Dolby Cuts Full-Year Revenue Guidance Amid Market Uncertainty
Dolby lowered its full-year fiscal 2022 guidance due to uncertainty in the macroeconomic environment, primarily for the mobile, broadcast and PC markets, said Chief Financial Officer Robert Park on the company’s Tuesday earnings call. The latest full-year revenue guidance is for a “flat” range of $1.27 billion-$1.3 billion, he said, with revenue guidance of $295 million-$325 million for Q4. Revenue for Q3 ended July 1 was up 1% to $289.6 million, at the low end of guidance. Shares closed 4.73% higher Wednesday at $79.08.
The company previously lowered full-year fiscal 2022 guidance on its May earnings call to $1.3 billion-$1.35 billion on lower estimated TV, gaming and automotive shipments (see 2205060041). On what’s changed since then, CEO Kevin Yeaman said, “Last quarter, we saw that TV shipments and gaming console shipments were looking to be lower than we thought coming into the year. We've seen a little more of that with TVs, but now this quarter, we also see it for PCs.”
Driving the downgraded forecast were revised estimates for uncertainty over how many consumer devices are going to ship in the second half amid inflation and other headwinds, COVID-19 restrictions and supply chain issues, plus longer transaction cycles on some deals in the mobile business, said Yeaman. Dolby’s foundational audio business -- which is more sensitive to macroeconomic headwinds -- is expected to be down over 10% year on year in Q4, he said; the company also expects lower unit PC shipments.
Dolby hasn’t been able to send anyone from its San Francisco headquarters to China for three years, Yeaman noted. That affected the number of deals in the pipeline that the company thinks it’s going to close. Though the company anticipates a lower close rate in Q4, it sees long-term growth drivers in mobile, including Dolby Vision capture. He called the capture feature “compelling” and one that drives adoption both of Vision capture and playback for social media users who don’t have Vision at all.
Newer technologies in its growth business -- Dolby Atmos and Vision, plus imaging patents -- are less sensitive to macroeconomic impact, though “not immune,” Yeaman said. Dolby expects 35% year-on-year growth in those technologies. The company is focusing on extending its presence with Atmos and Vision into music, mobile media content, gaming and live sports “because it's becoming a part of the experiences that creators and consumers care about the most and that they engage with most frequently,” he said.
Q2 highlights included Xiaomi’s announcement that its 12S smartphone series is the first Android phone capable of recording video in Dolby Vision. The company also said Dolby Atmos Music is now available on Tencent Music’s QQ Music in China, one of the top five global streaming services and the first Chinese streamer to support Atmos, plus Melon in South Korea. China-based Li Auto announced its first vehicle supporting Dolby Atmos, and the UEFA Champions League Final was broadcast live in Dolby Atmos and Dolby Vision on Canal+ during the quarter.
This quarter, Dolby Live, which had been delayed, is up and running at the MGM in Las Vegas with artists performing in Dolby Atmos, Yeaman noted, saying Usher has a 24-show run on the schedule. The company hopes consumers who hear music in Atmos will “seek to enjoy their music that way all the time.” Dolby is “100% focused on making Dolby Atmos successful in the car,” Yeaman said, saying there’s more opportunity there because “the future of cars is evolving toward even more immersive experiences.”
Rosenblatt Securities analyst Steven Frankel said in a Wednesday investor note that Dolby’s ecosystem “should drive further penetration of Vision and Atmos, raising the royalty per device.” The company’s “dominant market position, high margins and consistent cash flow present an excellent safe harbor in turbulent seas,” he said.