There was a drop in flash memory prices in the quarter, with a precipitous drop in prices at the end of the quarter. This had a significant adverse effect on our sales in the quarter, and resulted in lower revenues, lower gross margins and inventory write-downs in the period.
We are examining each of our product categories to determine how we can improve revenues, return gross margins to 20% percent or higher, and reduce operating expenses as we target a return to profitability in the second half of the calendar year.
Even though we increased overall revenues 50 percent year-over-year, the lower-than-expected selling prices for MP3 players and the inventory write-down negatively impacted gross margins.