Plantronics 2008 Annual Report Download - page 11

5
AUDIO ENTERTAINMENT GROUP
General Industry Background
AEG operates predominantly in the consumer electronics market and focuses on the design, manufacture and distribution of a wide
range of products, such as docking audio systems, multimedia speakers, headphones, and other audio products. Our AEG segment
targets advanced audio solutions for one of the fastest growing sectors of the consumer electronics industry, including personal
computers, video gaming, personal audio, MP3 players and home theater. We offer our products primarily under two brands – Altec
Lansing®and inMotionTM.
The consumer electronics market is undergoing a significant transformation where, as a result of digital technology and increased
availability of digital content, a variety of once isolated segments, including televisions, DVD players, stereos, CD players, cameras
and PCs are converging to create the need for new network devices. This change is driving the demand for new high-end, flexible
digital solutions in home theater, video gaming and personal audio. Higher portability, connectivity and wireless technology are other
industry trends, especially in the mobile markets, that require high-end audio solutions. Our success in this market will depend on our
ability to develop and provide innovative solutions that maximize the audio functions of devices such as MP3 players, Apple iPod,
satellite radio and cellular players. To this end, the inMotionTM product line provides a portable audio system for MP3 players, CDs,
and other portable audio players, including the iPod. The major manufacturers in this changing and demanding industry require certain
key competencies, which are:
· leadership in innovation;
· a powerful brand; and
· global distribution.
Because our AEG products are primarily consumer goods sold in the retail channel, the holiday sales in the December quarter account
for a seasonal spike in net revenues.
In fiscal 2008, our AEG product portfolio was not sufficiently competitive which resulted in lost market share and profitability. This
is the key factor affecting revenue as well as gross margin for our AEG segment and the Company as a whole. While some new
products, such as the iM600, began shipping and are being well received, the portfolio as a whole needs to be substantially
refreshed. The AEG Docking Audio product line faced the most severe competition and declined the most in terms of revenue, while
the PC Audio line experienced a smaller decline.
Markets
Docking Audio
Our Docking Audio market provides the largest revenue source in the AEG business, and includes all speakers whether AC or battery-
powered that work with portable digital players, such as iPod or MP3 players under the inMotionTM brand, and also portable speakers
for use with other audio solutions such as for satellite radios. We believe there is a significant growth opportunity for us driven by the
growth of the MP3 player and cellular markets. Our future growth in this market depends on the growth of the MP3 player market,
our ability to successfully attach to new generations of MP3 players, and to design and develop competitively priced products that
keep up with this rapidly developing and highly competitive market.
PC Audio
Our second largest overall market in the AEG business in terms of revenue is the PC Audio market, first identified with the PC-
speaker. PC Audio, or “active powered” products are defined as self-powered speaker systems used for computers and other multi-
media application systems. Typical applications of PC Audio products include PC audio, gaming and home theater. We believe there
are opportunities for this market to grow if:
· we continue efforts to maintain our strength in this category, domestically, while expanding into international markets; and
· introduce new products that incorporate breakthrough technologies and designs.