Silicon Image Eyes Smartphones, Tablets For WirelessHD

The mobile business, driven by HDMI and MHL (Mobile High-Definition Link), was up in Q1 at Silicon Image, offsetting a 17 percent decline in the company’s CE segment versus Q1 2011, said CEO Camillo Martino on the company’s earnings call Tuesday. Silicon Image’s CE segment faced “continuing challenges” in the quarter as its CE revenue was “less than expected,” Martino said, citing “billions of dollars” in losses from tier one TV manufacturers in a business that “still has not stabilized.” The company forecasts volatility will continue through the year before stabilizing in 2013, Martino said, when Silicon’s InstaPrevue technology, investments in the home theater product line and “potential for new MHL and HDMI specifications” are expected to bear fruit.

Growth in TV shipments that the industry has reported recently is in the value segment, and “we're not directly participating in that” because of the company’s focus on the premium slice, Martino said. The outlook for the rest of the year isn’t any brighter for the company’s CE business, with revenue expected to fall “at least 15 percent and potentially 20 percent,” more than expected, he said. While the TV business is “a disappointment,” Martino said that doesn’t change the company’s position that “in order to drive a connectivity standard, you need to participate in both ends of the ecosystem. You can’t just play on the mobile side,” he said, saying a strategic position on display is “fundamental” to the business model.

Silicon Image is “pleased with the progress” of the HDMI Forum formed in October to develop future versions of HDMI, Martino said. Forum membership is now at 59 members, he said, representing PC, semiconductor and CE manufacturers. A refresh of both HDMI and MHL standards later this year “could be another catalyst for growth” in 2013 and 2014, he said.

Revenue growth is being driven by Silicon Image’s mobile product line, Martino said, as MHL is being adopted by “many smartphone and tablet OEMs.” He referred to new product announcements at CES in January and Mobile World Congress in February from Samsung, LG, HTC, Huawei, Pantech, Lenovo and others. On the TV and display side, TV makers including Samsung, LG and Toshiba are shipping TVs with MHL, he said, and Samsung is also shipping MHL-equipped PC monitors. Additionally, Onkyo has MHL-equipped AVRs, Sharp has a Blu-ray recorder with MHL, Pioneer sells an aftermarket AppRadio with an MHL input and Roku will deliver this year its Streaming Stick with MHL that plugs into a USB port on a TV to make it “smart,” he said. By the end of Q2, Silicon Image will have “a better idea” of the number of MHL smartphones that will ship this year, Martino said, reinforcing company claims that it will “meet or exceed” its forecast that 100 million MHL-enabled mobile devices will ship this year.

Based on response it has received for MHL, Silicon Image plans to expand into areas it “didn’t anticipate” including the automotive industry where it is talking to companies about integrating smartphones into entertainment and navigation systems, Martino said. The company expects revenue from the automotive push to start in 2014, he said. Another potential application is “smartphone-based computing” in emerging countries where smartphones are bringing Internet connectivity to areas where landlines aren’t common, he said. Consumers are increasingly connecting keyboards to smartphones to have Internet access in India and China, and the company is exploring the potential of such a market, he said.

An uptick in trade press coverage of MHL has led to an awareness of the benefits of the technology at retail and to improved attach rates, Martino said, but “there’s still a long way to go.” Martino believes MHL familiarity and adoption will be faster than the adoption of HDMI, however. When HDMI came on the scene almost 10 years ago, the penetration rate of flat-screen TV was “pretty low” and HD content was limited, he said. “Those challenges don’t exist today,” he said.

Silicon Image’s 60 GHz wireless business is on track, Martino said, with second-generation product currently available in Dell gaming laptops and an Epson 3D projector, while third-gen products are expected to sample later this year. When Silicon Image bought Sibeam and its 60 GHz technology last May, mobile wasn’t seen as the primary application for the technology but that has changed, Martino said. Silicon Image has “made a conscious decision” to boost and accelerate WirelessHD for the smartphone market, which offers “the most significant opportunity” for the technology, he said.

WirelessHD competes primarily with “various flavors” of 5-GHz video connectivity standards but offers a “more robust experience,” Martino said. While 5-GHz is fine for point-to-point video transmission, he said, WirelessHD is better able to handle high-res with the low-latency requirements of interactive gaming. Reducing the form factor for a handheld device while achieving low latency and low power will require “significant investment…probably in the $4 million range,” he said, adding the company believes the investment will begin to pay off in latter-half 2013.

Silicon Image revenue for Q1 2012 was $55 million, compared to $58.7 million sequentially and $49 million year over year. The $9.6 million net loss compared with $10.2 million at end of December and $820,000 in Q1 2011, the company said. Operating expenses were higher than forecast due to increased marketing for MHL branding, R&D expenses, the MHL automotive initiative and higher-than-planning transition costs for a new R&D facility in India, the company said. Silicon Image shares closed 13 percent lower Wednesday at $4.98.