23 The  Connectivity  segment represents our  subsidiary Dialog Semiconductor B.V. (Dialog  B.V.), which we acquired on 10 February 2011, therefore its results are consolidated from this date (see note 4 to the consolidated  financial statements). Revenue from our  Connectivity  segment in 2012  was US$96.1 million (2011: US$108.8 million).  In 2012, the  Connectivity  segment contributed  an operating loss of US$13.1 million, compared  to an operating profit of US$4.9 million for 2011.  The decrease in revenue can be mainly attributed  to the overall softening in the cordless DECT  market, driven by unfavourable macroeconomics  – especially in Europe – but also by the  Company’s strategy to not take market share at  low margin whilst it refocuses R&D investments  to address new applications and markets. Had the Connectivity business been consolidated  from the beginning of 2011, the total revenue in 2011 would have been US$120.2 million,  US$24.1 million above the US$96.1 million  achieved in 2012. The operating profit would  have been US$3.6 million, US$16.7 million above  the operating loss of US$13.1 million in 2012.  The revenue decrease translates into a reduction  of the operating income of approximately  US$9.5 million. During 2012, further adverse effects impacted  connectivity; inventory write-downs and  revaluations of US$2.0 million (2011: US$0.2 million); a one-time expense of about  US$0.9 million related to the transfer of certain  legacy connectivity products to a new assembly  site which will lead to further cost improvements  once the transfer is completed in Q1 2013 (2011:  nil), restructuring expenses of US$1.5 million  (2011: nil) – please see explanation here below  under “restructuring expenses” – increased  outsourced R&D expenses of US$1.7 million  compared to 2011 to accelerate the development  of new products, government grants for R&D  activities received were US$0.4 million lower  than in 2011, capitalised R&D and overhead  expenses reduced by US$1.0 million compared  to 2011 and US$0.4 million of overhead cost  associated with the Company’s share option  programme were allocated to Connectivity  (2011: nil) – this amount related mainly to  National Insurance provisions for UK-based  employees, associated to share options that had to be provided for by the Company. On the other hand, during 2012, other favourable  effects were recorded: the operating loss in 2012  included an amortisation expense resulting from  fair value adjustments in connection with the  purchase price allocation of US$5.6 million  (2011 US$6.0 million). 2012 also included  For the most part of 2012, gross margins  remained under pressure due to the reasons  described above and the continuous supply  constraints, which inhibited expected cost  reductions from suppliers. However, during the course of 2012, our gross  margin improved quarter on quarter to peak at 38.5% of revenues in Q4 2012. Our gross margin decreased from 39.5% of  revenue in 2011 to 37.8% in 2012. This was  due to higher cost of sales as a percentage of revenue, as described above.  As a percentage of revenue, cost of sales  increased from 60.5% in 2011 to 62.2% in  2012. This increase can largely be attributed to  the product mix, which reflects higher volume  customer contracts together with higher material  costs against the backdrop of an ongoing  constrained supply chain environment.  Additionally, very high volume ramps of new  products using new manufacturing processes,  introduced early last year, continued to drive  lower yields through 2012 although measurable  improvements were already visible in the second  half of 2012. Cost of sales consists of material costs, the costs of outsourced production and assembly,  related personnel costs and applicable overhead  and depreciation of test and other equipment.  Cost of sales for the period ended 31 December  2012 was up 50.7% at US$481.0 million (2011: US$319.1 million). The increase in cost of sales was mostly in line with the increase in  production volume.  Total revenues for 2012 were up 46.7% at  US$773.6 million (2011: US$527.3 million. The  increase in revenue is mainly a result of higher  sales volumes in our  Mobile Systems  segment. For further information please refer to notes 4  and 24 to the consolidated financial statements.  US$0.6 million (2011: US$2.7 million) for the  accelerated amortisation of intangible assets in  relation to previously capitalised R&D expenses  for close to end of life products (these products  were fully amortised by the end of Q1 2012) and  finally 2011 benefited from a first-time inventory  overhead capitalisation of US$0.5 million to align  the local accounting procedures to those of the  Group. Furthermore, in 2012 the underlying 1) operational loss in 2012 was US$6.3 million,  compared to a profit of US$16.8 million in 2011 Revenues Cost of sales Gross profit Selling and marketing expenses General and administrative expenses Selling and marketing expenses consist primarily  of salaries, sales commissions, travel expenses,  advertising and other marketing costs. In line  with our increased sales volume and continuous  growth of our business, selling and marketing  expenses increased from US$32.4 million in  2011 to US$38.7 million in 2012. As a percentage  of total revenue, selling and marketing expenses  decreased from 6.1% of total revenue in 2011  to 5.0% in 2012, demonstrating the Company’s  ability to control cost.  General and administrative expenses consist  primarily of personnel and support costs for our  finance, human resources and other management  departments and in 2011 the acquisition-related  costs in connection with the purchase of SiTel.  General and administrative expenses for 2012  were up 37.0% at US$33.5 million (2011: US$24.4 million). General and administrative  expenses as a percentage of total revenue  decreased from 4.6% in 2011 to 4.3% in 2012.  Revenue  (US$m) 800 600 400 200 0 2011 2012 70 60 50 40 30 20 10 0 2011 2012 Cost of sales  ( as % of revenue)