Dolby Continues On Diversification Path as PC and CE Revenues Shrink

"Significant headwinds” in CE and PCs contributed to a $21 million profit drop at Dolby Labs, said CEO Kevin Yeaman, on Dolby’s fiscal Q3 earnings call Thursday. Net income fell to $30.2 million, from $51.5 million in the year-ago quarter, while revenue dipped to $207.1 million from $210.3 million in fiscal Q3 2012, it said. Dolby now projects total revenue for fiscal year 2013 will be $900-910 million, down from earlier forecasts of $910-940 million, due to “current weakness in consumer spending” and the digital cinema adoption cycle, said Chief Financial Officer Lewis Chew.

Dolby is expanding its presence in mobile devices and broadcast markets worldwide to diversify its revenue base, Yeaman said. The company continues to “gain traction” in bringing new solutions to market -- including Dolby Voice, scheduled to launch in Q4 for the audio conferencing market -- and Dolby 3D, a glasses-free 3D solution, which Yeaman called “the best way forward for 3D consumption” in the home. Products with Dolby 3D will be shown at CES in January, he said. The new solutions give the company “confidence that we can return to long-term growth,” he said.

Dolby’s licensing revenue was down sequentially $41.8 million from Q2 but up $3.8 million from the year-ago quarter on growth in the company’s mobile and broadcast businesses, Chew said. PC revenue, about 22 percent of total licensing for Dolby in Q3, plummeted 25 percent year-over-year due to “declining unit trends” in the market, Chew said. He said the “noticeably larger” decline versus the overall market was partially due to timing between quarters and other factors. Consumer electronics revenue in Q3 was roughly 15 percent of total licensing, down 12 percent year-over-year, Chew said, also on lower unit volume trends in the market.

Mobile device revenue, representing 12 percent of total licensing revenue, was up 80 percent year-over-year, partially due to higher market volume of smartphones and increased revenue from tablets, Chew said. To date, Dolby has concentrated largely on higher-end smartphones, and now the company is beginning to penetrate mid- and lower-tier devices, Yeaman said, allowing Dolby to build up a “very significant position” with roughly a quarter penetration in the Android market. Dolby is just beginning to penetrate the Windows Phone market, he said.

Gaming and automotive, which contributed about 13 percent of licensing revenue in Q3, was up 25 percent over Q3 2012 due to a one-time license for use of imaging technologies and applications outside of Dolby’s typical core markets, Chew said. Dolby’s broadcast business was 38 percent of total Dolby licensing revenue in Q3, up 10 percent from the year-ago quarter due to higher attach rates for set-top boxes, Chew said. Dolby shares closed 3.4 percent lower Friday at $33.02.