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corresp

May 16, 2005

VIA FEDERAL EXPRESS AND
EDGAR

Securities and Exchange Commission

450 Fifth Street, N.W.

Washington, D.C. 20549-0306

Attention: Michele Gohlke, Branch Chief

    Re:

    Silicon Image, Inc.

    Form 10-K for the year ended December 31, 2004 & related materials

    Form 8-K filed January 25, 2005

Dear Ms. Gohlke:

     Reference is made to the letter, dated April 18, 2005, of the staff (the “Staff”) of
the Securities and Exchange Commission (the “Commission”) addressed to Silicon Image, Inc.
(the “Company”), regarding the above-referenced filings. Provided below are responses to
each of the numbered comments of the Staff. Please note that the headings and numbers of the
responses set forth below correspond to the headings and numbers of the comments contained in the
letter of the Staff.

Form 10-K for the year ended December 31, 2004

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
— Page 24

Annual Results of Operations — Page 35

    1.
    We note you have included multiple non-GAAP financial measures that exclude the effects of
stock compensation expense. Item 10(e)(1)(ii)(B) of Regulation S-K prohibits the exclusion of
items identified as non-recurring, infrequent or unusual items. While there is no per se
prohibition against removing a recurring item, you must meet the burden of demonstrating the
usefulness of any measure that excludes recurring items. Revise your filing to remove the
non-GAAP financial measures. Alternatively, provide details that demonstrate the usefulness
of the non-GAAP financial measures and provide all of the disclosures required by Item
10(e)(1) of Regulation S-K for each non-GAAP financial measure presented. Refer to SEC
Release 33-8176 and also Question 8 of the FAQ Regarding the Use of Non-GAAP Financial
Measures, dated June 13, 2003.

Securities and Exchange Commission

May 16, 2005

Page 2

     The Company has reflected the Staff’s comments in the “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” section of the Company’s Form 10-Q for the quarter
ended March 31, 2005, and intends to similarly reflect the comment in its future filings. The
Company respectfully submits that it should not be required to also amend its Form 10-K for the
year ended December 31, 2004, for the following reasons.

     First, the relevant information set forth in the Form 10-Q is generally of the same level of
detail as that included in the Company’s 2004 Form 10-K. Accordingly, we believe the scope of the
disclosure in the Form 10-Q addresses the comment as fully as would an amendment to the Form 10-K.

     Second,
in 2001 and early 2002, the Company’s disclosures in its Form 10-K for the year ended
December 31, 2000 were reviewed by the Staff. Prior to that review, the Company’s MD&A discussed
gross margin, research and development expense and selling, general and administrative expense
excluding the effects of stock compensation expense, and the Staff commented on this disclosure,
requesting that the Company expand the disclosure to discuss variances in these items inclusive of
expenses related to stock-based compensation expense. The Company responded to this comment by
providing the requested disclosure in its Form 10-K for the year ended December 31, 2000 and has
provided similar disclosure in each subsequent periodic report. Accordingly, the disclosure in the
2004 Form 10-K was consistent with the Staff’s comment that was provided in the 2001-2002 review,
and the Company believed at the time of the 2004 Form 10-K filing that its disclosure was
consistent with SEC Release 33-8176 and Question 8 of the FAQ Regarding the Use of Non-GAAP
Financial Measures, dated June 13, 2003.

     For the foregoing reasons, the Company respectfully requests that it not be required to amend
its Form 10-K for the year ended December 31, 2004, but rather that the Staff consider the
Company’s updated disclosures in its recently filed Form 10-Q for the quarter ended March 31, 2005.

Item 9A. Controls and Procedures — Page 66

    2.
    We note your disclosure that your “Chief Executive Officer and Chief Financial Officer, and
Chief Accounting Officer concluded that [your] disclosure controls and procedures as of the
end of the period covered by this report were effective in ensuring that all material
information required to be disclosed in the reports [you] file and submit under the Securities
and Exchange Act of 1934 has been made known to them on a timely basis and that such
information has been properly recorded, processed, summarized and reported, as required.” The
language that appears after the word “effective” appears superfluous since the definition of
disclosure controls and procedures is included in Rule 13a-15(e) of the Exchange Act. Revise
to state simply, if true, that your management determined your disclosure controls and
procedures were effective. Alternatively, if you wish to

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May 16, 2005

Page 3

    include the definition of disclosure controls and procedures, please revise so that it
matches the definition included in Rule 13a-15(e) of the Exchange Act.

     The Company has reflected the Staff’s comments in Item 4 of its Form 10-Q for the
quarter ended March 31, 2005, and intends to similarly reflect the comment in its future
filings. The Company respectfully submits that it should not be
required to amend its Form
10-K for the year ended December 31, 2004, because the Form 10-K disclosure has been
effectively superseded by the disclosure in its Form 10-Q.

     In addition, although the Company acknowledges that the language after the word
“effective” in the Form 10-K did not precisely match the definition included in Rule
13a-15(e) of the Exchange Act, the Company believes that such language is, in substance,
virtually the same, and is not intended to limit in any manner the meaning of the term
“disclosure controls and procedures” as set forth in Rule 13a-15(e). Accordingly, the Company believes that an
amendment of the Form 10-K to revise such language would not provide meaningful new
information to investors. Accordingly, the Company believes that it should not be required
to file such an amendment.

Consolidated Financial Statements

Note 2 — Business Combinations — Page 84

    3.
    We noted that you recorded a non-operating gain of approximately $4.6 million in the year
ended December 31, 2003 related to a settlement whereby you received 949,780 escrowed shares.
Please supplementally tell us and revise your filing to disclose the following:

    a)
    Discuss how you originally accounted for the shares that were placed into
escrow at the date of acquisition. Refer to paragraph 26 of SFAS 141.

    b)
    Describe in detail the events and circumstances that led you to make a claim
against the escrow pools.

    c)
    Describe how such events resulted in you recording a $4.6 million gain in 2003.
Address why you concluded that this amount should not have been recorded as a
reduction to the original cost of the acquired entity. Cite the accounting literature
upon which you based your conclusion.

     We respectfully direct the Staff to Note 2 of our Form 10-K/A for the year ended December 31, 2001
filed on July 12, 2002 as delineated below:

     “On June 7, 2001, we issued approximately 6.4 million shares, including 1.4 million that are
held in escrow, of our common stock in exchange for all outstanding shares of CMD, a provider of
storage subsystems and semiconductors. The total purchase price for this acquisition was $45.1
million, consisting of common stock with a fair value of $30.6 million, 3.7 million stock options
with a fair value of $13.6 million, and transaction costs, consisting of investment advisory, legal
and other professional

Securities and Exchange Commission

May 16, 2005

Page 4

service fees, of $865,000. Common stock was valued at $4.94 per share using our average closing
stock price for the four-day period ended June 7, 2001, and has been reduced for known
contingencies pursuant to an Escrow Agreement. Stock options were valued using the Black-Scholes
option pricing model, applying a weighted average expected life of 2.75 years, a weighted average
risk-free rate of 5.0%, an expected dividend yield of zero percent, a volatility of 90% and a
deemed fair value of $4.94 per share. The intrinsic value of the unvested options, totaling
approximately $6.3 million, has been recorded as unearned compensation”.

     “Escrow shares are being held as our security for indemnification obligations of CMD’s
shareholders and were originally included as part of the purchase price as a pre-acquisition
contingency. Pursuant to the escrow agreement, we have until June 7, 2002 to submit escrow claims,
and have submitted claims for approximately 1 million shares to date to be returned to us. There
can be no assurance that our claims will result in shares being returned to us. In accordance with
SFAS No. 38 and SFAS No. 141, once adopted, if shares are returned to us prior to June 7, 2002, we
will adjust our purchase price by reducing goodwill on our balance sheet by $4.94 per share, which
is the per share value initially used to determine the acquisition purchase price. If shares are
returned to us after June 7, 2002, we will record non-operating
income for $4.94 per share”.

     In addition, we note
that paragraph 26 of SFAS 141 states:

     “Cash and other assets distributed, securities issued unconditionally, and amounts of contingent
consideration that are determinable at the date of acquisition shall be included in determining the
cost of an acquired entity and recorded at that date. Consideration that is issued or issuable at
the expiration of the contingency period or that is held in escrow pending the outcome of the
contingency shall be disclosed but not recorded as a liability or shown as outstanding securities
unless the outcome of the contingency is determinable beyond a reasonable doubt (Opinion 16,
paragraph 78)”.

     As described above, the escrow shares were valued at the date of the acquisition (EITF 99-12) and
included in the cost of the acquisition and disclosed pursuant to
paragraph 26 of SFAS 141. As per the
purchase agreement, 1.4 million shares were placed in escrow as security with respect to the
realization of the storage board inventory.

     We have attached for your reference a copy of the settlement agreement dated February 28, 2003
between the principal shareholders of CMD and Silicon Image. The settled dispute focused on
acquired storage board inventory. At the acquisition date
(June 7, 2001), there was no
information which would have led us to believe that either the
acquired inventory or the

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May 16, 2005

Page 5

escrow share contingency
would not be fully realizable. We note that the storage board inventory at
acquisition date was initially recorded pursuant to FAS 141 Par. 37(c).

     Subsequent to the acquisition, we noted a steady and protracted decline in the demand for storage
board inventory. Our policy requires us to review all inventory periodically for potential excess
and obsolescence. Specifically, we recognize a provision for inventory on hand in accordance with
SAB No. 100, when quantities exceed our six-month forecasted
demand. Our analysis at that time indicated that a
significant portion of the acquired storage board inventory was not realizable due to:

    •
    Advancements in technology

    •
    Loss of two strategic customers

     As a result of the above, we wrote down the value of the storage board inventory (Costs of Good
Sold) in the latter part of 2001 and early 2002, and subsequently scrapped the product.

     Due to the lack of realizability of the acquired storage board inventory, we approached the sellers
to demand release of the escrow shares. The sellers refused to release the escrow as they believed
our claim was not valid. On August 7, 2002, after protracted
discussions, we filed a demand for arbitration as documented in the
February 2003 settlement agreement (see below) and as was disclosed in Note 12 “Subsequent Events” of our 2002 Form 10-K as
follows:

     “On August 7, 2002, Silicon Image filed an arbitration claim against the four principal
shareholders of CMD Technology (collectively, the “Significant Shareholders”) for indemnification
claims under the Severance Escrow Agreement and General Escrow Agreement. Subsequently, on February
28, 2003, Silicon Image and the Significant Shareholders entered into a Settlement Agreement and
Mutual Release pursuant to which they resolved such indemnification claims and agreed upon the
respective numbers of Severance Escrow Shares and General Escrow Shares to be released to Silicon
Image and the Significant Shareholders. As a result of the settlement, we expect to receive 949,780
of the escrowed shares, valued at approximately $4.8 million”.

     We evaluated the
realizability of the escrow shares as an asset, and due to
the uncertainty of the arbitration, we concluded that such an asset would not be realizable.

     On February 28, 2003,
nearly seven months after we filed a demand for arbitration and
nearly two
years after the acquisition date, the Company and the principal shareholders of CMD entered into a
settlement agreement. We respectively direct the Staff to Note 2 of our Form 10-K filed March 16,
2004 as follows:

     “On June 7, 2001, we issued approximately 6.4 million shares, including 1.4 million that were
held in escrow, of our common stock in exchange for all outstanding shares of CMD, a provider of
storage subsystems and semiconductors. The total purchase price for this acquisition was $45.1
million,

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May 16, 2005

Page 6

consisting of common stock with a fair value of $30.6 million, 3.7 million stock options with a
fair value of $13.6 million, and transaction costs, consisting of investment advisory, legal and
other professional service fees, of $865,000”.

     “A certain number of shares were being held in escrow as our security for indemnification
obligations of CMD’s shareholders. On August 7, 2002, we filed a demand for arbitration with the
American Arbitration Association, file #74 Y 117 01399 02 GAP, against the principal shareholders
of CMD relating to shares held in escrow in connection with our acquisition of CMD. Pursuant to
agreements by which we acquired CMD, a portion of the Silicon Image common stock issued to the
principal stockholders of CMD was held in two separate escrow pools as collateral for the
indemnification obligations of these shareholders. We previously made indemnification claims
against these escrow pools for the release of escrow shares with a value of approximately $5.4
million, which claims were contested by the principal shareholders of CMD. On February 28, 2003, we
and the principal shareholders of CMD entered into a settlement agreement and mutual release,
pursuant to which our indemnification claims were resolved”.

     “As a result of the settlement, we received 949,780 of the escrowed shares, valued at approximately
$4.7 million, and recorded a net non-operating gain of $4.6 million for the year ended December 31,
2003”.

     “Upon closing the CMD acquisition, we refinanced $3.1 million of CMD’s outstanding bank debt. The
loan matured in April 2002 and was subsequently refinanced (see Note 7)”.

     Paragraph 41 of FAS 141 states: “ After the end of the allocation period, an adjustment
that results from the pre-acquisition contingency other than loss carry-forward shall be included
in the determination of net income in the period in which the adjustment is determined” (Statement
38, paragraph 6).

     The allocation period was determined to start June 7, 2001 and conclude on June 7, 2002
(typical one year period). We filed a demand for a