Netgear 2013 Annual Report Download - page 47

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Table of Contents
2012 vs 2011
The increase in Americas net revenue was primarily driven by our retail products and sales to our service provider customers. The decrease in
EMEA net revenue was primarily attributable to a decrease in sales of our commercial products and, to a lesser extent, a decrease in sales of our retail
products, primarily driven by a challenging economic environment in Europe. The increase in APAC net revenue was primarily attributable to increased
sales to our service provider customers.
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; third-
party software licensing fees; 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
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. The
following table presents costs of revenue and gross margin, for the periods indicated:
2013 vs 2012
Cost of revenue increased $87.7 million , or 9.9% , to $976.0 million for the year ended December 31, 2013 , from $888.4 million
for the year
ended December 31, 2012 . Our gross margin decreased to 28.7% for the year ended December 31, 2013 , from 30.2% for the year ended
December 31,
2012 .
The decrease in gross margin percentage was primarily attributable to relatively faster growth in revenue from service providers, which generally
carries lower gross margins than our other products. Sales to service providers increased as a percentage of net revenue to 40.0% in the year ended
December 31, 2013, compared to 36.1% in the year ended December 31, 2012, which was primarily attributable to our acquisition of AirCard. Also
contributing to the decrease in gross margin were increases of $4.0 million in intangibles amortization expense, primarily attributable to assets acquired
from AirCard and Arada and $3.5 million increase in freight costs, as well as $3.3 million in excess and obsolete inventory charges.
2012 vs 2011
Cost of revenue increased $76.8 million, or 9.5%, to $888.4 million for the year ended December 31, 2012, from $811.6 million for the year ended
December 31, 2011. Our gross margin decreased to 30.2% for the year ended December 31, 2012, from 31.3% for the year ended December 31, 2011.
The decrease in gross margin was primarily attributable to relatively faster growth in our revenue from service providers, which generally carries
lower gross margins than our other products. Sales to service providers increased as a percentage of net revenue to 36.1% in the year ended
December 31, 2012, compared to 31.1% in the year ended December 31, 2011.
44
Year Ended December 31,
2013
% Change
2012
% Change
2011
(In thousands, except percentage data)
Cost of revenue
$
976,018
9.9
%
$
888,368
9.5
%
$
811,572
Gross margin percentage
28.7
%
30.2
%
31.3
%