8x8 1999 Annual Report Download - page 31

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In an effort to expand the available market for its multimedia communication products, and to capitalize on its vertically integrated technology,
the Company began developing low-cost consumer videophones and marketing these products to consumers under the ViaTV brand name in
1997. The ViaTV videophone enables phone call participants to both hear and see each other while communicating over a standard analog
telephone line. The Company shipped its first ViaTV product in February 1997, and over the next two years introduced several new
videophone products, expanded its distribution channels in North America, Europe and Asia, and became a leading manufacturer of consumer
videophones. However in the fourth quarter of fiscal 1999, the Company determined that a combination of factors including the high cost of
maintaining a consumer distribution channel, the slower than expected growth rate of the consumer videophone market, and the low gross
margins typical of a consumer electronics product made it unlikely that the consumer videophone business would be profitable in the
foreseeable future. Therefore, the Company announced in April 1999 that it would cease production of the ViaTV product line and withdraw
from its distribution channels over the subsequent several quarters. In conjunction with this decision the Company recorded a $5.7 million
charge associated with the write off of ViaTV videophone inventories. The Company does not expect to be able to generate revenues from its
other products to compensate for the loss of ViaTV revenues for at least the next twelve months, if at all.* If the Company cannot adequately
compensate for lower revenues with decreased manufacturing overhead expenses and with lower operating expenses, it could have a material
adverse effect on the Company's business and operating results.
In June 1998, the Company entered the market for video monitoring products with its RSM-1500 Remote Surveillance Module. The RSM-
1500 module enables real-time remote video monitoring over POTS lines. The target market for video monitoring is primarily owners of small
businesses such as convenience stores and restaurants who need the ability to view their premises from any remote location in the world at any
time. The Company currently sells its RSM-1500 product to security distributors and dealers in North America, and is attempting to expand its
distribution channels into Europe and Asia.
In December 1998, the Company introduced a new semiconductor product, the Audacity Internet telephony processor, which combines
a single integrated circuit. In April 1999, the Company announced its Symphony VoIP Module, an integrated system product that is based on
the Audacity semiconductor and that connects up to four analog telephone lines to an IP network. These products reflect the Company's recent
efforts to develop Broadband Telephony technology. To date the Company has not realized any revenue from its products focused on the IP
telephony market.
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's Consolidated Financial Statements and the notes thereto:
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 15, "Competition" commencing on
page 13 and "Factors That May Affect Future Results" commencing on page 17 for a discussion of certain factors that could affect future
performance.
27
YEAR ENDED MARCH 31,
--------------------------------------------
1999 1998 1997
------------ ------------ ------------
(IN MILLIONS)
Product revenues....................... $26.2 83% $35.3 71% $15.2 80%
License and other revenues............. 5.5 17% 14.5 29% 3.9 20%
----- --- ----- --- ----- ---
$31.7 100% $49.8 100% $19.1 100%
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