Avid 2009 Annual Report Download - page 34

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The decrease in Audio product revenues in 2008 was primarily the result of decreased revenues from our home studio
products, as well as a slowdown in sales of our professional integrated mixing console products. The decrease in
revenues from our home studio products was due to increased competitive pressure and the lingering effects of
temporary delays in the release of products compatible with a new version of the Mac OS X Leopard operating system.
Products compatible with the new operating system were released late in the second quarter of 2008. We believe
unfavorable macroeconomic conditions also contributed to the decrease in revenues for our home studio products and
were the most significant factor in the slowdown in sales of our professional integrated mixing console products.
Net revenues derived through indirect channels were approximately 70% of our consolidated net revenues for both 2008
and 2007.
Sales to international customers accounted for 61% of our consolidated net revenues in 2008, compared to 58% in 2007.
International sales decreased by $29.4 million, or 5.4%, from 2007 to 2008. The decrease in international sales occurred
primarily in Europe and was partially offset by increased sales in Asia.
Gross Margin
Cost of revenues consists primarily of costs associated with:
the procurement of components;
the assembly, testing and distribution of finished products;
warehousing;
customer support costs related to maintenance contract revenues and other services; and
royalties for third-party software and hardware included in our products.
Cost of revenues also includes amortization of technology, which represents the amortization of developed technology
assets acquired as part of the acquisitions that have taken place since 2004 and is described further in the Amortization
of Intangible Assets section below. For 2009 and 2008, cost of revenues included restructuring charges of $0.8 million
and $1.9 million, respectively, related to the write-down of inventory resulting from our decision to exit the PCTV
product line. Similarly, for 2007, cost of revenues included a charge of $4.3 million related to the write-down of
inventory resulting from our decision to exit the transmission server product line.
Gross margin fluctuates based on factors such as the mix of products sold, the cost and proportion of third-party
hardware and software included in the systems sold, the offering of product upgrades, price discounts and other sales-
promotion programs, the distribution channels through which products are sold, the timing of new product
introductions, sales of aftermarket hardware products such as disk drives, and currency exchange-rate fluctuations.
Comparison of 2009 to 2008
Years Ended December 31, 2009 and 2008
(dollars in thousands)
2009 Costs Gross Margin
2008 Costs Gross Margin
Change in
Gross Margin %
Cost of products revenues
$243,362
52.2%
$369,186
48.3%
3.9%
Cost of services revenues 59,754 50.1% 73,888 43.5% 6.6%
Amortization of intangible assets 2,033 — 7,526 — —
Restructuring costs 799
— 1,876 — —
Total
$305,948
51.4%
$452,476
46.4%
5.0%
Our transition to a single company-wide production and delivery organization and the divestiture of lower-margin
product lines were the most significant contributing factors to our improved product gross margins for 2009. In
addition, revised estimates for royalty accruals resulting in favorable adjustments in 2009 were also a contributing
factor. These improvements were partially offset by the impact on revenues of changes in foreign currency exchange
rates.