Blackberry 2004 Annual Report Download - page 21

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19
For the years ended February 28, 2004, March 1, 2003 and March 2, 2002
17.8% Software, NRE, & other
42.2% Service
40.0% Handhelds
Revenue Mix Fiscal 2003
13.5% Software, NRE, & other
28.8% Service
57.7% Handhelds
Revenue Mix Fiscal 2004
Software revenues include fees from licensed BES
software, CALs, maintenance and upgrades. Software
revenues increased $25.8 million to $47.4 million
in fiscal 2004 from $21.7 million in fiscal 2003,
generally in line with the growth in handheld
revenues during fiscal 2004.
Other revenue, which includes OEM radios,
accessories, non-warranty repairs, NRE, technical
support and other, was effectively stable at $32.8
million in fiscal 2004 compared to $33.0 million
in fiscal 2003. Growth in revenue streams such
as accessories, OEM, technical support and non-
warranty repair was offset by a reduction in NRE
revenue as the result of the completion of a large
NRE contract during the latter part of fiscal 2003.
Gross Margin
Gross margin increased to $271.3 million or 45.6%
of revenue in fiscal 2004, compared to $119.4
million or 38.9% of revenue in the preceding year.
The net improvement in consolidated gross margin
percentage was primarily attributable to higher
margins for handheld products and service revenues.
The increase in handheld products was due to
reductions in component part costs, improved
manufacturing efficiencies and component parts
usage as a result of the higher volume of handhelds
produced in fiscal 2004 over fiscal 2003 and the
impact of handheld product mix, including the
increasing percentage of color (versus monochrome)
in the handheld product sales mix. The Company’s
service margin increased as the Company has
realized cost efficiencies in its network operations
infrastructure as a result of the increase in
BlackBerry subscribers, for which the Company
receives relay access fees from its carrier customers
and the resulting gross margin.
Research and Development
Gross research and development expenditures
decreased by $2.3 million to $62.6 million in
fiscal 2004 compared to $65.0 million in fiscal
2003. Research and development expenditures
consist primarily of salaries and benefits for
technical personnel, costs of related engineering
materials, and software tools and maintenance
fees. Compensation expense increased by $2.8
million as a result of the increase in employees
supporting the Company’s growth and new
BlackBerry Handheld product development. This
increase in employment costs was more than offset
by a reduction in external professional services in
fiscal 2004 compared to fiscal 2003 expenditures.
Net research and development expenditures increased
by $6.7 million to $62.6 million or 10.5% of revenue
in fiscal 2004 compared to $55.9 million or 18.2%
of revenue in fiscal 2003. In the prior year’s
comparable fiscal period, the Company recorded
$9.0 million in contributions from its development
agreement with Technology Partnerships Canada
(“TPC”) as a reduction in gross research and
development costs. The Company had recorded all of
the contributions due to RIM from TPC over the term
of the agreement as at March 1, 2003.