TiVo 2009 Annual Report Download - page 62

Table of Contents
Hardware gross margin loss for the fiscal year ended January 31, 2010 increased by $1.4 million as compared to the same prior year period largely
based on the lower number of standard definition DVRs sold during the fiscal year ended January 31, 2010, as compared to the same prior year period. This
resulted in less of a recognized benefit from utilization of previously impaired standard definition inventory of $1.5 million, as compared $4.9 million in the
prior year period. In the fiscal year ending January 31, 2011, we expect improvements in cost of hardware as the cost to produce our new TiVo Premiere
boxes are lower than our previous HD DVR offerings and we expect this to positively benefit subscription acquisition costs.
During the fiscal year ended January 31, 2009 we sold approximately 71,000 fewer TiVo DVR's as compared to the prior fiscal year and hardware
gross margin loss improved by $33.6 million, as compared to the prior fiscal year largely due to the mix of products sold during the year. Additionally
impacting the gross margin improvement was the utilization of previously reserved inventory of $4.9 million compared to the $5.9 million inventory charge
during the fiscal year ended January 31, 2008 which was compounded by a barter transaction we entered into exchanging TiVo Series2TM standard definition
DVR inventory with a net book value of $2.8 million for barter credits. The barter credits were valued at the fair value of the inventory exchanged, which was
determined to be $1.8 million, which resulted in an additional negative $1.0 million hardware gross margin.
Also, during the fiscal year ended January 31, 2009 we received a higher average selling price per DVR as compared to the fiscal year ended
January 31, 2008, due to the introduction of our TiVo HD DVR at the end of the quarter ended July 31, 2007, which had a higher relative margin as compared
to our TiVo Series2TM DVR. Our rebates and revenue share costs, which are netted against our hardware revenues, also declined during the year as we
currently offer no rebates on our TiVo HD DVR and we terminated our other rebate programs on August 30, 2008. Although we continue to offer revenue
share and other hardware subsidies to certain retailers, our direct sales for our HD DVR involve no hardware subsidies. As a result of these items, the
hardware gross margin loss for the fiscal year ended January 31, 2009 decreased by approximately 67%.
Research and development expenses.
Twelve Months Ended January 31,
2010 2009 2008
(In thousands, except percentages)
Research and development expenses $ 63,039 $ 62,083 $ 58,780
Change from same prior year period 2% 6% 16%
Percentage of net revenues 27% 25% 22%
Our research and development expenses consist primarily of employee salaries, related expenses, and consulting expenses. The increase in research and
development expenses of $956,000 for the fiscal year ended January 31, 2010 was largely related to increased headcount and headcount related costs of $7.2
million offset by an increased allocation to cost of technology revenues of $6.3 million for utilization of our engineering staff on development projects
generating technology revenues. For the fiscal year ending January 31, 2011 we expect to increase our research and development spending as we believe that
investments in research and development are critical to remaining competitive and being a leader in advanced television solutions beyond the DVR.
The increase of $3.3 million in the fiscal year ended January 31, 2009 as compared to the fiscal year ended January 31, 2008 was largely related to
lower utilization of our engineering staff on development projects generating technology revenues resulting in lower allocations of research and development
expense to cost of technology revenues.
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