8x8 1998 Annual Report Download - page 26

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Affect Future Results -- Potential Fluctuations in Operating Results" and "Factors That May Affect Future Results -- Potential Fluctuations in
Operating Results -- Dependence on Key Customers."
The Company's sales to Europe represented 22%, 21% and 17% of total revenues for the fiscal years ended March 31, 1998, 1997, 1996,
respectively. The Company's sales to the Asia Pacific region represented 25%, 33% and 32% of total revenues for the fiscal years ended March
31, 1998, 1997, and 1996, respectively. See "Factors That May Affect Future Results -- International Operations."
Cost of Revenues
The cost of product revenues consists of costs associated with VideoCommunicator components, semiconductor wafer fabrication,
VideoCommunicator and semiconductor assembly and testing performed by third-party vendors and direct and indirect costs associated with
purchasing, scheduling and quality assurance. Costs of product revenues were $17.8 million, $12.0 million and $16.7 million for the fiscal
years ended March 31, 1998, 1997, and 1996, respectively. The cost of product revenues in fiscal 1998 included costs associated with increased
shipments of its VideoCommunicator products, which the Company began shipping in February 1997, as well as increased shipments of the
Company's video communication semiconductor products. The cost structure of the Company's ViaTV product line is substantially different
from the Company's video communication semiconductor products and the cost of product revenues for the ViaTV product line is substantially
greater as a percentage of related revenues. In fiscal 1997, cost of product revenues included a $4.0 million charge associated with the write-
off
of inventories related to the Company's discontinuation of the MPEG product line in September 1996. As a result of this write-off, costs for the
period increased and were equal to 79% of product revenue. In fiscal 1996, cost of product revenues were adversely impacted by the costs of
the MPEG product line which exceeded the revenue generated by this product line.
Cost of license and other revenues was $1.1 million for the fiscal year ended March 31, 1998 and consisted of personnel and other costs
incurred to perform certain development work under terms of a nonrecurring engineering contract between the Company and one of its
customers. There were no costs associated with license and other revenues in the fiscal years ended March 31, 1997 and 1996, respectively.
Gross Profit
Total gross profit was $30.9 million, $7.1 million and $12.1 million in fiscal 1998, 1997 and 1996, respectively. Gross profit from product
revenues was $17.5 million, $3.2 million and $3.1 million for the fiscal years ended March 31, 1998, 1997, and 1996, respectively. Gross profit
from license and other revenues, all of which were nonrecurring, less related costs, was $13.4 million, $3.9 million and $9.0 million in fiscal
1998, 1997 and 1996, respectively. There can be no assurance that the Company will receive any revenues from such license and other
revenues sources in the future.* See "Factors That May Affect Future Results -- No Assurance of Future License and Other Revenues."
* This statement is a forward looking statement reflecting current expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations. See "Manufacturing" commencing on page 10, "Competition" on page 13 and
"Factors That May Affect Future Results" commencing on page 14 for a discussion of certain factors that could affect future performance.
22
YEAR ENDED MARCH 31,
-----------------------
1998 1997 1996
----- ----- -----
(IN MILLIONS)
Cost of product revenues............................ $17.8 $12.0 $16.7
As a percentage of product revenues................. 50% 79% 84%
Cost of license and other revenues.................. $ 1.1 $ -- $ --
As a percentage of license and other revenues....... 7% 0% 0%
YEAR ENDED MARCH 31,
----------------------
1998 1997 1996
----- ---- -----
(IN MILLIONS)
Gross profit......................................... $30.9 $7.1 $12.1
As a percentage of total revenues.................... 62% 37% 42%