Below is an excerpt from Dell’s Management Discussion and Analysis from the 10K for the year ended 1/28/2005:
Gross margin as a percentage of net revenue improved slightly to 18.3% during fiscal 2005, compared to 18.2% fiscal 2004 and 17.9% in fiscal 2003. The year- over-year improvement in fiscal 2005 and 2004 was primarily driven by Dell’s continued cost savings initiatives. During fiscal 2005, component costs continued to decline at a moderate pace that was relatively comparable to fiscal 2004. Management utilized these cost declines to balance profitable growth while passing on cost savings to its customers. Management expects the component cost environment to continue to be favorable during the first quarter of fiscal 2006. As part of management’s focus on improving margins, Dell remains committed to reducing costs through four primary cost-reduction initiatives: manufacturing costs, warranty costs, structural or design costs, and overhead or operating expenses.

Required
Compare your gross margin percentage calculations in Problem 8 to the statistics cited in the MD&A. Does the MD&A help you understand why the gross margin percentage changed between fiscal 2005 and fiscal 2004? In your own words (which may be much clearer than the verbiage in the MD&A), summarize what happened.