Avid 2008 Annual Report Download - page 38

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Professional Video services revenues are derived primarily from maintenance contracts, professional and installation
services, and training. The increase in services revenues in 2007 was due to increased revenues from maintenance
contracts.
The increase in Audio product revenues in 2007 was primarily the result of revenues of $9.6 million related to our
acquisition of Sibelius in July 2006. Audio product revenues for 2007 also included increased revenues from Digidesign
products, including the Venue live sound mixing consoles, Pro Tools systems, and ICON control surfaces, partially
offset by a slight decrease in M-Audio product revenues. The overall increase in Audio segment product revenues was
primarily the result of increased sales volumes.
The decrease in Consumer Video product revenues in 2007 was primarily due to decreased revenues from our PCTV
product line, due to the lack of revenue drivers in 2007 that existed in 2006, such as new product releases and increased
consumer demand during the 2006 World Cup tournament. The decrease in revenues from our PCTV product line was
partially offset by an increase in revenues from our video-editing products, which was primarily related to our release of
Pinnacle Studio version 11 in May 2007. These changes in revenues were primarily related to changes in sales volumes.
Overall, net revenues derived through indirect channels decreased to 70% of our consolidated net revenues in 2007 from
72% in 2006 as a result of increased direct sales of our Professional Video products. Revenues from direct sales of our
Professional Video products can vary significantly based on the relative proportion of revenues recognized from large
solution sales in any period.
Sales to international customers accounted for 58% of our consolidated net revenues in 2007, compared to 57% in 2006.
International sales increased by $25.0 million, or 4.8%, from 2006 to 2007. The increase in international sales in 2007
occurred primarily in Europe, and to a lesser extent in Asia.
Gross Profit
Cost of revenues consists primarily of costs associated with:
• the procurement of components;
• the assembly, testing and distribution of finished products;
• warehousing;
• customer support costs related to maintenance contract revenues and other services; and
• royalties for third-party software and hardware included in our products.
Cost of revenues also includes amortization of technology, which represents the amortization of developed technology
assets acquired as part of the acquisitions that have taken place since 2004 and is described further in the Amortization
of Intangible Assets section below. For 2008, cost of revenues included a restructuring charge of $1.9 million related to
the write-down of inventory resulting from our decision to exit the PCTV product line. Similarly, for 2007, cost of
revenues included a charge of $4.3 million related to the write-down of inventory resulting from our decision to exit the
transmission server product line.
Gross margin fluctuates based on factors such as the mix of products sold, the cost and proportion of third-party
hardware and software included in the systems sold, the offering of product upgrades, price discounts and other sales-
promotion programs, the distribution channels through which products are sold, the timing of new product
introductions, sales of aftermarket hardware products such as disk drives, and currency exchange-rate fluctuations.