iRobot 2011 Annual Report Download - page 56

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Form 10-K
Manufacturing a new product requires a close relationship between our product designers and the
manufacturing organizations. Using multiple engineering techniques, our products are introduced to the selected
production facility at an early-development stage and the feedback provided by manufacturing is incorporated
into the design before tooling is finalized and mass production begins. As a result, we believe that we can
significantly reduce the time required to move a product from its design phase to mass production deliveries,
with improved quality and yields.
We outsource the manufacturing of our consumer products to three contract manufacturers, each of which
manufactures at a single plant in China. Our PackBot, Small Unmanned Ground Vehicle (SUGV) and Maritime
families of government and industrial products are each manufactured by separate contract manufacturers located
in the United States.
Research and Development
We believe that our future success depends upon our ability to continue to develop new products and
product accessories, and enhancements to and applications for our existing products. For the years ended
December 31, 2011, January 1, 2011 and January 2, 2010, our research and development expenses were
$36.5 million, $24.8 million and $14.7 million, respectively. In addition to our internal research and development
activities, for the years ended December 31, 2011, January 1, 2011 and January 2, 2010, we have incurred
research and development expenses under funded development arrangements with governments and industrial
third parties of $26.5 million, $27.1 million and $30.8 million, respectively. Of our total research and
development spending in 2011, 2010 and 2009, approximately 40.2%, 50.4% and 63.9%, respectively was
funded by government-sponsored research and development contracts. For the years ended December 31, 2011,
January 1, 2011 and January 2, 2010, the combined investment in future technologies, classified as cost of
revenue and research and development expense, was $63.0 million, $51.9 million and $45.5 million, respectively.
We intend to continue our investment in research and development to respond to and anticipate customer needs,
and to enable us to introduce new products over the next few years that will continue to address our existing and
adjacent market sectors.
Our research and development is conducted by teams dedicated to particular projects. Our domestic research
and development efforts are primarily located at our headquarters in Bedford, Massachusetts, our office in
Durham, North Carolina, and our special projects engineering office in San Luis Obispo, California.
Our research and development efforts for our next-generation products are supported by a variety of
sources. Our next-generation military products are predominately supported by U.S. governmental research
organizations. Government funding is provided to further the development of robot technologies with the
expectation that if the projects result in the development of technically viable prototypes, the government will
purchase multiple production units for future use in the field. The government funding that we receive allows us
to accelerate the development of multiple technologies. While the U.S. government retains certain rights to
military projects that it has funded, such as the right to use inventions and disclose technical data relating to those
projects without constraining the recipient’s use of that data, we retain ownership of patents and know-how and
are generally free to develop other commercial products, both consumer and industrial, utilizing the technologies
developed during these projects. The rights which the government retains, however, may allow it to provide use
of patent rights and know-how to others, and some of the know-how might be used by these third parties for their
own development of consumer and industrial products. Similarly, expertise developed while designing consumer
products is used in designing products for government and industrial applications. We also work with strategic
collaborators to develop industry-specific technologies.
Competition
The market for robots is highly competitive, rapidly evolving and subject to changing technologies, shifting
customer needs and expectations and the likely increased introduction of new products. We believe that a number
of established companies have developed or are developing robots that will compete directly with our product
offerings, and many of our competitors have significantly more financial and other resources than we possess.
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