The following table sets forth certain financial data from the Company's consolidated statements of income since 1993, expressed in each case as a percentage of net revenues:
Year ended December 31,
| 1993 | 1994 | 1995 | 1996 | 1997 | |
| Net sales | 98.5% | 98.4% | 99.1% | 98.9% | 98.8% |
| Other revenues | 1.5 | 1.6 | 0.9 | 1.1 | 1.2 |
| Net revenues | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 |
| Cost of sales | (61.3) | (57.8) | (59.0) | (58.6) | (61.1) |
| Gross profit | 38.7 | 42.2 | 41.0 | 41.4 | 38.9 |
| Operating expenses: | |||||
| Selling, general and administrative | (14.8) | (12.9) | (11.6) | (10.2) | (11.3) |
| Research and development | (13.3) | (12.8) | (12.4) | (12.9) | (15.2) |
| Restructuring costs | (2.4) | (1.4) | (0.4) | -- | -- |
| Other income and expenses | 2.4 | 1.3 | 1.7 | 1.1 | 0.5 |
| Total operating expenses | (28.1) | (25.8) | (22.7) | (22.0) | (26.0) |
| Operating income | 10.6 | 16.4 | 18.3 | 19.4 | 12.9 |
| Net interest expenses | (1.9) | (0.8) | (0.5) | (0.3) | -- |
| Gain on disposal of investment | -- | -- | -- | 0.2 | -- |
| Income before income taxes & minority interests | 8.7 | 15.6 | 17.8 | 19.3 | 12.9 |
| Income tax expense | (0.8) | (1.9) | (3.0) | (4.2) | (2.9) |
| Income before minority interests | 7.9 | 13.7 | 14.8 | 15.1 | 10.0 |
| Minority interests | -- | -- | -- | 0.1 | 0.1 |
| Net income | 7.9% | 13.7% | 14.8% | 15.2% | 10.1% |
1997 versus 1996
The difficult market environment during 1997 resulted in a decrease in the Company's net revenues, gross profit, operating income and net income in 1997 compared to 1996. While unit volumes increased substantially in the 1997 period, average selling prices in 1997 declined compared to 1996.
Net revenues Net sales decreased 2.7%, from $4,078.3 million in 1996 to $3,969.8 million in 1997. This decrease originated from difficult market conditions for certain product families, for which supply exceeded demand and produced strong negative pressures on the Company's selling prices, while in other product families demand itself declined because of high inventories accumulated by the Company's customers in previous periods. In general, as is normal in a situation of excess capacity, memory and commodity products experienced price declines. In particular, hard disk drives were affected by decreasing prices due to increased competition both at the system and semiconductor levels and set-top boxes experienced a slowdown in sales due to inventory corrections and lower demand. The Company's unit volumes increased substantially in 1997 compared to 1996, with commodity products (which are typically more price sensitive than other products in the Company's product portfolio) constituting a higher proportion of the overall product mix. The impact of these market conditions was particularly apparent in the Asia Pacific region and Japan. In addition, since a significant part of the Company's net revenues was billed in European and Japanese currencies, the strong appreciation of the U.S. dollar during 1997 resulted in a negative impact on total net revenues when translated from local currencies into U.S. dollars. Other revenues increased from $44.1 million in 1996 to $49.4 million in 1997 due primarily to an increase in licensing revenues. Net revenues decreased 2.5%, from $4,122.4 million in 1996 to $4,019.2 million in 1997.
The Dedicated Products Group's net revenues fell 5.2% primarily as a result of price pressure and a less favorable product mix in certain major products including telecommunication, video and automotive products. Price and volume declines in computer (hard disk drives) products also contributed to the revenues decline. In January 1997, analog array products were moved from the Programmable Products Group to the Dedicated Products Group and image processing products from the Dedicated Products Group to the Programmable Products Group. Revenues for the Dedicated Products Group and the Programmable Products Group have been restated in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" for prior periods to reflect this change. The Discrete and Standard ICs Group's net revenues increased by 8.0%, as significant volume increases were partly offset by price declines in substantially all major products including standard commodities and discrete and power devices. Net revenues of the Memory Products Group declined by 3.8%, as the sales increases in smartcard ICs (used primarily in European telephone and bank cards) were more than offset by price declines in the major memory product families (such as EPROMs, flash memories and EEPROMs) and volume declines in EPROMs. The Programmable Products Group's net revenues decreased 6.9% as an improved product mix in digital semicustom devices and higher volumes in microcontroller products were more than offset by declines in sales of image processing products and price declines in certain major products.
