3Ware 2003 Annual Report Download - page 26

Comparison of the Year Ended March 31, 2003 to the Year Ended March 31, 2002
Net Revenues. Net revenues for the year ended March 31, 2003 were approximately $101.6 million,
representing a decrease of 34% from the net revenues of approximately $152.8 million for the year ended
March 31, 2002. Revenues from sales of communications products decreased 49% to $65.6 million, or 65% of
net revenues, for the year ended March 31, 2003 from $128.3 million, or 84% of net revenues, for the year ended
March 31, 2002.
The decline in revenues is primarily due to a decrease in the volume of shipments of our communications
ICs, reflecting reduced demand for our communications products as our customers faced slower demand for their
products. This decrease in the volume of shipments of our communications ICs was partially offset by increases
in the shipments of our non-communications ICs. The increase in non-communications IC revenues was driven
by the fulfillment of certain last-time-buy orders generated as a result of the closure of our wafer fabrication
facility in which the majority of our non-communications ICs were made. We expect that revenues from our non-
communications products will decline materially in fiscal 2004 as we have largely completed fulfillment of the
last-time-buy orders. Due to the prolonged downturn in the communications portion of our business and lack of
backlog visibility, we are not able to assess the near-term trend for our total net revenues.
Based on direct shipments, net revenues to customers exceeding 10% in any of the three years ended
March 31, were as follows:
2001 2002 2003
Harris Corporation .................................................... — % 1% 18%
Insight Electronics .................................................... 19% 10% 8%
Nortel Networks Corporation ............................................ 10% 2% 1%
Looking through product shipments to distributors and subcontractors to the end customers, net revenues to
an end customer exceeding 10% in any of the three years ended March 31, were as follows:
2001 2002 2003
Harris Corporation .................................................... — % 1% 18%
Nortel Networks Corporation ............................................ 20% 12% 14%
Cisco Systems ....................................................... 9% 13% 6%
Revenues based on direct shipments outside of North America accounted for 35% of net revenues for the
year ended March 31, 2003, compared to 36% for the year ended March 31, 2002.
Gross Margin. Gross margin was 39.1% for the year ended March 31, 2003, as compared to 1.3% for the
year ended March 31, 2002. The net increase in gross margin is primarily attributable to a decrease in non-cash
acquisition-related charges and a special charge of $15.9 million in the prior year for excess inventory, which
were partially offset by increased under-utilization of our wafer fabrication and testing facilities, a decrease in the
volume of product shipments, and accelerated depreciation as a result of the closure of the internal wafer
fabrication facility. Approximately $6.3 million and $58.3 million of non-cash purchased intangible charges were
included in cost of revenues in the years ended March 31, 2003 and 2002, respectively.
Due to the current market conditions and uncertainty with respect to expected shipment volumes, we
anticipate that gross margin will continue to be affected by fluctuations in the volume of our product sales, the
average selling prices of our products, direct material costs and yield, and ongoing non-cash amortization of
purchased intangibles. As of March 31, 2003, our internal wafer fabrication facility was permanently closed. As a
result, we expect that the fixed cost of manufacturing overhead included in cost of revenues will decrease by
approximately $3.0 million per quarter. At March 31, 2003, the balance of purchased intangible assets expected
to be charged to cost of revenues was $15.7 million. See “Amortization of Goodwill and Purchased Intangibles.”
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