Hydride terminated polydimethyl siloxanes were used to reduce the stress of cresol-formaldehyde novolac epoxy resin cured with phenolic novolac resin for electronic encapsulation application. The effects of the structure and molecular weight of the hydride terminated polydimethyl siloxane in reducing the stress of encapsulant were investigated. The mechanical and dynamic viscoelastic properties and morphologies of rubber modified epoxy networks were also studied. A "sea-island" structure ("islands" of silicone rubber dispersed in the "sea" of an epoxy resin) was observed via SEM. The dispersed silicone rubbers effectively reduce the stress of cured epoxy resins by reducing flexural modulus and the coefficient of thermal expansion, while the glass-transition temperature was hardly depressed. Electronic devices encapsulated with the dispersed silicone rubber modified epoxy molding compounds have exhibited excellent resistance to the thermal shock cycling test and have resulted in an extended use life for the devices.