Autodesk 2005 Annual Report Download - page 19

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management, wire and scratch removal and color calibration. It is tuned to provide high levels of feedback on
large format imagery and is designed specifically for film and HD content.
smoke
smoke is an on-line, non-linear creative editing and finishing solution that enables editors to edit, conform
and finish television commercials, broadcast programming and other content. Editors benefit from support for
HD and standard definition resolutions, which offers a secure investment for HD mastering, as well as the ability
to work in a 3D environment and compatibility with our flame and inferno systems.
Autodesk Subscription Program and Autodesk Upgrade Program
In addition to sales of new software licenses, we offer our customers two ways to migrate to the most recent
version of our products. These programs are available for a majority of our Design Solution products as well as
Discreet’s 3ds max. Under the Autodesk Subscription program, members who own the most recent version of
the underlying product participate in a simplified upgrade process, feature-enhancing extensions, downloadable
e-Learning courses and optional on-line support. Users benefit from incremental and new releases of the
underlying product and extensions over one year and multi-year contract periods. Subscription program revenues
are reported separately on our Consolidated Statements of Income as Maintenance revenue.
Under the current Autodesk Upgrade Program, a customer who is on a currently supported version of a
product, which is generally the prior three versions, can upgrade to the latest release of the product. Typically,
the cost to upgrade is based on a multiple of the number of versions the customer is upgrading.
PRODUCT DEVELOPMENT AND INTRODUCTION
We continue to enhance our product offerings and develop new products to meet changing customer
demands. Research and development expenditures were $239.4 million or 19% of fiscal 2005 net revenues, $209.3
million or 22% of fiscal 2004 net revenues and $190.3 million or 23% of fiscal 2003 net revenues. Our software
is primarily developed internally; however we do use independent contractors to supplement our development
efforts. Additionally, we acquire products or technology developed by others by purchasing some or all of the
assets or stock of the entity that held ownership rights to the technology. During fiscal 2005, approximately 6%
of our total research and development expenditures were attributable to development workperformed by asingle
independent contractor on behalf of our Manufacturing Solutions Division.
The majority of our basic research and product development is performed in the U.S. and Canada while
translation and localization of foreign-market versions, as well as some product development, is performed by
development teams or contractors in our local markets. We generally translate and localize our products into
French, Italian, German, Spanish, Japanese and various Chinese dialects. Portions of product development,
including some software development, localization, quality assurance and technical publications, are performed
in Europe and Asia, including India, Singapore, China and the United Kingdom. We plan to significantly increase
our product development operations in the Asia/Pacific region over the next several years, particularly in China.
The technology industry is characterized by rapid technological change in computer hardware, operating
systems and software, as well as changes in customer requirements and preferences. To keep pace with these
changes, we maintain an aggressive program of new product development to address demands in the marketplace
for our products. We dedicate considerable technical and financial resources to research and development to
further enhance our existing products and to create new products and technologies. However, these investments
may not result in sufficient revenue generation to justify their costs or our competitors may introduce new
products and services that achieve acceptance among our current customers, either of which would likely
adversely affect our competitive position.
Our software products are complex and, despite extensive testing and quality control, may contain errors
or defects. These defects or errors could result in corrective releases to our software products, damage to our
reputation, loss of revenues, an increase in product returns or lack of market acceptance of our products, any
of which would likely harm our business.
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