8x8 2007 Annual Report Download - page 35

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In fiscal year 2006, we experienced a $3.8 million increase in product revenue from sales of Packet8 adapters due to growth in
the subscriber base. There was a $0.4 million decrease in sales of VoIP semiconductors.
Revenues from our ten largest customers in the fiscal years ended March 31, 2007, 2006 and 2005 accounted for approximately
5%, 3% and 11%, respectively, of our total revenues. No single customer represented more than 10% of our total revenues
during fiscal 2007, 2006 or 2005.
Sales to customers outside the United States represented 1%, 2% and 9% of total revenues in the fiscal years ended March 31,
2007, 2006 and 2005, respectively. The following table illustrates our net revenues by geographic area. Revenues are attributed
to countries based on the destination of shipment (in thousands):
2007 2006 2005
United States $ 52,463 $ 31,141 $ 10,472
Europe 317 291 646
Taiwa
165 127 157
Othe
r
185 333 200
$ 53,130 $ 31,892 $ 11,475
Years Ended March 31,
Cost of Service Revenues
2007 2006 2005
Cost of service revenues $ 19,020 $ 12,367 $ 5,195 $ 6,653 53.8% $ 7,172 138.1%
Percentage of service revenues 42.2% 47.4% 57.2%
2006 to 2007 2005 to 2006
(dollar amounts in thousands)
Year Ended March 31, Year-Over-Year Chan
g
e
The cost of service revenues consists of costs primarily associated with network operations and related personnel, telephony
origination and termination services provided by third party carriers and royalty expenses. During the fourth quarter of fiscal
2006 and the second quarter of fiscal year 2007, we began using new carriers for call origination and termination for a
substantial portion of our phone traffic. This change resulted in lower per minute pricing and cost of service per customer.
The increase in cost of service revenues in fiscal year 2007 from fiscal year 2006 was primarily due to an increase in third party
telephony origination and termination service fees and other costs due to the growth in the Packet8 subscriber base.
The increase in cost of service revenues in fiscal year 2006 from fiscal year 2005 was primarily due to an increase in Packet8
network operations headcount, third party telephony origination and termination service fees and other costs associated with
significant year-over-year growth in Packet8 lines in service.
Cost of Product Revenues
2007 2006 2005
Cost of product revenues $ 8,074 $ 10,732 $ 4,546 $ (2,658) -24.8% $ 6,186 136.1%
Percentage of product revenues 99.9% 185.7% 190.3%
2006 to 2007 2005 to 2006
Year Ended March 31, Year-Over-Year Chan
g
e
(dollar amounts in thousands)
The cost of product revenues consists of costs associated with systems, components, estimated warranty obligations and direct
and indirect costs associated with product purchasing, scheduling, quality assurance, shipping and handling. We generally do
not charge Packet8 subscribers for the terminal adapters used to provide our service when they subscribe through our website.
We have also offered incentives to customers who purchase terminal adapters in our retail channels to offset the customer’s
cost of the equipment purchased from a retailer. In accordance with Emerging Issues Task Force Issue No. 00-21, a portion of
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