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TV, PCs Lead Declines

Dolby Q4 Revenue Slides 2% on Lower Legacy Audio Shipments

Dolby Q4 FY 2022 revenue was below expectations, slipping 2% year on year to $278.2 million for the period ended Sept. 30 due to a “challenging environment,” said CEO Kevin Yeaman on a Thursday earnings call. “We’re planning for it to continue to be a tough environment in the near term,” he said. Dolby guided to revenue of $295 million-$325 million on its August earnings call.

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Lower shipments in PC, broadcast, CE and gaming contributed to results, “with the world still dealing with COVID-19, supply chain imbalances, geopolitical instability, high inflation and spending cutbacks," said Chief Financial Officer Robert Park. Full-year sales were $1.25 billion, down from $1.28 billion a year ago, and short of the $1.27 billion-$1.3 billion guidance the company gave on the Q3 FY ’22 call. For FY 2023, Dolby projects low-single-digit revenue growth, Park said. Q1,revenue guidance is $300 million-$330 million.

Park cited further declines in CE device shipments vs. expectations, “especially for TVs and PCs." Transaction cycles in Asia and within mobile are extending longer, a trend that also affected Q4 sales, he said. Partners are “actively engaged,” but transactions are taking longer to close, Park said.

Foundational audio was about 70% of Dolby’s licensing revenue in the year, and the category was 15% lower than 2021, Park said, noting a “tough comp” against a higher-than-normal prior year for the segment. Mobile revenue dropped 9% year on year, he said. A higher box office boosted Dolby Cinema receipts, he said.

Dolby Atmos, Vision and imaging patent licensing revenue was about 30% of overall licensing revenue and grew 30% vs. 2021 on higher adoption and new licensees, Park said. Yeaman referenced the movie and TV content ecosystem for Dolby Vision and Atmos as one with “a lot of scale.” In the automotive business, three of the top five streaming music services license Dolby Atmos Music, he said. The company is targeting 15%-25% growth in Dolby Vision, Dolby Atmos, and imaging patents, driven by growth in broadcast, mobile and other markets, Park said.

Dolby isn’t seeing a slowdown in “people wanting to adopt,” said Yeaman, saying price isn’t the cause for revenue declines. “It's just an environment where everybody is affected by this, in some way, shape or form, and that can affect the time it takes to get transaction cycles done,” he said. He noted the licensing business is based on unit shipments.

The Dolby.io business isn’t big enough to be highlighted as a growth segment, Yeaman said, but it's “contributing and growing.” Dolby.io is “where the future is going in terms of these really immersive virtual experiences,” he said.

“Clearly Dolby cannot escape the macro headwinds that are likely to slow device shipments for the next several quarters,” Rosenblatt Securities analyst Steven Frankel wrote investors Thursday. He noted Dolby “continues to expand the availability of Atmos & Vision enabled content” in film, TV, live sports, gaming and user-generated content, which drives demand for Atmos and Vision-enabled devices.