Plantronics 2010 Annual Report Download - page 42

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34
The decrease in gross profit in fiscal 2009 compared to fiscal 2008 was primarily due to lower net revenues. As a percentage of net
revenues, gross profit decreased 2.7 percentage points primarily due to the following:
· a 2.9 percentage point detriment mostly due to a higher proportion of consumer products than commercial products in the
overall revenue mix. While consumer products carry lower margins than commercial products, the level of product margin
on our consumer products has increased significantly primarily due to cost reductions;
· a 0.7 percentage point detriment from higher freight expenses and other manufacturing costs; and
· a 0.6 percentage point detriment from higher excess and obsolete inventory provisions. These higher provisions were in part
a result of our decision to end of life certain models in our Bluetooth portfolio of products coinciding with the decline in
consumer demand due to poor economic conditions and our announcement in March 2009 to outsource Bluetooth
manufacturing to an existing supplier in China, thus limiting the number of Bluetooth models to transition.
These decreases in gross profit were partially offset by a 1.5 percentage point benefit from material cost reductions which improved
the product margin on Bluetooth products.
Product mix has a significant impact on gross profit as there can be significant variances between our higher and our lower margin
products; therefore, small variations in product mix, which can be difficult to predict, can have a significant impact on gross profit. In
addition, if we do not properly anticipate changes in demand, we have in the past, and may in the future, incur significant costs
associated with writing off excess and obsolete inventory or incur charges for adverse purchase commitments. While we are focused
on actions to improve our gross profit through supply chain management, improvements in product launches, outsourcing
manufacturing of our Bluetooth products in China which includes the closure of our manufacturing operations in Suzhou, China,
various other restructuring actions to decrease our operating expenses and overall cost structure, and improving the effectiveness of
our marketing programs, there can be no assurance that these actions will be successful. Gross profit may also vary based on return
rates, the amount of product sold for which royalties are required to be paid, the rate at which royalties are calculated, and other
factors.
Research, Development and Engineering
Research, development, and engineering costs are expensed as incurred and consist primarily of compensation costs, outside services,
including legal fees associated with protecting our intellectual property, depreciation, expensed materials, and an allocation of
overhead expenses, including facilities, human resources, and IT costs.
n fiscal 2010, compared to fiscal 2009, consolidated research, development, and engineering expenses deI
an
creased in absolute dollars
d venues as a result of cost reduction efforts. The decrease in absolute dollars was primarily due to lower
com kforce and $1.7 million of lower research and development
proj t e nefit of lower project material and equipment expenses from
outs
Proje s rch, development, and engineering departments focused on during fiscal 2010 were:
· UC products;
· the design and development of wireless office system products;
· Bluetooth products and technology; and
· developing common architectures across multiple products and increasing the use of common components across product
lines.
as a percentage of net re
pensation costs of $2.7 million as a result of reductions in our wor
ec xpenses as a result of efficiency improvements, including the be
ourcing our Bluetooth headset manufacturing.
that the reseact
Fiscal Year Ended Fiscal Year Ended
(in thousands) March 31,
2008 March 31,
2009 Increase
(Decrease) March 31,
2009 March 31,
2010 Increase
(Decrease)
Research, development and engineering $ 65,733 $ 63,840 $ (1,893) (2.9)% $ 63,840 $ 57,784 $ (6,056) (9.5)%
% of total consolidated net revenues 8.8% 9.5% 0.7 ppt. 9.5% 9.4% (0.1) ppt.