TiVo 2003 Annual Report Download - page 26

Table of Contents
Costs of hardware revenues include all product costs and direct costs associated with the TiVo-enabled DVRs we distribute and sell, including
manufacturing-related overhead and personnel expenses, warranty expenses, certain licensing expenses, and order fulfillment expenses such as shipping costs.
We engage a contract manufacturer to build TiVo-enabled DVRs. We do this to enable our service revenues and, as a result, do not intend to generate
significant gross margins from these hardware sales. Cost of hardware revenues are driven by a variety of factors related to inventory and channel
management. Cost of hardware revenues for the fiscal year ended January 31, 2004 increased 68% as compared to the prior fiscal year due to a higher volume
of manufactured TiVo-enabled DVRs and related licensing expenses.
Research and development expenses.
Fiscal Year Ended January 31,
2004
2003 2002
(In thousands, except percentages)
Research and development expenses $ 22,167 $ 20,714 $ 27,205
Change from prior fiscal year 7% -24% 9%
Percentage of net revenues 16% 22% NM
Our research and development expenses consist primarily of employee salaries, related expenses, and consulting fees. Research and development
expenses for the fiscal year ended January 31, 2004 increased over the prior fiscal year primarily due to increased salary expenses related to an increase in
engineering regular headcount of 49 employees. Research and development expenses decreased for the fiscal year ended January 31, 2003 from the fiscal year
ended January 31, 2002 due to the redeployment of engineers from research and development activities to engineering professional services activities, which
were classified as costs of technology revenues.
Sales and marketing expenses.
Sales and marketing expenses consist primarily of employee salaries and related expenses, media advertising, public relations activities, special
promotions, trade shows, and the production of product related items, including collateral and videos. Sales and marketing expenses also include sales and
marketing—related parties expense. These expenses consist of cash and non-cash charges related primarily to agreements with parties that held stock in us.
Fiscal Year Ended January 31,
2004
2003 2002
(In thousands, except percentages)
Sales and marketing expenses $ 18,947 $ 48,117 $ 104,897
Change from prior fiscal year -61% -54% -31%
Percentage of net revenues 13% 50% NM
• Sales and marketing expenses (not including related parties).
Fiscal Year Ended January 31,
2004
2003 2002
(In thousands, except percentages)
Sales and marketing expenses $ 11,255 $ 17,629 $ 29,065
Change from prior fiscal year -36% -39% -70%
Percentage of net revenues 8% 18% NM
The largest contributor to the reduction of sales and marketing expenses for the fiscal year 2004 was non-related party subsidy expense that decreased
$3.8 million from the prior fiscal year. This marketing commitment ended prior to the three months ended April 30, 2003. Additionally, for the fiscal year
ended January 31, 2004 as compared to the prior fiscal year, partner co-marketing expenses decreased by $2.1 million due to decreased activity.
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