TiVo 2009 Annual Report Download - page 14

Table of Contents
Individual customers have access to an Internet-based repository for technical information and troubleshooting techniques. They also can obtain support
through other means such as the TiVo website, web forums, email, and telephone support.
We offer a manufacturer's warranty of 90 days for labor and one year for parts on the DVRs TiVo manufacturers which enable our TiVo-Owned
subscriptions. For our direct sales that include both a TiVo-Owned standalone DVR and a subscription to our service (other than product lifetime
subscriptions), we extend such manufacturer's warranty for parts only for the duration of the initial subscription which may last as long as three years. We
contract with third parties to handle warranty repair.
Research and Product Development
Our research and development efforts are focused on designing and developing the components necessary to enable the TiVo service. These activities
include hardware and software development.
Fiscal Year Ended January 31,
TiVo Inc. 2010 2009 2008
(in millions)
Research and Development Expenses $ 63.0 $ 62.1 $ 58.8
We increased the number of our regular, temporary, and part-time employees engaged in research and development by 21% from a total of 285 as of
January 31, 2009 to 345 as of January 31, 2010. While R&D headcount increased, R&D costs did not experience a proportional increase as certain R&D
headcount related costs are allocated to cost of technology revenues for utilization of our engineering staff on development projects generating technology
revenues.
Manufacturing and Supply Chain
We outsource the manufacturing of our products to third-party manufacturers. This outsourcing extends from prototyping to volume manufacturing and
includes activities such as material procurement, final assembly, test, quality control, and shipment to distribution centers. Today the majority of our products
are assembled in Mexico. Our primary distribution center is operated on an outsourced basis in Texas.
The components that make up our products are purchased from various vendors, including key suppliers such as Broadcom, which supplies system
controllers. Some of our components, including system controllers, chassis, remote controls, and certain discrete components are currently supplied by sole
source suppliers.
We often require substantial lead time to purchase components and manufacture anticipated quantities of DVRs that enable the TiVo service. This long
lead time requires us to make component purchasing and inventory decisions well in advance of our peak selling periods. We offer our individual end-users
who purchase from TiVo.com a 30-day money back guarantee. We typically do not offer a right of return or significant extended payment terms to our
retailers.
Seasonality
Sales of our DVRs and subscriptions to the TiVo service are affected by seasonality. Thus, we generate a significant number of our annual DVR sales
and new subscriptions during and immediately after the holiday shopping season with associated increases in revenue. We also incur significant increases in
expenses in the second half of the year related to hardware costs, revenue share and other payments to channel, and sales and marketing, subscription
acquisition costs in anticipation of the holiday shopping season. There is less seasonality associated with our MSOs/Broadcasters, which includes
relationships with companies such as DIRECTV and Comcast.
Competition
We believe that the principal competitive factors in the advanced television market, which includes DVRs and broadband enabled consumer electronic
devices are brand recognition and awareness, functionality, ease of use, content availability, and pricing. We currently see two primary categories of
competitors for the TiVo-Owned channel: non-TiVo DVRs offered by satellite, cable, and telecommunications operators and advanced television products
and DVRs offered by consumer electronics and software companies.
10