Dolby Holds to PC Projections On Expected Windows 8 Optical Disc Penetration
Dolby Labs doesn’t see a dual-format scenario playing out in the mobile streaming content space as it has in the DVD/Blu-ray category with Dolby and DTS, Ramzi Haidamus, executive vice president, sales and marketing, said on the company’s fiscal Q1 earnings call late Tuesday. Dolby is currently in “100 percent of all content delivery services,” and the company is “confident that we are providing the content delivery companies with everything they need,” Haidamus said. He called the “value proposition” Dolby offers content creators, distributors and playback device makers “complete” and added, “We frankly don’t see a reason why there would be a second offering at this point."
CEO Kevin Yeaman said Dolby is focused on boosting the amount of Dolby-enabled content available to mobile devices. He cited current wins including Netflix Dolby-enabled content in “certain Windows 8 devices” and the selection of Dolby Digital Plus by Sony, Universal and Warner Bros. for their UltraViolet libraries. And Dolby will continue to bank on mobile devices to offset “uncertainties” in legacy hardware markets, executives said. Dolby technology is in a quarter of Android tablets and smartphones, including the Galaxy S3 and new models from Huawei and ZTE, Yeaman said, and in all Windows 8-based tablets and Nokia’s Lumia 920 smartphone. Dolby will see its first revenue from Kindle Fire in fiscal Q2 and is looking at growth from that device as Amazon expands internationally, Yeaman said.
In the PC segment, Dolby is still “running with assumptions for now” that 80 percent of Windows 8 PCs shipping this year will include optical disc drives, although optical drives aren’t a required feature of the Windows 8 PC platform, Chief Financial Officer Lewis Chew noted. Early on in the Windows 8 cycle, “it’s too early to make any refinements” to the estimates, Chew said, because Dolby in the past recognized revenue when Microsoft shipped its certificates directly into the channel and now Dolby is getting paid directly from the OEMs when the PCs ship. Dolby will receive a royalty on all Windows 8 machines that ship -- “if people properly report” -- Chew said, and gets added royalties on step-up fees for upgrades such as DVD playback. The royalty rates that Dolby receives for full optical playback and decoding from any source are consistent with rates Dolby historically received in the PC market, Chew said. With Windows 8 there’s a lower rate for non-optical playback without optical discs, he said.
In Dolby’s fiscal Q1 2013, ended Dec. 28, PC revenue represented 29 percent of licensing, up 11 percent sequentially due to seasonality from back-to-school sales and was flat over the year-ago quarter, Chew said. For Q2, Dolby projects a drop in licensing revenue due to “softness” in the PC market. The last time Dolby issued guidance for PCs, it forecast “flattish to up slightly” based on market research reports that were up slightly for the fiscal year, Chew said. Now research indicates the total available market for PCs will be down about 4 percent for the year, “so we've adjusted our full-year guidance to reflect that new TAM [total addressable market] along with obviously the 50 other factors that affect our revenues outlook,” Chew said.
CE revenue in Dolby’s fiscal Q1 made up 17 percent of licensing, a 13 percent improvement over fiscal Q4 but down 12 percent year-over-year on market softness, Chew said. Mobile device revenues were 11 percent of licensing revenue in Q1, down 9 percent sequentially on timing of payments due to specific customer contracts but up 35 percent over fiscal Q1 2012 due to higher total available market and attach rates, he said. Revenues in Dolby’s other markets, including gaming and automotive, comprised 10 percent of total licensing revenues for the quarter, up 12 percent sequentially due to seasonally higher unit volume in gaming but down 12 percent year over year, also due to gaming, he said.
For fiscal Q1 2013, Dolby reported revenue of $236.6 million, compared with $234.2 million in the year-ago quarter. Net income was $51.3 million, or $0.50 per diluted share, compared to $73.2 million, or $0.67 per diluted share in Q1 2012, it said. Dolby shares ended up 2.4 percent Wednesday to $32.51.