TiVo 2013 Annual Report Download - page 54

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Table of Contents
technology revenues, long-term at January 31, 2014. In instances where TiVo does not host the TiVo service, these costs (up to the amount
billed) will be recognized when related revenues are recognized upon billing our customers, as specified in the agreement. In instances
where TiVo hosts the TiVo service, starting upon deployment, these costs will be amortized to cost of revenues over the longer of the
contractual or customer relationship period.
Cost of hardware revenues.

  

Cost of hardware revenues $ 96,633 $ 78,183 $ 59,439
Change from same prior year period 24%32 % (14)%
Percentage of hardware revenues 95%114 % 124 %
Hardware gross margin $5,155 $(9,592)$(11,546)
Hardware gross margin as a percentage of hardware revenue 5%(14)% (24)%
Cost of hardware revenues include all product costs associated with the TiVo-enabled DVRs we distribute and sell, including
manufacturing-related overhead and personnel, warranty, certain licensing, order fulfillment, and freight costs. We sell this hardware
primarily as a means to grow our service revenues and, as a result, do not always generate positive gross margins from these hardware
sales. Our cost of hardware revenues for the fiscal year ended January 31, 2014 increased by $18.5 million as compared to the same prior
year periods as we sold a larger volume of products to our MSO partners as compared to the same prior year periods. These MSO costs of
hardware revenues and margins are likely to decline in future quarters as MSOs start to transition to third-party hardware such as Pace and
other products. If our MSO partners choose to reduce or shift their hardware purchases to third-parties' products earlier or faster than currently
expected, we may need to record additional write-downs of our component inventory; or, in the event they increase forecasts or purchase less
third-parties' products than currently expected, we may need to purchase more inventory from our contract manufacturer.Our cost of
hardware sales for the fiscal year ended January 31, 2013 increased by $18.7 million as compared to the same prior year period. This
increase was largely related to a larger volume of products sold at a higher average cost per unit to our customers as compared to the same
prior year period. Additionally, costs increased due to higher cost of hard drives resulting from manufacturing disruption due to flooding in
Thailand in late calendar 2011. We also recorded an inventory write-down charge of $1.5 million and a loss from adverse purchase
commitments of $1.2 million in the twelve months ended January 31, 2013 due to potential reduction in demand for TiVo-built hardware in
light of changes in MSO purchase forecasts and our recent efforts to port the TiVo experience to third-parties' hardware, such as Pace.
Hardware gross margin for the fiscal year ended January 31, 2014 improved by $14.7 million to $5.2 million as compared to the same
prior year period largely due to more DVR units sold during the fiscal year at a higher average selling price per unit which had a lower or no
hardware subsidy (as historically we have at times sold our hardware at a loss as a means to acquire new subscriptions) as compared to the
same prior year period.
Hardware gross margin (loss) for the fiscal year ended January 31, 2013 improved by $2.0 million as compared to the same prior year
period largely due to more DVR units sold during the fiscal year at a higher average selling price per unit which had a lower or no hardware
subsidy as compared to the same prior year period.
The improved hardware gross margins during the fiscal year ended January 31, 2014 were largely associated with our MSO hardware
sales which generated hardware gross margins of $17.9 million. This positive MSO hardware gross margin was offset by hardware gross
margin loss of $12.7 million.
Research and development expenses.

  

Research and development expenses $106,917 $115,103 $110,367
Change from same prior year period (7)% 4%35%
Percentage of net revenues 26 % 38%46%
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