Netgear 2009 Annual Report Download - page 43

Table of Contents
2008 Net Revenue Compared to 2007 Net Revenue
Net revenue increased $15.5 million, or 2.1%, to $743.3 million for the year ended December 31, 2008, from $727.8 million for the year
ended December 31, 2007. We experienced lower net revenue in the second half of the year due to the economic downturn and the rapid
strengthening of the U.S. dollar. The increase in total year revenue was attributable to higher sales in several of our product categories. These
include wireless-G products sold to existing service provider customers and the full year sales of our ReadyNAS products, which were acquired
in connection with our acquisition of Infrant in May 2007, as well as growth in wireless-N router sales. The growth was partially offset by a
decrease in DSL gateway products sold.
Sales incentives that are classified as contra-revenue grew at a slower rate than overall gross sales, which further contributed to the
increased net revenue.
For the year ended December 31, 2008 revenue generated in the United States, EMEA and Asia Pacific and rest of world was 40.1%,
47.6% and 12.3%, respectively. The comparable net revenue for the year ended December 31, 2007 was 37.6%, 52.3% and 10.1%, respectively.
The change in net revenue over the prior year for each region amounted to an 8.7% increase, a 6.9% decrease, and a 24.3% increase,
respectively.
Cost of Revenue and Gross Margin
Cost of revenue consists primarily of the following: the cost of finished products from our third party manufacturers; overhead costs
including purchasing, product planning, inventory control, warehousing and distribution logistics; inbound freight; warranty costs associated
with returned goods; write-downs for excess and obsolete inventory; and amortization expense of certain acquired intangibles. We outsource our
manufacturing, warehousing and distribution logistics. We believe this outsourcing strategy allows us to better manage our product costs and
gross margin. Our gross margin can be affected by a number of factors, including fluctuation in foreign exchange rates, sales returns, changes in
net revenues due to changes in average selling prices, end-
user customer rebates and other sales incentives, and changes in our cost of goods sold
due to fluctuations in prices paid for components, net of vendor rebates, warranty and overhead costs, inbound freight, conversion costs, and
charges for excess or obsolete inventory.
2009 Cost of Revenue and Gross Margin Compared to 2008 Cost of Revenue and Gross Margin
Cost of revenue decreased $22.1 million, or 4.4%, to $480.2 million for the year ended December 31, 2009, from $502.3 million for the
year ended December 31, 2008. Our gross margin decreased to 30.1% for the year ended December 31, 2009, from 32.4% for the year ended
December 31, 2008.
The decrease in gross margin was primarily attributable to the impact of a relatively stronger U.S. dollar on our foreign currency
denominated revenues. Gross margins were also impacted by sales declines of our switch products as well as supply constraints late in the year
which resulted in the use of higher cost air freight expense to acquire inventory levels sufficient to support increased demand. These margin
decreases were partially offset by our increased focus on reducing sales incentives that impact net revenue.
2008 Cost of Revenue and Gross Margin Compared to 2007 Cost of Revenue and Gross Margin
Cost of revenue increased $17.1 million, or 3.5%, to $502.3 million for the year ended December 31, 2008, from $485.2 million for the
year ended December 31, 2007. Our gross margin decreased to 32.4% for the year ended December 31, 2008, from 33.3% for the year ended
December 31, 2007.
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Year Ended December 31,
2009
Percentage
Change
2008
Percentage
Change
2007
(In thousands, except percentage data)
Cost of revenue
$
480,195
(4.4
%)
$
502,320
3.5
%
$
485,180
Gross margin percentage
30.1
%
32.4
%
33.3
%