our mission.

And whether it’s a semiconductor technology, whether it’s intellectual property that we license or even software and services that you know may be who knows in the future we may get into, but really everything we do, we want to be touching every one of these devices, that is our basic vision.

On this slide we show the expansion just through the increasing market opportunity for us as a company over the years. In fact now that we’ve added the mobile segment, you’re starting to see we’re talking about billions. When the company was first founded the market opportunity was probably 100 million units, going for 200 million units. And so over the years our addressable market has continued to expand and that is the purpose of this slide. So it’s a great opportunity for us and our goal is go and take advantage of it.

Now on this slide you already heard a little bit earlier this morning from Tim Wong in terms of some products that were announced and so this just summarizes some of the products out there not all the products, not all inclusive but some other products that were announced on the tablet side, the handset side, the cable, the cabling side, TVs were announced this week, LG was out there.

The most recent – there is another interesting announcement that was made recently Samsung PC monitor and we’re starting to see the PC monitor industry showing some solid interest in the MHL interface as well. And we have the Samsung monitor actually in our booth, private meeting areas, when you come over we’ll welcome with that as well.

So this is an example of the various products that we actaully have some of them for, some of that private meeting area as well. I think everything we said that would happen in terms of number of TV companies that are going to be deployed over the next 12 months, 18 months, and you go back to what we said a year ago, I think frankly, everything that we said is starting to materialize. The only difference is, the volume's greater than what we thought, that’s probably the only difference.

So looking out forward in 2012, what is our focus? What is our main focus? This is really a big objective for us. Our goal is to deploy MHL technology into over 100 million units. Now the vast majority of this is mobile phones. That’s true, more than half of its phones. But we also have a significant number of TVs in this category, and there is accessories, cables would have you, and we believe, or the MHL Consortium believes that there would be well over 100 million units in 2012.

And if you continue this out and you look at some of the interesting companies that had become adopters of MHL, such as Qualcomm and MediaTek and Mstar, if you extrapolate a little bit a couple of years where the entry level, not just the high-end, but the entry level phone and the entry level TV will start to adopt MHL into the SOC as well, it is conceivable, it is absolutely conceivable that within the next three years the installed base of MHL will exceed 1 billion units. It is absolutely conceivable. And that’s not all our chips.

But as an industry servicing this market, we believe it’s definitely possible there will be one billion products out there, installed base, with MHL technology on it. Now, just comparative to other standards out there in the industry, that's a pretty rapid adoption.

The other thing that we've been talking pretty openly in the last six months is, what are we doing with 60 GHz technology when we acquired the technology back in May of last year? The previous company, SiBeam, was more focused on connecting Blu-ray players to television screens, and in that sort of environment you need to have the absolute highest performance, highest technology, lots of antennas, very expensive, very power hungry, and frankly, it did the job pretty well. For all the [bits and focuses], it was the state-of-the-art solution out there.

But what we’re trying to do right now is to leverage all of the customer relationships we have today in mobile and try to reposition this technology for the mobile space. That is what we’re trying to do.

Now what you're going to see in our Mini area is a technology based on what we called Generation 3. And so we're bringing up Generation 3 right now. It’s within a few months, probably around three, four months, but we would say it’s mature and ready for primetime in terms of its maturity level. And then in the next quarter or so, we're going to start engaging heavily with customers in the whole promotion activity et cetera.

But that solution, Generation 3 is what I would say is applicable, not just that to televisions but also to tablets, docking stations. Power is come down significantly over Gen 2, but it's not sufficient yet for handheld solutions. But that's Generation 3.

Now we’re also going to say publicly that we’re in heavy development of another generation and that generation we anticipate is truly going to be a handset solution. And it’s a handset solution with extremely low power, acceptable performance and we expect to sample that solution in the latter part of this year. And we expect generating revenue from that particular handheld solution in the second half of 2013. I think we’ve been very clear on that. We’ve been saying that schedule over and over again. And think we’re comfortable in executing to that plan.

And I know (inaudible) you asked the question also about standards, there is so many different standards out there. Here is the way I would address that comment – that question. There is two basic frequencies, let’s just (inaudible) different types of standards, but there is two basic frequencies. There is the Wi-Fi frequency band, which is 5 gigahertz plus 2.4. At the end of the next few years Wi-Fi is going to be mostly 5 gigahertz. And what WirelessHD is doing, and even WiGig for those of you’re familiar the WiGig life is also based (inaudible). So 5 gigahertz and 60 gigahertz, sp they are the two primary frequency bands in this industry.

Now if only you’re doing (inaudible) if only you’re doing is streaming content, you have content on your tablet or your phone, you are streaming one way. Whatever is there you see it on the stream Wi-Fi is late. (inaudible) by the way, when I say is great, it’s not great if you’re on the show. There is so many 5 gigahertz going on so the company is doing, I think Broadcom is the only one successful there overpowering the standard. The transmitting actually slightly out of the legal area, and they are going for (inaudible) but they are bombarding everybody around them right now and we are actually right next to them.

So it’s quite interesting to see what’s happening on the floor. It is very tough. By the way, if you are on the top of building, this is one of the issues with 5 gigahertz. Or even if you are in a dense neighborhood, this is one of the fundamental issues of interference. So 60 gigahertz by definition is not a multi-room experience. It is only an in-room experience. So by definition you don’t have these interference problems.

So let’s go back to these 5 gigahertz and 60 gigahertz. Five gigahertz is fine if you are just transmitting content in one direction. However, if you want to interact any form of interaction with a large screen, interaction might be gaming. We just saw the gaming demos earlier this morning from the MHL team in a cable environment. But if you want to do the same demo in a wireless world, we believe that 60-gigahertz, the value propositions much stronger in terms of the user experience. It is low latency, very low latency, not the 100 million (inaudible), 200 million (inaudible), we're talking about 2 million. It is extremely low latency, and that is the value proposition.

In no way, shape or form are we saying, are we silly enough to say here in front of you that 60 gigahertz is going to replace Wi-Fi. That is not the intention. It is going to co-exist. Look at what is happening today. You have Bluetooth, you have Wi-Fi, you are very afraid of the Wi-Fi. Now we have NFC, near-field communications, you have another radio. These are all co-existing. It's not replacing each other. And this will be yet another radio. The challenge is, how low cost can we make it? And that’s what we are focused on right now.

I’m not sure if that answers exactly your question, but when you go over to the meeting area, we can chat in more detail later, but you see the demo that will explain exactly what I am saying.

Another thing we’re doing is try to drive, there is going to be a new wave of high resolution screens in the coming years. Probably you’re going to start seeing standards first emerge in the next 12 months. So what are the standards to support the full pay resolution? And I think next year and the year after you’re going start to see a trend upwards in volume and 4K display. So this is, again this is a not a one year cycle. 4K screens are going to be one of the five year plus replacement cycle or actually even more than five years so unless TVs are not (inaudible) years.

And the other thing of course is to continue the efforts on the HDMI forum that we mentioned just a little bit earlier. So these are really some of the high level strategic initiatives that we are focused on as a company in this year. So in summary, we are focused very heavily on HD connectivity much as video but also audio and I think the (inaudible) announcement is an example – supporting of that statement.

We are focused with very high volume growth markets. As you can see very clearly our addressable market today is very different to what it was four or five years ago to companies much larger addressable market. In addition, we’re a standard champion. You can see all the different standards that we are – not just participating actually driving very aggressively. We started to build some very material strategic customer relationships. It traditionally was in consumer electronics and that is now starting to expand into the mobile segment. That is an important thing. Why is that important? Well, when we come out, and today we have MHL doing very well within the mobile community, but when we come out with a true handheld wireless solution, it is the same customer base. It is the same value proportion.

I think the value proportion of 60 gigahertz uncompressed, 5 gigahertz is compressed technology. So when we come out with a 60 gigahertz handheld solution as the same customer base that we’re selling to today, it just happens to be a wireless technology. So that relationship is very, very important. We’re sowing the seeds for when we have the handheld solution ready.

And finally, as you can see, we’re starting to expand the product portfolio that we have, but very much focused on connectivity. That is really the essence of the company. That is the strategy of the company. And those I mentioned very early on. Really this is what we are trying to push as a mantra, as a tag line. It truly is HD connectivity. It just works. I know it may sound simple, may sound dumb, but behind that segment there is a lot of complicated technology [and business] that have to go in to make that statement true. That’s what we do. HD connectivity, that just works. That’s the closing slide.

So we have deviated from past presentations where, I think, those presentations are on the website of company. All of you and what have you, I think, we can’t talk of those. We wanted to just capture a few different slides for the show today, and hopefully that helps answer some of the questions you might have. But we do welcome questions now, and then we're going to be going if you like to come in a bus with us over to our meeting area.

Question-and-Answer Session

Unidentified Analyst

(Question Inaudible)

Camillo Martino

I think simply at this time, we only have four calls unfortunately, but we had the first one of course smack that in there. WiSA as an initiative, actually we have a meeting room, we’re promoting, we’re actively promoting, we are one of the members of that organization. Because we felt, we felt that it would be great to be able to mix and match speakers with different TVs and Blu-ray players that you got to standardize it, that's where we started.

And then we started understanding based on that mobile relationships and leveraging that, imagine coming in to your home or office or wherever you may be, and if the speaker supported by WiSA standard, if your phone or tablet supported the WiSA standard and we have plenty of content on the tablet and phone, and as you walk into the room we have increased the volume, and you just play the music directly on to a speaker, I mean you need standards for that.

And so it is a focus for us, I think in terms of revenue, it's more of a 13 and beyond story in terms of revenue, but we’re sowing the seeds now, we’re trying to fill the ecosystem now and recoup from the revenue in the later.

Unidentified Analyst

Well, you've talked about (inaudible) 2012. Let me kind of do the math, it seems like this year, as in 2011 based on the MHL revenue and even the ASP, we probably did 60 million in 2011, (inaudible) with anything like half to the 100 million or more than have to be from the…

Camillo Martino

Well, they were – that’s a good point. First of all the statement is more of a broad brush directional comment, it wasn’t meant to be a guidance in anyways they perform. So when I say, over 100 million, it doesn’t necessarily mean 101, necessarily. So look the moment here right, if you look at the momentum, the mobile phones, you need to extrapolate that out because the overall market size is growing, at the same time there is going to be some ASP reductions that we talked about which is common from year-to-year.

At the same time, we’re adding more customers, as you can see we’re adding more customers, right. So overall, it is going to grow, there is no question. No one was just mentioning that the earlier numbers of course included HDMI mobile as well and that’s being replaced completely with MHL. I think, in 2012 my guess is very close there, over 90% or may be over 95% all that mobile category – revenue category will be MHL, so yes.

Noland Granberry

You know, and that’s probably to press on that, a competitive landscape standpoint, MHL was first seems to frame but things like USB (inaudible) HDMI standard later this year, trans which is – there you could determine if any HD mobile strategy coming soon.

Unidentified Analyst

You talked a little bit about the competitive landscape. Is it getting more confusing out there from a customer standpoint or do you continue to be able to break through? And as it relates to USB 3.0, and I guess we are heading where MHL's [heading], MHL 3.0. Given the higher pin count, does your throughput just go up in theory with a USB 3.0 connector itself?

Camillo Martino

As you questioned, different standards et cetera, is it confusing? I think for some, yes. I think the fact that we have gone from 0 to 50 million to over 100 million, just to use those numbers there, the story is pretty clear. To some people at least it's a good thing, otherwise you wouldn’t pay the dollar just to leave it there.

People understand what we do as a company. They understand our background, our heritage and what we can deliver and I think that’s why they trust us to continue to execute on that plan. Now if you fast forward, and today with the speed or the throughput, and MHL is in the 3 to 4 gig cost, it’s in that level with MHL 1.0, I think the industry is expecting an MHL 2.0 standard to be announced shortly and I think that’s our expectation as well that that would be announced.

So I think the industry or the consortium is also actively working on a 3.0 and architecting a 4.0. I think the next three years are pretty well, at least from a Silicon Image point of view and we are one of the five [common] companies, I think we understand where we would like the technology to go but the throughput is definitely going to be increasing. That’s one of the areas. The throughput will definitely increase in the coming year or two. That’s what we expect and that’s what we need.

Noland Granberry

I guess what I would reiterate is that our (inaudible) the use case is the end customer. I've talked about this before, there have been OEMs adopting it. The end user is actually using it because there still is need to buy the cables. These are might be bundled and there is a lot of legacy TVs out there.

Unidentified Analyst

So therefore there is some sort of cost either to the OEMs or to the consumer. We’re actually using it and any thoughts on use case.

Camillo Martino

Well I think the whole purpose for starting today with the consortium, I think I’m not sure you may have missed the very beginning and what they’re doing at the show and what they’re doing outside the show is to directly address that point. I mean, the first phase for us was to make sure this interface was deployed on as many products as possible because if you start the other way around, if you go and talk to retail companies or cell phone operators or the [content] companies and say, hey, Wilson, MHL is coming, you can do X, Y and Z whenever it’s ready. They guys say, come back when you’re ready, okay. So when you have a real ecosystem on your hands, come back and talk to us, otherwise you’re wasting my time.

so we had to focus on getting the products out there. Now we’re in the second phase and it’s the awareness, marketing awareness. Use case is very, very important. As you would imagine in the first year, which was last year, the ratio of adapters for handsets was very low. This is what we’ve been saying openly. Many times it’s very, very low because the awareness wasn’t there. we expect that trend to trickle up over the coming years as we start to increase marketing awareness, and I think that’s probably the best answer I can give you [Raja] at this point.

Unidentified Analyst

(Inaudible)

Camillo Martino

Yes.

Unidentified Analyst

(Inaudible)

Camillo Martino

Yeah.

Unidentified Analyst

(Inaudible)

Camillo Martino

Yes.

Unidentified Analyst

(inaudible)

Camillo Martino

Yes, they have the pure view. I think we were just talking before, yeah.

Unidentified Analyst

(inaudible)

Camillo Martino

I think their argument was the same thing that (inaudible) was used against HDMI for many years, that didn't go very far. So I don’t see (inaudible). Honestly, I don't. As you can see, three TV companies in terms of tier one at least were supporting it. We expect some other announcements in the next 6 and 12 months, and yes, we have been pretty consistent on that.

I think the real story, the real success factor is going to be, in our opinion, when the basic television will support MHL. In order to do that, you need to have MHL built-in to the entry level SoC. It has to be there. If all MHL is, is a high-end 20%, 30% feature, frankly, that’s not a standard, that’s just a nice feature.

So when you look at companies, as I mentioned earlier, like Mediatech as well as MStar, which are probably arguably the top two TV SoC companies out there adopting this as a technology, that’s goodness. So in the coming year or two, you will start to see it more mainstream as appose to, I have to buy a 15 inch TV to get it make sure those done. You sell everywhere, not just on the very high end. Remember, this is 2012, is year two. So if you compare this device, nine years old today. It takes a little bit of time. Now luckily, MHL, we’re going to take nine years. (Inaudible) it’s not going to take nine years from an adoption, I think the reason why HDMI took nine years to where it is today is if you cast your mind back at that point in time, how many of us have flat screen TV at home. How much HD content was available? Not very much, and so that’s why it took time; today, that problem is out there.

Unidentified Analyst

I have two questions. One is, can you talk a little bit about your royalty?

Camillo Martino

Yes.

Unidentified Analyst

Do they still remain on the HDMI side? Look for royalty structure on the MHL side. And then, the second question is, can you give us a sense of (inaudible) to know about. It would be interesting just in terms of usage.

Camillo Martino

Yes. So in terms of royalties, the HDMI royalties will continue. Whether any adopter, any product will have to pay a forcing royalty to the consortium, which will be shared as per the formulas.

Unidentified Analyst

From an HDMI side?

Camillo Martino

On the HDMI side, so that’s going to continue, that doesn’t change. MHL is a similar model where the adopter ratio will also pay $0.04 to the consortium, which is shared through various founding members. So it’s a similar structure.

Unidentified Analyst

Could you give a similar thought on the MHL side?

Camillo Martino

So marginally, probably a little bit. Nothing (inaudible) but marginally larger.

Unidentified Analyst

(inaudible).

Camillo Martino

Yes. So I think some comments that – I don’t the exact number, let me start off with flat. But I think what I’ve been saying for the last six months is, I think for the attach ratio between a dongle and a handset is probably 10:1. That was kind of the proxy, the best proxy we were using. But I don’t have the actual data right in my hand to support that statement. But I cannot still choose by looking at various activities going on with in our organization, it cannot spelt more of a 10:1 sort of a – that’s why I made the comments that I made before, which is the use case needs to be established further, when that 10:1 is closer to 8:1, 7:1, 5:1, et cetera, then you know the use case is really starting to take effect.

[Multiple Speakers]

Camillo Martino

Very good. That’s a good point.

Noland Granberry

At this point in time, our bus is upfront waiting and we are good to go the booth and check out for the demo. So this concludes our webcasted portion for today. Thank you very much joining. And folks in the room could follow us on to the front row of the buses. Thank you everyone.

Operator

Thank you participating in today’s conference. This concludes today’s program. You may all disconnect. Everyone have a great day.

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