Adaptec 2003 Annual Report Download - page 25

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59% in 2002. The following factors affected the margins in 2003 compared to 2002:
•a decrease in the write−down of excess inventory from $4.0 million in 2002 to nil in 2003, increasing gross profit by 2 percentage
points;
•higher shipment volumes resulted in manufacturing costs being spread over a greater number of units, increasing gross margin by
4 percentage points; and
•improved margins from a reductions in product material costs was offset by a shift in mix from higher margin networking
products to higher volume lower margin applications and a reduction in the average selling price of our high volume products.
Our networking gross profit for 2002 decreased by $49.9 million from 2001. The decrease in networking gross profit related primarily
to lower sales volume in 2002 compared to 2001, partially offset by a lower write−down of excess inventory of $4.0 million in 2002
compared with a $20.7 million write−down of excess inventory in 2001.
While networking gross profit as a percentage of networking revenues remained constant at 59% for 2002 and 2001, the following
factors affected the margins in 2002 compared to 2001:
•the write−down of excess inventory in 2002 was $16.7 million lower than a similar write−down in 2001, increasing gross profit
by 8 percentage points,
•reduced shipment volumes resulted in manufacturing costs being spread over fewer units resulting in lowering gross margin by 5
percentage points, despite reducing manufacturing costs by $3.9 million, and
•a shift in mix from the higher margin networking products to those sold into higher volume lower margin applications, further
reduced gross profit by 3 percentage points.
Non−networking
In absolute dollar terms, non−networking gross profit for both 2003 and 2002 decreased as a result of declining sales volume. Our
non−networking product is a single medical device chip. We do not expect to ship this product in 2004 and have not developed any
new products of this type.
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