Plantronics 2006 Annual Report Download - page 58

our new product lines. Both domestic and international revenues were up, resulting, in part, from
increased demand for headsets for mobile phones and wireless headsets for the office, as well as from the
favorable effects of foreign exchange rates on international revenues. The increase in our office and
contact center net revenues was linked to the continued success of our CS50, CS60 and the SupraPlus˛
headsets. The increase in net revenues of our gaming and computer products was primarily attributable to
shipments of our Halo 2 headset for the Xbox˛ and revenues from headsets for VoIP applications. Mobile
product net revenues saw strong growth with the MX150 and Bluetooth related products. The increases
were primarily attributable to two factors: one, in the U.S. wireless carrier market, we participated in
promotional bundles which were offered by wireless carriers; and two, increased demand for Bluetooth
enabled headsets, particularly in Europe where this technology has greater market acceptance than in the
U.S. market. Net revenues from our specialty products, which are principally our Clarity products
marketed for hearing impaired individuals, grew primarily from sales of new product models, wireless
products and increased distribution through our retail channels.
International revenues for fiscal 2005 were favorably affected by the continued strengthening of the
European exchange rates against the U.S. dollar, sales of our CS60 product, and sales related to VoIP
applications and Bluetooth.
Gross Profit
Audio Communications Group
Fiscal Year Ended Fiscal Year Ended
March 31, March 31, Increase March 31, March 31, Increase
($ in thousands) 2004 2005 (Decrease) 2005 2006 (Decrease)
Audio Communications Group
Net revenues $416,965 $559,995 $143,030 34.3% $559,995 $629,725 $69,730 12.5%
Cost of revenues 200,995 271,537 70,542 35.1% 271,537 340,437 68,900 25.4%
Segment Gross profit $215,970 $288,458 $ 72,488 33.6% $288,458 $289,288 $ 830 0.3%
Segment Gross profit % 51.8% 51.5% (0.3) ppt. 51.5% 45.9% (5.6) ppt.
In comparison to fiscal 2005, gross profit as a percent of revenues decreased 5.6 percentage points in fiscal
2006. This decrease was primarily due to higher manufacturing costs due to the following:
)an increase in capacity in our production facilities in Suzhou, China and Tijuana, Mexico in
preparation for anticipated future demand. During fiscal 2006, we constructed a new manufac-
turing and design center in Suzhou. Full utilization of our new facility in China is expected to be
achieved late in fiscal 2007. While net revenues are up year over year, production volume in the
facility in Mexico is down, as a result of the changing mix of products from lower cost corded
products to higher cost wireless products;
)on new products, the yield has been below and unit costs have been above our targeted levels,
and we incurred higher scrap costs due to new product launches, further contributing to the
decline in gross profit;
)requirements for excess and obsolete inventory increased due to unanticipated shifts in demand,
and the cost of our warranty obligations was higher due in part to higher revenues and in part, to
an increase in consumer products which have a higher rate of return under warranty;
)a product mix shift toward consumer products coupled with continued pricing pressure,
especially on consumer Bluetooth headsets, which resulted in less favorable margins; and
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