Citrix 2007 Annual Report Download - page 54

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well as the costs related to our Online Services products. Also included in cost of revenues is amortization of
product related intangible assets.
Cost of product licenses revenues increased during 2007 when compared to 2006 primarily due to increased
sales of our Application Networking products which contain hardware components that have a higher cost than
our other software products. Cost of services revenues increased during 2007 compared to 2006 primarily due to
increases in sales of our Online Services products and an increase in support related to our Application
Virtualization and Application Networking products. Amortization of product related intangible assets increased
during 2007 as compared to 2006 primarily due to amortization of product related intangible assets acquired in
acquisitions. For more information regarding our acquisitions, see “Management’s Discussion and Analysis of
Financial Condition and Results of Operations—Overview” and Note 3 to our consolidated financial statements
included in this Annual Report on Form 10-K for the year ended December 31, 2007. We currently anticipate
that in 2008, cost of product license revenues will continue to increase as compared to current levels as we
currently expect sales of our Application Networking products, which have a hardware component, to increase.
In addition, in 2008, we currently expect our cost of services revenues to increase due to increased sales of our
Online Services products and an increase in technical support costs and increased sales of services as we grow
our customer base, have more frequent product releases and more complex products.
Cost of product licenses revenues increased during 2006 when compared to 2005 primarily due to increased
sales and the full year impact of the acquisition of our Application Networking products which contain hardware
components that have a higher cost than our other software products. Cost of services revenues increased during
2006 compared to 2005 primarily due to an increase in support and increased sales of our educational and
consulting services related to our Application Virtualization products, increases in sales of our Online Services
products, the full year impact and increased sales of support and educational services related to our Application
Networking products and the impact of stock-based compensation expenses related to our adoption of SFAS No
123R. Amortization of product related intangible assets increased during 2006 as compared to 2005 primarily
due to amortization of product related intangible assets acquired in acquisitions.
Gross Margin
Gross margin as a percent of revenue was 90.1% for 2007, 91.3% for 2006 and 93.6% for 2005. The
decrease in gross margin as a percentage of net revenue for all periods presented was primarily due to the
increase in cost of revenues as discussed above. We currently expect that our gross margin will continue to trend
slightly downwards in 2008 due to the factors discussed above under “—Cost of Revenues.”
Research and Development Expenses
Year Ended December 31, 2007
Compared to
2006
2006
Compared to
20052007 2006 2005
(In thousands)
Research and development ................... $205,103 $155,331 $108,751 $49,772 $46,580
Research and development expenses consisted primarily of personnel-related costs. We expensed
substantially all development costs included in the research and development of our products and new
functionality added to our existing products as incurred, except for certain core technologies with alternative
future uses. Research and development expenses increased during 2007 as compared to 2006 primarily due to an
increase in staffing and related personnel costs due to the full year impact of our 2006 Acquisitions, our 2007
Acquisitions and continued investments in our business, which included the hiring of personnel. We expect
research and development expenses to increase in 2008 due to the full year impact of the XenSource Acquisition
and continued investments in our business including the hiring of personnel. For more information regarding our
acquisitions see, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—
48