Plantronics 2005 Annual Report Download - page 51

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part ii
Demand for headsets continues to increase both in our traditional markets such as the enterprise markets,
as well as in the consumer market.* In each of these markets, the trend to wireless products contributed
significantly to demand; a trend we expect to continue in fiscal 2006.* Wireless products represent both
an opportunity for high growth as well as a challenge because of the lower margins we have experienced
due to competitive pressures, particularly with Bluetooth mobile products.*
We believe that our fiscal 2006 sales of mobile, gaming and computer products will increase in absolute
dollars, but, remain fairly flat as a percentage of revenue.* We also believe that wireless products will
become a greater percentage of our overall revenues.*
During fiscal 2005, our gross profit margins decreased slightly. We increased our investments in research
and development activities, marketing activities and incurred significant expense related to Section 404
Sarbanes Oxley compliance. However the overall increase in operating expenses was substantially less
than the growth in revenues. Consequently, our operating margin increased from 20.3% to 22.6%.
Net income for the fiscal year ended March 31, 2005 was $97.5 million or 17.4% of revenues, compared
to net income of $62.3 million or 14.9% of revenues in fiscal 2004. Diluted earnings per share for the
fiscal year ended March 31, 2005 was $1.92, up approximately 47% from $1.31 per share in fiscal 2004.
To capitalize on the growth opportunities in the office, contact center, mobile and entertainment
markets, and to meet the challenges associated with competitive pricing, market share, and consumer
acceptance, we launched several key initiatives during fiscal 2005, which included:
)Development of new products. We have developed a new family of Bluetooth products and will
continue our efforts in this area during fiscal 2006. We expect the costs related to the
development of new Bluetooth products to increase our research and development expenses in
fiscal 2006.*
)Creation of a leading industrial design team. This industrial design team will enhance the look
of our products, where we believe that this will be a key factor in the decision to buy. Toward
this end, we increased the size of our design team and made key hires to expand our expertise in
this area. We expect that the increased costs of the design team will affect our research and
development expenses in fiscal 2006.*
)Bringing advanced technologies to market. There is an emerging trend in which the communica-
tions and entertainment spaces are converging in the wireless market.* We expect this trend to
result in a demand for technologies that are simple and intuitive, utilize voice technology,
control noise, and rely on miniaturization and power management. We intend to expand our
own core technology group and partner with other innovative companies to develop new
technologies.* We expect that the costs related to the expansion of our own core technology
group will affect our research and development expenses in fiscal 2006.*
)Building consumer product manufacturing infrastructure. The consumer products market is
characterized by cost competitiveness resulting in a predominately China-based manufacturing
infrastructure. In order to gain more flexibility in our supply chain, to better manage inventories
and to reduce costs, we are building a manufacturing facility in Suzhou, China. We began
construction on this facility in December 2004 and expect to begin operations there in Fiscal
2006.* Through March 31, 2005, we have spent approximately $5.6 million on plant construc-
tion, and, over the next twelve months, we plan to invest approximately $15 more to complete
the development of the facility.*
)Greater focus on branding and marketing. By expanding our marketing headcount, including
hiring key positions and combining key products with an advertising program, we believe we will
strengthen our brand position for the consumer markets and help category adoption. We intend
to launch a national, integrated marketing campaign in fiscal 2006 focusing on wireless office
AR 2005 ⯗23