Adobe 2009 Annual Report Download - page 60

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60
Cost of Revenue (dollars in millions)
Fiscal
2009
% Change
2009 to 2008
Fiscal
2008
% Change
2008 to 2007
Fiscal
2007
Product ............................... $ 228.9 (14 )% $ 266.4 (2 )% $ 270.8
Percentage of total revenue ............. 8 % 7 % 9 %
Services and support .................... 67.8 (30 )% 96.2 15 % 83.9
Percentage of total revenue ............. 2 % 3 % 3 %
Total cost of revenue .................. $ 296.7 (18 )% $ 362.6 2 % $ 354.7
Product
Cost of product revenue includes product packaging, third-party royalties, excess and obsolete inventory, amortization
related to localization costs and acquired rights to use technology and the costs associated with the manufacturing of our
products.
Cost of product revenue decreased due to the following:
% Change
2009 to 2008
% Change
2008 to 2007
Amortization of acquired rights to use technology .......................... (8 )% 6 %
Amortization of purchased intangibles ................................... (10 ) (10 )
Royalty cost ......................................................... (1 ) 3
Hosted services ...................................................... 9 3
Various individually insignificant items ..................................
(4 ) (4 )
Total change ...................................................... (14 )% (2 )%
The decrease in amortization of acquired rights to use technology primarily relates to a charge for historical use of
licensing rights associated with certain technology licensing arrangements entered into in fiscal 2008 that did not recur in
fiscal 2009. Amortization of acquired rights to use technology increased in fiscal 2008 as compared to fiscal 2007, primarily
due to the fact that we entered into certain technology licensing arrangements totaling $100.4 million and $60.0 million
during fiscal 2008 and fiscal 2007, respectively. Of this cost, an estimated $56.4 million and $44.8 million during fiscal 2008
and fiscal 2007, respectively, was related to future licensing rights and has been capitalized and will be amortized on a
straight-line basis over the estimated useful lives up to fifteen years. Of the remaining costs, we estimated that approximately
$27.2 million and $15.2 million was related to historical use of licensing rights which was expensed as cost of sales and the
residual of $16.8 million for fiscal 2008 was expensed as general and administrative costs. In connection with these licensing
arrangements, we have the ability to acquire additional rights to use technology in the future.
Amortization of purchased intangibles decreased during fiscal 2009 as compared to fiscal 2008 and decreased during
fiscal 2008 as compared to fiscal 2007, due to a decrease in amortization primarily associated with intangible assets
purchased through the Macromedia acquisition which were fully amortized during fiscal 2009.
The increase in hosted service costs was primarily related to the amortization of our investment in capitalized
infrastructure costs related to our SaaS business in fiscal 2009 as compared to fiscal 2008.
Services and Support
Cost of services and support revenue is primarily comprised of employee-related costs and associated costs incurred to
provide consulting services, training and product support.
Cost of services and support revenue decreased during fiscal 2009 as compared to fiscal 2008, due to decreases in
compensation and related benefits driven by headcount reductions as well as increased consulting support provided by third-
party systems integrators resulting in the downsizing of our consulting organization.
Cost of services and support revenue increased during fiscal 2008 as compared to fiscal 2007, primarily due to increases
in compensation and related benefits driven by increases in headcount related to product support and utilization by customers
of our consulting services.