Netgear 2008 Annual Report Download - page 43

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Table of Contents
non-recurring engineering of $1.3 million primarily due to incremental product development projects, as well as an increase in costs allocated to
research and development from other functional expense categories of $1.4 million primarily resulting from increased facilities costs primarily
related to our new corporate headquarters in San Jose, California. Additionally, stock-based compensation expense increased $827,000 to $3.2
million for the year ended December 31, 2008, from $2.4 million for the year ended December 31, 2007.
2007 Research and Development Expense Compared to 2006 Research and Development Expense
Research and development expenses increased $9.7 million, or 52.2%, to $28.1 million for the year ended December 31, 2007, from $18.4
million for the year ended December 31, 2006. The increase was primarily due to higher salary and related payroll expenses of $4.8 million
resulting from research and development headcount growth, including $292,000 of retention bonuses for certain employees associated with the
acquisition of SkipJam Corp. (“SkipJam”) and $1.7 million related to higher headcount from the Infrant acquisition. Employee headcount
increased by 85% to 115 employees as of December 31, 2007 as compared to 62 employees as of December 31, 2006, in part due to 26
employees obtained from the acquisition of Infrant. Other employee expenses increased by $800,000 due to contractor conversions in our China
Engineering Center and recruiting costs. Rent expense increased $643,000 due to the expansion of our China Engineering Center. Furthermore,
information technology infrastructure costs allocated to research and development increased $982,000 as a result of additional investments in
software and systems in 2007 as well as relatively higher headcount which drove a higher allocation percentage to research and development.
Additionally, stock-
based compensation expense increased $1.3 million to $2.4 million for the year ended December 31, 2007, from $1.1 million
for the year ended December 31, 2006.
Sales and Marketing Expense
Sales and marketing expenses consist primarily of advertising, trade shows, corporate communications and other marketing expenses,
product marketing expenses, outbound freight costs, personnel expenses for sales and marketing staff and technical support expenses. In 2009
we believe sales and marketing expense will decrease as we implement cost savings efforts.
2008 Sales and Marketing Expense Compared to 2007 Sales and Marketing Expense
Sales and marketing expenses increased $3.8 million, or 3.2%, to $121.7 million for the year ended December 31, 2008, from $117.9
million for the year ended December 31, 2007. Of this increase, $2.8 million was attributable to increased salary, related payroll and other
employee expenses as a result of sales and marketing related headcount growth, which was partially offset by a decrease in employee
performance compensation of $1.7 million. Employee headcount increased from 260 employees as of December 31, 2007 to 266 employees as
of December 31, 2008. Most of our increase in headcount occurred in connection with our expansion in EMEA and Asia Pacific. Furthermore,
outbound freight increased $1.0 million, reflecting our higher unit volume sales, and costs allocated to sales and marketing from other functional
expense categories increased $1.8 million due to increased facilities costs primarily related to our new corporate headquarters in San Jose,
California. These increases were partially offset by lower advertising and promotion expenses.
2007 Sales and Marketing Expense Compared to 2006 Sales and Marketing Expense
Sales and marketing expenses increased $26.0 million, or 28.4%, to $117.9 million for the year ended December 31, 2007, from $91.9
million for the year ended December 31, 2006. Of this increase, $9.7 million was
41
Year Ended December 31,
2008
Percentage
Change
2007
Percentage
Change
2006
(In thousands, except percentage data)
Sales and marketing expense
$
121,687
3.2
%
$
117,938
28.4
%
$
91,881
Percentage of net revenue
16.4
%
16.2
%
16.0
%