8x8 2000 Annual Report Download - page 32

due primarily to a decrease in nonrecurring engineering fees. In fiscal 1999, license and other revenues decreased by $9.0 million from the
$14.5 million reported in fiscal 1998, due in part to the approximately $5.3 million paid by 3Com in fiscal 1998 for a license to substantially all
of the technology underlying our ViaTVs.
Revenues from our ten largest customers in the fiscal years ended March 31, 2000, 1999 and 1998 accounted for approximately 35%, 40% and
61%, respectively, of our total revenues. During the fiscal years ended March 31, 2000 and 1999, no customer accounted for 10% or more of
total revenues.
Sales to customers outside the United States represented 47%, 43% and 47% of total revenues in the fiscal years ended March 31, 2000, 1999
and 1998, respectively. Specifically, sales to the Asia Pacific region represented 24%, 26% and 25% of our total revenues for the fiscal years
ended March 31, 2000, 1999 and 1998, respectively. Our sales to Europe represented 23%, 17% and 22% of total revenues for the fiscal years
ended March 31, 2000, 1999 and 1998, respectively.
Cost of Revenues and Gross Profit
The cost of product revenues consists of costs associated with components, semiconductor wafer fabrication, system and semiconductor
assembly and testing performed by third-party vendors and direct and indirect costs associated with purchasing, scheduling and quality
assurance. Gross profit from product revenues was $12.3 million, $2.0 million and $17.5 million for the fiscal years ended March 31, 2000,
1999 and 1998, respectively. Product gross margin increased to 59% in fiscal 2000 compared to 8% in fiscal 1999 and 50% in fiscal 1998. The
increase in gross profit and margin from product revenue in fiscal 2000 compared to fiscal 1999 is due to an increase in higher margin
multimedia communication semiconductor and video monitoring system revenues as a percentage of total revenues and due to significantly
higher gross margins realized on sales of our ViaTV products as we were able to sell such product at prices higher than previously anticipated.
As discussed above, we recorded a $5.7 million charge associated with the write-off of ViaTV product inventory in the fourth quarter of fiscal
1999 due to our decision to cease production of the ViaTV product line and withdraw from our distribution channels which adversely impacted
our gross margins in fiscal 1999.
Gross profit from license and other revenues, all of which were nonrecurring, was $4.5 million, $5.4 million and $13.4 million in fiscal 2000,
1999 and 1998, respectively. In fiscal 1998 cost of license and other revenues consisted of personnel and other costs incurred by us to perform
certain development work under terms of a non-recurring engineering contract with one of our customers. There can be no assurance that we
will receive any revenues from such license and other revenue sources in the future.
Our gross margin is affected by a number of factors including, product mix, the recognition of license and other revenues for which there may
be no or little corresponding cost of revenues, product pricing, the allocation between international and domestic sales, the percentage of direct
sales and sales to resellers, and manufacturing and component costs. The markets for our products are characterized by falling average selling
prices. We expect that, as a result of competitive pressures and other factors, gross profit as a percentage of revenue for our multimedia
communication semiconductor products will likely decrease for the foreseeable future. Because the market is emerging, the average selling
price for IP telephony semiconductors is uncertain. We may not be able to attain average selling prices ("ASPs") similar to those of our
historical videoconferencing semiconductors. If ASPs are lower, gross margins will be lower than our historical gross margins, unless costs for
IP telephony semiconductors are also proportionately lower. In the likely event that we encounter significant price competition in the markets
for our products, we could be at a significant disadvantage compared to our competitors, many of whom have substantially greater resources,
and therefore may be better able to withstand an extended period of downward pricing pressure.
Research and Development Expenses
Research and development expenses consist primarily of personnel, system prototype design and fabrication, mask, prototype wafer and
equipment costs necessary for us to conduct our development efforts. Research and development costs, including software development costs,
are expensed as incurred. Research and development expenses were $11.9 million, $9.9 million and $12.3 million for fiscal 2000, 1999 and
1998,
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