the 2009 Annual Report (pdf) - PLX Technology

continue indefinitely. The high turns fill orders pattern, together with the uncertainty of product mix and pricing,
makes it difficult to predict future levels of sales and profitability and may require us to carry higher levels of
inventory.
Gross Margin. Gross margin represents net revenues less the cost of revenues. Cost of revenues primarily
includes the cost of (1) purchasing semiconductor devices from our independent foundries, (2) packaging, assembly
and test services from our independent foundries, assembly contractors and test contractors and (3) our operating
costs associated with the procurement, storage and shipment of products as allocated to production.
Years Ended December 31,
2009 2008 2007
in thousands
Gross profit…………………………………………… $ 46,932 $ 48,282 $ 49,525
Gross margin………………………………………… 56.7% 59.6% 60.6%
Gross profit for the year ended December 31, 2009 decreased by 2.8%, or $1.4 million compared to 2008. The
decrease in absolute dollars and as a percentage was primarily due to the lower margins of the Storage products
acquired in the Oxford acquisition as well as overall product mix.
Gross profit for the year ended December 31, 2008 decreased by 2.5%, or $1.2 million compared to 2007. The
decrease in absolute dollars and as a percentage was primarily due to decreased Connectivity product shipments and
increased product shipments and customer mix of our PCI Express products, which have lower margins relative to
our Connectivity products.
Future gross margin is highly dependent on the product and customer mix, provisions and sales of excess or
obsolete inventory, the position of our products in their respective life cycles and specific manufacturing costs.
Accordingly, we are not able to predict future gross profit levels or gross margins with certainty.
Research and Development Expenses. Research and development (R&D) expenses consist primarily of tape-out
costs at our independent foundries, salaries and related costs, including share-based compensation, software licenses,
and expenses for outside engineering consultants included in R&D expenses.
Years Ended December 31,
2009 2008 2007
in thousands
R&D expenses………………………………………… $ 31,387 $ 27,091 $ 24,373
As a percentage of revenues…………………………… 37.9% 33.4% 29.8%
R&D expenses increased by $4.3 million, or 15.9% in the year ended December 31, 2009 compared to 2008. The
increase in R&D in absolute dollars and as a percentage of revenue was primarily due to increases in R&D spending
on compensation and benefit expenses of $2.2 million, engineering tools of $1.8 million and office lease expenses of
$0.6 million associated with the acquisition of Oxford, partially offset by decreases in consulting expenses of $0.8
million due to the timing of projects taped-out and cost control efforts.
R&D expenses increased by $2.7 million, or 11.2% in the year ended December 31, 2008 compared to 2007. The
increase in R&D in absolute dollars and as a percentage of revenue was primarily due to increases in R&D spending
on engineering tools of $1.5 million and consulting fees of $1.2 million associated with new product designs.
We believe continued spending on research and development to develop new products is critical to our success.
In addition, we expect to increase research and development expenses in future periods as we increase new product
designs in lower geometries.
Selling, General and Administrative Expenses. Selling, general and administrative (SG&A) expenses consist
primarily of salaries and related costs, including share-based compensation, sales commissions to manufacturers’
representatives and professional fees, as well as trade show and other promotional expenses.
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